Trafigura doubles LNG trading as global supply surge looms

By ISIS ALMEIDA
Bloomberg

Trafigura Beheer BV will more than double its liquefied natural gas (LNG) trading this year as competition increases in a market set to expand 40% by the end of the decade.

The Amsterdam-based company will trade almost 2 million metric tons of LNG this year, making it the world’s biggest independent trader, said Hadi Hallouche, head of LNG trading at Trafigura.

Vitol said last month it remains the “main player” of the fuel as companies including Glencore, Gunvor Group and Noble Group entered the market or expanded.

Lower freight rates and increased volatility helped boost volume at Trafigura, Hallouche said. The start of a new plant in Papua New Guinea increased global supplies as slowing demand in Asia, the world’s biggest buying region, made prices more volatile. Northeast Asian LNG fell 50% from a record in February to a four-year low this month, with a rally in September.

“This is a significant amount of volatility, which we don’t see in many commodities,” Hallouche said. “The magnitude of the change was so big that it really took the market out of its comfort zone, which creates opportunities for traders to add value.”

Trafigura bought and sold 1.7 million tons of LNG in the year to Sept. 30, up from about 800,000 a year earlier, he said. Vitol delivered 3 million tons of the fuel in 2013, according to its website. Figures for this year have yet to be disclosed, said Andrea Schlaepfer, a spokeswoman for the company. Noble returned to the LNG market this year as Gunvor plans to expand into short-term trading.

Global Trade

Global LNG trade will rise to 450 billion cubic meters of gas (16 trillion cubic feet) per year by 2019, the International Energy Agency estimated in June. Northeast Asian prices fell from $19.70/MMBtu on Feb. 3 to $9.75 on Dec. 1, according to World Gas Intelligence assessments for cargoes delivered in four to eight weeks. They rallied 38% from July 14 to $14.70 on Sept. 22.

As supplies expand, so do the number of tankers that can carry the super-chilled fuel. At the end of 2013, there were 113 vessels ordered, with 32 expected to be delivered this year, according to the International Group of LNG Importers. The rate for a 160,000 cubic-meter capacity ship averaged $70,100/day this year, down 22% from 2013, according to data from Clarkson, the world’s largest shipbroker.

“The decline in shipping rates is changing the equation in the market and allows people like us to add much more value,” Hallouche said. “There is a lot more shipping that has been added to the market. On average, a vessel is being delivered to the market every 10 days and that has injected so much energy into the market.”

LNG Traders

Geneva-based Vitol, the world’s largest independent oil trader, started dealing in LNG about eight years before Trafigura joined the market last year. Glencore in Baar, Switzerland, also began buying and selling the fuel in 2013 as Noble, Asia’s biggest commodity trader by sales, restarted trading from London this year to benefit from rising supplies.

Trafigura plans to expand east of Suez to markets including the Middle East, India, and Asia-Pacific, the company said in its annual report published Dec. 8. Supplying LNG to buyers that typically haven’t been able to sign long-term contracts presents an opportunity for traders, Hallouche said.

“The new opportunities will come from buyers who are more price sensitive than before, buyers who have been unable to buy LNG in the past on a long-term basis,” he said. “The new demand will not come from country X or country Y, it will come from a certain type of customer. It could be Latin America, it could be Africa, it could be Middle East, it could be Asia.”

The company, which last year signed a contract to supply 18 spot cargoes to Mexico, wants to diversify to markets other than Latin America, Hallouche said.

“Latin America will remain an important market but we will make sure we have diversified into other places,” he said. “We see a lot of deep changes happening in the market in the next five years.”

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