So far, the LNG spot cargo trade has exhibited a healthy growth. We have seen a variety of trading models including open tenders for multiple and single cargo sales, brokered trades, cargoes sold in chains, and speculative trading positions taken up by non-traditional participants including investment banks.
Although the LNG market is traditionally divided into two distinct markets, the Atlantic Basin and Asia Pacific markets, with minimal trade between the two, the increasing trend is that LNG cargoes will be traded between the two due to the high LNG price premium in Asia and surplus supply and subdued gas consumption in the Atlantic Basin.
From 2009 to 2010, China was a popular destination for LNG spot cargoes. However, the recent earthquake in Japan has changed the rules of the game substantially in the region. Japan has now become the largest LNG spot cargo purchaser in the region and has driven the price of LNG spot cargoes to a level where China and other developing countries such as Thailand, Vietnam and the Philippines are under pressure to revalue their plans on expanding LNG spot cargo imports. It is not clear when the situation in Japan will improve so that other players in the region can resume their roles in the market.
There are challenges ahead for further growth. As mentioned above, the majority of LNG carriers in service today are designed and built to provide services under a specific long-term contract. With little standardization between LNG projects around the world, sourcing or constructing an LNG carrier which is compatible with most, if not all, existing terminals can be challenging. Discussions on ship-to-shore compatibility will need to be held well in advance of any negotiation on spot cargo sales. Numerous standards have been developed over the years for the design of sample points and for LNG sampling and analysis. This can lead to variable conclusions on the quality of and properties contained in a specific cargo. Provisions on LNG sampling and testing measures in the Master Agreement should be reviewed and amended to the extent relevant according to the supply source and destination of the LNG cargoes. Storing LNG of different density and quality in the same LNG tank needs to be carefully studied and handled to avoid rollover and a sudden surge of vaporization, the pressure of which could potentially lift the storage tank pressure relief valves. Advanced technologies have made larger LNG ships, storage tanks and floating LNG units a reality, which has in turn improved the ability of LNG suppliers or buyers to cope with unexpected gas supply shortages or production disruption. Further regulatory reform in downstream markets such as Japan, Korea and China will be required.