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Against a battered market – Russia and Norway hold hands around Cameroon’s LNG project

Ahead of 2017/18

The Russian gas giant Gazprom has signed an 8-year contract with Pegasus shipping to charter a ‘clean energy’ vessel that will mainly be used to transport volumes from Cameroon’s liquid natural gas (LNG) project, slated to come on-stream by mid-2017.

This follows Gazprom’s partnership with the National Hydrocarbon Company of Cameroon (SNH) to deliver 500 billion cubic feet of natural gas reserves to be supplied by both SNH and Perenco Cameroon, an oil and gas company. This floating LNG project will be delivered off the coast of Kribi.

The terminal will be owned and operated by the Norwegian company Golar via its “Hilli” floating LNG vessel which is currently under conversion at the Keppel Shipyard in Singapore. Golar is an integrated midstream LNG provider that owns and operates LNG infrastructure.

cargo-572997_1280Trade winds

Additionally, Gazprom Marketing and Trading Singapore, has agreed an 8 year sales and purchase contract for 1.2 million tonnes of LNG a year from the terminal. Supplies will be on a Free on Board (FOB) basis with deliveries expected to commence in the second half of 2017.

Franctrade.com understands that the long-term LNG sales price is 11.25% of Brent crude oil (FOB). At current prices, this is equivalent to USD 5.31/MMBtu – 1MMBtu is around 17% barrel of oil energy equivalent.

Demand for Cameroon’s LNG is likely to come from the Asia Pacific region which accounted for almost 60% of global demand in 2015. However, there could be opportunities in Europe and Africa as seen by the fledgling demand in Europe and, for the first time, Africa in 2015.

Deal or no deal? Well it depends…

By agreeing to buy all the LNG from the project, the Gazprom deal could be a hedge against competing origins in an environment of weak global growth and significant ramp ups which could undermine the ability for global consumers to absorb additional supply.

Prospects remain encouraging nonetheless. Last year, trade in LNG reached about USD 120 billion, making it the second-largest commodity traded globally after oil and above iron ore, according to industry analysts.

The industry will have to contend with a challenging environment. Weak energy markets, robust US shale gas output and strong supply capacity have depressed LNG prices.

The quoted Japan contract based spot LNG import price is currently trading at USD 5.7 per MMBtu, over 60% lower compared to its level 24 months ago.

For comments and suggestions please contact us on editor@franctrade.com

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