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 The chance to ship LNG from the United States, where natural gas
output is booming, was touted as the solution to Asia's soaring
energy needs and mounting fuel import bill -- and firms rushed in to
grab a slice of the affordable action.
But after splashing out billions of dollars to build numerous plants
to liquefy and export the gas by ship, at least three buyers spooked
by the scale of their commitments and risks of heavy financial
losses want out, in part.
Moves to sell off supply are likely to boost global spot market
liquidity as trading houses vie for the business and challenge the
historical dominance of the oil majors.
Japanese utilities Tokyo Gas and Osaka Gas as well as India's Gail
are dialing back on their U.S. LNG commitments via stake sales after
realizing they cannot handle the initial surge of volume due to low
demand at home.
"The large volumes they have taken on are a risk in the near term,
but they make sense in the longer term as gas demand across the
region will grow," an industry source said.
More critical, they sense that overexposure to U.S. gas markets
could prove costly after a recent run-up in prices showed how the
fuel's global competitiveness could be eroded.
All three players have tapped European trading houses, energy firms
and utilities, including Germany's E.ON <EONGn.DE>,
to take some of the LNG off their hands through five-year sales
deals, sources from the companies approached have told Reuters.
"Most of these Far East players are realizing they cannot handle
exposures to the U.S. Henry Hub (gas price) and now want to get rid
of supply," said a trading house source whose company was approached
by one of the sellers.
Falling crude oil prices have sharpened anxieties about the
cheapness of U.S. LNG as many existing long-term gas supply deals in
Asia reflect the price of Japanese crude imports.
With oil slipping below $100 a barrel, LNG deals linked to these
prices become more attractive relative to U.S.-gas price linked LNG,
which has rebounded in recent years, traders said.
Still, a true danger level for U.S. LNG kicks in only if oil falls
to $80 a barrel, seen as unlikely in the years ahead.
TRADERS SEE OPENING
The global LNG market has historically been dominated by oil majors
including Shell, BP and BG Group hoarding supply and limiting access
to new entrants, such as trading companies, whose arrival on the
scene in recent years has renewed hopes of a growth spurt in spot
trading liquidity.
While trading giants such as Vitol, Trafigura and Gunvor have
established themselves as a force in LNG, helped by the gradual exit
of U.S. banks, they have not challenged the majors for market share
as they did in crude oil trading in the 1970s.
Opportunities like the current one provide space for such
maneuvering, say industry, company and trade sources.
"The trading houses are looking at this as an opening," a source
from another approached European company said.
SELLING STRATEGIES
Tokyo Gas, which bought 1.4 million tonnes per annum of LNG over 20
years from U.S. East Coast project Cove Point, has offered to sell
over half, or 0.75 million tonnes/year, to at least one southern
European energy firm, a source there said.
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Its offer for a five-year supply deal was rejected due to the high
price pitch, significantly above what it paid project developer
Dominion Resources for LNG due to begin exports in 2017.
Part of the problem for Japanese players is that steps towards gas
market liberalization at home make it hard to know how much gas
utilities will need going forward, traders there said.
Following suit, Osaka Gas is offering five-year deals to Europeans
and others from its 2.2 million tonne/year (1 tonne = 1.102 metric
tons) position at the Freeport facility, in Texas.
The mark-up varies between sellers but in one case is at least $1
per million British thermal units (mmBtu) -- a reference term used
to express LNG prices -- above what it initially paid, a source with
knowledge of the matter said.
Buyers of LNG export capacity in the projects cited above paid 15
percent above the benchmark U.S. Henry Hub gas price, currently $4
per mmBtu, plus a premium of $3-$3.20 per mmBtu, regulatory filings
show.
A Tokyo Gas spokeswoman and an Osaka Gas spokesman declined to
comment.
India's Gail, by far the biggest U.S. LNG buyer of the three, is
offering 1 million tonnes per annum for its first five years of
supply from the Sabine Pass project on Louisiana's Gulf Coast,
sources with knowledge of the matter told Reuters.
Company officials were not reachable on Friday, but Gail in the past
has stated its aim to trade some of its U.S. LNG.
Deliveries from Cheniere Energy's Sabine Pass project are due to
start in 2016. Gail has also signed up for 2.3 mtpa from Cove Point.
"Gail is offering cargoes from its Sabine Pass position -- nobody
wanted their Cove Point supply since the Gulf Coast terminal is
attractively positioned closer to South America and the Panama
Canal," which provides a short-cut to lucrative Asian markets, an
industry source said.
In a sign of the potential cost escalation for U.S. LNG as it gets
resold between companies, Gail at first demanded of buyers a $1.5
per mmBtu premium to the price it agreed to pay terminal developer
Cheniere, the source said. It also wanted to sell the supply for a
15-year period, not five.
Roundly rejected by buyers, it changed tack by lowering its asking
price and term offer to attract bidders.
A tender launched by Gail to sell the LNG will close this month, the
industry source said.
(Additional reporting by James Topham and Aaron Sheldrick in Tokyo,
and Edward McAllister in New York; Editing by Dale Hudson)
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