America and Asia: The changing face of global LNG markets

LNG terminal
Source: WikiCommons

Shale gas revolution in the US means that America has a lot of gas. And now it seems that most of that gas is heading towards Asia. According to Bloomberg, the US is slated to bring online 42.9 million tons a year of LNG export capacity in the next three years, with 52 percent contracted to utilities and national oil and gas companies in Japan, South Korea, India, Taiwan and Singapore.

Only last week, Chevron signed an agreement with Singapore Carbon Hydrogen Energy Pte. Ltd., a subsidiary of JOVO, for the delivery of as much as 0.5 million metric tons per annum of LNG over five years, with the first delivery expected to arrive in 2018.

“This agreement is another important step in the commercialization of Chevron’s natural gas holdings,” said Mike Wirth, executive vice president, Chevron Midstream and Development. “We are positioned to become one of the top 10 LNG suppliers in the world.”

JOVO is a privately-owned Chinese energy company. Its LNG business portfolio includes a LNG receiving terminal, tank truck operations, urban pipelines for natural gas, automobile gas refilling stations, direct industrial clients, power plant customers and exclusive management of an industrial park in South China.

Initially, Asian countries were not the first port of call for American LNG. More than half of the LNG shipments sent abroad by Cheniere, which became the first U.S. shale gas exporter in February, have gone to Argentina, Brazil and Chile, Bloomberg New Energy Finance analyst Anastacia Dialynas said. Others went to Kuwait, the United Arab Emirates, Portugal and India.

“I don’t think anybody anticipated South America to be such a big purchaser,” Dialynas said.

But now all that stands to change, not least because of the expansion of the Panama Canal.

“The Panama Canal opens an entirely new transit route for Asia, rather than going around South Africa or the Horn,” Ted Michael, an LNG analyst for energy data provider Genscape Inc., said by telephone from Boulder, Colorado. “We will see more of this in the future.”

Royal Dutch Shell commissioned tanker, Maran Gas Apollonia, carrying American shale gas from its Cheniere terminal is heading for Asia, although it is not yet clear which country will receive the cargo.

“Everybody is watching Asia because they consume so much,” said Dialynas. “It’s impressive that so many have contracted for U.S. exports.”

Demand in Asia may have as many as 550 LNG tankers a year passing through the Panama Canal from the U.S. Gulf Coast by 2021 as the recent expansion cuts shipping times and costs, according to the US Energy Information Administration.

In its analysis of the newly developing LNG trade with the US, Bloomberg points to the flexibility of the American exporters who are less rigid in terms of volume they take and where it’s shipped – unlike Australian exporters, for example, who have insisted that their LNG be delivered to a certain destination.

This also, as Dialynas points out, makes it difficult to predict where US gas will end up in the world.

With the new trade routes being formed, are we in for an LNG revolution? According to the IEA and Goldman Sachs Group Inc., gas will challenge coal at European power plants and become affordable in emerging markets, where historically prices have been high and supplies limited.

“The US clearly changed the picture,” Costanza Jacazio, a senior gas analyst with the Paris-based IEA, told Bloomberg. “It’s going basically from zero to the third-largest LNG capacity holder in the space of five years and it brings a new flexible dimension to the LNG market.”

It is not just the traditional LNG exporters that are trading the commodity. With supplies growing, some Asian nations like Japan are contracted to buy more than they can consume, leaving surpluses to be sold. Today, Japanese energy provider Osaka Gas has announced that it intends to begin selling liquefied natural gas abroad as soon as 2018.

The Japanese company is looking to sell their surplus gas to Uniper, a unit of the German E.ON., over two decades in a deal that would make Uniper responsible for shipping the fuel directly from the US Freeport terminal. As much as 800,000 tons of LNG would be supplied yearly, or one-tenth of the volume Osaka Gas handles. More than 10 million tons would be supplied over the life of the deal – Nikkei reports.

Osaka Gas in 2012 made a 20-year agreement with the Freeport LNG entitling it to 2.32 million tons of gas a year starting in 2018. The company expects to resell as much as 30 percent of that figure to other energy companies, as well as 40 percent of the LNG purchased from its shares in two Australian projects.

However, Osaka Gas is far from being alone in capitalizing on the rapidly growing supplies of LNG. According to the IEA, major traders, including names like Vitol Group, Trafigura Group, Koch Industries Inc., Gunvor Group Ltd. and Noble Group have all entered the LNG market.

As Bloomberg points out, the change will weigh on already low global LNG prices. The WGI Northeast Asia spot LNG price has averaged just $5 per million British thermal units this year, a premium of $2.83 over benchmark U.S. prices. Two years ago, the gap was about $10. The premium for U.K. futures to the U.S. narrowed by almost half to $2.17.

Last year, LNG trade reached about $120 billion, making it the second-largest commodity traded globally, surpassing iron ore, with Egypt, Jordan, Pakistan and Poland all became LNG importers last year for the first time.

Sourced from: Bloomberg, Asia Nikkei, press releases

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