More Asian LNG buyers are trying to avoid taking the US supplies they signed up for just a few years ago in order to cut shipping costs. GAIL India Ltd. and Indonesia’s PT Pertamina are both seeking to trade liquefied natural gas cargoes they are contracted to buy from the US in exchange for supplies shipped from projects closer to home.
They’re following buyers such as Tokyo Gas Co. in trying to avoid deliveries of LNG from the US after the global oil price crash reduced the discount of American gas relative to other suppliers. That’s made minimizing shipping distances more vital to buyers looking to reduce freight costs.
“The underlying volatility in Henry Hub prices has dented the competitiveness of US LNG, especially in Asia, providing the trigger for the swap deal,” said Abhishek Kumar, senior energy analyst at Interfax Energy’s Global Gas Analytics in London.
Pertamina, Indonesia’s state energy company, is in talks with an international energy firm to swap some of its LNG cargoes from the US to cut shipping costs, Didik Sasongko Widi, a vice president for LNG at the Jakarta-based company said in a phone interview. In exchange, Pertamina would get supplies from closer ports, helping it mitigate price risks. Widi declined to identify the potential counter-party.
GAIL, India’s state gas utility, is seeking agreements with Denmark’s Dong Energy and PetroChina Co. to swap about 1 million tons a year of US LNG for delivered supplies to cut shipping costs and time, according to people with knowledge of the plans. The company has a separate deal with Swiss trader Gunvor Group in which GAIL will receive LNG this year in exchange for US cargoes next year.
GAIL Chairman B.C. Tripathi said last week that it was in talks with various players to swap US volumes, without giving details. Gunvor and PetroChina declined to comment, while a Dong spokesman said the company doesn’t comment on “rumors.” A GAIL spokeswoman didn’t respond to an email seeking comment.
Most US LNG exports are tied to domestic natural gas prices, while global LNG sales have traditionally been linked to oil. That made US suppliers attractive earlier this decade when crude prices hovered above $100 a barrel and US gas slumped amid a production boom from shale patches from Texas to Pennsylvania. That dynamic has shifted since the oil market crash. Brent crude was at $53.53 a barrel as of 9:19 a.m. in Hong Kong, down by more than half since mid-2014.