EU LNG Reloads Set to Drop From Record as Asian Premium Shrinks

European shipments of liquefied natural gas are set to fall from record levels as the lowest Asian prices since 2010 remove the incentive to re-export the fuel.

The premium for Northeast Asian spot LNG over southwest Europe dropped to about 5 percent Dec. 1, the lowest level in almost four years, according to World Gas Intelligence. The gap is “too low” to justify re-exports, Andree Stracke, head of LNG origination at RWE Supply & Trading, said in an interview at the European Gas Conference in Vienna on Jan. 28.

Spot LNG prices in northeast Asia, the world’s biggest consuming region of the fuel, have fallen 62 percent from a record last February as oil’s bear market drags down long-term contracts linked to crude. That helped narrow regional price gaps exacerbated after the 2011 Fukushima nuclear disaster shut reactors in Japan and resulted in fuel being shipped to Asia from the European Union, which doesn’t produce its own LNG.

“If the prices are roughly equal between Asia and Europe, there’s no benefit in reloading, it’s a pointless exercise,” Frank van Doorn, head of gas trading at Vattenfall Energy Trading Netherlands NV, said in a Jan. 28 interview in Vienna. “So cargoes just go where they go and they get unloaded.”

Northeast Asian cargoes for delivery in six to eight weeks fell to $7.50 per million British thermal units in the week to Jan. 26 while the price for southwest Europe was $6.75, according to WGI.

Record Exports

“Oil prices are now historically low and you see now a convergence of gas prices around the world,” Rudy Van Beurden, public affairs manager at Fluxys SA, which operates Belgium’s only LNG terminal, said in Vienna Jan. 27. “If the differential between the Asian market and the European market gets smaller, the probability of getting more cargoes into the European market will increase.”

Europe’s LNG supplies will rise 17 percent this year after exports fall from a record 6 million metric tons last year, Thierry Bros, an analyst at Societe Generale SA in Paris, said by e-mail Jan. 30. That is about 14 percent of all volumes imported into the region, he said.

Asian LNG prices are still higher and the global market is still “relatively tight,” said Andrew Walker, vice president of global LNG at BG Group Plc. Japan, the world’s largest buyer, imported a record 8.3 million tons in December, according to a the country’s Ministry of Finance.

“We’ve also seen record imports in some of the Asian countries in December that suggest that the rhetoric of a huge downside in demand in Asia isn’t quite accurate,” Walker said in Vienna Jan. 29. “I don’t think we are seeing a huge armada of ships on the horizon sailing to Europe.”

More Supply

Spain, the world’s largest LNG re-exporter, will halt shipments in February for the first month in two years, according to network operator Enagas. No exports are scheduled from Belgium’s Zeebrugge terminal this month after one cargo in January. The terminal reloaded 19 cargoes in 2014, according to Van Beurden.

Europe’s 23 terminals will probably utilize more of their capacity this year due to rising supplies, according to Van Doorn. Global LNG output will this year expand by 5 percent as new projects start from Australia to the U.S., Bank of America Corp. estimates. That’s the fastest pace of growth since 2011.

“There’s a lot of new supply coming on stream and then the question is how will demand develop, especially in Asia,” Rune Bjoernson, vice president of gas at Statoil ASA, said in a Jan. 28 interview in Vienna. If there is “a lot of excess LNG around, the arbitrage will disappear.”

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