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Desperate Japan buys pricy Nigerian LNG

Widening price gap pulls spot cargoes to Asia from Atlantic basin

The price gap between Atlantic and Pacific basin liquefied natural gas (LNG) has widened and is drawing available spot cargoes to Japan.

The country bought a long-haul cargo at a price above $13/million British thermal units (Btu), compared with a high $12/m Btu last week, and the wide price spread between UK gas and Asia spot LNG may allow more cargoes to follow.

Japanese utilities, including Chubu Electric Power, Kyushu Electric Power and Kansai Electric Power, bought spot cargoes at around $13/m Btu from countries including Nigeria and Indonesia.

“The spread between UK NBP and Asia spot LNG is nearly $4/million Btu. I saw $2.50 before the quake but I’ve never seen it this wide,” said one Asian LNG trader. “More cargoes will come from the west because Japanese electricity producers, which were unaffected by the earthquake quake but must keep nuclear plants shutdown, are still looking for spot requirements.”

The price spread between the two markets has been widening since the March earthquake and tsunami, with Japan needing to buy around 10m tonnes of extra LNG to make up for nuclear plant outages. Summer is also the peak power-demand season for Asian countries, which has also pulled prices up.

To compound Japan’s power crisis, nuclear plants unaffected by the March disaster remain shut down because of safety inspections. Chubu took the 3.5 gigawatt Hamaoka nuclear power plant, in central Japan, offline in mid-May after prime minister Naoto Kan called for its closure for safety checks. The facility is in an area scientists expect to be hit by a large earthquake in the future.

Although Tokyo Electric Power, the operator of the crippled Fukushima-Daiichi nuclear plant, has covered its LNG needs, Chubu is still looking to secure about half of its incremental requirements. The other half will be supplied mainly from Qatar. Chubu said it would require an additional 3.2 million tonnes of LNG and an extra 8 million barrels of oil in 2011-12 to make up for the loss of Hamaoka.

Tempting spot cargoes

“Before the quake, Asian LNG was flat with UK gas prices, then it was a dollar spread, then two, then two and a half, now it’s $3.50/million Btu,” a European LNG trader said. This is wide enough to send Nigerian cargoes to Japan, he added, despite high tanker charter rates – around $100,000 a day.

“A lot of cargoes have been diverted so far ... but the increasing spread will add further incentives. Nigeria has a few spot cargoes as well, so those could end up in Japan,” another trader claimed.

UK gas for June delivery was around $9.24/m Btu on Tuesday. Traders said LNG could sail from as far as Algeria to benefit the arbitrage window. With US Henry Hub remaining just around $4.35/m Btu, more tankers could follow those from Peru LNG, which sailed to Japan in April, and tempt US re-export cargoes.

China on sidelines, for now 

And LNG prices could rise further in the near future, with China still on the sidelines of the market. The country is ramping up import capacity, including doubling the Fujian terminal to 5.2 million tonnes a year (t/y) and starting the 2.6 million t/y Rudong facility, and could enter the spot market any time.

State-owned CNOOC has added two LNG tanks at its Fujian terminal, doubling storage capacity to 640,000 cubic metres. Meanwhile, PetroChina imported its first LNG cargo from Qatar on Tuesday. It has 25-year deal with Qatargas to receive 3 million t/y.

India’s Gail also plans to buy two LNG cargoes – one in June and another July – the company said. 

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