The gas crisis puts the LNG freight market in the hands of the energy giants

LONDON/SINGAPORE, Sept 27 (Reuters) – Soaring LNG freight prices have squeezed out dozens of smaller traders, concentrating business in the hands of a handful of international energy majors and big global trading houses.

This grip is not expected to ease until 2026, when more liquefied natural gas (LNG) will begin to materialize and drive prices down, compounding supply problems for poorer states that rely on it to generate electricity. electricity and will increase costs for major Asian economies.

The global LNG market has more than doubled in size since 2011, ushering in dozens of new entrants and the expansion of smaller players in Asia. In recent years, small traders accounted for 20% of LNG imports in China alone.

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But a spike in spot LNG freight prices to $175-200 million from around $15-20 million two years ago has had a seismic impact on physical business activity for many smaller players.

The capital needed to trade in the market has soared after benchmark LNG prices rose from record lows of below $2 per million British thermal units (mmBtu) in 2020 to highs of $57 in August.

In July, Japan’s Nippon Steel Corp, the world’s second largest steelmaker (5401.T), bought a shipment of LNG at $41/mmBtu. The LNG spot price was then $40.50/mmBtu.

Prices have recently fallen, hitting $38/mmBtu on Monday, but analysts say they remain at levels possibly linked to an ongoing energy crisis. Read more

Northeast Asia LNG Spot Price - Annual Comparison
Northeast Asia LNG Spot Price – Annual Comparison

“The biggest challenge facing every market player right now is credit,” said Ben Sutton, CEO of Six One Commodities, a U.S.-based LNG merchant that had to scale back operations after prices spiked in the US. third quarter of 2021.

Short-term market volatility has increased risk for traders, with geopolitics rather than fundamentals driving price movements.

“The skyrocketing value of LNG cargoes, along with the spike in volatility, has … put a strain on players operating with smaller balance sheets,” said Tamir Druz, chief executive of Capra Energy, a energy company. LNG consulting.

In Asia, a trade manager told Reuters some smaller players had left “dormant” offices in Singapore’s mall, while second-tier Chinese traders and some Korean firms scaled back business as funding became more difficult. to obtain.

“LNG has once again become the commodity of the rich,” said Pablo Galante Escobar, global head of LNG at energy trader Vitol, at this month’s international Gastech conference in Milan.


Terms are now heavily skewed in favor of players with large and diversified portfolios and strong balance sheets such as oil majors Shell (SHEL.L), BP (BP.L) and TotalEnergies as well as large trading houses such as Vitol, Trafigura, Gunvor and Glencore. (GLEN.L).

BP, Shell, Trafigura and Glencore declined to comment. TotalEnergies, Vitol and Gunvor did not immediately respond to Reuters request for comment.

Shell and TotalEnergies are estimated to hold a combined portfolio of 110 million tonnes out of the 400 million tonnes (MT) of the current LNG market, said Jason Feer, global head of business intelligence at the energy and shipping consultancy. Poten & Partners.

Both have built portfolios, with Shell buying BG and TotalEnergies taking over Engie’s LNG arm. The two are also partners in Qatar’s North Field, one of the largest LNG projects. Read more

Adding Qatar Energy’s portfolio of 70 million tonnes and BP’s portfolio, estimated at around 30 million, this means that four players account for more than half of the market.

While rising interest rates are increasing trading costs, that has yet to worry big players, for whom increased pricing pressure represents a sweet spot, industry sources said.

Shell and TotalEnergies reported record profit, while Vitol’s record first-half 2022 profit topped its full-2021 results. read more

Guy Broggi, an independent LNG consultant, said Shell and TotalEnergies were the main winners as partners and buyers at Egypt’s Damietta and Idku plants, along with BP and Italy’s ENI, selling LNG well at above the government target price of $5/mmbtu.

As buyers of U.S. LNG via long-term contracts, Shell and TotalEnergies have also made considerable gains by reselling low-priced U.S. cargoes into higher-priced European markets, he said.

“We are entering uncharted territory when it comes to LNG markets and the consequences of the current crisis with Russia are difficult to understand, not just for LNG. One thing is certain, prices are here to stay higher and longer,” Broggi said.


High LNG cargo prices are also aggravating global energy poverty, as some cargoes, originally destined for poorer countries, end up being diverted to European buyers. Read more

“Pakistan and Bangladesh are the big losers as both had procurement strategies with a high percentage of cash purchases and faced a power crisis this year,” said Felix Booth, head of LNG at the data analysis company Vortexa.

In July, Pakistan LNG Limited (PLL) received no bids in a tender for the import of 10 LNG shipments.

India’s Petroleum Ministry showed India was paying 20% ​​more on an annual basis for its July LNG imports, valued at $1.2 billion, while monthly import volumes fell further due to high spot prices.

“Until we build more infrastructure and launch more ships … it will be difficult to compete with established markets,” said Charlie Riedl, executive director of the Center for Liquefied Natural Gas business group ( CLNG). .

The slow development of the project and a possible return of China from COVID-related restrictions will keep prices high, Feer said at Poten & Partners.

“It could get worse if China comes back into the market massively. China has been out of the market this year due to lower demand due to its lockdowns and slower economic growth. flock to Europe,” Feer said. added.

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Reporting by Aizhu Chen in Singapore and Marwa Rashad in London; Additional reporting by Julia Payne in London; Editing by Veronica Brown and Alexander Smith

Our standards: The Thomson Reuters Trust Principles.

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