LNG ships accrue off Argentina as energy demand misses estimates

By PABLO GONZALEZ, CHARLIE DEVEREUX and CHOU HUI HONG

Bloomberg

Ships loaded with LNG are lining up off the coast of Argentina after the government overshot winter orders, with a lack of storage facilities forcing the nation to pay daily fees to each vessel.

The Polar Spirit, Iberica Knutsen and Arctic Spirit -- scheduled to unload gas cargoes on Sept. 23, 27 and 30, respectively -- remain anchored in Escobar port near Buenos Aires, ship transmissions captured by IHS Fairplay on Bloomberg show. Further south at Bahia Blanca, the Lobito and British Ruby are yet to dock, missing their respective Oct. 1 and Sept. 29 unloading dates, the data show.

“The government signed contracts months ahead calculating how much gas the country would consume but this winter was benign so people consumed less and there’s no space to store the gas,” Sebastian Scheimberg, an energy analyst at Montamat & Asociados, said by phone from Buenos Aires. “Argentina needs to urgently build a terminal to receive this LNG. You have to pay more in fines for the time the vessels wait.”

Argentina, the largest importer of spot and short-term LNG in the Americas last year, is set to post a record energy deficit this year as domestic output declines and consumer subsidies swell the budget deficit. While state-run YPF SA has partnered with Chevron Corp. to Petroliam Nasional Bhd to tap the world’s second-largest shale gas deposits, erasing the energy deficit is still at least five years away, President Cristina Fernandez de Kirchner said April 24.

Slowdown Effect

Argentina’s power consumption fell 3.6% in August from the same month last year as temperatures averaged 15.3 degrees Celsius compared with 12.7 degrees a year ago and the historical August average of 12.5 degrees, according to data compiled by industry group Fundelec. Gas-fired plants account for 57% of the country’s power generation.

“With temperatures like these it’s obvious people consumed less energy,” Eduardo Sierra, head climatologist at the Buenos Aires Grains Exchange, said in a telephone interview.

Horacio Mizrahi, a spokesman for Argentina’s Planning Ministry, said he had no immediate comment on gas shipments when contacted by telephone from Buenos Aires.

Less need for heating isn’t the only reason for overshooting natural gas orders. Manufacturing output fell 2.8% in the year through August from the same year-ago period, signaling reduced energy demand from large industrial users. The economy is forecast to contract 1.1% in 2014 after expanding 2.9% last year, according to the median estimate of economists surveyed by Bloomberg.

Each shipment costs about $50 million, a YPF official said, asking not to be named in line with company policy. The country bought 4.72 million metric tons of LNG in 2013, a 40% increase on 2012, according to the Paris-based International Group of Liquefied Natural Gas Importers.

Contract Barriers

The delays imply a daily fine of $15,000 a ship, the company official said. Since its nationalization in 2012, YPF is in charge of organizing the international tenders for LNG and obtaining the best price, the company official said.

Compounding the costs associated with logistics shortfalls are restrictions on cheaper, longer-term delivery contracts and access to credit.

LNG sellers aren’t unloading cargoes without full payment in advance after a ship had delays collecting payment in January 2013, an Argentine government official with knowledge of the matter said.

Mounting energy imports are eating into Argentina’s foreign reserves, which have fallen 47% to $27.9 billion from a high in January 2011.

Argentina will post a fiscal deficit of 1% in 2014 as it plans to spend around $8.5 billion to import energy that’s later sold at below-market prices to industry and residential consumers, Economy Minister Axel Kicillof said Sept. 15 during a presentation of the 2015 budget.

Credit Closed

While the central bank releases the dollars, it’s state-owned Empresa Nacional de Energia SA, or Enarsa, that decides which invoices are paid, a bank official, who isn’t authorized to speak publicly, said. John Lees, a press officer at Enarsa, declined to comment when contacted by telephone.

Argentina’s sovereign risk excludes the nation from access to long-term LNG contracts and forces it to buy in the more expensive spot market, Montamat’s Scheimberg said. Argentina defaulted on July 30 for the second time in 13 years. Standard & Poors rates the country SD for selective default.

“Nobody gives Argentina long-term credit,” he said. “If they could buy long-term contracts you’d be able to sell those ships in the spot market at a fair price. But if you buy in the spot, then you’ll lose money re-selling in the spot.”

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