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DAILY REPORT HIGHLIGHTS

  • Fairly modest but uniform gains were observed across global LNG markets, with the front years exhibiting the most strength, and little change in the back years.

  • The Mideast LNG market led all others with the largest gains, advancing $0.12/mmbtu in CAL 2016; lower charter rates and bunker prices also contributed to firmer netback prices versus Northeast Asia.
  • European LNG closely tracked the Eastern markets, strengthening by +$0.11/mmbtu in CAL 2016, supported by gains in the European natural gas hubs, with smaller gains beyond.  Overall, intermarket spreads were little changed, as a result of the largely correlated moves across markets.

Please click here to open the 01/21/2015 LNG Forward Market Wire daily report (complimentary issue).

 
 
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For most arbitrage traders, market price volatility is a cherished friend. While this may be a well known observation, it is probably less obvious that inter-market correlation can be one of the arbitrage trader's worst enemies. This is equally applicable to LNG trading. The higher the correlation between two LNG markets, the less likely it is that the spread will move to a level that exceeds the freight costs involved in shipping a cargo between them, allowing traders to earn the difference.


 
 
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DAILY REPORT HIGHLIGHTS

• There were sharp declines in the most oil-price-sensitive markets (NE Asia, Mideast, Australia), pressured downward by a global crude oil market that is still searching for a bottom (prompt-month Brent broke below the $50/bbl level); the NE Asia 10-year strip was driven downward by an average of over -$0.20/mmbtu, for example.

US-Atlantic LNG forward prices also suffered steep declines, responding to severe weakness in US natural gas hub prices (Henry Hub balance-of-2015 prices contracted by almost -5%).

• European LNG was the only exception, firming slightly in the front years in response to steady European gas hub pricing and moderate US dollar weakness.

• NE Asia spreads to Europe contracted sharply as a result, with NE Asia moving to a slight discount to Europe in CAL 2016 for the first time; combined with more attractive netback spreads to major FOB suppliers, European reload opportunities to NE Asia will be severely limited at these price levels, and diversion economics to Europe will be much improved.

Please click here to open the 01/12/2015 LNG Forward Market Wire daily report (complimentary issue).

 
 
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Highlights for December 2014

Price levels: Declines from -2.8% to -8.7% observed in the 10-year strip across LNG markets.

Term structure: Contango in the Northeast Asian, Mideast and Australian LNG markets continued to steepen, with CAL 2024 now at a $2.42 premium to CAL 2016 in Northeast Asia.

The theme of global LNG market convergence continued, severely limiting reload arbitrage opportunities from Europe to NE Asia, and further closing the long-term structural arbitrage between the US-Atlantic and NE Asia.

Click here for the December 2014 edition of the LNG Forward Market Wire Monthly Report (complimentary issue).


 
 
 
 
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The typical LNG marketing and trading portfolio will contain some of the simplest and some of the most complex derivative structures encountered in energy finance. Some of the more commonly found structures are physical forwards, basis spread options and best-of spread options, but longer-term transactions like SPAs will often contain an even wider array of embedded exotic features. In this post, we provide an example of one of the simpler derivative structures, and demonstrate how it is valued.


 
 
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We are very proud and honored to have launched a regular monthly feature covering the LNG forward markets for Energy Metro Desk (EMD), the energy trading and risk management industry's leading bi-weekly magazine. With permission, we are posting a reprint of the first edition of our commentary here, along with EMD's interview with our editors.

Please click here to access Capra Energy LNG Forward Market Wire Commentary and Interview on Energy Metro Desk.


 
 
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November 3, 2014, Berkeley, CA

Capra Energy has announced the start of the benchmarking program for its LNG Forward Market Wire.

LNG Forward Market Wire provides long-term LNG forward price assessments from an objective and independent third party source, Capra Energy Group. The forward price curves are generated through a systematic, auditable process that is based on transaction activity in the global LNG markets, supplemented with robust econometric analysis. Also, the methodology and the price curves are continually enhanced to reflect the latest LNG market developments.

Please click here to open the complete LNG Forward Market Wire - Benchmarking Programme Press Release.

Please click here to access LNG Forward Market Wire Monthly Reports during the benchmarking programme, review product information or enroll in the benchmarking programme.


 
 

The BP-TEPCO LNG Deal

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Tokyo Electric Power Co's (TEPCO) recently announced sale and purchase agreement (SPA) with BP Singapore for 1.2 million tons per annum (mtpa) of lean LNG over 17 years is just the latest in a string of long-term deals that Asian LNG consumers have signed for supplies originating from the US Gulf Coast.  The BP-TEPCO deal is technically a 'portfolio contract' that gives BP the flexibility to source the LNG from anywhere.  But given BP's large purchase position in the Freeport project, the TEPCO deal's linkage to Henry Hub spot prices, and the specification of low heating value (lean) LNG, it is a safe bet that much of the supply will originate from the US Gulf Coast.


 
 
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The Japan OTC Exchange's (JOE) new LNG contract was officially launched today.  It is technically being described as a "non-deliverable forward contract," and is starting off as a non-cleared, cash-settled, bilateral contract, but JOE expects that CME will be providing clearing in the near future.  The launch of this contract is a positive development for global LNG trading and risk management, and once CME clearing kicks in, we expect a wider and larger group of participants to make use of it.  The full details of the contract are presented below: