Thursday, January 10, 2013

Argentina losing LNG supplies to Brazil, Japan, South Korea

Stiff competition from drought hit Brazil and energy hungry Asia is posing difficulties for Argentina in its hunt for vital supplies of liquefied natural gas (LNG) for 2013, trade sources said.

The intensified competition for a limited number of spot LNG cargoes has pushed prices above what Argentina currently hopes to pay, they said.

Cold weather has increased demand for electricity production in Japan and South Korea since October and helped drive prices up from 17-month lows to around US$17.50 per million British thermal units (mmBtu).

State run energy company YPF opened a tender in December to import a record 83 cargoes for 2013, up slightly from the previous year.

But Argentina has secured just 51 cargoes as disputes over price have hindered the process, a trade source with commercial ties to YPF said.

YPF officials rejected offers for an additional 20 shipments or more because they exceeded its cut-off price, he said.

YPF declined to comment.

Argentina last week launched a second tender to secure its remaining 2013 requirement, but traders say it, like the first tender, was ill-timed as they coincided with rebounding global as well as regional demand for the fuel.

“They ran the tender very late in the year when the cold weather in Asia started to come in... this is not a good time to buy,” said a trade source from a company picked to supply the country.

Brazil is paying top prices for emergency imports of LNG to stem a power crisis as the worst drought in decades threatens hydro-electricity supplies in the country’s northeast.

Brazil’s willingness to pay premium prices undermined Argentina’s latest tender, traders said.

It closed on Tuesday and attracted little interest apart from (Brazil Petrobas) BP’s offer of two additional cargoes, the first source said.

BP won the right to supply 2 to 3 cargoes to Bahía Blanca terminal in the first tender, which closed in late December, sources said.

Some LNG traders believe that Petrobras may have recently paid as much asUS$15-US$17 per mmBtu, nearing Asian prices at the upper range, while Argentina is targeting a lower price.

Argentina’s two LNG import terminals are Bahía Blanca, 400 miles south of Buenos Aires, and Escobar on the Parana River.

Of the 47, 130 cubic metre capacity cargoes initially put out for bidding at Bahía Blanca, only around 15 have been secured. Italy’s ENI is supplying 10, on top of 2-3 shipments from BP, one from Russia’s Gazprom and one from Statoil, the first source said.

Of the 36 cargoes tendered for Escobar, trading house Vitol is supplying 11 cargoes with Spain’s Gas Natural delivering the rest.

Argentina’s economy, which has seen its energy bills spike in recent years due to surging demand and stagnant domestic production, is showing signs of recovering from a sharp slowdown last year.

Its energy shortfall prompted President Cristina Fernández de Kirchner to nationalize YPF, the country’s largest energy company.