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Scramble for LNG spot market may catch Nigeria unawares

by ISAAC ANYAOGU

November 6, 2017 | 1:45 am
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The shift towards spot market for the $90 billion global Liquefied Natural Gas markets has gas producers scrambling to take positions in Asian markets but Africa’s 3rd biggest gas producer, Nigeria, may be caught unawares if its forwards contracts expire in three years without successful renewals or share gain in short-term markets.

Long dominated by long-term contracts of up to 20 years, the LNG market seems to be shifting to spot trading – where cargoes are delivered within three months of the transaction date – because of a supply glut especially from the United States that has kept prices low.
A fifth of the long term contracts will expire from 2018 to 2020 and over the next decade, contracts governing 80 percent of all global LNG trade is expected to be rewritten.
Analysts say a new strategy that will see increased attention towards spot market is now required in view of market realities.
“The changing LNG market is creating a need for a new strategy,” Olufola Wusu, an energy lawyer and co-founder of Megathos Law Practice told BusinessDay.
“New volumes of LNG are entering the global LNG market from the United States (which used to be a major importer) and Australia, with a slowdown in expected economic growth in Europe and Asia. The LNG spot market is making a strong showing as more buyers shun long term contracts in favour of spot contracts,”
Wusu further said, “The LNG market is rapidly evolving, from the 20 year long term contracts to spot markets, LNG was dominated by sellers using “take or pay contracts” to a buyer’s market, where buyers have been able to renegotiate the price of LNG shipments.
Many of the long-term contracts in the LNG market will expire in the next five years including Nigeria’s trains 1 -3, and top producers are dangling offers before investors who are increasingly looking towards spots markets.
Isa Mohammed Inuwa, deputy managing director, Nigeria Liquefied Natural Gas Limited (NLNG) told journalists recently that the NLNG has started remarketing expiring trains. He also said the organisation has good idea of how it is going to remarket those trains including what the market conditions may likely be, what measures to explore in terms of marketing and strategy.
It’s not clear how much of this effort will matter as the scramble for new gas markets, has the United States as the constant factor. The world’s biggest natural gas producer is bringing to the table vast shale reserves along with a pipeline network that will allow exporters bring gas from all over the country to export facility being developed along the Gulf Coast to guarantee stable supply.
Analysts say that while most LNG contracts come with strict destination clauses, mandating the physical delivery point for cargoes, U.S. exporters are offering their customers the ability to ship anywhere in the world.
Spot trading made up 18 percent of total imported LNG volumes in 2016, an increase from 15 percent the previous year, the International Group of Liquefied Natural Gas Importers (GIIGNL) said early this year in an annual review.
Spot trade volumes were estimated at around 47 million metric tonnes last year, up from 37 million mt in 2015, with the main drivers of the growth being China, India and Egypt.
The three countries combined accounted for 30 percent — or 15 million mt — of the pure spot LNG volumes imported in 2016.
The International Energy Agency (IEA) sees global gas demand growing 1.6 percent annually until 2022, with China making up 40 percent of this growth.
Analysts at Financial Derivatives Company led by Bismarck Rewane forecast that world production of natural gas is set to expand by 5.8 percent to 302.6mn tons in 2018 but Nigeria’s production could be 19mn tonnes in 2018 from 22m metric tonnes that used to be the average production. Militant activities last year caused disruption to NLNG’s activities.
Gas prices are expected to fall by 4.2 percent in 2018 with consumption growing by 5.8 percent to 302.6mn tons in 2018. Consumption in China is expected to increase to almost 340 BCM by 2022, of which imports will account for 140 BCM, up from 70 BCM last year, according to IEA’s Gas 2017 report.
In addition, China’s domestic production is seen growing by around 65 BCM to 200 BCM by 2022, with annual growth of 6.6 percent, which would make the country the world’s fourth-largest natural gas producer by 2022.
China is setting the stage for a natural gas import boom, with imports running at record rates as Beijing pushes on with its cleaner energy agenda that should see the country satisfy 10 percent of its energy needs with gas in 2020, from 5.9 percent in 2015. By 2035, Chinese gas demand will be treble the 2016 levels, according to Wood Mackenzie.
Most of this demand could go to the short-term market where NLNG executed over 48 Spot free on board, LNG Master Sales Agreements with various companies located across major LNG markets, enabling the sales of excess production volumes to the spot market in 2017.
“In recent times, NLNG cargoes have been delivered to the Far East, Middle East, South America and the United Kingdom through existing customers and via Spot Free on Board (FOB) LNG Master Sales Agreements,” said the NLNG in its 2017 publication of its activities.
Russia who maintains a stranglehold on European market is also feeling the pinch from US encroachment into Europe. Lithuania imported a shipment of LNG from the US in September and several European countries are considering buying from the US.
The US is looking to push more LNG volumes to cut its trade deficit with Japan, South Korea and China and bite into a chunk of Russia’s 75 percent gas exports to Europe.

 

ISAAC ANYAOGU

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by ISAAC ANYAOGU

November 6, 2017 | 1:45 am
  |     |     |   Start Conversation

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