Yamal LNG spot volumes on the rise, adding to oversupply

Liquefied natural gas (LNG) available for spot purchase from Russia’s Yamal plant is climbing as companies with long-term contracts take their time to ramp up purchases, industry sources said, adding to oversupply in the global market.

Long-term contracts with Total, Novatek, PetroChina, Gazprom and Naturgy were expected to absorb Yamal LNG volumes, but there is still part of the plant’s 16.5 million tonnes per year (mtpa) production available for spot trade.

This year up to about 8.7 million tonnes of spot LNG out of the 16.5 mtpa total is being traded from the project - spread between the project’s equity shareholders Novatek, PetroChina and Total - according to Reuters calculations.

The high spot volumes from Yamal are adding to oversupply in the global LNG market, with high spot volumes from other projects around the world.

Spot volumes sold by Novatek, which has a 60 percent share of volumes not locked in to long-term contracts from Yamal, are expected to rise above 5 million tonnes this year from less than 4 million tonnes last year, a source familiar with the matter said.

PetroChina and Total, which each hold 20% stakes, both have about 1.74 million tonnes available to sell on the spot market.

PetroChina was the last company to start its long-term contract, for 3 million tonnes of LNG for delivery to China. The first cargo is on its way and 11 more will be shipped to China as part of the contract this year.

The contract volumes will ramp up to the 3 mtpa total in 2021.

Competing for buyers amid growing supply from the United States, some Yamal sellers have already found takers for their spot volumes.

Up to 85 percent of Novatek’s spot cargoes have already been sold this year. The majority are destined for Europe, with some heading for Asia and India.

Novatek has also sold some cargoes for 2020 delivery.

With tight price spreads between Europe and Asia, the majority of spot Yamal cargoes could continue to be delivered to Europe, as has been the case over the past six months.

However, the Northern Sea Route, which allows quicker shipments of Yamal volumes directly to Asia, rather than via Europe, is expected to reopen in the last week of June, a source close to the matter said.

This will allow some of the volumes to find a home in Asia.

Total could also send some of its cargoes east this summer, having sent cargoes to Europe so far this year, another source said. (Reporting by Ekaterina Kravtsova Editing by Nina Chestney and David Goodman)