Angola LNG is a liquefaction project that is set to commence production in April of this year. The 5.4 mmtpa plant is owned in partnership between Chevron (36.4%), Sonangol (22.8%), BP (13.6%), ENI (13.6%) and France’s Total (13.6%) who who also own a 5.5 mmtpa share in the Gulf LNG regas facility in the USA.
The question facing many European buyers at the moment is where are the 70 or so cargoes that will be produced by the facility when it reaches full capacity towards the end of 2013 likely to end up? With NBP prices the second lowest in the world at the moment and most of Europe prices at not much of a premium (not including this weeks period of winter + Gazprom induced price spikes) most European buyers are being forced to rely on contract supplies of LNG to meet their customer demand. If you are a portfolio player such as Shell, BP, GDF Suez or Total then you dont have much to worry about as you are able to source your own volumes, but if you are a trading house with slot options or regassification capacity in a terminal sitting idle, then the potential of Angola LNG cargoes is a appetising thought.
So how likely are Angola LNG volumes likely to reach European markets? Surely most will be sent to a post Fukushima Japan or a hungry India or China right? Wrong – and I will tell you why.
The Angola LNG partners have seven conventional LNG tankers which they have secured on long term charters from two consortiums (Mitsubishi and another consortium that I forget the name of now). These ships allow them ultimate flexibility you would think as they are conventional and so will be accepted into most ports in Asia or Europe. Well normally you would be right, but it is the nature of the feed gas situation that limits the Angola LNG partners choice of export market.
The gas feeding into the Angola LNG terminal is not integrates gas and is instead associated gas. What this means is that the actual volume out of the ground is dictated by the oil production schedule and so planning ahead is very difficult for the Angola LNG partners. As they have little storage at the facility (about 300,000 cubic metres of LNG) this means that when they are producing at full capacity they will need to load at least 5 ships a month in order to keep the volumes flowing and to prevent flaring of the gas. This means that whilst one or two cargoes may be able to head to markets such as South America or Asia, the vast majority of export volumes are going to have to be sent to Europe to allow for those seven ships to return to Angola in time.
Of course in the first year I can only see Angola LNG being able to load about 40 cargoes as they slowly ramp up production and this means that they will have some flexibility at leas tin the short run to send cargoes further afield. Although this again is dependent on the Nuclear situation in Japan as if local opposition to the restarts is overcome then Japans current demand of c. 80 mmtpa in 2013 will drop by up to 10 mmtpa and Japan will no longer have a need to procure those flexible volumes of LNG that Japanese Utilities so hate to become involved with – they prefer term deals and long term contracts.
Another interesting point to think about is that if at least one cargo every 6 weeks to two months is going to head to Gulf LNG then there isnt going to be much room for cargoes to head to Asia. Although South America is only 12-14 days sailing away and so it is likely that either Brazil’s Petrobras or Argentina’s Enersa may be a prime importer as long as their Hydro capacity doesn’t stay at the record high levels that it is at at the moment or their industrial and domestic demand doesn’t tail off.
One final point to mention is that the nature of the Angola LNG partnership can give us a clue as to which Import terminals the volumes may be imported to if the volumes were to be sent to Europe. The partners would not want the volumes being sent to a partner’s own regas capacity as this would unfairly subsidise the venture as the partner who imported the cargo would not realise a fair share of the cost savings achieved by operating an integrated LNG deal. This means that utilities with their own Regas or trading houses with slot options are going to be very attractive if the price and slot dates are right…