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Asia's US LNG fever going cold

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LNG Industry,

Bloomberg are reporting that more Asian LNG buyers are trying to avoid taking the US supplies they signed up for just a few years ago in order to cut shipping costs.

GAIL India Limited and Indonesia’s PT Pertamina are both seeking to trade LNG cargoes they are contracted to buy from the US in exchange for supplies shipped from projects closer to home.

These companies are following buyers such as Tokyo Gas Company in trying to avoid deliveries of LNG from the US after the global oil price crash reduced the discount of American gas relative to other suppliers. That has made minimizing shipping distances more vital to buyers looking to reduce freight costs.

Pertamina is in talks with an international energy company to swap some of its LNG cargoes from the US to cut shipping costs. In exchange, Pertamina would get supplies from closer ports, helping it mitigate price risks.

GAIL is seeking agreements with Denmark’s Dong Energy and PetroChina Company to swap approximately 1 million tpy of US LNG for delivered supplies to cut shipping costs and time. The company has a separate deal with Swiss trader Gunvor Group in which GAIL will receive LNG this year in exchange for US cargoes next year.

Most US LNG exports are tied to domestic natural gas prices, while global LNG sales have traditionally been linked to oil. That made US suppliers attractive earlier this decade when crude prices hovered above US$100 a barrel and US gas slumped amid a production boom from shale patches from Texas to Pennsylvania. That dynamic has shifted since the oil market crash.

Pertamina signed deals in late 2013 and 2014 with Cheniere Energy buy 1.52 million tpy of LNG from the company’s Corpus Christi, Texas, terminal starting as early as 2019. The company is now in talks to sell 750 000 t of that to the international company and in exchange receive an equal amount from locations closer to Indonesia.

Pertamina’s contract with Cheniere calls for it to buy gas at a 15 % premium to the benchmark Henry Hub price plus a fixed charge of US$3.50 per million British thermal units.

Pertamina and GAIL are not the only companies trying to figure out what to do in the face of that shifting dynamic.

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