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LNG tankers changing course?
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mikepepler
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PostPosted: Wed Oct 05, 2005 5:27 pm    Post subject: LNG tankers changing course? Reply with quote

OK, this is unconfirmed, but I got it from a part-time student on my MSc course who works in the gas distribution business.

He said that he'd heard from a colleague that the commissioning of the expansion to the new LNG terminal at the Isle of Grain is currently delayed. The hold up is that they're waiting for their first tanker to arrive to do the next phase of the commissioning work. There was a tanker en route, but it has suddenly changed course... for the US!

No surprise I suppose, given how much US natural gas supply is offline after the recent hurricanes, but not so good news for us heading into the winter, if LNG tankers are getting diverted over there to fetch a higher price. I seem to remember it's these LNG imports by tanker that we're counting on until the pipelines are expanded? Hope you've got your thermal clothing ready for winter! Shocked
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clv101
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PostPosted: Wed Oct 05, 2005 6:32 pm    Post subject: Re: LNG tankers changing course? Reply with quote

Wow, this is almost comical if true! The first tanker hasn't arrived. This should show everyone just how unreliable imported gas is.

Worryingly we are relying on that gas from the Isle of Grain to get through this winter:

One of the assumptions in the Ofgem Winter Outlook (published today):

Grain LNG imports at an average level of 13 mcm/d, equal to the contracted level of capacity but less than the maximum physical capability. However, on the very highest demand days it is reasonable to assume a delivery level of 17 mcm/d.
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DamianB
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PostPosted: Wed Oct 05, 2005 7:04 pm    Post subject: Reply with quote

Quote:
I found this link on the downstreamventures board where a telling comment was made:

Quote:
For those who don't know, LNG means natural gas imported from other countries. American gas prices are becoming world gas prices. World free markets mean that energy will be sold to the highest bidder so unless a country steps in with some sort of protective legislation, everybody on the planet will soon be paying high American nat gas prices.

Thor


Last time I looked, IPE NG was trading at ?3.50/Mbtu or about $6.30. So as more LNG tanker capacity comes on line, more cargoes will be diverted to the US and we'll face at least another 50% increase in gas prices, leading to commensurate rises in fertiliser, electricity. etc


IPE NG now trading at ?4.55 (up 30% since last week) equivalent to about $8.20 yet NYMEX NG is $14.28!
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Totally_Baffled



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PostPosted: Wed Oct 05, 2005 7:30 pm    Post subject: Re: LNG tankers changing course? Reply with quote

Quote:

Grain LNG imports at an average level of 13 mcm/d, equal to the contracted level of capacity but less than the maximum physical capability. However, on the very highest demand days it is reasonable to assume a delivery level of 17 mcm/d.


I wouldnt panic yet guys , you can fit 216,000 cubic metres of LNG on a tanker which is the equivelant of 122,268,453 cubic metres. This is the equivelant of 10 days winter supply on one tanker for Grain.

Remember gas use is very seasonal, you build gas over the summer ready for the winter.

Once the storage is in place, along with the LNG terminals, there is considerable slack to make up mishaps like this.

Having said all this, please feel free to laugh hard and loud at me if we are all sat in the dark with icicles hanging off our testicles in January. But at least I wont know of it it since we won't be able to turn our PC's on!! Very Happy
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skeptik



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PostPosted: Wed Oct 05, 2005 8:06 pm    Post subject: Re: LNG tankers changing course? Reply with quote

mikepepler wrote:
OK, this is unconfirmed, but I got it from a part-time student on my MSc course who works in the gas distribution business.

He said that he'd heard from a colleague that the commissioning of the expansion to the new LNG terminal at the Isle of Grain is currently delayed. The hold up is that they're waiting for their first tanker to arrive to do the next phase of the commissioning work. There was a tanker en route, but it has suddenly changed course... for the US!

No surprise I suppose, given how much US natural gas supply is offline after the recent hurricanes, but not so good news for us heading into the winter, if LNG tankers are getting diverted over there to fetch a higher price. I seem to remember it's these LNG imports by tanker that we're counting on until the pipelines are expanded? Hope you've got your thermal clothing ready for winter! Shocked


I'm dubious. As far as I can remember (Im not going to bother to fact check) there are only 4 LNG terminals in the USA. Even operating flat out they only supply 1% of US demand. A few tankers of LNG is not going to make any significant difference to the the US supply situation. The shortfall in supply from Texas /Louisianna offshore gas being shut in /damaged is much more than 1%.

Gas resold while its at sea? surely not. Dont we get ours on a long term contract to ensure continuity of supply? This I dont know but it would seem to make sense. Tankers suddenly turning round when halfway up the Thames would surely result in gas 'blackouts'
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clv101
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PostPosted: Wed Oct 05, 2005 8:14 pm    Post subject: Re: LNG tankers changing course? Reply with quote

skeptik wrote:
Gas resold while its at sea? surely not. Dont we get ours on a long term contract to ensure continuity of supply? This I dont know but it would seem to make sense. Tankers suddenly turning round when halfway up the Thames would surely result in gas 'blackouts'

This is a good point to think about looking forward. How reliable are long term energy contracts? If we do by gas for price x in a long term contract but someone else (say the US) is willing to pay double the price why don't the tanker turn round in the Thames? It's not as if we could do anything about it is it?

Paragraph 53 of the Ofgem report says:
Quote:
Given the potential for loss of production to extend into the winter period, the hurricanes have increased the risk that LNG cargoes otherwise destined for Europe could be diverted to the States.


So I guess it's a real risk.
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Totally_Baffled



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PostPosted: Wed Oct 05, 2005 8:27 pm    Post subject: Re: LNG tankers changing course? Reply with quote

Quote:
Gas resold while its at sea? surely not. Dont we get ours on a long term contract to ensure continuity of supply? This I dont know but it would seem to make sense. Tankers suddenly turning round when halfway up the Thames would surely result in gas 'blackouts'
This is a good point to think about looking forward. How reliable are long term energy contracts? If we do by gas for price x in a long term contract but someone else (say the US) is willing to pay double the price why don't the tanker turn round in the Thames? It's not as if we could do anything about it is it?


Even if this is true(which it maybe) then what is to stop us doing likewise to another country? The UK is the fourth largest economy in the world (or something like that), wont we just end up nicking India's or Pakistans LNG deliveries?

The other thing is , if the UK matches the US price, the producer has to pay 5000 miles less transport costs into the bargain and thus makes more profit?

Turnaround time to the Uk and Europe is also quicker, so the producer can sell more LNG?(less distance to travel)
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Totally_Baffled



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PostPosted: Wed Oct 05, 2005 8:28 pm    Post subject: Reply with quote

As for long term contracts, I think they are paid at the market price. So if the US bids the price up, that is what we end up paying.

So it could get expensive, but then there must be a limit to what even the US is prepared to pay given their precarious debt problems.
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fishertrop



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PostPosted: Wed Oct 05, 2005 9:12 pm    Post subject: Reply with quote

Totally_Baffled wrote:
...but then there must be a limit to what even the US is prepared to pay given their precarious debt problems.


Not when you are the world's reserve currency and you can print your own money.....
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johnhemming



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PostPosted: Thu Oct 06, 2005 5:24 am    Post subject: Reply with quote

I have knocked this up into a press release (will appear on various lib dem sites over next 2-3 days) on two issues:

a) The redirection of LNG tankers
b) The detaled National Grid report says that the demand reduction required from CCGT is unprecedented.

(They also haven't modelled daily demand for 1985/6 type winters)
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Tess



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PostPosted: Thu Oct 06, 2005 7:09 am    Post subject: Re: LNG tankers changing course? Reply with quote

skeptik wrote:
Gas resold while its at sea? surely not. Dont we get ours on a long term contract to ensure continuity of supply?


Happens to oil cargoes, why not gas?
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Tess



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PostPosted: Thu Oct 06, 2005 7:10 am    Post subject: Reply with quote

fishertrop wrote:
Totally_Baffled wrote:
...but then there must be a limit to what even the US is prepared to pay given their precarious debt problems.


Not when you are the world's reserve currency and you can print your own money.....


Yes, until the US is no longer the world's reserve currency, you should assume that the US will always be able to outbid everyone else whatever the price.
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simonrichards912



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PostPosted: Thu Oct 06, 2005 9:24 am    Post subject: Gas diversions Reply with quote

This is no surprise really. LNG shipments are only contracted once the import facility is fully functional. The supply of LNG for commissioning purposes therefore is probably not guaranteed. If a customer is in greater need, and prepared to pay extra for the LNG, the cargo will be diverted.
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fishertrop



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PostPosted: Thu Oct 06, 2005 11:38 am    Post subject: Re: LNG tankers changing course? Reply with quote

Tess wrote:

Happens to oil cargoes, why not gas?


Do you know how the (oil or gas) "contracts" actually work?

Do they have a delivery date or such?

What's the get-out-clause that lets you not deliver because someone offered more money?
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Tess



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PostPosted: Thu Oct 06, 2005 1:19 pm    Post subject: Re: LNG tankers changing course? Reply with quote

fishertrop wrote:
Tess wrote:

Happens to oil cargoes, why not gas?


Do you know how the (oil or gas) "contracts" actually work?

Do they have a delivery date or such?

What's the get-out-clause that lets you not deliver because someone offered more money?


Hmm, well, it's complicated. I don't have a solid knowledge of it because I'm not directly involved in physical oil shipping, but I have a fair understanding because of my work as an oil market analyst.

Basically you can buy oil cargoes either for prompt (or 'spot') delivery or for some period in the future. If you're buying spot, then you get told by the crude production terminal when to show up with your tanker at which point you receive your cargo and can sail it wherever you like, assuming you're willing to pay the tanker freight rate to your destination (which changes daily).

If you buy using a forward contract then we're simply projecting the whole thing into the future by a certain number of months. In the meantime, you can sell on your contract to other people so that instead of you having to turn up with the tanker, your buyer does. This exchange can happen loads of times prior to any physical oil being involved.

So once you have your oil you set sail for, say, Asia. This is because you either expect to sell the cargo on the spot market when you arrive, or because you've already sold the cargo on the forward market anticipating your arrival in Singapore.

Now if during the journey the US Gulf crude price goes through the roof relative to Singapore price, you have some choices. If you were planning to sell your cargo at spot prices, then you have no contracts to honour and can simply turn the ship around and head for the US. If on the other hand you had already sold your crude on the forward market (eg to some refinery that is sitting waiting for your oil), then you must buy that crude back on the Singapore market so that the refinery - your original customer - gets their oil (which makes the Singapore price go up, helping to rebalance the arbitrage in the market). Meantime you are selling your cargo forward on the US financial market for a much higher price than you are buying it in Singapore, thus locking in your profit.

Then maybe nearly at the US, the physical market gets very high relative to the financial market. Since you still own your physical cargo, you might consider selling it to some other company at spot prices, and covering your US financial market contract, thus making another chunk of profit.

The overview is that cargoes can be traded at prompt, months or years in advance, and can be sold and resold many times. If you're a refiner with a contract to receive crude then you will get it from somewhere (could be a tanker, could be the local market, you probably dont care) but of course if the price elsewhere goes way higher you might even consider reselling the crude back onto the market - perhaps even back to the guys who are bringing the crude in the tanker for you - at which point you take the profit and the crude disappears elsewhere.

*takes a breath*

So there's no 'get out clause' as such. If the price becomes more expensive elsewhere you simply cover your contract at your original destination by buying local crude (where prices are cheap), leaving you free to head to where your cargo is more expensive.

And note what simonrichards says above. If the terminal is still not fully functional, the contract may have been nonstandard in some way.

Does this help? As I say, I'm not an expert. If I really needed to know the nitty gritty there are probably places you can find info on the web, and the business school I'm attending has a couple of lecturers doing a course in commodities shipping so I could furnish some email addresses if people *really* wanted to know.
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