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LNG traders gambling on winter demand

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LNG Industry,

According to Reuters, LNG traders are starting to consider options for booking vessels to store and ship LNG to meet winter demand.

Several traders are reportedly beginning to make such enquiries with the view of taking advantage of the current, historically low LNG spot price levels.

In theory, purchasing spot cargoes now, at US$4 per million Btu, could yield a significant profit if they were stored and then later re-sold during the peak winter demand period.

This form of trading, known as contango carry trading, is common in oil markets, however it carries additional risk for traders when applied to the LNG industry. This is largely due to the fact that storing LNG is expensive, and also that LNG cargoes evaporate over time.

The latest estimates for November LNG spot prices have been reported as being approximately US$1 per million Btu higher than October prices, and October prices 70 to 90 cents higher than September prices.

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