Pakistan LNG says Trafigura, Gunvor lowest bidders in LNG tender
Pakistan LNG said on Thursday commodity traders Trafigura and Gunvor had made the lowest bids in a tender to supply three cargoes of liquefied natural gas between late January and late February. It said Trafigura made the lowest bid to supply a cargo on Jan. 21-22 at 14.4 percent of Brent crude oil prices, Gunvor’s bid for the Feb. 3-4 cargo was at 15.8 percent and Trafigura again bid the lowest for Feb. 21-22 at 14.8 percent. Vitol Bahrain had also bid to supply two cargoes but at higher prices, according to a Pakistan LNG commercial evaluation document. BB Energy had sent in bidding documents but they did not technically qualify. The prices, expressed in the document as crude oil slope or the numerical percentage of Brent crude price, are a valuable pointer for the opaque spot LNG market. A cargo priced at 14.4 percent of Brent is about $8.66 per million British thermal unit (mmBtu). Spot Asian LNG prices for January were heard at $9.80 per mmBtu last week although they have since fallen to closer to the $9.00 per mmBtu mark. Pakistan LNG launched a tender for the three cargoes in November, the first for LNG since June.
Asia oil and LNG markets are both swamped, so why are prices poles apart?
Asian markets for liquefied natural gas (LNG) and oil are closely related, and both now awash in oversupply. But while data shows forward oil prices rising, LNG prices for future delivery are veering in the opposite direction. This makes it unprofitable for the LNG market to store excess gas, as the forward curve for Asian LNG shows prices for February are 40 cents below January’s $9.67 per million British thermal units (mmBtu). That means the market is in what’s called ‘backwardation’ – where prices for future delivery are lower than those for immediate dispatch. That has baffled many traders. Because crude oil has a price curve pointing the other way – into what markets call ‘contango’, when immediate prices are higher than those in the future, traders can store unwanted oil profitably for later sale. HOW WELL SUPPLIED ARE MARKETS? Oil markets moved from backwardation in October into contango from November due to an emerging glut. LNG markets are also clotted, with several tankers storing the fuel sitting off the region’s energy trading hub of Singapore. WHY IS LNG DIFFERENT TO OIL? Although oil and gas markets are usually closely related to each other, current conditions have drawn them apart. The current LNG price curve is at the mercy of the weather. While oil is mostly used in Asia to fuel cars, trucks, ships and planes, a lot of LNG is used in power stations and for heating: LNG demand tends to rise during the northern hemisphere’s winter season. WHAT’S WITH THE WEATHER? With the icy blasts of last winter in mind, and a huge programme under way in China to shift millions of households to using gas for heating instead of coal, traders prepared for this winter by loading up on LNG. But so far this winter real cold snaps have yet to show up, thanks to an El Nino weather pattern gripping North Asia. Hence, the LNG market is sitting on lots of unneeded gas. And system could get even more clogged once demand sinks with the arrival of mild spring weather next year. WHY NOT STORE LNG FOR LATER SALE? Even if the outlook was for a tighter market and forward prices were higher, storing LNG for later sale rarely happens. That’s because unlike oil, which can be stored easily on tankers, keeping LNG on a ship is necessary in Asia and costly – it must be chilled to -160 degrees Celsius (-260 degrees Fahrenheit). What’s more, LNG also gradually evaporates when stored aboard tankers, so cargoes steadily lose value. In Europe, excess LNG is re-gasified and put into vast underground storage facilities. But Asia has far fewer sites for this, forcing traders to keep the current excess LNG on ships – at a princely charter rate of $160,000 a day.