The content of my conversations with LNG traders and ship brokers has changed in recent months with a much greater interest now in pricing developments at northwest European gas hubs.
About a year ago Europe was touted by LNG sellers as the key source of demand in a market that would be oversupplied for years to come. New US and Australian supply was expected to flood the market with cargoes struggling to find a home.
For sure, LNG prices have already fallen as new supply starts up. But rather than Europe seeing a sharp increase in the number of cargoes being delivered it has instead once again become a pivotal supplier of reloads for traders looking to cover short positions in the Middle East and South America.
And this time round the attraction of cheaper, more liquid hubs in the northwest is greater than the less liquid Spanish market.
The recent decrease in the value of the British pound against the US dollar has made the British NBP hub, which trades in pence/therm, a more attractive source of reloads for traders who predominantly deal in dollars. A reload at the Grain terminal in Kent is currently underway with another expected in the first half of August.
Limited additional supply options from other Atlantic LNG suppliers such as Nigeria, Trinidad and Angola, and delays to the start-up of the second train at Cheniere’s US Sabine Pass plant mean that Europe is now a preferred option, especially for traders needing to cover positions into nearby Egypt.
Rather than recent news of higher winter prices at the NBP being welcomed by LNG sellers as a sign of potential higher demand for cargoes over the coming months, in the current market it could limit one supply option to take cargoes out of the region if the spread between reload and spot prices elsewhere becomes too narrow.
The ramp up in new supply will speed up over 2017 and 2018 providing projects start on time the need for European reloads for delivery into South America should be reduced as closer US Gulf supply options ramp up.
But traders will always want to make the most of geographically diverse supply options and if the margin works the Europe could continue to see cargoes reloaded even if net deliveries into the region increase. ed.cox@icis.com