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LNG spot trading continues to surge

LNG spot trading is setting new records and in its ‘true’ form has more than doubled since 2016, according to the latest data from GIIGNL

The global LNG business broke several records last year. One of the most significant was another surge in what importers’ group GIIGNL calls ‘true’ spot trading, where delivery occurs in 90 days or fewer after the transaction, which was up 21pc year-on-year and 102pc on 2016.

The surge highlights the increasing commoditisation and sophistication of the industry, driven largely by the growing role of portfolio players such as Shell and Total, as well as commodity traders such as Vitol and Gunvor.

Amid the doom and gloom of the Covid-19 pandemic and plummeting oil and gas prices, the latest state-of-the-business report from GIIGNL is rare cause for celebration, quantifying as it does the industry’s impressive achievements in 2019.

Global expansion

Global trade grew by 13pc to reach a record 355mn t, as output ramped up from new projects and expansions in the US, Russia and Australia. This was the fastest growth rate since 2010, when Qatar’s mega-trains were coming on stream, and in volume terms the largest ever annual increment, 40.9mn t.

“For LNG sellers and buyers, business models and contractual arrangements are becoming increasingly diversified” Dauger, GIIGNL

It was a record year too for liquefaction investment, with 71mn t/yr of capacity sanctioned at six large-scale projects: in the US, Calcasieu Pass (10mn t/yr), Golden Pass (15.6mn t/yr) and Sabine Pass train 6 (4.5 mn t/yr); in Russia, Arctic LNG-2 (19.8mn t/yr); and, in sub-Saharan Africa, Mozambique LNG (12.9mn t/yr) and Nigeria LNG train 7 (7.6mn t/yr, including debottlenecking of existing trains).

Shifting global LNG flows meant that Europe’s net imports grew by a record 76pc year-on-year, as the region balanced an oversupplied global market. Over 90pc of the global increase in LNG trade, some 37mn t, was absorbed by Europe, as demand fell in Japan and South Korea and demand growth in China slowed from an astonishing 38pc in 2018 to a merely creditable 14pc. 

Increasing sophistication

In some ways, more significant than the quantitative changes were the qualitative ones as the industry continues to mature.

“For LNG sellers and buyers, business models and contractual arrangements are becoming increasingly diversified,” says GIIGNL president Jean-Marie Dauger. “Traders continue to take advantage of seasonal and local supply tensions and integrated portfolio players are displaying impressive growth, aiming to bridge the disconnect between LNG seller and buyer interests.”

In volume terms, spot and short-term trading—defined as contracts with terms of four years or less—continued the steep climb that began in 2016.

21pc 2019 growth in LNG contracts with delivery in 90 days or fewer

Especially significant is the surge in ‘true’ spot trading. This requires greater capabilities from sellers and buyers because of the complexities involved in completing trades within a three-month window. 

Spot and short-term trading combined smashed through the 100mn t barrier to reach 119mn t. By far the largest share of this was spot, which rose from 78.7mn t in 2018 to 95mn t.

The percentage increases in share of the global market look modest—but only because the market grew so quickly and some of that growth was due to the start of long-term contract supplies from the US and Australia. The share of spot and short-term trading combined was up from 31.6pc to 33.5pc, while true spot was up from 25.1pc to 26.8pc. 

“In the near term the disruptive impact of the Covid-19 crisis on the economies of the importing countries will exert downward pressure on LNG demand in an already oversupplied market,” cautions Dauger. 

While the uncertainties are mind-boggling, it looks a fair bet that next year’s GIIGNL report will be less of a cause for celebration than this year’s edition.

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