Energy Economist: Chasing the Asian LNG arb

Arbitrages are common in the oil and gas world. One of the most long-standing was the Brent-WTI arb. In the old days – Before Shale – international marker Dated Brent, then a single crude blend from the North Sea, traded at a discount to the US marker West Texas Intermediate. If the discount proved large enough to compensate for the freight cost, cargoes of Brent would be moved across the Atlantic and into the Gulf Coast.

Taking Brent out of the North Sea tightened the regional market and helped close the arb. The Brent-WTI arbitrage was always a fleeting opportunity, and it is one that has long since gone altogether. WTI has for some years traded at a substantial discount to Dated Brent.

The new arb that traders are chasing is for LNG between the US and Asia. It is large. Based on current prices, the arbitrage – i.e the difference between the delivered price in Asia and the US purchase price, transmission, liquefaction and shipping costs — for notional US Gulf Coast LNG is about $6/MMBtu and for West Coast LNG $8.70/MMBtu.

Asian companies have been keen to agree long-term supply agreements for US LNG because it appears cheap. Their existing LNG contracts are almost all priced off crude oil, while US LNG exporters appear prepared to base their exports on US gas prices.

via Energy Economist: Chasing the Asian LNG arb « The Barrel Blog.

Categories: Energy, Natural Gas

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