European LNG Market Needs U.S. for Spot Cargoes, Eneco Says

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September 22, 2013

Sept. 23 (Bloomberg) — Liquefied natural gas traders in northwest Europe won’t buy many short-term cargoes of the fuel until U.S. export projects boost supply and end the deferral of cargoes to Asia, according to Eneco Holding NV’s trading unit.

At least six U.S. terminals need to start operating by 2018 to 2020 to increase shipments to Europe, according to Frens Geuzinge, head of gas structuring and origination at Eneco Energy Trade. The Rotterdam-based company hasn’t bought a spot cargo this year after contracting one in 2012, he said.

Price differences between Asia and Europe widened in the past two years as demand soared in Japan following the shutdown of nuclear reactors after the March 2011 Fukushima disaster, reducing imports to Europe and encouraging reloading of tankers for exports from storage tanks. The U.S. has approved exports of LNG to countries with which it doesn’t have a free trade agreement from four terminals and 18 applications are pending as a shale gas boom boosts domestic gas output. The first, Cheniere Energy Inc.’s Sabine Pass, may start producing LNG in 2015, according to a regulatory filing Aug. 2.

“It will be very difficult to bring in spot cargoes into northwest Europe as long as the worldwide LNG market is tight,” Geuzinge said by e-mail Sept. 20. “After some U.S. LNG projects will be developed and producing, the northwest European market will become more relaxed.”

Eneco, which has an LNG team of five people, has a position at the Gate terminal in Rotterdam to import 1 billion cubic meters of gas per year until October 2015. While having a supply contract with Royal Dutch Shell Plc for half of that volume until then, the company also concluded several option contracts for the remaining capacity, as well as trying to source spot cargoes, Geuzinge said.

Asian Premium

Asia has paid on average $3.47 per million British thermal units more than Europe in the past year, according to assessments by World Gas Intelligence of cargoes for delivery in four to eight weeks. Prices in Asia rose to a record $19.40 in February, when the European contract cost $14.70, the WGI data show.

“Accepting LNG at pricing conditions above the traditional benchmarks will be difficult for us,” Geuzinge said.

Since the opening of Gate in September 2011, Eneco has berthed two ships under the Shell contract, in January 2012 and April 2013, and one spot cargo in July 2012, he said. Gate received two tankers in January 2012, the Gemmata and LNG Jupiter, according to port and ship-tracking data compiled by Bloomberg. The Dutch port received one cargo in April 2013 on board the Al Khuwair and two vessels in July 2012, LNG Port Harcourt and Arctic Princess, the data show.

European Volumes

Spot and short-term trades accounted for 25 percent of the global LNG market last year, according to the International Group of Liquefied Natural Gas Importers, a Paris-based lobby group. Europe received 12 percent of global spot cargoes in 2012, down from 20 percent a year earlier, the data show.

While much of the North American supplies, linked to Henry Hub benchmark prices, will head to the Pacific Basin to benefit from higher demand, some volumes will end up in Europe, said John Hattenberger, chief executive officer of Global NatGas Advisors LLC in Houston, who has worked in LNG and natural gas for 36 years including as the former head of Gazprom Marketing & Trading Ltd.’s U.S. unit.

“I think the major impact from North American exports will be a huge increase in market liquidity: more ships, flexible delivery, Henry Hub indexed pricing, and a lot more players in the LNG trading space,” he said last month.

U.S. Approvals

The Energy Department this month granted Dominion Resources Inc. approval to export LNG from an existing terminal in Maryland, after allowing Lake Charles Exports LLC last month to ship the fuel from its terminal in Louisiana. The U.S. had previously approved LNG exports from the Sabine Pass terminal in Cameron Parish, Louisiana, and the Freeport LNG Terminal in Quintana Island, Texas.

North America will probably export 50 million metric tons in 2020, 80 percent of which on the spot market, according to Thierry Bros, an analyst at Societe Generale SA in Paris. That would help boost the spot market to 110 million tons, or 32 percent of total LNG supply, he said.

“We should get a little bit more LNG in Europe in 2020,” Bros said Sept. 20 by e-mail. “In our model we have 50 billion cubic meters of LNG in 2018 versus a record low of 42 billion cubic meters in 2013.”

-Anna Shiryaevskaya, Copyright 2013 Bloomberg.

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