Algeria offers waterborne LNG cargoes as pipeline maintenance picks up

Algeria's LNG exports have seen a sudden increase, as pipeline maintenance from the country saw the supply hub begin to offer Free-On-Board LNG cargoes to make up for reduced gas flows, according to traders and data from S&P Global Commodity Insights.

As of Sept. 20, Algeria has exported 700,000 metric tons, or 13 cargoes, of LNG this month, according to Commodity Insights data.

This compared to 450,000 t, or nine cargoes, in August and 800,000 t, or 16 cargoes, exported in September 2023 over the same period, the data showed.

Algerian LNG month-to-date exports are already the highest since May, with traders expecting total monthly exports in September to maintain that trend.

Gas pipeline flows to Spain from Algeria have fallen sharply, as maintenance work begins on the Medgaz subsea pipeline, averaging only 13 million cu m/d Sept. 15-19 compared with an average of 28 million cu m/d for the first two weeks of September, data from Commodity Insights showed.

According to market participants, the drop in Algerian flows since Sept. 15 has pushed the Spanish PVB day-ahead instrument to a sustained premium against the TTF.

Platts, part of Commodity Insights, assessed the Spanish PVB day-ahead contract at a 22-cent/MMBtu premium to the Dutch TTF for Sept. 16-19, compared with an 11.2-cent/MMBtu discount the week before.

Since the maintenance, Algeria has already exported three additional LNG cargoes Sept. 17-20.

Inspection work on the undersea part of the pipeline was scheduled to start in the morning of Sept. 17 and is set to continue until Sept. 27.

"Yeah, there is reduced flows to Spain. On the one hand, the Algeria maintenance is planned, but also on the other hand, Algeria is selling more FOB cargoes to the market, so now their lower pipe exports are covered," an LNG trader said.

Traders pointed to increasing LNG outflows from Algeria with expectations for exports to climb to account for reduced pipeline flows to Europe.

Some trading analysts expect exports this month to soar past recent months, with some exports already being eyed for October.

Traders pointed to Algeria selling a prompt September FOB cargo to the East Mediterranean region at a discount of 60 cents/MMBtu to the October Dutch TTF gas hub.

"[The maintenance in] Algeria isn't impacting Spain too much, as they are still offering cargoes into the market," another trader said.

Selling support

Spot prices in the Mediterranean being above contractual levels has been supporting LNG selling interest. Algeria was heard selling cargoes into the West and East Mediterranean hubs for September and October.

Given that LNG prices in the West and East Med are at premiums to their domestic gas hubs and higher than oil-linked contracts, there have been healthy offers from Algeria.

Platts assessed the DES West and East Mediterranean markers for November at $11.035/MMBtu and $11.325/MMBtu, respectively, on Sept. 19. This put the West Med at a 24.3-cent/MMBtu premium to the Spanish PVB gas hub price, while the East Med was at a 6.1-cent/MMBtu premium to the Italian gas hub price.

At the same time, Algeria utilizes a "cocktail" of pricing mechanisms when offering into the market, industry participants have said, including oil-linked components.

Some term contracts -- especially legacy ones, including some Algeria volumes -- have tended to have an element priced as a percentage of crude oil, known as the "slope," which can vary depending on prevailing market conditions. Typically, the bounds of the slope are between 11% in a bearish LNG market to 20% in a bullish market. When the market is balanced, it would be 12%-13%.

Given current market dynamics, traders see oil-indexed contracts likely pricing around 12%-13.5% against Dated Brent. The current Dated Brent price would put oil-indexed volumes with a 12% slope at $9.190/MMBtu and volumes with a 13.5% slope at $10.338/MMBtu.

Against the 13.5% slope, this put West Med LNG at a 70-cent/MMBtu premium and East Med LNG at a 99-cent/MMBtu premium.

Against the 12% slope, this was a $1.85/MMBtu premium for the West Med and around a $2.14/MMBtu premium for the East Med.

Soft freights

Meanwhile, Algeria has geographical advantage delivering into Mediterranean.

The journey from Port Arzew of Algeria to Barcelona, Spain, takes around two days, according to shipping data from Commodity Insights.

Compared with a Freeport cargo, which can take around 14 days to deliver into Barcelona, Algeria volume would be handy in resolving prompt demand from Mediterranean countries, not mentioning the lower freight rates involved in shorter journeys.

Weaker freight rates have helped support outflows from Algeria, too. Platts assessed the Algeria to Southwest Europe LNG freight at 21 cents/MMBtu on Sept. 19, compared with the 40 cents/MMBtu seen at the same time in 2023 and 47 cents/MMBtu seen Sept. 19, 2022.

This should help incentivize volumes into the Mediterranean, as Algeria looks to supply Europe with waterborne cargoes while maintenance continues until the end of the month.