UPDATE 1-Argentina reworks LNG import deals as mild weather hits demand

(Adds comments from Enarsa)

MILAN/BUENOS AIRES, Sept 1 (Reuters) - Argentina is diverting or cancelling incoming shipments of liquefied natural gas (LNG) after mild late winter temperatures curbed fuel demand and forced state-run buyer Enarsa to rework some deals.

South America’s biggest LNG importer launched back-to-back tenders in June and July after a cold start to winter, lining up dozens of cargoes at bargain prices as global output continued to outpace demand.

But a milder streak in August has undercut demand for heating fuel and left state-run LNG importer Enarsa juggling a supply overhang, the company and trading sources said.

Enarsa said it had delayed three cargoes until next year because of one of the warmest Augusts in a decade.

Stubbornly high stock levels at Argentina’s two import terminals, Bahia Blanca and Escobar, also mean there is no storage for more imports.

LNG trade sources who conduct business with Argentina say at least four cargoes destined for Bahia Blanca have been canceled or rescheduled.

“The Bahia cargoes are being targeted for cancellation because it is more difficult to divert Escobar shipments,” one source said.

Argentina’s LNG suppliers, which include major oil firms and leading trading houses BP, Gunvor and Royal Dutch Shell, can levy penalty fees of up to $5 million for cancellations, one trading source said.

Fernando Pazos, head of institutional relations and communications for Enarsa, denied paying penalties. He said Enarsa sometimes pays a stop fee when a ship is outside the port but cannot enter due to weather conditions.

LNG traders dealing with Argentina demand payment upfront due to concerns about the level of U.S. dollar reserves in the country after they were run down by the former president.

Seven gas tankers are now crowded around Argentina’s import terminals, live ship-tracking data shows.

One of the Bahia Blanca-bound tankers already diverted, the Methane Alison Victoria chartered by Shell, discharged at Jordan’s port of Aqaba on Wednesday, according to Thomson Reuters shipping data.

Problems in the take up of LNG stretch beyond Argentina.

“LNG imports into Latin America in the first half of the year are down by three million tonnes, or 28 percent lower than volumes received over the same period last year,” independent LNG consultant Andy Flower said.

In Mexico, cheaper pipeline imports from the United States pushed out LNG, while Brazil cut imports by 60 percent as heavy rainfall replenished hydroelectric reserves, he said.

In Argentina, sea-borne LNG imports declined by 15 percent in the same period. (Additional reporting by Juliana Castilla and Eliana Raszewski in Buenos Aires; Editing by David Clarke and Chris Reese)