SANTA CRUZ, Bolivia: Top officials of major gas producing countries gathering this week in Bolivia will face a harsh reality: Expanding supplies of the fuel are giving global buyers greater sway over purchase and contract terms.
This week’s Gas Exporting Countries Forum (GECF), which aspires to be the OPEC for natural gas suppliers, is expected to draw energy ministers from Qatar, Iran, Russia and Venezuela to Santa Cruz, Bolivia as market oversupply reduces revenues.
These countries increasingly are competing with exports from and prices set in the US, which is on track to become the world’s third largest exporter of liquefied natural gas (LNG) after Qatar and Australia.
That has “buyers in a better position to make contracts with shorter terms and more customized to their demand profile, without risking money in high take-or-pay clauses,” said Mauro Chavez, a senior research analyst at consultants Wood Mackenzie.
At least 25 countries are now capable of receiving LNG supplies and new regasification plants are expected to start operating in the coming months, giving buyers greater flexibility and increasing competition for suppliers.
Even though LNG represents only about 10 percent of the world’s gas trade, new suppliers are willing to offer sweeter terms to customers, roiling traditional markets and turning up the heat on some producers trying to hold onto more rigid terms.
The US has been the most aggressive in shaking up the market, through flexible contract terms.
US suppliers such as Cheniere Energy, the largest country’s LNG exporter, are allowing customers to resell cargoes, which has created a profitable market for trading houses. A growing number of spot LNG sales and swaps is also taking place. Cheniere plans to open its fifth liquefaction plant in the coming months while seeking new buyers.
The rise of the US as a force in global LNG markets and its growing gas sales to Mexico via pipeline have contributed to greater price certainty, according to analysts. This is reflected in a long and flat North American dry gas cost curve that should limit abrupt price increases, they added.
Price indexes are becoming a factor not only in LNG contracts but also in sales via pipeline.
Pricing at the US Henry Hub fell in the last decade from a peak of around $11 per million British Thermal Units (BTUs) at the end of 2005 to a low of $1.96 in March 2016. Since then, prices have remained stable around $3 per million BTUs.
Attendees at the gas forum might work on “a methodology for determining gas prices in contracts,” which would promote more stability, Bolivian Hydrocarbons Minister Luis Sanchez said earlier this month.
In markets such as the Caribbean, some sellers also are customizing their gas supplies by linking contracts to fuel oil prices, which is also used for power generation.
“I don’t see a situation where the price of LNG would be very high. The price of LNG will be very competitive in the mid-term and in the long run,” said Edgar Almeida, professor of the Instituto de Economia UFRJ in Brazil, flagging other market entrants such as Mozambique.
The gas glut has fueled some mergers among producers, just as the terms of some of the world’s most important gas trade deals are being renegotiated ahead of their expiration dates, including some contracts between Qatar and Japan, South Korea and Taiwan.
Other traditional gas suppliers such as Russia, Norway and Algeria seem determined to maintain market share in key markets such as Europe.
In Latin America and the Caribbean, where US LNG supplies have lowered prices for importers such as Chile and Argentina, traditional suppliers Trinidad and Bolivia need to attract upstream investments, cut costs and offer consumers more pricing flexibility to remain competitive.
— REUTERS
Buyer’s market weighs on gas exporters from Qatar to Iran
Buyer’s market weighs on gas exporters from Qatar to Iran
Global brands shut Middle East stores as conflict causes chaos
- Luxury brands and retailers close stores in Middle East
- Conflict threatens the region that has been luxury’s fastest growing
- Mass-market retailers monitor situation, adjust operations in region
PARIS: In Dubai and other major Middle Eastern shopping hubs, many stores are closed or operating with a skeleton staff as the escalating conflict in the region causes chaos for businesses and travel.
The US-Israeli air war against Iran expanded on Monday with no end in sight, with Tehran firing missiles and drones at Gulf states as it retaliates for a weekend of bombing that killed Iran’s supreme leader and reportedly killed scores of Iranian civilians, including a strike on a girls’ primary school.
Chalhoub Group, which runs 900 stores for brands from Versace and Jimmy Choo to Sephora across the region, said its stores in Bahrain were closed, while other markets, including the UAE, Saudi Arabia, and Jordan remained open though staff attendance was “voluntary.”
“We operate with a lean team formed of members who volunteered and feel comfortable to come to the store,” Chalhoub’s Vice President of Communications Lynn al Khatib told Reuters, adding that the company’s leadership team personally visited Dubai Mall and Mall of the Emirates on Monday morning to check in with workers.
E-commerce giant Amazon closed its fulfillment center operations in Abu Dhabi, suspended deliveries across the region and instructed its employees in Saudi Arabia and Jordan to remain indoors, Business Insider reported on Monday, citing an internal memo.
Gucci-owner Kering said its stores were temporarily closed in the UAE, Kuwait, Bahrain and Qatar and it has suspended travel to the Middle East.
Luxury growth engine under threat
Shares in luxury groups LVMH, Hermes, and Cartier-owner Richemont were down 4 percent to 5.7 percent on Monday afternoon as investors digested the knock-on impacts of the conflict.
The Middle East still accounts for a small share of global spending on luxury — between 5 percent and 10 percent, according to RBC analyst Piral Dadhania. But the region was “luxury’s brightest performer” last year, according to consultancy Bain, while sales of expensive handbags have stalled in the rest of the world.
Now, shuttered airports have put an abrupt stop to tourism flows into the region and missile strikes — including one that damaged Dubai’s five-star Fairmont Palm hotel — are likely to dissuade travelers, particularly if the conflict drags on.
“If you assume that it’s a $5 billion to $6 billion (travel retail) market and let’s say it’s going to be shut down for a month, we are talking about hundreds of millions of dollars that are definitely at risk,” said Victor Dijon, senior partner at consultancy Kearney.
If Middle Eastern shoppers cannot travel to Paris or Milan, that could also hurt luxury sales in Europe, he added.
Luxury brands have been investing in lavish new stores and exclusive events across the region. Cartier unveiled a “high-jewelry” exhibition in Dubai’s Keturah Park just days before the conflict started.
Cartier and Richemont did not reply to requests for comment.
Luxury conglomerate LVMH has also bet big on the region. Last month, its flagship brand Louis Vuitton staged an exhibition at the Jumeirah Marsa Al Arab hotel, and beauty retailer Sephora launched its first Saudi beauty brand.
LVMH does not report specific figures for the region, but in January Chief Financial Officer Cecile Cabanis said the Middle East has been “displaying significant growth.” LVMH did not reply to a request for comment on how its business may be impacted by the conflict.
The Middle East has also attracted new investment from mass-market players. Budget fashion retailer Primark said in January that it plans to open three stores in Dubai in March, April and May, followed by stores in Bahrain and Qatar by the end of the year.
“Primark is set to open its first store in Dubai at the end of March but clearly this is a fast-moving situation which we are monitoring closely,” a spokesperson for Primark-owner Associated British Foods said.
Apple stores in Dubai will remain closed until Thursday morning, the company’s website showed, while Swedish fast-fashion retailer H&M said its stores in Bahrain and Israel are closed.
Consumer goods group Reckitt has told all employees in the Middle East to work from home, temporarily closed its Bahrain manufacturing site and suspended all business travel to the region until further notice.
