Glut forces LNG producers to offer flexible deals from global portfolios
SINGAPORE: The world's biggest liquefied natural gas (LNG) producers including Shell, Total and Petronas are increasingly selling from global supply pools instead of dedicated projects as buyers leverage a fuel surplus to force ever more flexible deals.
This marks an accelerated turning from traditional long-term contracts that lock customers into taking regular volumes from specific projects under oil-linked pricing formulas.
Global oversupply that has pulled spot LNG prices down by more than 50 percent over the past half-year has producers succumbing to consumer demands for fuel on shorter notice and without sourcing or destination restrictions.
“A more dynamic and liquid LNG market, and the need for greater flexibility by traditional LNG buyers, is providing opportunities for shipping optimization and trading, and enabling new entrants such as LNG traders,” said Saul Kavonic, head of energy research for Australia at Credit Suisse.
Royal Dutch Shell, holder of the world's biggest LNG supply portfolio, signed deals last year with Hong Kong's CLP Power, South Korea's SK E&S and Panama's Sinolam LNG for deliveries that could come from any of its global projects, according to an annual report published this month by the Paris-based International Group of LNG Importers (GIIGNL).
The Anglo-Dutch major is also adding new Australian project Prelude and its LNG Canada plant to its supply pool, which already includes fuel from Australia, Egypt, Peru and Russia.
Shell's LNG sales volumes hit 71.21 million tonnes in 2018, up 8 percent from the previous year, driven by increased LNG purchases from third parties and higher LNG output, the company said in its 2018 annual report.
“It's important that the industry can supply LNG to customers on the basis that they want to buy,” said Steve Hill, Shell's executive vice president for gas and energy marketing and trading, at a conference in Singapore in March.
France's Total, with the secondlargest LNG portfolio, will more than double its overall supply to about 40 million tonnes a year by 2020 from 2017, and out of that volume about 65 percent will have flexible destination or be reloadable, according to a company presentation on its website.
This comes with the start-up of new projects in Russia and Australia and as Total increases offtake volumes from third-party United States export sites.
Malaysia's Petronas - which handles production for the world's third-biggest LNG-supplying nation - also signed several shortterm deals last year from its portfolio including its first ever term deal with India.