anatomy of an lng cargo swap - gail india case study - capra energy group

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16/8/2015 Anatomy of an LNG Cargo Swap GAIL India Case Study CAPRA ENERGY GROUP http://capraenergy.com/1/post/2015/08/anatomyofanlngcargoswapgailindiacasestudy.html 1/3 Join Us In Singapore For Our Next LNG Training Program. Learn and apply the practical skills and tools you will need to: Build LNG forward market price curves Develop LNG trading strategies Optimize LNG position risk vs. return Price & structure LNG SPA's Control LNG trading portfolio risk SEE COURSE AGENDA RSS Feed About Capra Energy LNG Training Program Capra Knowledge Center Capra Journal 08/11/2015 Anatomy of an LNG Cargo Swap - GAIL India Case Study This month, GAIL India is tendering for an LNG cargo swap covering up to a third of its USsourced supplies. GAIL has contracted for 5.8 mtpa of US LNG from the Sabine Pass and Cove Point projects, starting as soon as 2018. GAIL expects to use about half of this LNG to serve customers in India, but given the distance from the US, it is prudent of GAIL to seek ways to reduce the associated freight costs. The cargo swap is a transaction structure ideally suited for this purpose, and there are several potential counterparties that would benefit from taking the other side. For purposes of demonstrating this, and how a typical LNG cargo swap might work, we present our proposal for a transaction with one such potential counterparty, Qatargas. As GIIGNL summarizes in it latest annual report, Gas Natural is being supplied with 0.75 mtpa of LNG on an exship (DES) basis from Qatargas 1 through 2025. The laden trip time from Qatar to Spain is 13 days, assuming a ship speed of 17 knots. While this is not a long voyage by LNG industry standards, it is more than three times as long as the trip from Qatar to India's western coast, which requires only 4 days. Qatargas would therefore realize significant freight cost savings if it were able to exchange (or "swap") it obligation to deliver into Spain for an obligation to deliver into India instead. The diagram below presents both the initial delivery route obligation (in blue) for each supplier and its new route (in red) under the proposed cargo swap. Figure 1. Proposed Cargo Swap between GAIL India and Qatargas

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Page 1: Anatomy of an Lng Cargo Swap - Gail India Case Study - Capra Energy Group

16/8/2015 Anatomy of an LNG Cargo Swap ­ GAIL India Case Study ­ CAPRA ENERGY GROUP

http://capraenergy.com/1/post/2015/08/anatomy­of­an­lng­cargo­swap­gail­india­case­study.html 1/3

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08/11/2015Anatomy of an LNG Cargo Swap - GAIL India Case Study 

This  month,  GAIL  India  is  tendering  for  anLNG cargo  swap  covering  up  to  a  third  of  itsUS­sourced  supplies. GAIL  has  contracted  for5.8 mtpa of US LNG from the Sabine Pass andCove Point projects, starting as soon as 2018.GAIL expects  to use about half of  this LNG toserve  customers  in  India,  but  given  thedistance from the US, it  is prudent of GAIL toseek  ways  to  reduce  the  associated  freight

costs.  The  cargo  swap  is  a  transaction  structure  ideally  suited  for  thispurpose,  and  there  are  several  potential  counterparties  that would  benefitfrom taking  the other side. For purposes of demonstrating  this, and how atypical  LNG  cargo  swap  might  work,  we  present  our  proposal  for  atransaction with one such potential counterparty, Qatargas.

As  GIIGNL  summarizes  in  it  latest  annual  report,  Gas  Natural  is  beingsupplied with 0.75 mtpa of LNG on an ex­ship (DES) basis from Qatargas 1through 2025. The laden trip time from Qatar to Spain is 13 days, assuminga ship  speed of 17 knots. While  this  is not a  long voyage by LNG  industrystandards,  it  is  more  than  three  times  as  long  as  the  trip  from  Qatar  toIndia's western coast, which requires only 4 days. Qatargas would thereforerealize  significant  freight  cost  savings  if  it  were  able  to  exchange  (or"swap")  it  obligation  to  deliver  into  Spain  for  an  obligation  to  deliver  intoIndia  instead.  The  diagram  below  presents  both  the  initial  delivery  routeobligation (in blue)  for  each  supplier  and  its  new  route  (in  red)  under  theproposed cargo swap.  

Figure 1. Proposed Cargo Swap between GAIL India and Qatargas

Page 2: Anatomy of an Lng Cargo Swap - Gail India Case Study - Capra Energy Group

16/8/2015 Anatomy of an LNG Cargo Swap ­ GAIL India Case Study ­ CAPRA ENERGY GROUP

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Similarly,  GAIL  would  realize  substantial  savings  if  it  could  shorten  itsanticipated  US  to  India  supply  route  (24  laden  trip  days).  Deliveries  intoSpain,  for  instance, would  reduce  the  laden voyage by more  than 50%,  tojust 11 days. By exchanging (or swapping) its obligation to deliver into Indiafor  Qatargas's  commitment  to  supply  Gas  Natural  in  the  Spanish  market,GAIL  would  not  only  reduce  voyage  time­related  freight  costs  (i.e.,  timecharter, boil­off and marine fuel), but would also eliminate  the Suez Canalcrossing fees associated with the initial route. 

Under  such  an  arrangement,  Qatargas  would  also  find  itself  with  a  muchless expensive new delivery route (Qatar to India) from both a voyage­timeand  canal­crossing  perspective.  The  ultimate  savings  will  depend  onprevailing  LNG,  bunker  and  dayrate  price  levels,  and  the  specifics  of  thecargo  swap  transaction  will  determine  how  these  savings  are  split  amongthe  parties.  Credit,  cargo  quality  and  other  issues  will  also  enter  into  thefinal pricing and structuring of the cargo swap transaction. 

As  the LNG  industry  continues  to globalize and LNG marketing  and  tradingbecomes  increasingly  sophisticated,  we  will  surely  see  more  and  moretransactions  designed  to  reduce  freight  costs,  and  to  optimize  operationaland  market  risks  versus  expected  returns.  The  cargo  swap  is  one  suchmechanism,  and  its  popularity  should  continue  to  grow  as  LNG marketersand traders seek to effectively shorten their supply routes to customers andtrading  counterparties,  realizing  both  freight  cost  savings  and  riskmitigation benefits in the process.

 

Source: Capra Energy

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Page 3: Anatomy of an Lng Cargo Swap - Gail India Case Study - Capra Energy Group

16/8/2015 Anatomy of an LNG Cargo Swap ­ GAIL India Case Study ­ CAPRA ENERGY GROUP

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