NGI’s LNG Insight was launched in late 2019 to provide news and data about the international export trade, as well as educate those less familiar with the market in North America and beyond.
LNG 101: Master the Language of a Global Market showcases part of that effort and provides a collection of NGI’s regular LNG 101 columns, which aim to explain the fundamentals and other factors that influence the global natural gas market each day.
Financing Massive LNG Contracts
According to Royal Dutch Shell plc, the world’s largest LNG trader, 600,000 lots were traded using the JKM futures contract in 2019, compared with less than 200,000 lots in the prior year. In its fourth annual LNG outlook, Shell in February said spot trading accounted for 30% of all deliveries in 2019, another indication of a rapidly evolving market.
Oil-indexed contracts accounted for about a quarter of gas purchases in Europe in 2018, according to the International Gas Union’s (IGU) latest wholesale price survey. While most of those were predominantly pipeline imports, oil is still linked to LNG purchasing in Europe, a key balancing arm for the world’s gas trade.
At the end of last year, there were 601 vessels in the world’s LNG tanker fleet, according to the International Group of Liquefied Natural Gas Importers. Given the dynamics of supply and demand at any given point in time, the shipping market is feast or famine.
So how is LNG priced in the United States, and what attracted buyers to travel even farther across the sea for it? The heart of the answer lies in the commercial structure that export terminals along the Gulf Coast and in Maryland are operating under.
While large export projects often have been financed entirely by their sponsors, the funding often is a staged process. Given the large amounts of required funding, there’s typically more than one sponsor and various sources
While the market is shifting, much of the global gas trade is still underpinned by long-term contracts, signed for supply periods of up to 20 years. Pricing structures negotiated years ago might not reflect the value of natural gas today
Small-scale LNG is generally considered to include the production and distribution of smaller quantities of the fuel from liquefaction plants all the way down to regasification units. The definition is applied to anything in the LNG industry smaller than today’s conventional sizes.
Asian natural gas prices have hit levels not seen in years, and European prices are also strong. U.S. liquefaction trains are working overtime as American cargoes are moving toward big premiums overseas and helping to recover some of this summer’s losses, when prices fell amid lackluster demand.
The Panama Canal is the preferred route between the Atlantic and the Pacific as it generally takes 30 days to reach Japan from the Gulf Coast. However, shippers have opted to take longer routes through the Suez Canal, which takes about 39 days one way, and around the Cape of Good Hope, which takes about 45 days.