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Atlantic Gas Swings Keep LNG Traders Guessing

February 26, 2015



MILAN, Feb 26 (Reuters) - Atlantic natural gas markets are seeing some of the biggest price swings in years as volatile European trade, freezing U.S. weather and Brazilian demand leave tankers torn over where to sail.

The region's gas markets, each taking turns as top payer before being outbid again, have boosted consumption of shipped liquefied natural gas (LNG), triggering multiple diversions as vessels chase the best price.

Two weeks ago Europe became the world's premium gas market after a year-long demand slump in Asia, thrusting Atlantic trade into the spotlight.

A mix of Dutch production caps, supply outages and technical trading has driven European gas prices towards fresh multi-month highs as Asian prices show only meager gains, widening premiums.

In the United States a burst of Arctic cold and grid bottlenecks drove gas prices at Algonquin in New England to $25 per million British thermal units (mmBtu) on Wednesday, dwarfing European levels at $8.31 per mmBtu and Asia at $6.90.

The hefty premium has prompted London-based oil and gas major BP to divert three vessels - the British Merchant, British Innovator and British Sapphire - back towards the United States after circling the Atlantic.

The Sapphire's tortuous course shows how low shipping rates have freed up traders to pursue prices.

From Trinidad where it loaded, the vessel sailed into the south Atlantic, then backtracked thousands of kilometres attracted by surging British gas prices before making another U-turn to head for the United States.

"With charter rates at 5-year lows of around $50,000 per day, BP can afford to pick and choose the best economic destination, and despite some LNG boiling off, and being laden on the water for a few weeks, it won't suffer substantial costs as a result of low charter rates," an LNG analyst at a European utility said.

A ship broker told Reuters that more diversions to the United States are being planned.

Low hydroelectric reserves are pushing Brazil's Petrobras back into the spot LNG market for supply, making it another potential destination for diversions. The company recently bought a cargo from Swiss trader Trafigura.

The focus is on Europe, however, where the widest premium to top buyer Asia in at least five years is renewing demand for import options at Britain's Dragon terminal, in particular.

Talks for import slots spanning two years with 6-12 import slots per year at Dragon are a hedge against souring Asian demand, a source at a company conducting the deals said.

Similar discussions are taking place at France's Dunkirk and Netherlands' Gate terminals, the source said.By Oleg Vukmanovic

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