From less than 15% of total delivered volumes in 2005, the share of spot trades has doubled to almost 30% today according to GIIGNL (International Group of Liquefied Natural Gas Importers). In absolute terms, the figures are even more astounding - from 20mtpa (million tonnes per annum) in 2005 to more than 60mtpa today.
However, it's been a bumpy ride - the spot Asian delivered prices rose from below $4/MMBtu in 2009 to over $20/MMBtu in the peak of 2014. The nature of the market has also changed: there's no longer a simple 'floating pipeline' from major producing regions to traditional demand centres. Instead, new supply and demand points have created a highly seasonal LNG spot market, with strong summer/winter spreads and opportunities for cross-basin arbitrage.
The oil-rich Gulf states have demonstrated a strong appetite for importing gas in the form of LNG. Even taking into account the recent easing-off in the markets, geopolitical instability has kept oil prices at high levels with plenty of volatility. This makes gas a cleaner and more cost-effective energy source for the traditional hydrocarbon exporters. LNG imports are now an essential source of fuel for the power generation sector to meet peak summer demand, when the desert sun keeps temperatures at above 40 degrees for months on end, and air conditioning is a necessity rather than a luxury.
In South America - especially Argentina - a whole new demand centre for LNG has developed extremely quickly, attracting flows back into the Atlantic basin. Although a highly attractive market, it is not without its problems. Lack of available storage capacity, unpredictable demand and economic instability make it a risky proposition for committing term supplies, but there are opportunities for those are willing to take on the challenge.
In the next few years, significant new US and Australian LNG projects will come online. More countries will start importing LNG, and the shipping market will be transformed with the introduction of a large number of new, larger, more efficient vessels. All this will involve change and increased uncertainty, but will also bring more liquidity into the markets and create exciting new trading opportunities.
Since 2005, Gazprom - through its dedicated subsidiaries within the Gazprom Marketing & Trading (GM&T) Group - has been at the forefront of these changes. From modest beginnings, Gazprom has become one of the most recognised and successful trading companies in the LNG business. Delivering Russian LNG supplies from Gazprom's 50%-owned Sakhalin II project in the Far East, GM&T has also built up a wide range of non-Russian LNG supplies for its global portfolio. To date, GM&T has traded gas from most liquefaction projects in the world and delivered to almost every country that imports LNG. GM&T also operates the world's largest fleet of Ice-Class LNG carriers, some of them custom-built to Gazprom specifications, designed to operate in the harshest conditions of the Arctic north, including the Northern Sea Route.
GM&T's primary goal is to bring Russian LNG to the market: from the existing Sakhalin II plant and all projects currently under development - including Vladivostok LNG, Baltic LNG, Sakhalin II Train 3 expansion, as well as cooperating with Yamal LNG. Moreover, strong portfolio diversification is the key to growth and profitability; Gazprom traders therefore strive to achieve a diversity of purchases and sales that capture the highest possible margins.
To this end, GM&T has recently taken full advantage of the oversupply situation in Europe - mainly in Spain and Portugal - by re-exporting LNG back to the global markets. This has the additional effect of diverting non-Russian gas flows away from Europe, thus keeping Gazprom's pipeline supplies balanced. Most of these cargoes have been placed in the premium Argentine market. This has been a challenging exercise, but Gazprom has now firmly established a significant market share in this important region.
The changes in the LNG environment are not purely physical. Although still in its infancy, a 'paper' market of LNG derivative instruments is emerging, with contracts such as 'JKM Swaps' being actively traded, with others soon to follow. Gazprom has been active in this new and exciting development from the start, and will continue to participate as the market matures and expands.
Through its commitment to growth, flexibility and operational excellence, Gazprom has become a dynamic and genuinely global player in the LNG trading market. There are challenges ahead, but these will be turned into opportunities, advancing our goal of becoming the leading global energy company.
Frédéric Barnaud, Executive Director of LNG, Oil & Shipping