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LNG market undergoing major shifts in trading patterns

By Ross McCracken in London

June 25, 2013 - The LNG market is undergoing major shifts in trading patterns. Flexibility is increasingly valuable, as shown by the large rise in European reloads of imported LNG.

With European buyers taking every opportunity to challenge current pricing practices, the question of reloads is likely to become ever more contentious. Even if reloads are not a breach of contract, they may well be interpreted as a breach of faith.

According to BP’s Review of World Energy Statistics released in June, global trade in LNG fell in 2012 for the first time since the company’s records began.

Total trade amounted to 327.9 Bcm, compared with 330.83 Bcm in 2011.

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Within the total there were huge regional shifts in trade. European LNG imports dropped 21.37 Bcm, or 23.6%, while North American imports fell 5.75 Bcm, down 33.1%. In contrast, South American imports rose 3.21 Bcm, up 34.5%, while Asia Pacific’s jumped 20 Bcm, up 9.6%.

US and Canadian imports fell heavily as cheaply priced domestic gas from the shale gas boom made imports uncompetitive. (See related chart: LNG imports in 2011 and 2012).

But the drop in European LNG imports was even more dramatic, declining from 90.67 Bcm in 2011 to 69.3 Bcm in 2012, driven by a lack of demand, particularly in the power generation sector, where coal has been a cheaper alternative, and where high levels of subsidised renewables capacity have shrunk the available market for thermal power generation.

However, there is one particularly striking feature of the data for Europe, which is the ‘other Europe’ category, not for LNG imports, but for exports.

In 2011, more than three European countries re-exported LNG, none of which have liquefaction facilities.

Spain exported 0.76 Bcm of LNG, Belgium exported 0.61 Bcm, the United Kingdom 0.08 Bcm and ‘other Europe’ 0.6 Bcm, a total of 1.44 Bcm.

For 2012, BP does not break these re-exports out by country in its LNG trade data page, but does partially in its gas trade comparison of 2011 and 2012. The total is 3.12 Bcm, a jump of 217% from 2011.

The re-exports come from terminals and storage facilities in France (0.22 Bcm) at Zeebrugge in Belgium, terminals throughout Spain (1.2 Bcm), and from Sines in Portugal.

The ‘other Europe’ category, which includes Portugal and Belgium, totals 1.7 Bcm.

European LNG re-exporters in 2011 & 2012

The origin of the re-exported cargoes at least for Belgium is clear: all of the country’s 4.54 Bcm of LNG imports in 2012 came from Qatar, so Belgium is clearly re-exporting Qatari LNG.

Spain imports LNG from a much wider variety of sources: the two largest suppliers in 2012 were Nigeria 5.4 Bcm, (25.2% of total imports), Qatar 4.3 Bcm (20.1%) and Algeria 3.6 Bcm (16.8%). The remaining 8.1 Bcm was sourced from Trinidad and Tobago, Peru, Norway and Egypt.

However, there is one additional source: ‘other Europe’ again, which accounts for 0.7 Bcm of Spanish imports, indicating that LNG is being exported to Belgium, Portugal and/or France and then being re-exported to Spain.

European LNG re-exports by destination

In fact, the ‘other Europe’ exports show a wide variation in destination beyond Spain, including Argentina, Brazil, Italy, Turkey, India, Japan, South Korea and Taiwan.

As a result, it is possible to conclude that despite the apparent inefficiency of the operation, Qatari LNG, for example, is being imported into Belgium and Spain before being re-exported as far afield as Asia and Latin America.

In addition, cargoes reloaded in Spain and then taken to other Spanish terminals are displacing cargoes from other destinations, which are being diverted to spot markets with better netbacks.

Even if the reloaded cargo is taken into Spain at a small loss, if it frees up another cargo which can be sent to another more lucrative market, a profit can still be made across a company’s LNG portfolio.

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