- Exclusive LNG sellers seek credit letters as gas price spike stretches credit limits
- LNG cargo value jumps to $100-$120 million from $30 million
- credit limit being reached faster for smaller firms – sources
- request for credit letters could slow global LNG trade-trade
Sellers of liquefied natural gas (LNG) are asking for credit letters from companies they deal with to guarantee they can pay as the global spike in gas prices takes them beyond their credit limits, says an article on Reuters.
Global price surge
Companies were lured by a spike in demand, especially in Asia, spurred by relatively cheap gas prices and a global energy transition that saw countries such as China shift from coal to gas. Now credit limits are being breached because of a global price surge, as demand recovers following the COVID-19 crisis and supplies tighten.
LNG trade
In Asia, the focus of LNG trade, spot LNG prices hit a record of $34.47 per million British thermal units (mmBtu) last week, up roughly 100% from a month ago and more than 500% from the same period last year. A typical 3.4 trillion British thermal units LNG cargo, is worth between $100 million and $120 million compared with less than $20 million in late February.
Seeking letters of credit
Sellers of the super-chilled fuel as a result are seeking letters of credit when they sell cargoes to trading firms, and even to some end-users, to ensure the buyers’ banks have backed the purchases. The sources asked not to be named because they are not authorized to speak to the press.
Banks issue letters of credit
Banks issue letters of credit on behalf of buyers as a guarantee they will pay the seller a certain sum of money within a certain period. Open credit, which is how most LNG spot trades have been conducted, typically involves pre-approved loans between the bank and the borrower that the latter can use repeatedly up to a certain limit.
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