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LNG Wrap-Up: Korea Looks to Sell Up to 40 Cargoes as Argentina Tenders for More

Reuters
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May 20, 2014

ReutersBy Oleg Vukmanovic, edited by Jane Baird

MILAN, May 20 (Reuters) – Argentina has secured four liquefied natural gas (LNG) cargoes for delivery in June through August after launching a tender for up to six cargoes earlier this month, traders said.

Latin America’s third-largest economy is increasingly reliant on LNG imports to power growth as domestic gas production declines and government-sponsored subsidies drive demand for the fuel.

Traders said state-run energy giant YPF has secured four cargoes following a six-cargo tender launched May 2.

It was not immediately clear which companies would be supplying the volumes.

In contrast with tight global supplies a few months ago, buyers have enjoyed rapidly falling global spot LNG prices in recent weeks due to oversupply and weak demand.

Prices for July delivery have dropped to around $13.60 per mmBtu this week, from around $19 per mmBtu earlier this year.

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ExxonMobil’s Papua New Guinea gas liquefaction plant is expected to export around 20 cargoes during the project’s start-up phase lasting until September, traders said.

The rapid export rate from the new plant, which was completed slightly ahead of schedule, has helped push global LNG prices lower as major Japanese buyers retreat from spot markets.

Exxon will sell the bulk of its output to buyers with which it has long-term supply deals, such as Japan’s Tokyo Electric Power and Osaka Gas, allowing them to fill needs without resorting to price-sensitive spot purchases.

“It’s going to be exporting around four to five cargoes per month over this period, but most of that will go to long-term buyers,” one trade source said.

Traders expect Exxon, however, to offer two to three cargoes on the spot market for July loading as early as this week.

Some traders advised against over-optimistic assessments of output given that start-up cargoes are always subject to delays as engineers fine-tune the liquefaction process.

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Korea Gas Corp. is looking to sell 20 to 40 cargoes of liquefied natural gas (LNG) this summer after misjudging the scale of its demand and committing to buy excessive supply, traders said.

State-run Kogas, faced with an over-supply it is unable to absorb, is seeking to offload cargoes through a combination of time-swap deals and reducing offtake from its suppliers, several traders said.

Time swaps would allow Kogas to direct its excess cargoes to needy buyers, and in return receive replacement deliveries at some point in the future.

This strategy may be difficult to realise as major Asian importers are already fully stocked and prices are falling rapidly due to weak demand, a trader said.

“In which case, they will need to try and reduce offtake in the third quarter under long-term deals, but it may already be too late to do that fully,” another source said.

“They tied up too many deliveries options from various locations under the assumption that not all of it would arrive, but it seems that every last drop is now coming their way,” he added.

Spot LNG prices for July have fallen to around $13.60 per mmBtu in Asia, compared with levels of around $19 per mmBtu earlier this year.

(c) 2014 Thomson Reuters, All Rights Reserved

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