October 21, 2008

Waterborne Energy Points to Drop in Algerian LNG Production As Key in Summer Spot Price Spike

Ongoing production challenges at Sonatrach's aging Algerian LNG complex has played a role in the recent record global spike in LNG prices experienced this summer, according to Waterborne Energy, a Houston-based consulting firm that specializes in LNG markets.

"In April, it was reported that production would be reduced at Arzew due to scheduled maintenance," says Steve Johnson, president of Waterborne Energy. "We later learned of an incident at the complex in early June that was expected to significantly reduce LNG output further for up to three weeks. However, Waterborne's in-house production tracker discovered that production remained significantly hampered at Arzew through September. A closer look at the numbers suggests that production from Algeria has been averaging roughly 55 bcf per month since June. This was an unexpected decrease in production of about 21 bcf per month."

Johnson explains that because of today's tight global supply conditions, any LNG production outage is amplified; but a loss of up to seven tankers per month is significant in any environment.

"This market loss in LNG most certainly played a role in the recent record-high global spot prices that reached $25/mmbtu in Asia," says Johnson.

According to Waterborne's analysis, the discrepancy went largely unnoticed by most observers. This is because over the past several years Sonatrach has let key contracts expire, such as its contract to supply Belgium that freed up 175 bcf per year alone. These volumes were undetected because they were part of the company's uncommitted portfolio and had minimal effect on contract holders.

About Waterborne Energy, Inc.

Waterborne Energy monitors, analyzes and reports on global import and export shipments of Liquefied Natural Gas (LNG) and Liquefied Petroleum Gas (LPG). Published since 1982, Waterborne Reports offer subscribers exclusive and comprehensive analysis of LNG and LPG markets throughout the United States, Central and South America, Europe and Asia. Unmatched in the industry for accurate, real-time LNG and LPG data, Waterborne Reports include bimonthly tracking summaries of volume totals by vessel and by port, terminal capacities, ownership and expansion news and much more. Headquartered in Houston, Waterborne has offices in Dublin and London; for more information, visit www.waterbornelng.com.