Viewpoint: LNG term deals in focus amid volatile year

Spanish Market: Natural gas
29/12/21

Chinese state-owned CNOOC's recent LNG term supply deal with US supplier Venture Global marks at least the 22nd term supply agreement signed by a northeast Asian buyer this year, reflecting a growing trend among the region's LNG buyers to move away from spot transactions towards term deals.

This indicates a radical shift from just about a year earlier, when buyers shied away from long, seemingly rigid term commitments and swarmed into the spot market, which offered relatively more flexible and enticing options to meet their LNG requirements.

But the tables have turned, with buyers now looking to lock in LNG rates far more competitive than spot levels.

China's state-controlled CNOOC this month signed an agreement to receive LNG from US supplier Venture Global across 20 years, marking its first term deal with a US exporter. It likely paid around a $1.80-1.90/mn Btu premium to 115pc of the US natural gas Henry Hub price for the 2mn t/yr of LNG it will receive from the planned 24mn t/yr Plaquemines LNG project, and around a $2/mn Btu premium to 115pc of Henry Hub for the 1.5mn t/yr it will receive from the 10mn t/yr Calcasieu Pass LNG facility, market participants said. The firms did not state when deliveries under the deal will begin, but market participants expect it to be in 2023.

China leads interest in term procurement

CNOOC is not the only one. Fourteen Chinese buyers, including CNOOC, have signed a total of 20 term deals in this year alone, making up 87.5pc of the northeast Asian buyers to have done so (see chart below).

This is up from just around three Chinese consumers that signed term contracts in 2020.

Chinese consumers have heeded official calls to prioritise their term offtakes to ensure the security of supply, particularly during peak demand seasons, with exceptionally volatile spot prices this year providing the extra push to minimise risk in an increasingly unpredictable market.

But it's not just the Chinese buyers that recognise the merits of term deals. South Korea's Posco is likely in discussions with US firm Cheniere to sign a deal for 400,000 t/yr of LNG to be delivered on a fob basis across 10 years from 2025, market participants said.

And fellow South Korean independent Prism Energy is likely in talks with Russian producer Novatek to buy 500,000 t/yr of LNG across 12 years starting from late 2023 or early 2024, they added. Around 2-3 Japanese buyers are also considering signing term deals in the near future, market participants said.

Term deals signed by buyers from South Korea, Taiwan and Japan collectively accounted for around 9.1pc of the total term agreements inked by northeast Asian importers this year.

The slew of term contracts comes as spot LNG prices remain at very high levels, putting them at a wide premium to term prices.

Oil-linked term contract prices for January deliveries based on a three-month crude average (301) contract stood at $11.08/mn Btu, assuming a 14.5pc indexation to Brent and $7.64/mn Btu, assuming a 10pc indexation, on 23 December. The slope of many historical Asia-Pacific long-term contracts was pegged at around 14.5pc to Brent, but was significantly lower at 10-11pc in recent years.

These are around one-sixth to one-third of the corresponding price for spot deliveries in the same month. The ANEA price, the Argus assessment for spot LNG deliveries to northeast Asia, was assessed at $42.720/mn Btu for second-half January on 23 December. Argus was no longer assessing prices for first-half January deliveries on that day.

Sharp gains in European gas hub prices and regional winter restocking demand, coupled with bouts of supply disruptions, have supported northeast Asian spot LNG prices at levels above those in the same period the previous years.

The front half-month of the ANEA price rose to a record high of $44.980/mn Btu for second-half January deliveries on 22 December. It has since eased slightly, tracking losses in European gas hub prices, but cold weather in northeast Asia has led to expectations that further downside may be limited. The front half-month ANEA price was last assessed at $33.255/mn Btu for second-half January on 28 December.

LNG term contracts 2021 pc

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14/11/24

Singapore bunker sales jump 19.5pc in October

Singapore, 14 November (Argus) — Bunker fuel demand at the port of Singapore rose by 19.5pc on the month to 4.8mn t in October, supported by stronger enquiries from shipowners. It takes total bunker consumption at the port to 45.3mn t in the first 10 months of the year, putting Singapore on course to break last year's record high sales of 51.8mn t. The latest statistics release from the Maritime and Port Authority of Singapore (MPA) show consumption of both conventional and alternative marine fuels rose strongly last month as more ships refuelled in Singapore. Bio-bunkers and B24 demand hit a new record monthly high of 116,200t, taking the total for January-October to 586,500t. Consumption has already exceeded last year's 518,000t, driven by shipping emissions compliance requirements set by the EU and IMO. Demand for B24 is expected to steadily rise in the coming months ahead of the implementation of the FuelEU regulations from January 2025. Demand for LNG as a marine fuel at the port of Singapore increased by 37pc from September to 50,600t in October, which was also a new record high for monthly consumption. "In general, we are seeing bigger enquiries in the last month or so," said a London-based trader. Sales of very low sulphur fuel oil (VLSFO) in Singapore rose by 11.8pc from September to 2.5mn t last month, while high-sulphur fuel oil (HSFO) consumption jumped by 11pc to 1.8mn t. By Mahua Chakravarty Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Bangladesh’s spot LNG purchases spike on power demand

14/11/24

Bangladesh’s spot LNG purchases spike on power demand

Mumbai, 14 November (Argus) — Spot LNG imports into Bangladesh have spiked just three months into the interim government of Muhammad Yunus. The interest upsurge is the largest seen so far, and is made more compelling particularly with spot prices well above $13/mn Btu, which has sidelined even key importers such as India and China. The rise in LNG imports comes on the back of Bangladesh's power market struggling to meet electricity supply owing to unpaid power bills under the previous prime minister Sheikh Hasina's government earlier this year. Bangladesh's power generation currently has stabilised after experiencing a sharp downturn in August when the former prime minister resigned. Maximum power generation so far this month stands at an average of 12.5GW, up by 6pc on the year (s ee graph ). Bangladesh's Rupantarita Prakritik Gas (RPGCL), operating under state-owned oil and gas firm Petrobangla, is the sole LNG importer in the country. 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By Rituparna Ghosh, Rou Urn Lee and Naomi Ong Bangladesh natural gas (mn ft³/d) Natural gas 2018 2019 2020 2021 2023 Demand 3,852 3,996 4,163 4,214 4,274 Production(domestic+imported LNG) 2,712 2,669 2,722 2,414 2,306 Shortfall 1,140 1,327 1,441 1,800 1,968 — Bangladesh energy and mineral resource division Bangladesh power generation MW Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: Argentina pulls delegation from Baku

13/11/24

Cop: Argentina pulls delegation from Baku

Montevideo, 13 November (Argus) — Argentina's government today withdrew its delegation from the UN Cop 29 climate summit in Baku, Azerbaijan. The country's foreign affairs ministry confirmed to Argus that the delegation had been told to leave the event, which began on 11 November and will run through 22 November. No reason was given for the decision, but it fits the general policies of President Javier Milei, who has expressed skepticism about climate change. Milei eliminated the country's environment ministry shortly after taking office in December 2023. He is also pursuing investment to monetize oil and gas reserves, with a focus on the Vaca Muerta unconventional formation. Vaca Muerta has an estimated 308 trillion cf of natural gas and 16bn bl of oil, according to the US Energy Information Administration. In October, the government created the Argentina LNG division with a plan to involve private companies and the state-owned YPF to produce and export up to 30mn metric tonnes (t)/yr of LNG by 2030. It wants to export 1mn bl of crude. The plans are closely linked to a new investment framework, known as RIGI, that will provide incentives for large-scale investments. The administration is also pushing hard for investment in critical minerals, including copper and lithium. Argentina has the world's second-largest lithium resources, estimated at 22mn t by the US Geological Survey. It has copper potential that the RIGI would help tap. The government has not specified if pulling out of Cop 29 means Argentina will withdraw from the Paris Agreement, which Argentina ratified in 2016. The country's nationally determined contribution calls for net emissions not to exceed 359mn t of CO2 by 2030. This represents a 21pc reduction of emissions from the maximum reached in 2007. By Lucien Chauvin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

No sign of peak in CO2 from fossil fuels: Report

13/11/24

No sign of peak in CO2 from fossil fuels: Report

London, 13 November (Argus) — Carbon emissions from fossil fuels are projected to hit a fresh record high of 37.4bn t in 2024, with "no sign" that these have peaked, a team of scientists said today in the 2024 Global Carbon Budget report. Total CO2 emissions are projected to reach 41.6bn t in 2024, up from 40.6bn t in 2023, which includes emissions of around 4.2bn t from land-use change, the report found. It also estimates the global carbon budget remaining before the 1.5°C temperature limit set out in the Paris climate agreement is "breached consistently over multiple years". The remaining carbon budget "has almost run out", the report found. There is a 50pc chance that warming will exceed 1.5°C above pre-industrial levels "consistently in about six years", the report found. There is uncertainty around the estimates, largely owed to the effects of other greenhouse gases (GHGs) such as methane and nitrous oxide, it noted. The Paris accord seeks to limit a rise in global temperature to "well below" 2°C above a pre-industrial average, and preferably to 1.5°C. This year is on track to be the hottest on record , the World Meteorological Organisation said on 11 November — the opening day of the UN Cop 29 climate summit in Baku, Azerbaijan. And drought conditions have helped to reverse a recent downward trend in CO2 emissions from land-use change — such as deforestation — in 2024. Those emissions are set to rise in 2024, after falling by 20pc in the past decade, the report found. Permanent CO2 removals from reforestation and planting new trees is "offsetting about half of the permanent deforestation emissions", it added. And the report authors noted that technology-based carbon removals — typically engineered, rather than nature-based — are at current levels only able to account for one-millionth of the CO2 emissions from fossil fuels. Projections for the highest-emitting countries — China, the US and India — are mixed. China's emissions are projected to increase by 0.2pc in 2024, although the report noted that the range means they could decrease. US emissions are set to drop by 0.6pc, while India's are projected to rise by 4.6pc this year. The Global Carbon Budget report — which will be peer-reviewed — is produced annually by an international team of more than 120 scientists. By Georgia Gratton Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Trump’s win yields mixed picture for LNG market

13/11/24

Trump’s win yields mixed picture for LNG market

London, 13 November (Argus) — Global gas and LNG market participants await clarity on president-elect Donald Trump's course of action once he takes office in January, as the net impact of some of its stated policies remains difficult to gauge. Price movements in recent days show little evidence of a market reaction to the outcome of the election. Prompt and near-curve LNG prices for delivery to Europe and Asia have risen, mostly tracking the increase in European hub prices. But the change in euro-denominated hub prices appears largely unrelated to the jump in the value of the US dollar that followed Trump's win. The dollar index, which measures the dollar against a basket of six other currencies, has rallied since Trump's victory became apparent, reaching a two-year high on 13 November. The US currency was worth over €0.95 on Wednesday, up from €0.91 on polling day. This might have contributed to stronger European hub prices, albeit only slightly. Exchange rates aside, the election result was never likely to have a serious short-term impact on the LNG market. The halt to Russian gas flows through Ukraine at the end of this year, when transit and interconnection agreements between Moscow and Kyiv expire, is the variable with the most disruptive potential for European gas markets that are much more reliant on LNG since Russia launched its full-scale invasion. But a shift in US policy would not be able to exert influence on any negotiations — which remain hypothetical at present — aimed at extending gas flows through Ukraine, given that Trump is only due to take office in late January. But Trump's policies might from next year affect the LNG market. US LNG producers have expressed mixed feelings about the consequences of a second Trump administration, with a dividing line emerging between firms that already export LNG and those that want to build new export facilities. Forward gas prices at the Dutch TTF hub also appear to show a mixed picture, with contracts for delivery next year and in 2026 rising broadly in line with the near curve, while prices for delivery in the following two years have held broadly stable. Operators of existing liquefaction facilities were wary of Trump's enthusiastic endorsement of protectionist policies, which they fear could trigger another trade war with China. The president-elect has pledged to impose a 20pc tariff on all imports — except those from China, which will instead be subject to 60pc. The possibility of Beijing following suit with retaliatory tariffs on US LNG— as in 2018-19, during Trump's first term — concerns many market participants. Trump's trade war with China in 2018-19 was widely seen as detrimental to development of the industry, as it hampered trade between the largest incremental producer and consumer. But the nature of most US LNG contracts — predominantly based on free-on-board delivery — reduced the short-term impact. While physical deliveries to China did vanish in 2019, no US LNG exporter reported cancellations that year, with cargoes simply resold elsewhere or swapped with LNG from other countries. The re-emergence of similar trade disputes from next year could force another reconfiguration of trade flows, possibly facilitated by the fact Europe is now a much larger LNG importer than in 2018-19, when it was heavily dependent on Russian pipeline gas. Physical deliveries of US LNG to China fell sharply in 2022 and have still been at less than half their 2021 peak this year (see chart). But while higher than six years ago, Europe's LNG demand has not pushed beyond 2022's record, and the amount of US LNG in Chinese portfolios is also much larger. On the other hand, developers of new US liquefaction facilities have pinned their hopes on Trump's pledge to reverse the Biden's administration licensing pause, which froze projects and in some cases lost them contracts. But speeding up project approvals could result in a much more amply supplied market later in the decade, when a swathe of new facilities are already due on line (see chart) Industry figures have suggested the [LNG market could be oversupplied as early as 2028](https://direct.argusmedia.com/newsandanalysis/article/2493845. The greatest uncertainties are related to how Trump deals with the conflict in Ukraine. He has boasted he would end the war on his first day in office — overly optimistic at best. But even if his administration could bring about a swift end to the conflict, a full normalisation of relations between Russia and Ukraine is difficult to imagine. Nevertheless, a relaxation of US sanctions — including those targeting Russia's existing 19.8mn t/yr Arctic LNG 2 terminal — could be an initial bargaining chip and might result in an immediate increase in supply. By Antonio Peciccia US liquefaction capacity mn t/yr US LNG deliveries to China mn t Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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