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Watch: Yamal LNG supply route shifts the global balance

Yamal LNG Train 1 has successfully shipped its first four cargoes. The first three are temporarily destined for North West European terminals. Will the gas stay in Northern Europe or be shipped onwards? S&P Global Platts Analytics' Mel Sawaryn examines how the Yamal volume could affect the global LNG market balance.

For more information on Platts LNG Analytics, call +1 8557130658.

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Video Transcript

Yamal LNG supply route shifts the global balance

By Mel Sawaryn, Lead Analyst, S&P Global Platts Analytics

Welcome to The Snapshot, a series examining the forces shaping and driving global commodities markets today.

Yamal LNG Train 1 has successfully shipped its first four cargoes. The first three are destined for North West European terminals, temporarily at least. The question is, will the gas stay in Northern Europe or be shipped onwards and ultimately, how will Yamal volume affect the global balance going forward?

On the roster of liquefaction projects due to be commissioned around the world this year, Russia’s 15 million ton per year three train Yamal project in the Arctic stands out for its remote location, technical challenges, marketing struggles and financing hurdles in the wake of US sanctions.

Now up and running, the project’s special purpose fleet is seasonally constrained. In December through April, cargoes can only travel westward, which means all journeys will pass by North West Europe. From there, the LNG can undergo a ship-to-ship transfer for export. Alternatively, it can be loaded into LNG storage for reload later. This appears to have been the case for Yamal’s first cargo, which initially landed at the UK’s Isle of Grain terminal. At of the time of recording its final destination was not 100% certain though it cited Boston USA as the destination. A bit odd? No, not really. It’s simply a sign of the market reacting to market signals. Following a sustained period of brutally cold temperatures in the US’s Northeast region, prompt month netbacks from the UK into the Boston area have risen sharply, exceeding those into NE Asia and to South West Europe.

During May to November, or when conditions allow, the vessels will have the option of travelling directly to North East Asia via the Northern Sea Route. However, the route is roughly double the length of the westward route to North West European markets. If Yamal’s special purpose fleet were dedicated to delivering volume to North Asia during the summer months this would impact potential production from the plant, limiting it to producing significantly less than capacity.

Once contracts start up and the Northern Sea Route is open for the summer, the choice to deliver via this route will have to be weighed up against the implications for capacity utilisation. Most Yamal contract holders are portfolio players, granting them optionality around delivery decisions. However, until the project completes its commissioning phase, all exports will be sold on a spot basis to shareholders. We expect during this time cargoes will travel westward and the marginal decision for where the gas eventually goes will be determined by the economics of a reload from North West Europe. This opens up the channel of arbitrage between European and other regional markets, with implications for global spreads.

Until next time on The Snapshot, we’ll be keeping an eye on the markets.