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Australian LNG in Back-Hauls to Europe

North West Shelf Venture

By MarEx 2015-02-24 16:25:37

Australia's North West Shelf liquefied natural gas (LNG) export plant sold a cargo to BG Group and Trafigura as part of a recent tender, in which some bidders sought to haul supply into premium European markets, trade sources said.

Plans by several trading companies to ship Australian LNG into Europe or the Atlantic Basin would, if successful, mark the first such arrivals since 2009, boosting regional supply.

Known as back-hauls, some traders wanted to use tankers that had discharged in Tokyo Bay and were set for a return trip into the Atlantic to pick up an Australian cargo en route, one source linked to the export project said.

It is not known whether BG and Trafigura are eyeing Atlantic markets. The cargoes were awarded on Friday.

Europe's LNG premium over Asia has narrowed to around $0.70 per mmBtu this week versus $1.30 per mmBtu a week ago.

"We have seen for some time traders attempting to bring Australian LNG into Europe," a separate shipping source said.

"These latest NWS cargoes would likely have been distressed had it not been for higher hub prices in Britain lifting the market," a trading source at an oil major said.

The cargoes sold on a free-on-board basis were referenced to rising British gas hub price levels, driven higher by supply cuts from the Netherlands' giant Groningen gas field.

North West Shelf LNG has also shelved for the time being plans to sell more cargoes from June onwards, sources said.

"They are in a position where they can afford to wait in the hope that prices pick up somewhat before then," a trader added.

Diverting cargoes from Australia into Europe poses several difficulties, including how to square the added shipping cost against Europe's too narrow premium over Asian prices.

"Of course you need the shipping to be very cheap," said a shipping broker.

"If they can get dirt cheap shipping they may take it to Europe, but the shipping must be at zero or a very low rate for that to work," he said.

"I think they're testing ship owners if they are willing to take it to Europe for a fixed price but I don't think they've decided what to do with it yet."

Charter rates on LNG tankers are at multi-year lows of around $50,000 a day.

Copyright Reuters 2015.