Petronet-LNG will benefit from softening of LNG prices

Vol 11, PW 1 (17 May 07) Midstream & Downstream

Petronet-LNG is celebrating the softening of short and medium term global LNG prices.

“Delivered prices (of short and medium-term LNG) at Dahej are now between $7.25 and $7.50 per mmbtu as against $8 and $8.50 per mmbtu three months ago,â€‌ says a source. “There is excess supply in the market and this is putting pressure on prices.

â€‌ These prices, we are told, are valid for contracts of one to three years – between 2007 and 2009. Most of the excess supply is from export terminals in Oman, Egypt, Algeria, Qatar and Nigeria.

One reason for this is that several LNG import terminals expected in the United States have not materialised. The other reason is that customers in Spain, UK and other parts of Europe are defaulting on their long-term contracts.

“These are temporary defaults due to local circumstances,â€‌ we are told. In Spain for instance strong winds are generating more electricity than before from wind farms.

“Wind power which used to be 5% of the energy mix is now as high as 25% and (high priced) LNG is the first casualty,â€‌ reports our sources. “Wind is free, unlike LNG.

â€‌ Export terminals in Oman, Egypt and Algeria are the worst hit. “They have to either get new markets or cap their (gas) wells,â€‌ we hear.

Also hit is Qatar which has already awarded EPC contracts to raise LNG production capacity to 77m t/y. Qatar is in trouble because of problems at the UK’s upcoming South Hook LNG import terminal (promoted by ExxonMobil and Qatar Petroleum), due to Force Majeure declared to gas shippers on 10th April by UK gas and power network operator National Grid.

Consequently, Qatar needs to find a short-term market for this LNG. Nigeria also has a problem with short-term surplus LNG and is believed to be looking for markets to sell 30 cargoes of 60,000 tonnes each in 2007.

For now though, Petronet-LNG is avoiding Nigeria. “Their methods of doing business,â€‌ we hear, “don’t match ours.