Gas crisis plunges LNG shipping market into the hands of energy giants

LONDON/SINGAPORE (Reuters) – The skyrocketing price of liquefied natural gas (LNG) shipping has alienated dozens of small traders, concentrating business in the hands of a handful of major global energy companies and major global trading houses.

This grip is not expected to ease until 2026 when more LNG begins to emerge and lower prices, raising supply concerns for poor countries that depend on it for power generation and raising costs for major Asian economies.

The global LNG market has doubled in size since 2011, resulting in dozens of new entrants and the expansion of smaller companies in Asia. In recent years, small traders accounted for 20% of China’s LNG imports alone.

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But the sharp rise in spot LNG freight rates to $175-200 million, from about $15-20 million two years ago, has had a seismic effect on the physical trading activity of many small players.

Capital to trade in the market surged after record LNG prices surged from record lows below $2 per million British thermal units (mmBtu) in 2020 to highs of $57 in August.

In July, Japan’s Nippon Steel Corporation, the world’s second largest steel mill (5401.T), purchased a load of LNG at $41/mmBtu. Spot LNG was stable at $40.50/MMBtu at that time.

Prices have fallen recently, to $38/MMBtu on Monday, but analysts say they are still at levels that could be linked to an ongoing energy crisis. Read more

Comparison of LNG spot prices in Northeast Asia

“The biggest challenge for every market participant right now is credit,” said Ben Sutton, CEO of Six One Commodities, a US-based LNG trader that was forced to scale back operations after a price hike in the third quarter of 2021.

Short-term market volatility has increased risks for traders, as geopolitical factors rather than fundamentals drive price action.

“Inflated LNG shipping values, combined with a sharp rise in volatility, have put significant pressure on these players operating on smaller budgets,” said Tamir Droz, managing director of LNG advisory Capra Energy.

In Asia, a trade executive told Reuters that some small players had left their offices “idle” in Singapore’s business hub, while second-tier Chinese traders and some Korean firms curtailed activity due to difficulty in securing funding.

“LNG is back as a commodity for the rich,” Pablo Galant Escobar, global head of LNG for energy trading company Vitol, said at the GASTIC International Conference in Milan this month.

“ higher and longer `

Conditions are now tilting sharply in favor of players with large, diversified portfolios and strong balance sheets such as the oil majors Shell (coincidence)BP (BP.L) and TotalEnergies along with major trading houses including Vitol, Trafigura, Gunvor and Glencore (GLEN.L).

BP, Shell, Trafigura and Glencore declined to comment. Total Energy, Vitol and Gunvor did not immediately respond to a Reuters request for comment.

Shell and Total Energy are expected to have a combined portfolio of 110 million tons of the liquefied natural gas market, which currently stands at 400 million tons, according to Jason Fair, global head of business intelligence at energy and shipping consultancy, Putin & Partners.

Both have built portfolios, with Shell buying BG and TotalEnergies taking over Engie’s LNG arm. Both are also partners in Qatar’s North Field, one of the country’s largest liquefied natural gas projects. Read more

The addition of Qatar’s energy portfolio of 70 million tons and BP’s portfolio, estimated at 30 million tons, means that four players represent more than half of the market.

Industry sources said that while higher interest rates add to trading costs, these have not yet bothered the big players, for whom the increased price pressure is a good point.

Shell and TotalEnergies reported record profits, while Vitol’s record profit for the first half of 2022 exceeded its results for the whole of 2021. read more

Guy Brogy, an independent LNG consultant, said Shell and Total Energy were the main winners as partners and underwriters at the Egyptian plants in Damietta and Idku, along with BP and Italy’s Eni, to sell LNG well above the government’s $5/million target price. British thermal unit.

As long-term buyers of US LNG, Shell and Total Energy also made huge gains from reselling lower-priced US cargo to higher-priced European markets.

“We are entering an uncharted territory in terms of LNG markets, and it is difficult to understand the implications of the current crisis with Russia – not just for LNG. The only thing that is certain is that prices are here to stay high for a longer period of time,” Broggi said.

Difficulty of competition

Higher LNG freight rates are also increasing energy poverty globally, as some shipments, initially destined for poor countries, are diverted to European buyers. Read more

US LNG shipments heading to Europe:

“Pakistan and Bangladesh stand out as big losers as they each had procurement strategies with a high percentage of spot buying left to face the energy crisis this year,” said Felix Booth, head of LNG at data analytics firm Vortexa.

In July, Pakistan Liquefied Natural Gas Limited (PLL) did not receive any bids for a tender to import 10 cargoes of LNG.

India’s Oil Ministry showed that India paid 20% more year-on-year for its LNG imports in July, worth $1.2 billion, while monthly import volumes fell further due to higher spot prices.

“Until we build more infrastructure and put more ships in the water … it will be difficult to compete with established markets,” said Charlie Riddell, executive director of trading group Center for Liquefied Natural Gas (CLNG). .

Veer at Poten & Partners said the slow development of the project and the potential return of China from COVID-related restrictions will drive up prices.

“It could get much worse if China comes back into the market in a big way. China has exited the market this year due to lower demand due to lockdowns and slowing economic growth. This has allowed volume to flow into Europe.” added.

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(Additional reporting by ISO Chen in Singapore and Marwa Rashad in London.) Additional reporting by Julia Payne in London. Editing by Veronica Brown and Alexander Smith

Our criteria: Thomson Reuters Trust Principles.

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