LNGTrade

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  • LNG is not a commoditized business or not a developed spot market like oil or LPG
  • Baseload sales of LNG are long term: 20-25 years; and make up 90% of LNG trade. 10% is spot/short-term
  • Long term contracts are take-or-pay that cover the risk and allow to finance expensive LNG infra CAPEX
  • LNG price that supports seller’s upstream development, LNG infrastructure, cost of shipping and return on investments
  • Destination restrictions or Diversion Provisions /Profit Sharing arrangements
  • Sound contractual basis governed by NY or English law
  • Sufficient annual volume
  • Assurance of adequate gas reserves

Contents

[edit] Short Term

Spot and short-term are used interchangeably and refer to LNG contracts of less than one year including cargoes delivered or re-directed under long-term contract provisions.

Sources of spot LNG:

  • early volumes coming from new liquefaction capacity
  • expiration of LTCs
  • buyer over-commitment (oversupply)
  • extra plant capacity
  • contract and operational flexibility: flexibility of LTC (5% wedge; seasonality
  • contract failure

Spot LNG issues:

  • regasification terminal access
  • sellers demand minimum price
  • financial settlement instead of physical spot trade
  • profit-sharing on cargo diversions (sharing complicated)
  • Asian spot market is a captive market, any capacity is included in the LTCs

Spot LNG drivers:

  • increasing spread between spot and LTC prices
  • need for flexibility driven by liberalization process
  • increasing acceptance of LNG spot risk (especially with rising oil prices)
  • downstream investments (new regasification capacity) create need for LNG
  • new supply coming online (Australia, Yemen, Angola)
  • spot can be used to arbitrage price spreads in different geo-markets

Spot LNG prerequisites and negotiation:

  • supplier with uncommitted liquefaction capacity
  • potential buyer with available import capacity
  • vessel
  • Industry uses master agreements, where the majority of terms and conditions are established in advance and individual confirmations are executed as cargoes become available [1]

[edit] Global LNG market

  • Lack of physical / liquid and price transparent market in Asia and a partially constrained one in Europe.
  • As LNG increases its share in the global gas market and spot trading increases, the market will be able to arbitrage price disparities between regions
  • link different price regions into a global natural gas price benchmark
  • drive gas-on-gas competition in market where gas pricing has traditionally being linked to oil or other fuels
  • where pure trading companies become an established feature of the LNG industry, gas as a global commodity may have arrived
  • need of more contractual alignment between upstream and downstream and development of new hybrid contracts


[edit] Trends


[edit] Gas Trade by Transport

transport volumeBcm shareOfTotalConsumptionPct
Pipeline 673.04 22.03
LNG 330.83 10.83

LNG makes up only around 8% of the total gas consumption. Around 70% of gas consumption is local.

The long term contracts make up around 90% of the LNG trade. Spot market around 10%.

Due to small size of the LNG spot market, arguably it cannot drive the convergence of the natural gas prices.

[edit] LNG Trade by Region

[edit] Top LNG Importers

importer volumeBcm capacityBcm utilizationPct
Japan 106.95 263.40 40.60
South Korea 49.31 110.00 44.83
United Kingdom 25.31 47.6 53.17
Spain 24.16 63.2 38.23
India 17.10 16.8 101.79
China 16.62 10.7 155.32
Taiwan 16.31 33.8 48.25
France 14.57 26.7 54.55
United States 10.01 162.50 6.16
Italy 8.75 11.9 73.49
Belgium 6.57 9.5 69.17
Turkey 6.23 12.8 48.66
Argentina 4.38 3.2 136.86
Mexico 4.05 19.1 21.18
Chile 3.86 3.9 98.96
Canada 3.30 10.6 31.09
Kuwait 3.18 7.5 42.35
Portugal 3.01 5.5 54.76
Greece 1.29 5.3 24.42
Brazil 1.05 7.9 13.30

Sources: BP 2010 for traded volumes, IEA 2009 for capacities

[edit] Top LNG Exporters

exporter volumeBcm capacityBcm utilizationPct
Qatar 102.60 73.5 139.59
Malaysia 33.26 30.8 107.99
Indonesia 29.15 47.0 62.03
Australia 25.94 25.6 101.31
Nigeria 25.89 29.5 87.75
Trinidad and Tobago 18.88 20.5 92.11
Algeria 17.12 27.6 62.02
Russia 14.39 13.0 110.67
Oman 10.92 14.6 74.81
Brunei 9.39 9.8 95.77
Yemen 8.94 4.6 194.33
Egypt 8.58 16.6 51.71
United Arab Emirates 7.96 7.6 104.71
Equatorial Guinea 5.27 5.0 105.34
Norway 3.97 5.8 68.53
United States 2.02 1.9 106.36
Libya 0.08 0.8 10.30

Sources: BP 2010 for traded volumes, IEA 2009 for capacities

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