Global LNG-Argentina drives distressed sales, BG, Exxon, E.ON strike deals

By Oleg Vukmanovic

MILAN, Oct. 10 (Reuters) - Asian spot liquefied natural gas (LNG) prices sank lower amid poor demand for winter cargoes and as logjams outside Argentine ports sparked some distressed selling in the Atlantic, deepening the bear market.

Production setbacks from Norway's Snoehvit export plant and possibly also in Nigeria did little to change the mood.

The price of spot LNG for November delivery (LNG-AS) slipped to $13.80 per million British thermal units (mmBtu) this week, compared with $14.20 per mmBtu last week.

Bearish sentiment also spilled over into the December market, currently assessed in the mid- to high-$14 per mmBtu range as supplies improved and top buyers South Korea and Japan stayed on the sidelines.

"Bad weather in Argentina kept ships from unloading and that created a glut of supply for the prompt...(Spain's) Gas Natural (AMEX: EGAS - news) sold a distressed cargo to the Brazilians at around $11 per mmBtu when they couldn't deliver into Escobar," one trader said, referring to Argentina's Parana river terminal.

Brazil's state-run energy company Petrobras picked up the cargo from Gas Natural, while at least one other distressed sale was completed in the Atlantic market.

"The market will only pick up when the Chinese and South Koreans come back to the market, and that could be a matter of weeks ... at this point we're looking at mid-January forward prices for signs of demand," he said.

"There is not a lot of supply for February and March, that's the tight spot now," he said.

Falling prices are partly explained by the absence of demand from Korea Gas Corp (KSE: 036460.KS - news) ., the world's biggest LNG buyer, as it struggled to absorb supplies arriving under long-term contracts.

Kogas, as it is known, deferred deliveries of 40 summer cargoes until the winter. It ordinarily props up prices at this time of year by buying in September for November delivery.

E.ON Global Commodities sold a cargo aboard the Kita liquefied natural gas (LNG) tanker to PetroChina (HKSE: 0857-OL.HK - news) for November delivery for a price in the mid-$14 per mmBtu range, traders said.

E.ON loaded the cargo from Spain's Sagunto terminal in August as part of a strategy to store the fuel onboard the tanker until Asian spot prices recovered from summer lows.

Other players have also pursued so-called floating storage trading strategies in the hope of profiting from the summer-winter price spread.

Some of those positions are now starting to be cleared as costs associated with storing the cargo, which also gradually evaporates, increase the chance of a loss-making trade.

E.ON chartered the Kita at a highly advantageous day-rate and, given the firm's downstream position in Spain, may have avoided paying market prices for the cargo, although other sources said Sagunto cargoes are typically Brent-price linked.

The outcome of ExxonMobil's two-cargo tender from its Papua New Guinea export plant saw trader BG Group (LSE: BG.L - news) pick up a single November cargo at an undisclosed price.

In a rare instance of coordinated trading, BG Group reciprocated by selling Exxon downstream gas supplies from Singapore's import terminal where it acts as a supply aggregator for the city state, a source with knowledge of the matter said.

Exxon's Jurong Island oil and chemical refinery sits astride the LNG import terminal and BG's gas supplies likely were a feedstock for the facility.

One trading manager in Singapore said BG sold Exxon 3.5 billion cubic feet (Bcf), citing an article by price reporting agency Platts.

"Any cargo for delivery in the first half of November will be sub $14 which is feeding through into the December market... Reported pricing still has some fat in it," a trade source said.

"The weak Brent crude oil price means that you will start to see buyers turning to every last drop of oil-linked supply when they can exercise upward quantity tolerance from January -- and that's going to reduce liquidity even more for spot markets," he said.

Aside from faltering supply from Norway and Nigeria, Qatari liquefaction production plants, or trains, have been taking turns entering month-long maintenance outages since September.

The maintenance periods are planned and should run through at least until the end of November and probably beyond.

(Editing by David Evans)