Trafigura signed a 15-year agreement with US liquefied natural gas group Cheniere Energy on Tuesday to buy 1m tonnes a year of the super-cooled fuel, in the first long-term flexible deal between an independent commodities trader and a US producer.
Trafigura, a leading trader in energy and mining commodities, is among a group including Vitol, Glencore and Gunvor eyeing a larger presence in the LNG market as it shifts from fixed destination deals to flexible trading, which in turn will boost spot markets.
LNG contracts in the past have tended to lock in buyers through clauses limiting the resale of the supplies. However, the fuel has become the latest commodity to begin shifting to deals allowing buyers to sell their cargoes elsewhere in the market.
The move comes as US producers have offered their supplies on a flexible basis, alongside increased output from countries such as Australia, opening trading opportunities for various players.
On the demand side, rising imports by China has been driving growth, pushing up Asian prices above $11 per million British thermal units, a three-year high.
Independent traders like Trafigura are using their commodity trading expertise to make their mark in the LNG market, as well as exploit their links with developing countries in Africa and Asia, where demand for the fuel is taking off.
“Commodity traders, like Trafigura, are helping to create additional liquidity and flexibility, particularly in terms of making LNG accessible to buyers from emerging LNG markets,” said Frank Harris, head of global LNG at energy consultants Wood Mackenzie.
Trafigura will purchase the LNG indexed to Henry Hub, the US natural gas benchmark, from Cheniere on a “free-on-board” basis, which means the buyer owns the gas as soon as it is loaded at an export terminal.
Hadi Hallouche, head of LNG trading at Trafigura, said: “This deal will support our LNG infrastructure platform and provide further security of supply to our customers.”
Jack Fusco, chief executive of Cheniere, said that the deal would help support the group’s expansion plans.
Commodity traders are not the only ones looking to increase their presence in actively buying and selling LNG. Japan’s Jera, the world’s largest buyer of the fuel, last month announced it would combine its LNG trading arm with that of EDF’s in a non-binding agreement.
The deal, which does not include a financial settlement, will provide Jera with access to European LNG and gas markets, offering it destination options for its non-committed LNG cargoes.