Middle East LNG suppliers may consider swap tenders and FOB sales to rebalance supply flows given the disruption to normal shipping schedules resulting from the heightened security risk in the Red Sea, market sources told S&P Global Commodity Insights.
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Register NowThree LNG-laden Qatari carriers that had previously been headed to the Suez Canal have recently turned away from the Red Sea due to the attacks on shipping by Yemen's Houthi militants and were expected to deliver their cargoes to Europe by going around the Cape of Good Hope, adding about 10 days to the voyage time.
But given the additional freight costs and shipping time involved, market participants believe this is not a sustainable option over a longer period for Middle Eastern LNG suppliers.
"While the impact from them is on shipping primarily, they need to work on increasing shipping days and chalking out a new delivery program," a market source said.
One potential swap arrangement would involve producers swapping a Middle East origin cargo with a seller of a US-origin shipment to deliver into a Southern or Northern Europe position.
The counterparty, presumably holding a short position in Asia, would then sell the Qatari cargo into the JKTC (Japan, Korea, Tawain, China) market.
A Middle East producer could be willing to forgo the spot price premium for a cargo delivered into the JKTC market over one into the Mediterranean -- which stood at $1.066/MMBtu on Jan. 25 -- or split the difference with a counterparty in order to avoid the heightened shipping risk.
Oman LNG already typically does two swap tenders per month with Atlantic cargoes being delivered to Spain while Oman LNG sells into Asia, sources said.
Other industry participants noted that some Asian customers with US offtake could be keen on such origin swaps if it helped reduce US-JKTC voyage times, or may even consider time swaps -- to take deliveries at a later date if current inventory levels are high.
Another possible arrangement would be an increase in the FOB sales from the Middle East, in particular from Qatar, market sources said.
On Jan. 22, Italy's Edison, which has a long-term contract with Qatar, said an LNG cargo that was scheduled to be delivered to Adriatic LNG terminal would not be delivered, while three cargoes expected to be delivered into Greece have been cancelled as well, according to market sources.
One trader in the Middle East said that Qatari contracts have several cancellation clauses which can be exercised.
Another trader in the Middle East said that Qatar Energy generally ships cargoes to Southern Europe rather Northern Europe due to the premium for the former market, but that if going around the Cape of Good Hope delivering to Southern Europe does not make sense.
An India-based source said that managing shipping schedules was difficult in the current circumstances. The source said that it may not be possible to bring all the cargoes that Qatar currently loads and sells into Europe to deliver these cargoes and then return for reload to make the same trip again.
Market participants are still assessing the medium-term impact of a rebalance in trade flows to Asia. While some are expecting additional volumes to be made available to Asia others expect that the swaps with LNG cargoes in the Atlantic basin would mean minimal impact.
Platts, part of S&P Global Commodity Insights, assessed the JKM, the benchmark LNG price for cargoes delivered to Northeast Asia, at $8.909/MMBtu on Jan. 26.