BP, Pavilion Ink Long-Term LNG Deals

Posted by Joseph Keefe September 24, 2014

Pavilion to buy 0.4 mln tpy LNG from BP for 20 years. Aims to become a global LNG firm in medium to long term. Working with SGX, regional govts on LNG price marker.

Singapore's Pavilion Energy said it had signed two long-term contracts to buy liquefied natural gas (LNG) for trading and supply to Asia, adding to a previous contract as the state-owned firm seeks to become a global supplier.

Pavilion Energy said in a statement on Wednesday its wholly owned subsidiary Pavilion Gas Pte Ltd had struck a deal with BP under which the British company will supply it with 0.4 million tonnes per year (tpy) of LNG for 20 years from 2019. It did not say how much Pavilion would pay for the LNG.

Pavilion has also purchased 0.4 million tpy of LNG from Sempra Energy's Cameron LNG project in Louisiana, which will be delivered to Asia according to its production schedule, a company spokeswoman said in an email.

The U.S. Energy Department on Sept. 10 gave Sempra the green light to export LNG from the project.

Singapore aims to position itself as an LNG trading hub for Asia, with links to producers such as Indonesia, Malaysia and Australia and countries with growing demand such as China, India and Thailand.

Temasek Holdings, Singapore's sovereign wealth fund, created Pavilion last year, providing it with a $6.9 billion war chest. Pavilion has already used the funds to buy a stake in a gas field in Tanzania and start an LNG shipping joint venture.

A month ago, Pavilion signed a 10-year deal with France's Total to buy 0.7 million tpy of LNG from 2018.

BP will supply the LNG from its global portfolio of equity and merchant sources, Paul Reed, chief executive of BP Integrated Supply and Trading, said in the statement issued by Pavilion.

"This includes the Freeport LNG Project in the U.S., where BP holds tolling rights and which is expected to reach a final investment decision before the end of 2014," Reed said.

Pavilion Energy said the time was ripe for an Asian LNG hub as import-export terminals and storage facilities are in place and the region is gradually shifting from long-term contracts to a spot market.

The company is also working with the Singapore Stock Exchange, IE Singapore, regional governments and commodity exchanges to develop a Singapore LNG price marker, Seah Moon Ming, chief executive of Pavilion Energy and Pavilion Gas, said at an industry conference.

The price gauge will be independent of the oil market and better reflect regional demand-supply balances, Seah said.

LNG sold to Asia is mostly pegged to the Japan Crude Cocktail (JCC) price, which is often higher than gas price benchmarks in Europe and the United States.

Asian buyers currently pay a premium for LNG, which amounted to almost $130 billion in 2012, according to Pavilion Energy.

While the recent downturn in spot prices "posed a pricing challenge for gas producers, it was a wonderful opportunity for traders who were able to buy and store spot for seasonal trade", Seah said.

Pavilion Energy has stored an LNG cargo at the Singapore LNG terminal for trading purposes, he said.