After years building out export capacity and hiring traders, producers of liquefied natural gas(LNG) and commodity trading houses are seizing on an unprecedented surge in the price of the fuel.
The North Asian price benchmark has now risen 18-fold in less than nine months, outperforming other commodities — even Bitcoin, reports Bloomberg.
The combination of a severe cold snap in Asia, supply outages and maritime congestion has propelled spot prices for LNG to previously unforeseen heights.
Major winners in this rally include Exxon Mobil Corp., which sold a cargo last week for a record $130 million to Japan, and Total SE, which secured $126 million on Tuesday in a sale to trading company Trafigura Group.
Other producers, such as Nigeria’s LNG, Royal Dutch Shell Plc and Houston-based Cheniere Energy Inc., are also taking the opportunity to offload consignments that aren’t tied to long-term supply contracts. Owners of LNG tankers, meanwhile, are reaping record charter rates.
Nigeria’s LNG can benefit from both the jump in the price of gas as well as the aggressive pricing of tankers as well.
In May 2020, during the most volatile period in the oil & gas sector in 40 years, Nigeria LNG Ltd (NLNG) signed a historic US$3 billion corporate loan to finance the construction of its seventh liquefied natural gas (LNG) train.
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The Nigeria LNG Train 7 project (Train 7), expected to boost Nigeria’s LNG output by close to a third, is seen as a strategic imperative for the country’s long-term economic stability.
During a difficult period for the market, the Train 7 financing sends a signal to international markets that oil & gas projects with strong fundamentals can continue to raise debt—even in the midst of a global pandemic and one of the worst oil & gas shocks in history. The innovative financing package is a new template for structuring expansion financings in the international oil & gas sector.
The current rally is a milestone in the evolution of the global LNG market. While the super-chilled fuel has been around for decades, seaborne volumes have risen considerably in recent years to serve burgeoning power-generation demand in Asia and countries seeking to transition from coal.
Many of the world’s largest oil and gas producers have invested tens of billions of dollars in plants that liquefy natural gas prior to export. They’ve also sought to leverage their position as major suppliers by building up sizable trading operations in Singapore, London and elsewhere.
Trading houses such as Trafigura Group, Vitol Group and Gunvor Group Ltd. have grabbed a slice of the action as well.
The spike in prices is also a vindication for producers and traders following several lean years of disappointingly mild northern hemisphere winters and new supply hitting the market.
North Asian spot prices dropped almost to zero in April. On Tuesday, the benchmark rose above $30 per million British Thermal units, the highest since S&P Global Platts began its assessments in 2009. The Total-Trafigura deal was done at $39.30.
“The LNG market is the winner in this rally, and the people who believe in it — people who believed that, after two to three winters that were warm, something can happen,” said Sarah Behbehani, a veteran LNG trader and managing director at BEnergy Solutions DMCC in Dubai.
