Buyer’s market weighs on gas exporters from Qatar to Iran

SANTA CRUZ, Bolivia: Top officials of major gas producing countries gathering this week in Bolivia will face a harsh reality: Expanding supplies of the fuel are giving global buyers greater sway over purchase and contract terms.
This week’s Gas Exporting Countries Forum (GECF), which aspires to be the OPEC for natural gas suppliers, is expected to draw energy ministers from Qatar, Iran, Russia and Venezuela to Santa Cruz, Bolivia as market oversupply reduces revenues.
These countries increasingly are competing with exports from and prices set in the US, which is on track to become the world’s third largest exporter of liquefied natural gas (LNG) after Qatar and Australia.
That has “buyers in a better position to make contracts with shorter terms and more customized to their demand profile, without risking money in high take-or-pay clauses,” said Mauro Chavez, a senior research analyst at consultants Wood Mackenzie.
At least 25 countries are now capable of receiving LNG supplies and new regasification plants are expected to start operating in the coming months, giving buyers greater flexibility and increasing competition for suppliers.
Even though LNG represents only about 10 percent of the world’s gas trade, new suppliers are willing to offer sweeter terms to customers, roiling traditional markets and turning up the heat on some producers trying to hold onto more rigid terms.
The US has been the most aggressive in shaking up the market, through flexible contract terms.
US suppliers such as Cheniere Energy, the largest country’s LNG exporter, are allowing customers to resell cargoes, which has created a profitable market for trading houses. A growing number of spot LNG sales and swaps is also taking place. Cheniere plans to open its fifth liquefaction plant in the coming months while seeking new buyers.
The rise of the US as a force in global LNG markets and its growing gas sales to Mexico via pipeline have contributed to greater price certainty, according to analysts. This is reflected in a long and flat North American dry gas cost curve that should limit abrupt price increases, they added.
Price indexes are becoming a factor not only in LNG contracts but also in sales via pipeline.
Pricing at the US Henry Hub fell in the last decade from a peak of around $11 per million British Thermal Units (BTUs) at the end of 2005 to a low of $1.96 in March 2016. Since then, prices have remained stable around $3 per million BTUs.
Attendees at the gas forum might work on “a methodology for determining gas prices in contracts,” which would promote more stability, Bolivian Hydrocarbons Minister Luis Sanchez said earlier this month.
In markets such as the Caribbean, some sellers also are customizing their gas supplies by linking contracts to fuel oil prices, which is also used for power generation.
“I don’t see a situation where the price of LNG would be very high. The price of LNG will be very competitive in the mid-term and in the long run,” said Edgar Almeida, professor of the Instituto de Economia UFRJ in Brazil, flagging other market entrants such as Mozambique.
The gas glut has fueled some mergers among producers, just as the terms of some of the world’s most important gas trade deals are being renegotiated ahead of their expiration dates, including some contracts between Qatar and Japan, South Korea and Taiwan.
Other traditional gas suppliers such as Russia, Norway and Algeria seem determined to maintain market share in key markets such as Europe.
In Latin America and the Caribbean, where US LNG supplies have lowered prices for importers such as Chile and Argentina, traditional suppliers Trinidad and Bolivia need to attract upstream investments, cut costs and offer consumers more pricing flexibility to remain competitive.
— REUTERS