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LNGC Maran Gas Lindos docks at Elba Island LNG

Arrival of Shell-controlled LNGC suggests conversion of Elba Island LNG will see its first commercial export in the coming weeks

Our LNGJ Market Tracker shows the 159,800m3 LNGC Maran Gas Lindos – currently on charter with Shell following the BG Group takeover – has docked at Kinder Morgan’s Elba Island LNG plant. Shell’s offtake agreement with the terminal covers 100% of its capacity for the next 20 years.

Initial capacity will likely require weeks to complete cargo loading

Given the plant’s commissioned gas liquefaction capacity of 0.5 million tonnes per annum (mtpa) to date, we estimate it will take up to five weeks to load a full cargo onto the Maran Gas Lindos, depending on the amount of LNG the plant already has in its storage tanks. Notably, the terminal will also be discontinuing its truck-loading business.

Elba LNG is one of the oldest US LNG sites

The facility is a $2bln brownfield development based on an import terminal that had been mothballed in the 1980s and recommissioned in 2001, only to change direction again from import to export when shale gas made US LNG exports commercially viable.

Conversion into export plant marks tail end of initial US LNG development boom

With its first export cargo in the process of loading, Elba Island represents the last of the initial US LNG export facilities quick off the starting blocks after the US shale gas production boom. As such, we only expect to see expansions of existing projects (e.g. Cameron Train 2) to be commissioned over the next two years.  Whilst there are three more large-scale standalone projects under development – Calcasieu Pass, Golden Pass and Driftwood LNG – they are not due for commissioning before 4Q 2022.

US still has several more large-scale projects, but their future is less certain

Yet others – Port Arthur LNG, Gulf LNG Liquefaction, Eagle LNG Partners and Venture Global LNG – have FERC approval but lack final investment decisions. It remains to be seen whether any of these will be constructed as planned since a massive expansion in Qatar will add downward pressure on global LNG prices by around 2024.

Two Elba liquefaction units certified for full commercial operations

Elba Island’s revamp as a liquefaction project is divided into two phases – Phase I (1.5mtpa) with Moveable Modular Liquefaction System (MMLS) Units 1-6 and Phase II (1mtpa) with MMLS Units 7-10. The United States Federal Energy Regulatory Commission (FERC) granted Kinder Morgan the request to commence liquefaction and export activities from MMLS Unit 1 of the 10-Unit plant in October. The facility’s MMLS Unit 3 received its FERC permit to start commercial operations in late November.

Unit 2 slightly delayed, Units 4, 5 and 6 likely to start 1Q 2020

Meanwhile, Units 2, 4, 5 and 6 are undergoing their commissioning processes, FERC filings showed on 10 December. However, based on the previous commissioning timeline of Units 1 and 3, it seems unlikely that 4, 5 and 6 will be put into commercial service this year. However, as Unit 2 started commissioning before Unit 3 in August, we expect its in-service date to be in mid-December 2019, when the next FERC inspection is due. The commissioning of Unit 2 was put on hold in November due to required vibration analysis by Shell.

An LNG terminal in the United States is considered in service as soon as it receives an ‘Authorization to Commence Service’ by FERC, which is issued once commissioning activities have been completed and the facility passed subsequent inspections. Elba Island’s original in-service date was delayed in early September due to the approach of Hurricane Dorian. Fortunately, a subsequent inspection found the facility had remained undamaged by the passing hurricane.

The renewed facility is owned and operated by Elba Liquefaction Company, a joint venture between Kinder Morgan (51%) and EIG Global Energy Partners (49%).

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Pakistan Struggles to Sustain LNG Demand as Economy Falters

Pakistan likely to curtail LNG imports in the short-term but efforts are underway to maintain foreign direct investment in the local energy sector by opening up domestic gas distribution channels.

Since 2015, Pakistan has become one of the fastest growing LNG markets as the country has pushed to ramp up its LNG import capacity to alleviate chronic energy shortages that have led to a decade of electricity blackouts. Regulatory challenges did not deter investors and the country now boasts two LNG import terminals (FSRUs) near Karachi.

Slower economic growth and structual market impediments weigh on LNG demand

However, slowing economic growth and structual market impediments are placing Pakistan’s LNG economy under considerable strain. Delays in the formulation of domestic gas regulations to allow third party access to gas infrastructure, limited domestic pipeline capacity as well as effectively reserving LNG for exporters and fertiliser producers through subsidies leave a substantial gap between imported and local gas prices whilst domestic gas reserves are dwindling. Estimates by the Asian Development Bank peg the country’s GDP growth at just 3.3% this year and 2.8% in 2020, compared to 5.5% in 2018.

Pakistan forced to reduce expensive LNG imports

Consequently, Pakistan has been trying hard to reduce its LNG imports. Our LNG Market Tracker shows the coutnry’s LNG offtakes on a protracted downards trend since March this year, with November’s imports at their lowest since 2016.

Major LNG supply tender cancelled

In October, state-owned Pakistan LNG cancelled a tender for 240 cargoes intended over a 10-year period (roughly equivalent to 14.5mmt) it had issued earlier in June, for which Qatar was rumoured to be the frontrunner, and instead opted to turn to the spot market when required.

Country hooked on relatively expensive Qatari LNG

Pakistan is already receiving the lion share (3.75mmt) of its LNG imports under a 15-year ‘take or pay’ supply contract with QatarGas II, constituting more than 63% of Pakistan’s LNG imports in 2019 to date. Under the terms of the deal, LNG arriving in any particular month will fetch 13.37% of the preceding three-month average price of a barrel of Brent. At the time, LNG spot prices in Asia were reported as low as $5.75/mmBtu whilst the Qatar deal equivalent would supply gas at around $7/mmBtu F.O.B.

Beyond this contract, Qatar has been supplying roughly 0.38, 0.83 and 1.4mmt under short-term contracts (and at presumably higher prices) in 2017, 2018 and 2019, respectively, our LNG Market Tracker shows. Pakistan’s remaining LNG imports derive from a wide roster of sources, ranging from Equatorial Guinea and Nigeria to portfolio trades out of the United States and European re-exports.

Recent spot tender closed 3pp below Qatar’s long-term prices

Pakistan LNG currently has only one open tender for one cargo of c. 140,00m3  D.E.S. with a delivery window of 16-17 February 2020. A recent Pakistan LNG tender for 5 cargoes closed last week, with Gunvor and DXT Commodities emerging as winners to supply roughly 1.5mmt in total at around $6/mmBtu ex ship (depending on Brent price developments in December).

Qatar unwilling to discuss discounts as part of current 15-year contract

Pakistani media have been reporting Qatar refused Pakistan’s requests for price adjustments earlier this year to prevent other offtakers to do the same. LNG imports are covering almost 25% of Pakistan’s gas demand, so that a protracted curtailment of imports raises the spectre of crippling electricity and gas shortages in 2020.

Pakistan keen to achieve turnaround by opening up domestic gas market

This forced Pakistan to quickly adjust legislation to explore other avenues to offset the costs of relatively expensive Qatari LNG at times of slower economic growth. As such, ExxonMobil signed a gas-for-transport agreement with with Pakistan’s Universal Gas Distribution Company (UGDC) to become the first importer of LNG that is not subject to control by state-owned assets.  Singapore-based commodity trader Trafigura also signed an agreement with UGDC to use surplus LNG capacity at the country’s second chartered FSRU (the BW Integrity) to supply the domestic transport sector. The companies aim to convert a share of Pakistan’s petrol market into a compressed natural gas market, arguing that they would be able to provide cost savings of up to 30% to private motorists if they convert their vehicles.

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Qatar Moves to Defend Market Share

World’s largest LNG producer takes bold steps towards regaining market dominance currently at risk from Australia and the United States

New Reserves at North Dome Gas Field

Following appraisal work at the North Dome Gas/Condensate Field, Qatar confirmed the results will support raising the country’s nominal production capacity from the current 77 million tonnes per annum (mtpa) to well above 100mtpa. The chief executive of state energy giant Qatar Petroleum, Saad al-Kaabi, said in a news conference in Doha on Monday that North Dome – which is part of a wider gas play shared with Iran (which calls its part South Pars) – now contains confirmed gas reserves exceeding 1,700 trillion cubic feet.

High quality, stable reserve base

Given the relatively shallow waters of the Persian Gulf, the play’s high reservoir quality and the mature infrastructure already in place, Qatar Petroleum is supremely confident to be able to start with the selection process of the main contractor to build two additional LNG mega-trains with a combined capacity of 16mtpa.

Robust expansion strategy contrasting conservative debottlenecking plan of early 2017

Qatar is thereby clearly pursuing a strategy of robust capacity expansion, contrasting the much more conservative debottlenecking project to squeeze an additional 10mpta out of existing facilities originally mulled in early 2017 (a drilling moratorium at North Dome was still in place at the time). Beyond yesterday’s initial pledge, which would swiftly raise capacity to 93mtpa by around 2024, the total additional capacity to be installed at Ras Laffan is planned to rise to 110mtpa by around 2025 and potentially 126mtpa by 2027.

Qatar established market dominance since the early 2000s

Although Qatar managed to dominate the global LNG market in the early 2000s, later consolidated by additional demand created by the Fukushima nuclear disaster and a pre-2014 global commodities boom, that enabled it to lock buyers into long-term and inflexible supply contracts (e.g. cargo diversions were not permitted), its market influence has since suffered some erosion.

However, market influence has suffered some erosion

In North America, new flexible supply entered the market with Sabine Pass in 2015 whilst in the lucrative North Asia region new Australian capacity added considerable competition, too. Concurrently, high-growth markets closer to home – namely Pakistan, India and Bangladesh – proved extremely price conscious and demanded more flexible terms and lower prices, a cue also adopted by some European buyers after legacy contracts expired.

Expansion aimed at applying pressure on competitors and curb expansions elsewhere

Qatar’s capacity expansion is likely to apply considerable pressure on competing LNG producers post-2025. Fortunately, its production costs are reputed to be among the lowest in the world, so that it can aim to reassert its market dominance that way. We expect Australia’s production to reach equivalence with Qatar’s from next year (Ras Laffan produces slightly above nameplate capacity) until the first two new trains reached their stride in 2024.

At the same time, US investors are likely to become more hesitant to continue with their own plans to expand capacity if they risk protracted oversupply as their feedstock is to considerable extent sourced from volatile shale gas production. As such, the move to expand capacity is primarily a move to defend – and potentially expand – market share. We also highlight that some of the initial capacity installed at Ras Laffan will have surpassed the 25-year mark by the time the new trains are currently scheduled to be commissioned, so that some capacity could end up being replaced by the new facilities instead of added to, depending on market conditions.

Qatar Petroleum set to be selective on investment structure, exploring all options

An interesting factor will be the investment structure for the new capacity. Oil majors already heavily invested in Ras Laffan – chief among them ExxonMobil, Shell and Total – are keen to see the expansion take place. Indeed, it was these investors who pushed for debottlenecking in 2017. In a Platt’s interview last month, al-Kaabi would not be drawn on how Qatar Petroleum intends to structure investment, affirming that any partnerships would be contingent on the value they would provide to Qatar Petroleum, including “an offtake [arrangement]”. In our view this is particularly noteworthy because it implies the potential of Qatar Petroleum beginning to sell LNG based on a similar tolling model seen in the US to reduce its exposure to risks in a market more crowded than in 1996 when Ras Laffan’s first train was commissioned.

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US LNG Supply Surplus Increases Risk for Portfolio Players

Lower Asian demand in September and October partially responsible for excess LNG flows into Europe but threat of delay to Nord Stream 2 pipeline probably also factored

The rise of US LNG means LNG markets are flush with new supply whilst the prevailing ‘tolling’ model for US LNG means traders can profit from cheaper North American gas but face significant downside risk if demand growth slows.

A spike in journey times highlights lower demand

This was particularly felt during September and October when demand in the Far East decreased, leaving several US cargoes lifted in August and September circling the oceans. Journey durations spiked as vessels remained in limbo for several weeks, including the British Sponsor and the Gaslog HongKong.

Traders initially sent some cargoes the long route to buy time…

Other LNGCs such as the Diamond Gas Sakura and the GasLog Shanghai were deliberately sent via the Cape of Good Hope to time deliveries considerably into the future. As such, the Diamond Gas Sakura took 85 days to deliver a Cameron cargo lifted on 18 August to CPC’s Yung-An terminal in Taiwan, a journey which usually takes less than half the time, after the vessel turned back from the Panama Canal to take the route around South Africa.

…then switched to Europe

Fortunate traders were able to adjust in October and journey times plummeted as cargoes found shelter in Europe and went into gas storage. Whereas only 8 US LNG cargoes found their way into European tanks in October 2018, there were 19 in October this year, so that the 137.5% growth in the number of cargoes delivered to Europe far outpaced the 72.4% of overall growth in US LNG cargoes y/y. Nevertheless, we think some of these cargoes to have traded at considerable discounts as regional storage capacity filled. Meanwhile, a few US cargoes remain idling off European shores, including roughly 147,000m3 aboard the BW GDF Suez Paris and 139,700m3 aboard the Solaris.

US-European LNG trade describes both a convenient outlet and a hedge

Whilst from a trader’s perspective Europe thus posed a convenient recipient for what would otherwise have been surplus LNG, we believe the additional US volumes also served as a convenient hedge for European utilities against the looming delay of Gazprom’s Nord Stream 2 pipeline into Germany. The pipeline was originally scheduled to become operational by the end of this year when a Russo-Ukrainian gas transit agreement – a major export route of Russian gas into Europe – expires. Delays at the time seemed inevitable, however, as a 2019 amendment to the European Gas Directive forbids gas suppliers to control supply infrastructure, but which directly contravenes Gazprom’s pipeline gas export monopoly enshrined in Russian law. A threat by Chancellor Merkel to suspend the project until protracted litigation between Gazprom and Ukraine energy company Naftogaz was resolved added to uncertainty.

US LNG focus back on Far East

Meanwhile, traders seem to have swung back towards destinations in the Pacific and the Far East and we expect around 60% of US cargoes currently at sea to arrive in the Far East by 19 December. In line with the run up to winter, Far Eastern LNG demand has begun to rise again, with our initial outlook already pegging this month’s regional demand 2.5% higher y/y.

US LNG risk firmly lies with portfolio players, not capacity owners

US liquefaction plants typically sell their LNG at 115% of US gas futures plus a fixed gas liquefaction fee of $3-4 /mmBtu in what is known as the ‘take-or-pay’ or ‘tolling’ model.

Early adopters such as BG Group (now part of Shell’s portfolio) even managed to negotiate fees as low as $2.25/mmBtu for the 3.5mtpa it signed with Cheniere from Sabine Pass T1. Other companies such as Total with stakes in more than one train are also likely to have managed to secure lower fees.

Under the tolling model, the plant operator effectively leases out liquefaction capacity to portfolio players and major utilities for the duration of the supply contract (on an annualised basis), with the caveat that a fixed fee is payable regardless of whether the portfolio player uses the contracted plant capacity or not.

For the plant operators such as Cheniere this model means revenue are secure. For LNG portfolio players this imparts a downside risk of tens of millions of US$/month, incentivised by relatively low US gas prices following the US shale gas boom in the Marcellus and Utica plays and associated gas from the Eagle Ford play and other Texan sources. The EIA’s latest figures at the time of writing peg Henry Hub prices at $2.72-2.87/mmBtu.

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Argentina Begins to Tango

YPF’s launch as an LNG exporter went to plan with the Tango FLNG barge at near capacity

YPF’s Tango FLNG barge moored at the port of LPG fractionator Mega – a joint venture consisting of YPF, United States chemicals major Dow and Brazil’s state-controlled petrochemical champion Petrobras – has exported its first LNG cargo aboard the LNG carrier Excalibur in the late evening hours of Friday last week. YPF has maintained throughout that formal trading will commence in 3Q 2019 despite various reports a cargo had already been shipped in June this year. The company’s LNG export last week thus marks the passing of a milestone in Argentina’s strategy to reverse the flow of the expensive fuel.

Tango born as Caribbean FLNG

The 0.453mmt Tango barge was installed as part of a 10-year charter signed with Exmar, a Belgian fleet owner/operator, in November 2018. The floating production facility was delivered to YPF in February. Tango had originally been built as Caribbean FLNG to serve a contract in Colombia where Pacific Rubiales Energy wanted to liquefy gas from its La Creciente gas field.

Argentina’s first LNG export in November, not June

Although it was widely reported that Cheniere had purchased Tango FLNG’s first production as a partial cargo via the Fuji LNG in early June this year, the 30,000m3 cargo at the time was not part of regular production but a result of the starting up of Tango. The process left YPF with the choice of either leaving it in the tank or selling it on the spot market. Unfortunately, the Fuji LNG was unable to berth alongside the Tango barge in June due to a strike called by the dockers’ union at Bahia Blanca, which makes last week’s cargo aboard the Excalibur Argentina’s first LNG export.

Exmar’s LNGC Excalibur shipped c. 0.054mmt, pegging Tango at near capacity

Before arriving at Bahia Blanca in the afternoon on 12 September, the Excalibur haddelivered a partial cargo of 0.027mmt to Argentina’s Escobar import terminal on 25 June. The vesselis currently headed for a yet-to-be disclosed destination in the Atlantic Basin and was carrying around 0.054mmt at load point, our LNG Market Tracker shows, suggesting the Tango FLNG barge is producing near capacity at eight cargoes p.a.

Next export aboard the controlled Methane Kari Elin

YPF has also lined up an export for Shell’s portfolio to be shipped via the STASCO-controlled Methane Kari Elin, which went alongside the Tango barge on Monday afternoon. We are currently expecting the 138,267m3 vessel to ship another 0.05mmt within the next 7 days. Whilst the Methane Kari Elin typically loads cargoes within 20 hours of arrival, we have allowed for more time in our outlook due to Tango’s size and potential teething problems.

Argentina is keen to monetise Vaca Muerta shale gas

State-owned YPF is keen to monetise excess supply growth from shale gas production at the Vaca Muerta play to improve its trade balance and place development on a more sustainable footing. As such, the company hopes to reach markets outside South America via the LNG route. The Tango FLNG project is intended to be the country’s first step on that journey, with a much larger liquefaction plant (20-25mpta) on YPF’s drawing board.

Whether this plan will come to fruition will to a large extent depend on foreign direct investment – not only in gas liquefaction infrastructure but also the Vaca Muerta play itself where constant drilling is required to stave off rapid production decline on an individual well level.

YPF under pressure to clear gas infrastructure backlog

Meanwhile, an extensive infrastructure backlog built up over the past decade is adding to Argentina’s capital demands. YPF is pushing to expand gas exports to Chile, where Enel Generación Chile and Colbún respectively signed new supply contracts with YPF over 365mln m3 p.a. and 1.095bln m3 p.a. Previous deliveries, however, have been volatile as Argentina’s pipeline capacity struggles to cope at times of high demand, which is both responsible for supply interruptions and LNG imports. Whilst there have not yet been indications this would impede operations at Bahia Blanca, Argentina is also currently not in high gas demand season. Nevertheless, the relatively small capacity of the barge is unlikely to introduce unmanageable strain to the national pipeline system.

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North Asian LNG Demand in Net Decline as Nuclear Returns and Economic Growth Slows

The roster of North Asian LNG importers has seen their demand for the fuel drop by 7.68mmt (-4.7%) in the period January to October compared to the same period last year, our LNG Market Tracker shows. The region includes the world’s three largest imports – Japan, China, South Korea – and Taiwan.

Growth in 1H 2019 almost stagnated

Whilst representing broadly stable demand, its significance lies in the absence of significant year-on-year growth. Demand growth in the first half of 2019 almost stagnated, reaching only 0.2% over the first half of 2018.

Taiwan only major importer with broadly steady demand

The island nation of Taiwan was the only one that has kept LNG imports broadly steady as its power sector is less nuclear-centric and government policy aims to reduce coal reliance.

Japanese demand decline driving factor

The driving factor of this development lies in Japan’s demand decline. Comparing the periods of January – October for 2018 and 2019 reveals that the country has reduced its imports by 10.11mmt (-14%). Notably, much of the country’s formerly suspended nuclear power capacity is back online, if underutilised. As a result, although Japanese LNG demand remains elevated by historical standards, it has been considerably below last year’s level.

Japanese government to steer against lower gas demand

Meanwhile, the Japanese government has pledged an additional $10 billion (¥1.1 trillion) in LNG project financing in Asia to help spur demand by expanding the fuel’s supply base. Japanese funds have already been earmarked for Novatek’s Arctic 2 project in Russia. Although clearly a longer-term strategy aimed at the next decade, it underscores the Japanese administration’s pro-gas perspective.

Gas demand may see a boost next year if nuclear safety deadlines not met

Some power operators warned they would be unable to comply with new nuclear safety measures approved in June before the deadline in May next year, which could force the renewed closure of capacity and cause a potential surge in Japanese gas demand next year.

New nuclear capacity weighing on South Korean LNG demand, too

Nuclear power also played a role in lowering South Korea’s demand by 2.28mmt year-on-year for the period of January – October. Following the suspension of some capacity last year, this year nuclear power generation has rebounded as some plants have come back on line. Moreover, the Shin Kori 4 reactor, which shares the top spot in terms of capacity with its Shin Kori 3 counterpart, began loading fuel in February and commenced commercial operations in September.

Despite some growth, China was unable to reverse the prevailing trend amid maturing GDP growth

China, meanwhile, grew imports by 6.01mmt in the period of January-October despite a steep drop by 38% to 4.23mmt in February 2019. However, this was not enough to reverse the prevailing regional trend. Accordingly, even Chinese demand has seen a net decline of 18% from June to the end of October. As a result, the country has not yet begun growing monthly imports in the run up to the historically high demand period of winter. Notably, the country’s current 5-year plan has put less emphasis on gas, which has impacted the country’s coal-to-gas switching. Concurrently, the country’s economic growth is maturing, further dampening demand growth for expensive LNG imports.

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Something is happening at Honningsvåg

Previous reports suggested future ship-to-ship transfers close to Murmansk, but Yamal LNG seems still in the process of sorting winter STS location

The ice-free, deep-water port Honningsvåg on Magerøya Island in Norway close to the Russian border became witness to 123 ship-to-ship (STS) LNG transfers amounting to c. 8.2mmt between November 2018 and June 2019. Today, the first Yamal vessel since July has anchored at one of Honningsvåg’s STS sites.

Temporary provisions forced by necessity

Russia’s second largest gas exporter – Novatek – had announced in April 2019 that STS operations in Norwegian waters were about to end; they were always intended as a stop-gap measure until a more permanent solution were found.

New Russian law should have alleviated shipping impasse

These STS LNG transfers became necessary partly because Russian law did not allow foreign-owned vessels to operate in certain Russian coastal regions until recently. LNG carriers (LNGCs) are regularly built and operated by joint ventures with complex international ownership and operational structures, including diverse flag states.

Yamal’s specialised Arc-7 fleet effective but more costly to run

At the same time, Novatek’s specialised ice-class ‘Arc-7’ LNGCs are not optimised for conventional LNG trade. They were built to withstand pack ice dense and strong enough to severely damage ordinary hulls along the so-called Northern Sea Route, a summer shipping lane into North Asia traversing the Arctic Circle. The reinforced, icebreaker-like bows of Arc-7 LNGCs, however, require more energy to make speed, increasing costs on a per-unit basis. Transferring cargo onto more nimble vessels part way thus constitutes an economic imperative for Russian arctic LNG supply into Europe and the Atlantic Basin

Side-stepping sanctions

Recent US (now resolved) sanctions on COSCO Shipping Tanker (Dalian) Co. – originally one of the Arc-7 joint venture partners – could have exacerbated the situation by effectively preventing part of Yamal’s fleet from operating. Nevertheless, the affected vessels neatly sidestepped the issue whilst their ownership structures were speedily adjusted by either being on ballast voyages or making deliveries to China, our LNG Market Tracker shows. 

Final winter STS site yet to be confirmed

Although Yamal can thus look back on two eventful quarters, questions remain where future STS operations are going to take place. Whilst the waters around Kildin Island close to Murmansk have previously been touted as Honningsvåg’s successor due to relatively little pack ice in winter, it remains unclear whether Novatek has managed to conclude an agreement with Russian naval authorities operating a submarine base in the area. Regardless, the company’s vision to build a permanent STS base on the Kola Peninsula is unlikely to be completed before 2022.

As such, our LNG Market Tracker shows that the newbuild Georgiy Ushakov – the latest Arc-7 addition to the Yamal fleet – has anchored at Honningsvåg on 28 October. Although the vessel has not yet had its cooldown cargo, the anchoring at one of Honningsvåg’s previous STS zones is noteworthy. 

Original STS contract underperformed

The original contract between Novatek and Tschudi Group, the Norwegian STS specialist who handled the 123 LNG transfers at Honningsvåg until June this year, stipulated 158 such operations. There may thus still be headroom for at least 35 further transfers provided the original Norwegian STS license can be renewed. 

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Several ‘Orphaned’ Cargoes as Demand Levels Off

Portfolio-based US exports particularly affected by longer journey times

Departed without destination

Our LNG Market Tracker shows there are currently 9 laden LNGCs without clear destination currently idling or circling off Spain, the Cape of Good Hope, or Japan. More than half of those left either Sabine Pass LNG, Corpus Christi LNG.

Surplus US LNG struggles to find home in Europe

As such the British Sponsor and the Clean Ocean, both carrying Corpus Christi cargoes, are still waiting for buyers whilst circling in the Atlantic.

Corpus Christi

The British Sponsor in particular has left Corpus Christi on 26th August by first taking course towards the Pacific. At the moment its eventual journey time is likely to approach or exceed the 40-day mark as the vessel is currently circling off the Cape of Good Hope in South Africa. Considering its original load level and boil-off, we expect the vessel to eventually deliver around 3.04 bcf.

The Clean Ocean, meanwhile, is circling in the Atlantic off the Azores. Given the number of vessels with portfolio cargoes on board already struggling to find buyers in Spain and the rest of Europe, the vessel may eventually be diverted.

Sabine Pass

This is what happed to the Gaslog HongKong, carrying a Sabine Pass cargo since 25th September. Clearly headed for Europe until 4th October, it was then diverted towards the Pacific with a current arrival horizon of 6th November, indicating an eventual journey of 42 days.

Other Sabine Pass cargoes in search of a home in the Atlantic are aboard the Maran Gas Hector, the Marvel Crane and the Hoegh Giant, all three idling off Spain. Their combined cargo volume after boil-off at the time of writing is c. 10.1 bcf.

On average, surplus US LNG departed more than a month ago, with the Patris currently at sea for more than 56 days and the Diamond Gas Sakura for more than 70.

Not just US LNG affected

However, it is not just US LNG that is affected. The Sevilla Knutsen carrying an Equatorial Guinea cargo has been circling off Tokyo Bay since Friday whilst the Valencia Knutsen joined the group of US cargoes above and is circling off Gibraltar carrying a Peruvian cargo.

Notably, the Golar Arctic is also in search for a destination for the Rotterdam reload of 2.57bcf it lifted on 1st September. The vessel has since been sailing up and down Europe’s Atlantic coast without unloading. 

Demand flattish week-on-week

Following the seasonal high demand period of summer, appetite for surplus LNG has been relatively low in recent weeks. Although the Atlantic Basin saw slight demand growth in the first week of October, the curve has since flattened off.

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UK LNG Imports Soar

Offtakes have tripled in the first 42 weeks year-on-year

British LNG demand has seen a dramatic increase compared to 2018 and 2017 as the country reached a preliminary offtake peak of 3.9mln m3 in April. For the remainder of October this year, we are expecting another four cargoes aboard the Lijmiliya, the Bu Samra – both scheduled do dock at South Hook LNG – as well as the Umm Slal and the Megara, which are headed for the Isle of Grain.

The UK had already seen robust year-on-year demand growth in 2018, increasing offtakes by almost 6%.

Qatar reasserts its dominance as key supplier

Notably, Qatar has reasserted its dominance as the UK’s key supplier in spring as exporters such as Yamal LNG used the warmer summer temperatures to send more cargoes via the Arctic to China and the bulk of US LNG headed to Europe was soaked up by Spain and France.

UK import growth carried mainly by South Hook

The increase in imports was mainly carried by the South Hook terminal in Milford Haven in Wales, where imports soared to more than 12mln m3 in the year to date, an increase of almost 260%.  Compared to the same period in 2017, imports have increased by almost 84%.

Dragon LNG helped

Despite being a smaller facility, its neighbour Dragon LNG also managed to more than triple its offtakes over the same period, though activity has waned since July, a pattern that could also be observed in 2018. Nevertheless, Dragon LNG more than doubled offtakes since January this year compared to the same period in 2017. The terminal tends to receive cargoes from a more varied roster of suppliers, soaking up excess volumes in search of a destination. 

Milford Haven prime destination for Qatari LNG

The two terminals at Milford Haven represent Britain’s prime capacity for imports from the Middle East and the westerns side of the Atlantic Basin. Cargoes delivered here tend to be based on more long-term supply deals with Qatar (Qatargas II-IV and RasGas III) though a few portfolio deliveries from Sabine Pass and the occasional spot cargo also find their way here.

Isle of Grain also saw robust offtake growth from Russia and Algeria

Meanwhile, the Isle of Grain terminal in Kent is predominantly approached by vessels from Russia (Yamal LNG) and Algeria (Arzew) with the occasional import from Norway’s Snøhvit LNG.

Here imports have seen slightly slower growth, increasing by less than one and a half times in the year-to-date compared to the same period in 2018, whilst having doubled offtakes compared to the same period in 2017

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Nuanced Demand Picture Unfolding in Middle East

Growth in Pakistan tempers change driven by Egypt

Whilst the overall number of cargoes delivered by Sunday midnight is looking to remain stable week-on-week as well as year-on-year, the actual volumes delivered will lag behind both those of the previous week (7.6%) and year-on-year (-14.3%), our LNG Market Tracker data for this week to Sunday indicates.

The key to that development is found in Egypt.

Egypt’s return as exporter is tipping the scale

Eni’s discovery of the Egyptian Zohr offshore gas field in 2015 and subsequent swift development has had a significant effect on overall Middle Eastern LNG demand. Eni’s figures show the field achieved production growth to 2.7 bcf/d in August, growth which helped free up gas produced from the West Delta Deep Marine Development for export.

This has allowed Egypt to re-enter the LNG market as a net LNG exporter via its Idku plant notwithstanding seasonally high domestic summer demand that has whittled exports down to one cargo in September. 

Idku has seen the number of shipped cargoes rise from 21 cargoes in 2018 to 36 in the year to October, our LNG Market Tracker data shows. Notably, the plant sent out an additional cargo on 30 August via the Cadiz Knutsen, though this was a domestic shipment to Ain Sokhna.

Knock-on effects on regional demand

As a result, the region’s demand picture this year is missing 36 cargoes that were received by the Ain Sokhna terminal between January and early October last year.

Moreover, Egypt’s gas developments are also impacting Jordan, which has seen the number of cargoes delivered to the Aqaba LNG terminal fall by 83% year-on-year since January. The reason is not a sudden drop in Jordanian energy demand but the resumption of Egyptian gas exports to the country via the Arab Gas Pipeline. The pipeline suffered a series of sabotage attacks in 2011, which led to the commissioning of the Aqaba LNG facility.

Pakistan and Dubai demand slows overall decline, leaving a nuanced picture

The fall in demand could have been much more significant but for robust demand growth in Pakistan. Although the UAE and Israel have also increased offtakes significantly by 78% and 30% year-on-year since January, these took place from relatively low bases. In contrast, Pakistan’s increase of 32.5% represent more than 4mmt over the same period, thus compensating to a large extent for the decline in Egyptian LNG demand.

The Middle Eastern LNG demand picture is thus likely to continue a nuanced development, with importers such as Pakistan likely to continue on an LNG growth path whilst those with domestic resources and pipeline connectivity continuing to reduce offtakes.

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