LONDON/SINGAPORE – Several large liquefied natural gas (LNG) players have tried to offload their obligation to buy future cargoes from the United States, shedding excess commitments made years ago in the rush for new sources and commercial terms for the fuel.
The sale of multi-year “strips” of LNG cargoes represent portfolio adjustments by the buyers rather than backlash against U.S. gas, several Asian and Europe-based traders said.
But it was a timely reminder that there is only so much U.S. LNG, which can be more commercially attractive than gas from other regions, that the market can absorb, even as new investment is being prepared for more U.S. export plants.
Australia’s Woodside Petroleum, GAIL (India) and Indonesia’s Pertamina have all recently marketed strips they are obliged to buy from Cheniere Energy’s Corpus Christi or Dominion Energy’s Cove Point terminals from 2019, traders said.
The volumes come from sales and purchase agreements (SPAs) signed in previous years. These long-term promises to buy are what typically underpin the financing and final investment decisions (FIDs) on export terminal projects.
“Many U.S. offtakers overcommitted the first few years but it should be OK in the long term,” one veteran LNG trader said.
Traders said the companies had different strategic objectives and it is unlikely that concerns over the U.S.-China trade war are behind their latest moves.
Woodside, for example, wanted to expand its Atlantic portfolio when it penned a 2014 deal with Corpus Christi’s second train, or plant, for 0.85 million tonnes per year (mtpa).
However, a trader said that Woodside, the Australian terminals of which export about 7 percent of the world’s LNG, may have had a strategy rethink after its withdrawal from an export terminal project in Texas.
Woodside said it optimizes its portfolio regularly but does not comment on specific transactions.
U.S. energy firms have invested billions into constructing LNG export terminals to take advantage of cheap shale gas in recent years, with a second wave of terminals expected to be financed and approved in the next year or so.
Plants such as Cheniere’s Sabine Pass, the largest U.S. export facility, had attracted a host of eager buyers with cheap LNG on flexible terms. But market conditions are somewhat different now.
Indonesia’s Pertamina, for example, committed to 1.52 mtpa for 20 years from Cheniere. But with Indonesia’s gas demand growth now at little more than 1 percent, the country will not need imports until 2027, the government has said.
One company executive told reporters this month that Pertamina would trade its U.S. volumes and that some of its 2019 cargoes had been sold in the spot market.
“The domestic market cannot absorb (these volumes) because demand can be fulfilled from Badak LNG,” said Pertamina’s director of corporate marketing, Basuki Trikora Putra, referring to Indonesia’s Bontang LNG plant, one of the largest in the world and operated by Pertamina unit Badak NGL.
A European trader said Pertamina sold a three-year strip to merchant Trafigura at mid-to-low-$4 per million British thermal units (mmBtu), which is above a typical offtake contract for Cheniere’s LNG.
India’s state-owned GAIL, meanwhile, signed up to 5.8 mtpa of U.S. LNG. The deal included gas from Cove Point, which began operations this year, but shipping logistics proved problematic for GAIL because of the 20-plus days it takes to reach India.
It solved those problems this year by organizing destination swaps, several traders said, and a GAIL executive confirmed that at least 90 percent of 2018/19 cargoes had been sold via swaps.
LNG traders said the company aims to sell one Cove Point cargo a month in exchange for deliveries to India, with loading starting in the first quarter of next year.
Reporting by Sabina Zawadzki in LONDON and Jessica Jaganathan in SINGAPORE; Additional reporting by Wilda Asmarini in JAKARTA and Julia Payne in LONDON; Editing by David Goodman