Trading Houses Take Risky Bet With Floating LNG Storage

By Jacob Gronholt-Pedersen

Singapore, Aug 1 (Reuters) – Asian spot liquefied natural gas (LNG) remained at depressed levels this week amid weak demand, but traders were looking for floating storage to take advantage of an expected pick-up in prices ahead of the winter heating season.

Prices were mostly unchanged from last week, with spot market activity limited as traders waited for the results of a tender by Australia’s North West Shelf (NWS) LNG export plant.

Spot LNG for September delivery hovered around $10.50 per million British thermal units (mmBtu).

Prices in Asia, the world’s biggest buyer of the shipped fuel, have plunged close to 50 percent since hitting winter peaks of $20.50 per mmBtu in February.

“We do not think prices have reached the bottom yet. More supply is coming to market,” said a trader with a trading firm.

Australia’s NWS plant this week issued a tender to sell three cargoes loading between end-August and end-November.

Additional cargoes may also come from Papua New Guinea and Russia, which would further weigh on sentiment, traders said.

The ExxonMobil-led PNG project began operations this year, ahead of schedule. However, available spot cargoes should start to thin from October as long-term customers begin to exercise offtake rights.

“At the moment, we don’t see much additional demand for October and November. End-users say consumption is lower than what they had scheduled,” the trader said.

Attention was shifting to trading for October loading cargoes. Some players were looking for floating storage as they expect a surge in prices once heating demand picks up in countries such as Japan, South Korea and China towards the end of the year.

Trading house Glencore and German utility E.ON are among those betting on a rebound in the market in the winter, leasing LNG tankers for storage purposes. Several other market players were taking the same view, chartering tankers for three to six months, a shipping source said.

The play is triggered by a market structure known as contango, in which prices for immediate delivery are cheaper than later months. Spot prices for the first half of October were about 50 cents higher than for September.

Unlike crude oil, storing LNG on tankers is unusual and generally seen as a risky bet, given the high costs and the fact that cargoes degrade over time by evaporating.

“There needs to be a correction, but how big it will be very much depends on temperatures,” an industry source said.

“Storage is close to full for a lot of players, so I don’t see much action in terms of winter buying and restocking,” he said. (Reporting by Jacob Gronholt-Pedersen; Editing by Alan Raybould)