At a time when new worldwide LNG capacity is coming on stream, and with Europe a potential import target, French LNG operators Elengy and Fosmax LNG intend to reinforce import terminal appeal in the country through a so-called pooling service, which allows shippers to arbitrage their capacity between French regulated LNG terminals.
"We're expecting LNG to come from both the Atlantic and from the Middle East, and France has two maritime coasts, Atlantic and Mediterranean. [With the service] shippers have the possibility to react to market signals and optimize their shipping when delivering their cargoes," Guillaume Rombaut, commercial director at Fosmax LNG, told S&P Global Platts in an interview.
There are three French LNG regulated terminals: at Montoir-de-Bretagne (capacity of 10 Bcm/year) located on the Atlantic, and Fos Cavaou (8.25 Bcm/year) and Fos Tonkin (3 Bcm/year) on the Mediterranean coast.
Since January, shippers with take-or-pay obligations related to regasification subscription in at least one of the three regulated terminals, have had the option to transfer part of their capacity booked but not used in a given terminal to another, at a cheaper tariff.
"The idea is to provide financial credits to clients who decide to release or not to use some of their capacity under the use-it-or-lose-it mechanism," Rombaut said.
With the system, the higher the difference between the capacity booked and the capacity used, the greater the financial credit.
The regulated tariffs range between Eur0.783/MWh for Montoir-de-Bretagne and Eur1.659/MWh for Fos Cavaou (Eur0,829/MWh until the end of September). If, for instance a shipper releases 3 TWh in a given terminal, the credit could reach several million euro.
CREDIT AND TARIFF CALCULATIONS
Any shippers with a subscription at one of the terminals for the month-ahead that doesn't use its fully booked capacity has to inform the operator of the terminal about the release by the 20th of each month at the latest.
According to the capacity released, the shipper will receive a pooling credit recoverable at the other two terminals for that month-ahead.
The credit will be expressed in euros and will represent the difference between the capacity contracted by the shipper for the month and the capacity actually used, calculated by multiplying the number of cargoes by the berthing rate and the quantity discharged by the Quantity Unloaded Rate.
The pooling service tariff in the other terminal will be the difference between the regulated tariff and the credit, plus 10% of the subscription (see below).
Shippers will need a minimum level of credits to qualify for a tariff reduction at the other terminals. The threshold for the credit to be usable is 10% of the tariffs for the new subscription at the other terminals.
Applicable tariff for pooling service
1- If credit is less than 10%, then pooling tariff is not applicable
2- If credit is comprised between 10% and 100% of subscription, P=S- C+0.1*S
3- If credit is more than subscription, pooling tariff is maximum between 0.1*S and berthing right in terminal B.
P=Max[Max{S-C;0]+Min[0.1*S;C];Max[1;NDs]TNA(B0]
P= Applicable tariff for the subscription in terminal B, with pooling service
S= Applicable tariff for the subscription in terminal B, without pooling service
C= Ship-or-Pay credit
NDs= Numbers of berthing rights to subscribe in terminal B
TNA(B)= Berthing rate in terminal B
Source: Platts analysis of Elengy, Fosmax LNG
French energy regulator CRE has asked the operators to submit their feedback on the service, which is currently under testing, before October 31, 2016.
Rombaut said that one client has tried the service and is satisfied.
"The feedback will be made in consultation with CRE, in a transparent way," he added.
Rombaut said Elengy and Fosmax LNG were also working on other not yet public flexible services in order to improve competitiveness further.
Asked about the potential impact on LNG prices resulting from the pooling service, Rombaut said: "Given the current low [EU gas] price levels, I don't think that the service can have any impacts upstream or downstream. It is more about the flexibility the service is providing to participants' portfolio. It is a valuable arbitrage option."
CAPACITY SITUATION
According to Eclipse, an analytics of S&P Global Platts, maximum sendout capacity at Montoir terminal is calculated at 27 million cu m/d, while total sendout capacity at the Fos terminals represents 30.8 million cu m/d.
Eclipse also showed sendout in Montoir of less than 3 million cu m/d since the beginning of 2015, while sendout at the two Fos terminals averaged less than 14 million cu m/d over the same period.
Eclipse showed that in 2016 there have been frequent Nigerian cargoes delivered to Montoir.
At the same time, data shows that the Montoir terminal could also physically and contractually take some additional Algerian cargoes, as Algerian supplier Sonatrach has a delivery contract with both the Fos and Montoir terminals.
The Fos terminals have been frequently receiving cargoes from Qatar and Algeria, which are countries with good connections to other markets and flexible re-routing towards Asia, for instance.
Meanwhile, Egypt, which still has a contract of 13.6 Bcm/year at Fos Cavaou, has stopped exporting LNG since the political unrest of 2013 and has become an importer.
As a result of all these factors, Fos terminals have more upside than Montoir and could absorb more cargoes in a context when more available LNG is expected to berth into Europe.
The picture could potentially change once the Dunkirk terminal in the PEG Nord area becomes operational in September this year.
According to the French grid operator GRTGaz, Dunkirk has a maximum sendout capacity of 1.9 million cu m/hour (45.6 million cu m/d), while the sendout rate at the testing phase this summer is expected at less than 5 million cu m/d. This could rise to 11 million cu m/d with the arrival of commercial cargoes from September, according to Eclipse.
The Dunkirk LNG terminal is not regulated and is not taking part to the pooling service.
