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Traders Spot Opportunity With LNG Prices at Rock Bottom
By Anna Shiryaevskaya and Stephen Stapczynski
August 21, 2019, 9:05 PM EDT Updated on August 22, 2019, 9:50 AM EDT
It’s bargain time in the liquefied natural gas market.
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New supply from plants in the U.S. to Australia will also likely curb any bigger gains.
“The market should question the forward winter LNG curve price,” she said.
CME launches U.S. LNG futures contract with physical delivery
LONDON (Reuters) - Exchange operator CME Group said on Wednesday it would launch a futures contract for liquefied natural gas (LNG) that is physically delivered at U.S. Cheniere Energy’s Sabine Pass export terminal, a move likely to increase transparency in the market.
The contract, to be launched on Oct. 14, will have 24 delivery months, meaning a market participant in October could buy an August 2020 LNG cargo and trade it up until the delivery date.
It will help buyers to manage risk, giving them exposure to the fastest growing source of LNG supply while at the same time shedding light on physical and future LNG prices in an nascent and opaque market.
A number of other contracts have been launched in the past two years related to LNG and LNG shipping as supply of LNG and the infrastructure to both export and receive it has expanded rapidly.
The CME, the Intercontinental Exchange and PEGAS have launched futures and options priced against the Japanese Korea Marker which has been published by commodity pricing agency S&P Global Platts for a decade has become a benchmark for Asian LNG prices.
Most of the world’s LNG is bought under bilateral contracts, some lasting as long as 20 years and linked to oil prices. The remaining 20% is traded on the spot market.
But LNG in the United States, which now has a 10% market share, has decoupled from the oil price and linked instead to Henry Hub natural gas in the country via supply contracts with Cheniere and some other producers.
These contracts also have flexible destination clauses which allow buyers to pick up their cargoes from the export terminals with their own ships and take them where they want, unlike conventional contracts which have a fixed delivery point.
These changes have created a disconnect in the global LNG marketplace which many traders exploit by taking advantage of geographical arbitrage and differences in oil and gas prices. Futures contracts can help mitigate those risks.
“As the world’s largest buyer of LNG, we believe diverse risk management tools bring more transparency to the marketplace and we welcome CME Group’s launch of physically delivered LNG futures,” said Kazunori Kasai, CEO of JERA Global Markets, part of the world’s largest LNG buyer, Japan’s JERA.
“We expect CME Group’s U.S. LNG Export futures contract will have a positive impact on the procurement and price discovery of LNG in Asia, as well as in the U.S,” he said in a statement issued by CME announcing the contract.
Source: Reuters Sabina Zawadzki
Russia's Novatek inks MOU with Japan's Saibu for Asia-Pacific LNG optimization
London — Russia's Novatek said Thursday it had agreed a provisional deal with Japan's Saibu Gas to optimize its LNG portfolio through the use of Saibu's 3.5 million mt/year Hibiki LNG import terminal in Japan.
Since Yamal LNG started up in December last year, many cargoes have stayed in Europe, but Novatek has signaled that the Asia-Pacific region would be a key market for its LNG.
Under Thursday's memorandum of understanding, Novatek said it had agreed to consider potential cooperation with Saibu "to enter the end-customer market and optimize Novatek's LNG portfolio supplies to the Asia-Pacific region by utilizing the Hibiki terminal."
Saibu started operations at Hibiki LNG in 2014.
Novatek deputy chairman Lev Feodosyev said the Asia-Pacific region was a "priority destination" for Novatek's LNG projects.
"Our ability to use the Hibiki terminal will help diversify our customer base and increase the flexibility of deliveries to the premium LNG markets," Feodosyev said.
Saibu has long-term LNG purchase agreements with Russia's Sakhalin Energy and Malaysia LNG.
Trading partnerships are becoming increasingly popular in LNG markets as global players look to work together to smooth out inefficiencies in the LNG value chain.
In November, Germany's RWE Supply & Trading signed a memorandum of understanding with Tokyo Gas to cooperate over and optimize their LNG sourcing, trading and shipping activities.
And in July this year, Japan's JERA and energy company EDF Trading agreed to merge their short- and medium-term LNG trading and optimization businesses in an attempt to enhance their global portfolio flexibility and risk mitigation capabilities.
Source: SPGlobal
The LNG Market Is “Imploding”
By Nick Cunningham - Apr 27, 2020, 6:00 PM CDT.
While everyone is understandably watching the meltdown in the crude oil market, the global market for natural gas is also cratering.
At least 20 cargoes of U.S. liquefied natural gas (LNG) have been cancelled by buyers in Asia and Europe, according to Reuters. The global pandemic and the unfolding economic crisis have slashed demand for gas worldwide. Cheniere Energy, one of the main exporters of U.S. LNG, has seen an estimated 10 cargoes cancelled by buyers halfway around the world, Reuters said.
The price for LNG in Asia was already crashing before the pandemic, owing to a substantial increase in supply last year. Prices for LNG in Asia for June delivery have recently traded at $2/MMBtu, only slightly higher than Henry Hub prices in the U.S.
As recently as October, LNG prices in Asia traded at just under $7/MMBtu.
The problem for American gas exporters is that after factoring in the cost of liquefaction and transportation, gas breakeven prices for delivering to Asia are around $5.56/MMBtu, according to Reuters. But prices are trading at less than half of those levels.
Gas exports tend to be conducted under rigid contracts, but cargoes are now facing cancellation.
“The financial prospects for [LNG] ? once one of the globe’s hottest energy commodities – seem to be imploding before our eyes,” Clark Williams-Derry wrote in a new report for the Institute for Energy Economics and Financial Analysis (IEEFA). He noted that LNG prices in the fall of 2018 were at around $12/MMBtu.
The oil majors have made large bets on LNG in recent years. Royal Dutch Shell spent more than $50 billion to buy BG Group in 2015. The move back then was made with an eye on surging demand for natural gas. “We will now be able to shape a simpler, leaner, more competitive company, focusing on our core expertise in deep water and LNG,” Shell’s CEO Ben van Beurden said after closing on the acquisition of BG Group more than four years ago.
The deal remade Shell into one of the largest traders of LNG on the planet. Several other oil majors – Total SA, ExxonMobil and Chevron, for instance – have also made massive bets on LNG.
LNG is now arguably getting hit just as hard as crude oil from the pandemic and the global slowdown. A series of high-profile investment delays or cancellations have occurred in the past month. ExxonMobil, for instance, delayed a final investment decision on a large LNG export project in Mozambique in early April.
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However, the industry faced troubled economics even before the current crisis. “[C]ompanies pinned the delays on the novel coronavirus, while ignoring the fact that LNG prices were already deflating long before the worst impacts of the pandemic were being felt,” Clark Williams-Derry wrote in the IEEFA report. He wrote that what was striking was the fact that companies of varying sizes and corporate structures were cancelling decisions – speculative startups, but also state-owned giants and publicly-traded supermajors.
Delayed and cancelled cargoes could ripple back up to the upstream sector. The U.S. natural gas industry was also facing problems heading into 2020 because of oversupply. Exports may not provide the demand pull that it once did for gas drillers. Henry Hub prices are stuck at $1.80/MMBtu.
Ironically, however, the share prices of gas drillers have rebounded in recent weeks. Pittsburgh-based EQT has seen its share price double since March, for example. There are a few reasons for this. The Federal Reserve has funneled trillions of dollars into the financial sector, which has re-inflated financial assets of all types. Investors also seem to be trying to “buy the dip.”
But industry analysts are also predicting that a huge shortfall in gas production in the Permian will boost prices by next year. Goldman Sachs says that gas will jump to $3.25/MMBtu in 2021.
For now though, the economics for LNG are pretty dismal. “The LNG industry entered today’s crisis on shaky footing. And now that the economic slowdown is in full swing, all previous LNG supply and demand projections have been rendered moot, and all crystal balls remain cloudy,” Williams-Derry concluded. “In that context, delay is a smart decision.”
By Nick Cunningham of Oilprice.com