Nigeria’s growing presence in Asia, the top destination for liquefied natural gas (LNG), is being threatened by the increasing LNG export potential of the United States and East Africa, as well as Singapore’s aspiration to become the region’s LNG trading hub.
Activity in the high-demand Asian markets is expected to ramp up as the increasing availability of LNG from US and East Africa finds its way into the region, where LNG spot cargo trade is becoming increasingly important.
Asia has already overtaken Europe as the world’s biggest gas importer, now accounting for 46 per cent of global trade, according to the International Energy Agency.
Most LNG is bought on long-term contracts. But buyers tend to turn to the spot market as their demand fluctuates or contractual supplies are cut off due to maintenance or other outages at LNG facilities.
”It is anticipated that the US may become a gas exporter in 2020. There are however, regulatory challenges to overcome. If these challenges are overcome, one can expect LNG supply abundance in the market and a likely decline in LNG delivery price to Asia and Europe.
Nigeria’s share of LNG may therefore fall. Of course, piracy along the West Africa coast is creating a challenge, but a bigger challenge in my opinion is lack of investment for gas exploration and development,” Wumi Iledare, Chirota & Emmanuel Egbogah distinguished professor of petroleum economics and director, Emerald Energy Institute, University of Port Harcourt, told BusinessDay in an emailed response to questions.
Nigeria, Africa’s top oil producer and world’s fifth biggest LNG exporter, has continued to see increased demand of spot cargoes from Asian buyers in recent times. Just last week, ship-tracking data showed that Japan, the world’s largest buyer of LNG, was set to receive a spot cargo from Nigeria, according to Bloomberg.
“The best option for Nigeria is to intensify efforts to attract long-term buyers as no exporter pins his hope on any spot market because as the name goes, it occurs on spot and disappears till another time,” Akin Adetunji, executive vice chairman, Terra Energy Services Nigeria Limited, said.
Spot cargoes are cargoes which are available for immediate loading. The LNG spot and short-term market has increased exponentially over the last 10 years and now represents 20 per cent of the total global market for LNG.
Asian LNG buyers typically import spot cargoes from December to March to meet peak heating and power demand during winter in the northern hemisphere.
Economic expansions, the need to offset declining legacy and remote gas supply sources, nuclear plant shutdowns in Japan and South Korea and the shift in China towards cleaner-burning gas have contributed to rising demand for LNG in Asia.
India, Japan, South Korea, China and Taiwan together accounted for nearly 70 percent of LNG shipments in 2012, according to BP Statistical Review of World Energy.
Already, Asian buyers have expressed concern over the high price they are forced to pay and are increasingly considering the US as a cheaper alternative. Surging shale gas production has pushed down prices in the US, which has started relaxing restrictions on gas exports. Four LNG projects have so far been approved in the country, with over 20 proposals still awaiting approval.
With well-established pipeline and storage infrastructure and liberalised trading, the US has highly competitive and active spot markets led by the Henry Hub. Its price has fallen to $3 to $4 per per million British thermal units (mmBtu) this year from almost $13 in 2008.
Japan and South Korea have reportedly cut deals in recent months to buy gas from US terminals.
Asian buyers are paying about $15 per mmBtu on long-term supply contracts with prices partially linked to that of crude oil, according to a Credit Suisse research report. LNG spot prices in the region are running at about $19 per mmBtu, their highest since mid-February.
Aside from the threat from the US, analysts believe that East Africa’s proximity to Asia is likely to stand it in good stead for LNG exports. The prospect of Mozambique and Tanzania becoming LNG exporting nations is expected to present a veritable alternative for Asian buyers.
“East Africa, in particular Mozambique, could be a new hotspot in LNG exports due to its recent large offshore discoveries,” said British maritime classification society, Lloyd’s Register, in its ‘Global Marine Trends 2030’ report.
Singapore is said to be taking no prisoners in its drive towards realising its ambition to become Asia’s LNG trading hub by the end of this year, as it is investing heavily in new facilities.
“It is a good thing in terms of information on market indicators, particularly pricing. It will become like Henry Hub in the US providing perhaps, LNG price benchmark,” said Iledare, commenting on Singapore’s proposed trading hub.
“Now we have over 20 different trading houses that have set up their businesses in anticipation of Singapore actually becoming a liquid and physical hub for LNG,” Neil McGregor, chief executive officer, Singapore LNG Corporation told Platts Energy Week on December 1.
Nigeria, which is home to the world’s ninth biggest gas reserves and one of the world’s largest LNG export terminals, in 1989 established the Nigeria LNG (NLNG) Limited to harness the nation’s vast natural gas resources and produce LNG and natural gas liquids for export.