Egypt’s EGAS LNG tender draws global attention

Egypt’s LNG buy tender for 2017-2018 presents an opportunity for traders without access to their own production volumes to take a potentially rewarding short-term position in the market.

Egypt is viewed as a buyer with both political and credit risk, which means that some global majors or risk-sensitive trading houses based in Japan are unlikely to participate in the process directly.

However, this creates an opportunity for those comfortable with a higher level of risk exposure, such as Switzerland-based energy trading firms Trafigura, Vitol, Gunvor and Glencore who may emerge as forerunners in the tender process.

The tender for 96-98 cargoes closed on 6 November. The validity period of 21 days means that the tender will be awarded on or after 27 November.

A newcomer to the market is Oman Trading International (OTI), a Dubai-based trading venture entirely owned by the government of Oman and responsible for trading oil and gas produced by the various government-owned companies in Oman, including Oman LNG.

OTI did not offer volumes on the basis of its relationship with Oman LNG, but, instead, was participating on behalf of other traders not willing to absorb risk exposure in Egypt, sources said.

A source involved in the tender said that OTI is likely to be offering volumes on behalf of state-owned PetroChina.

BB Energy, another independent energy trading firm and a relative newcomer to the LNG market, is understood to have submitted offers into the tender on behalf of Malaysia’s state-owned energy major PETRONAS.

Trading houses participating in the tender have backing from several major producers of LNG including Anglo-Dutch major Shell, Qatari state-owned RasGas and Qatargas and Norway’s Statoil, sources said.

US-based energy company Cheniere is also backing one or more participants in the tender with a particular focus on a 2018 string of supply, sources said. It is not clear if the company has direct arrangements with a tender participant.

Cheniere is not offering into the tender due to the high risk profile of the buyer, but could back a party with a position in Egypt, especially in 2018, sources said. Cheniere also expects to have volumes for sale on an FOB (free on board) basis in 2018. These can be used for an Egypt position directly or worked into an optimisation chain through a swap.

Qatar to play greater role in supply

Several tender participants are likely to have direct backing from Qatari RasGas and Qatargas, sources said.

Both Trafigura and Glencore have arrangements with Qatari producers covering at least some of the positions which they have offered to Egyptian Natural Gas Holding Co (EGAS), traders in Singapore said.

Each entity is understood to be supporting a different energy trader in the process. RasGas is aligned with Glencore, while Qatargas is aligned with Trafigura.

“Qatar has been sending cargoes that it can’t place elsewhere to Europe. Egypt offers a much stronger netback,” one Singapore-based trader said.

Although offers for the tender are required to be linked to Brent crude, Qatari producers are likely to be seeking an equivalent of a $0.20-0.40/MMBtu premium to UK’s NBP benchmark, at least on the near curve.

NBP January ‘17 closed at $6.41/MMBtu on 7 November, with Q1 ‘17 the most expensive period of 2017 and 2018.

A trading source said that Trafigura works with several producers who offer them slots. The company then accepts an offer with best price and flexibility and, in turn, submits its own offer on the basis of the outcome of its negotiations with producers. The company has previously worked closely with Shell on short-term and spot positions, often offering volumes into geographies with high credit risk profile.

However, tender participants also said that some offers into the tender have no immediate backing and are submitted on the basis of a pure short.

“I think most traders that offered into Egypt have done so having covered 70-80% of their string with agreements from producers. But some portion of what they have submitted has no backing and they will have to cover that from an open market if the cargoes are awarded,” a producer said.

Egypt receives competitive offers

Offers to Egypt for delivery of volumes in Q1 2017 have been submitted at close to 15% of Brent crude indexation with the highest level seen for January 2017, traders active in the tender said.

From Q2 2017 through to 2018, offers have mostly ranged between 11.5% and 12.5% of Brent crude, with the highest-priced offers gravitating around winter procurement season.

A trader said he saw an offer for Q3 2017 delivery as low as 10.5% of Brent crude indexation. However, other participants rejected this level as too low.

Offers are typically based on a six-month historic average of Brent crude.

“With Egypt, you are basically taking a position on the direction of the crude market,” a trader said. roman.kazmin@icis.com