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Homeless LNG Here to Stay

Posted by PortVision on Jan 10, 2017 6:07:00 AM

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Low prices and abundant supplies have created what is being called “homeless LNG:” liquid natural gas without committed buyers being housed in tanker ships roaming the high seas.

After loading US shale gas at Cheniere Energy's Sabine Pass export terminal, the Maran Gas Delphi wandered the Mediterranean waiting for buyers. The Stena Clear Sky, after taking on LNG at Sabine Pass, circled South America instead of routing through the Panama Canal, taking an extra 21 days before unloading in Mexico, on the Pacific coast.

These circuitous routes give sellers time to find buyers and, basically, turn the tankers into high-seas storage.

Tracking these vessels is becoming a common activity among traders of the fuel. In the past, LNG contracts were long-term, 15-20 years or more, to assure buyers an uninterrupted supply. Now, however, the glut of natural gas is leading to renegotiation of these deals for more favorable terms. Bloomberg writes that one of Japan's larger fuel buyers, Jera Company, estimates that by 2020, there will be 40-50 million tons of homeless LNG.

The Bloomberg article points out that 28% of LNG trades in 2015 were short term, up from 18.9% in 2010. It is possible that in the future spot and short-term contracts will comprise fully half of natural gas markets. According to LNGIndustry.com, the average length of contracts in 2008 was 15 years; in 2015, that fell to 8 years.

The February 2016 Annual Liquefied Natural Gas Conference devoted a talk to homeless LNG. The meeting presented homeless LNG as a percentage of global demand as being 28% in 2010, 18% in 2015, and an expected 25% by 2030. The conference identified northwest Europe as a crucial market for LNG. In all other global areas LNG challenges included weak demand, price controls, competition from coal and nuclear fuel, and strict regulations.

Topics: Tankers, LNG