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LNG holds steady as Japan stocks up

Japanese demand 'met til May'; Tepco weighs spot deal based on UK gas prices; Supply worries on Algeria and Yemen plant outages

30 March 2011 London – LNG prices were steady this week with the market still digesting the impact Japanese earthquake.   Although Japan is expected to import more LNG to make up for nuclear power losses in the long run, utilities have used long-term agreements to buy enough fuel until around May, traders said.

This has limited spot trading and market participants estimate spot Asian LNG prices ranging from around $11-12/m Btu, in the same region as last week, with little chance of increasing until the summer high demand period.  Buyers are expected to enter the market during the northern hemisphere Asian summer due to air conditioning demand and the southern hemisphere South American winter for heating consumption.

"I'm quite surprised how quiet things are," one Singapore based trader said.  "The hype around Japan had dropped a little," another trader added.

As well as Shell, Russia, and Qatar rallying around to supply cargoes, Japanese energy companies have also agreed to divert around 180,000 tonnes of LNG to the quake-hit Tokyo Electric (Tepco).  These include Chubu Electric Power, Kansai Electric, Chugoku Electric, and Osaka Gas.

Market sources also said Tepco was considering spot deals linked to UK gas prices rather than traditional oil-linked prices.  Traders said this would push LNG spot prices to around $12/m Btu.

Global LNG supply was also a concern with Algeria shutting its 4.7m t/y Skikda LNG plant and Total warning of a possible reduced production and force majeure at its 6.7m t/y Yemen LNG facility due to civil unrest.

But Algeria's Sonatrach was able to ramp up production at its 17.25m t/y Arzew train to ensure customer supply obligations would be met from the Skikda outage.  Total also said its Yemen plant was still operating as normal earlier this week, according to local news reports, although traders stayed on edge.

In northwest Europe, the UK imported a record high 2.1m tonnes of LNG in March, making it a bigger buyer than Spain.  High UK gas prices have made it an attractive destination for cargoes, with the shutdown of seven German reactors and a growing aversion to nuclear power also increasing gas buying.

Spain has decreased imports after its government told utilities to burn coal instead of gas to support the domestic mining industry, although the first re-exported cargo from the  Cameron terminal in the US was destined for the Spanish market.

Market sources said Italy had an open slot at the Rovigo-Adriatic import terminal in July, but high LNG prices meant Italian buyers were likely to turn to pipeline supplies instead.

"Italian buyers can pay $9/m Btu but sellers are asking for 10.5-11/mBtu," one market source said.  He said the LNG price was around the same as pipeline, meaning Italy would not import spot cargoes at this rate.  Kwok W Wan, London.

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