Pressed by plant outages, Asian LNG buyers return to spot market for replacement cargoes

Asian liquefied natural gas (LNG) buyers who have contracts with Malaysian state-owned Petroliam Nasional Berhad, aka Petronas, are looking to meet peak winter demand after the cancellation and postponement of cargoes from the Bintulu LNG complex to Sarawak.

With a colder-than-normal winter forecast for Asia, along with the recent unplanned outages of the Australian vessel Gorgon LNG and the floating vessel Prelude (FLNG), Japanese and Korean buyers are back in the market looking for cargoes of replacement.

Contract holders at Bintulu’s 30 million metric ton / year (mmty) complex were first warned in August of possible shipments cancellations or postponements following the discovery of high levels of mercury contaminating the natural gas field at Bintulu. Pegaga off Sarawak.

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The Pegaga company, operated by Mubadala Petroleum, is reportedly one of Bintulu’s main gas suppliers, with the first gas initially slated for later this month. Petronas plans to install a temporary mercury disposal unit (MRU) in Pegaga in January and a permanent unit in November, according to media reports.

The Bintulu complex has three trains each at Malaysia LNG (MLNG) and MLNG Dua (MLNG2), two trains at MLNG Tiga (MLNG3) and a ninth train at Petronas LNG 9. Petronas had informed buyers of MLNG3 in September that eight shipments for November -Delivery in January would be delayed or canceled. Petronas also said there may be additional cargo cancellations for February and March deliveries.

Reduce contracted volumes

Petronas told buyers of MLNG2 for the first time in October that it would exercise its downward tolerance on quality (DQT) rights for deliveries from December through March. DQT gives the right to a supplier to offer reduced contractual volumes.

Petronas has not publicly commented on the negotiations. However, CEO Tengku Muhammad Taufik acknowledged the demands of the DQT. He said in September speaking at the Gastech exhibition and conference in Abu Dhabi that “DQT is part of the contract that is usually negotiated and agreed upon with clients… We are negotiating… and there will be a resetting and a rescheduling of deliveries that will be agreed with customers.

If Petronas has not declared a force majeure on the mercury issues, the national company would likely have to meet its supply obligations under a buy or pay clause. It could meet its obligations by sourcing or buying cargo on the spot market. That would be an expensive proposition given the huge difference between the current contract and spot prices in Asia, senior consultant David Hewitt of Hewitt Energy Perspectives told NGI.

Tokyo Gas Co. Ltd., Japan’s largest natural gas utility, has recognized that reducing LNG in Malaysia could impact winter supply. Still, CEO Takashi Uchida said at a press conference in Tokyo at the end of November that management is confident that there will be sufficient supply during the peak winter demand season in Japan.

“We understand that [the notice] was sent not only to us, but to other companies and countries, ”Uchida said. “These companies are still in negotiations with Petronas, so we cannot say what impact we will have at this time …

“We are working with the gas producing countries to receive as much LNG as possible in the winter, and we plan to fill our tanks in December in order to get through January, February and March… and we hope to be able to get through even in a considerably winter. rigorous.

Australia Hiccups

The production shutdowns of Gorgon LNG and the Prelude FLNG vessel have added to concerns for the Asia-Pacific market. Chevron Corp., the operator of the 15.6 mmty Gorgon terminal in Western Australia, shut down its 5.2 mmty 3 train at the start of the ninth for repairs to its dewatering unit. Several shipments are expected to be canceled in the first half of January.

Train 3 was closed earlier this year for inspection, and it came back online over the summer. Train 1 had been closed since mid-November to repair a minor gas leak, and only restarted recently.

Shell plc has temporarily suspended production at its 3.6mmty Prelude FLNG plant after a fire caused a power outage at the facility in early December. Prelude plans to suspend operations until main power is restored, but Shell has not indicated how long the shutdown could last, or how many shipments could be impacted. Prelude was previously offline from February 2020 until January this year due to technical issues.

Although the Gorgon 1 train is back on line, three cargoes were lost during the outage. And with the same issues at Train 3, three more cargoes could be pulled from the market in the first half of December, Hewitt said. The Prelude outage removes an additional cargo per week, putting even more pressure on the spot market given the challenges in Bintulu, Hewitt added.

Adding to supply problems in the region, Brunei’s LNG production has plummeted this year due to “limited gas supply and maintenance activities at one of the LNG plant’s facilities,” according to a report from the government of Brunei. LNG production fell from its peak of 9.6 billion cubic meters. meters (Gcm) in 2011 to 8.4 Gcm in 2020. The plant delivered 5.4 Gcm to Japan last year, Brunei’s largest customer.

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