U.S. LNG providers hope to win share of expiring supply contracts

(Bloomberg; Nov. 2) - The $90 billion-a-year liquefied natural gas market will be reshaped in 2018 as several large, long-term contracts start to expire. Growing supplies from the U.S., higher demand in Europe and Asia, and geopolitical tension surrounding Russia and Qatar, the world’s top suppliers, promise to shift long-time trading patterns. For decades the majority of LNG bought and sold around the world was governed by long-term contracts of up to 20 years. A fifth of those will expire from 2018 to 2020.

Over the next decade, contracts governing 80 percent of all global LNG trade will be rewritten. For now, the LNG market is in the midst of an enormous supply glut, in part because of the advent of U.S. exports the past two years. That glut is likely to persist until at least 2020, keeping prices low. Most LNG contracts expiring next year involve buyers in Europe, where countries are trying to reduce their reliance on Russian pipeline gas. Europe’s quest for more LNG could offer an opening for U.S. exporters.

Meanwhile, the world’s top LNG exporter, Qatar, is looking to expand its market share. It recently announced plans to boost LNG production by 30 percent over the next several years. One of the key advantages for the U.S. is its vast shale reserves, along with a pipeline network that allows exporters to bring gas from all over the country to export facilities being developed along the Gulf Coast, ensuring a steady supply. U.S. LNG providers hope to sign big deals in 2018, which could shave billions of dollars off the trade deficit with Japan, South Korea and China. “(It’s) going to be a pivotal year,” said Kathleen Eisbrenner, CEO of NextDecade, which proposes a terminal in Texas.

Read more: Oil and gas news briefs for Nov. 6, 2017

Novatek says China will help raise money for Arctic LNG project

(UPI; Nov. 1) - Russian independent gas producer Novatek said Nov. 1 it reached an agreement with a Chinese bank to help proceed toward its second liquefied natural gas project in Russia’s Arctic. Novatek said it signed a memorandum of understanding with the China Development Bank to cooperate on steering capital toward LNG. "Our strategy envisages a rapid growth of LNG production using international financing sources," Leonid Mikhelson, chairman of the Novatek board, said in a statement.

Novatek, the largest privately owned gas producer in Russia, leads the $27 billion Yamal LNG project, the first in Russia’s Arctic. Its initial cargo is expected before the end of the year. Along with partners French major Total and China National Petroleum Corp. (CNPC), Novatek is looking toward gas markets in the Asia-Pacific. The Yamal LNG project will have the capacity to produce about 17.5 million tonnes of LNG a year.

Novatek said it has signed a strategic cooperation agreement with CNPC that outlines implementation of its second gas project, named Arctic LNG-2, including development of infrastructure and trading mechanisms. "We believe our strategic cooperation agreement will further enhance our mutual relationship as well as open up new opportunities for both companies … with the enormous opportunities in the Chinese market," Mikhelson said.

Read more: Oil and gas news briefs for Nov. 2, 2017

U.S. LNG hopefuls, including Alaska, will head to China with Trump

(Reuters; Oct. 27) - U.S. gas exporters and traders are aiming to grab a bigger chunk of the growing business of selling gas to China, the world’s third-largest buyer, when they join President Donald Trump and Commerce Secretary Wilbur Ross in China Nov. 8-10. But the talk may all be hot air if the U.S. suppliers can’t compete with bargain prices and long-term deals of rivals Australia, Qatar and Malaysia. A list seen by Reuters shows that 10 of the firms that will travel with Ross and Trump are involved in energy and gas.

Among them are Cheniere Energy, owner of the first U.S. Gulf Coast LNG export terminal, and several LNG hopefuls promoting their projects, including the state-owned Alaska Gasline Development Corp., which told Reuters it had no comment. The list underscores the U.S. ambition to sell more of its excess gas abroad as the shale revolution overwhelms the North American market. China’s appetite has soared as it embarks on an audacious bid to heat millions of homes across the north by gas for the first time this winter and switch tens of thousands of industrial boilers to the cleaner fuel.

“We’re on the mission to talk to Chinese companies to get something signed up,” said Frederick Jones, CEO of Delfin Midstream, which wants to anchor gas-liquefaction and storage vessels 50 miles off the coast of Louisiana. Delfin has no customers, but hopes to “showcase” the company to state-owned and large private companies in China.

A Chinese oil trading executive expects the delegation to yield several short-term supply deals. Uncertain when the global LNG market will bottom out, Chinese buyers are cautiously avoiding lining up new long-term contracts, but rather are looking at signing five-year or even shorter-term deals based on spot prices, sources said.

Read more: Oil and gas news briefs for Oct. 30, 2017

Japanese utilities sign 3-year LNG supply deal with Malaysia

(Reuters; Oct. 25) - Malaysian state energy company Petronas has signed a three-year liquefied natural gas supply agreement with JERA Co., with smaller volumes and for a shorter period than its previous deal with the biggest LNG buyer in Japan. JERA, the fuel-purchasing joint-venture between Tokyo Electric and Chubu Electric, will buy 2.5 million tonnes per year from Petronas starting in April 2018, the companies said Oct. 25.

JERA is currently in the middle of a 15-year contract with Petronas that expires in March for 4.8 million tonnes per year. The new deal’s shorter duration and smaller volume, along with changes to the destination clause that restricts where the cargoes could be resold by JERA, highlight the turbulence in the LNG market the past few years. Buyers have gained the upper hand as growth in new supplies, mainly from Australia and the U.S., has exceeded demand and depressed prices to less than half their 2014 peak.

Petronas, the world’s third-biggest LNG exporter, is looking to sell its rising output after start-up of Train 9 at its Bintulu export terminal and also its first floating LNG production unit. Petronas officials said in May they were open to shorter-term LNG contracts and smaller cargo sizes to entice buyers. “New demand terms and conditions are becoming a norm,” said Ahmad Adly Alias, vice president of Petronas’ LNG Trading & Marketing. Neither Petronas nor JERA disclosed pricing terms of the latest deal.

Read more: Oil and gas news briefs for Oct. 26, 2017

South Korea reverses policy, will restart work on two nuclear reactors

(Reuters; Oct. 20) – The South Korean government said it will bow to public support for nuclear power and will resume construction of two new reactors after a public opinion survey found a majority of people support the reactors — contrary to a government policy to steer the country away from nuclear-generated electricity. President Moon Jae-in came to power in May after calling for reducing South Korea’s nuclear and coal-fired power generation in a push to use more natural gas and renewables.

Those plans were dealt a blow Oct. 20 when a public opinion survey found almost 60 percent in favor of resuming the stalled construction of two 1,400-megawatt nuclear reactors. Building the reactors could cut into liquefied natural gas demand of the world’s second-largest LNG buyer. “Full implementation of Moon’s election promises could have resulted in around 10 million tonnes (a year) of extra LNG demand by 2030. This now seems unlikely,” said Kiah Wei Giam, of energy consultancy Wood Mackenzie.

Stability of power supply was cited as a primary reason for the choice in survey responses, said the government-organized committee to study the nuclear projects. “We respect the will of the committee,” said a presidential spokesman. The size of the win in favor of the projects meant the government likely had no choice but to go with the committee’s recommendation.

Read more: Oil and gas news briefs for Oct. 23, 2017

China warns of gas supply shortages this winter

(Reuters; Oct. 19) - China has ordered state oil and gas companies to speed up the construction of pipelines to move natural gas to homes and factories, underscoring worries that the country’s insufficient infrastructure could cause power outages during the peak winter-demand period. This winter, millions of homes across the colder northern regions of the world’s second-largest economy will be heated for the first time by gas rather than coal, as part of Beijing’s effort to boost clean-fuel use.

But with just a month before newly installed radiators get switched on, the National Development and Reform Commission warned on Oct. 19 that supply-and-demand conditions could be “serious” this winter. The alert shows Beijing is trying to head off supply disruptions during the peak demand period. Residential users will have priority over industrial users, increasing the possibility of power losses during gas shortages.

“We are all quite concerned with supply shortages this winter ... as we may not have the infrastructure capacity to catch up with the demand growth,” said Li Wei, of Kunlun Energy, which operates liquefied natural gas import terminals in China. Wood Mackenzie estimates that heating needs alone will add 350 billion cubic feet to China’s gas demand this year. The country is expected to use about 8 trillion cubic feet.

China will need to ramp up imports or industrial consumers may get interrupted, warned Kerry Anne Shanks, head of Asia gas and LNG at consultants Wood Mackenzie. “We (also) worry that China doesn’t have enough storage.” China has only 280 bcf of gas storage capacity, about 4 percent of its demand — much less than other regions like the U.S. and Europe that typically store 15 percent to 25 percent of annual needs, she said.

Read more: Oil and gas news briefs for Oct. 20, 2017

S&P report warns new LNG projects face financing challenges

(Platts; Oct. 17) - Cheap, abundant natural gas supplies, combined with forecasts of growing global liquefied natural gas demand early next decade, are not enough to ease the uncertainty facing the next wave of U.S. LNG export projects, S&P Global Ratings said Oct. 17, citing high construction costs and the challenges in securing long-term sales contracts. The fear is that as developers along the U.S. Gulf, Atlantic and Pacific coasts seek creative ways to finance their projects, they will be open to shorter deals with smaller quantities and more flexible terms, raising concerns about their ability to repay debt as contracts come up for renewal more often, S&P Global Ratings said.

There are six U.S. LNG plants under construction, with more than a dozen others proposed, though almost no final investment decisions have been announced over the past 18 months and some have delayed decisions into 2018 or beyond. Few firm purchase agreements have been announced for the undecided projects.

"The repayment of project finance debt is from cash flow generated by long-term LNG offtake agreements with investment-grade companies,” the S&P report said. “However, these contracts are increasingly difficult to procure. … The credit quality of new facilities could suffer if project-finance structures are used but backed by shorter-term agreements (which introduce re-contracting risk) and/or merchant sales (and associated market risk), or include revenue counterparties that we rate below investment grade."

"This isn't to say that liquefaction facilities will no longer be built in the U.S.," S&P Global Ratings said. "However, the nature of these facilities could change. For example, we expect to see a greater number of smaller, more modular units, and potentially shorter-term contracts up to five years in length."

Read more: Oil and gas news briefs for Oct. 19, 2017

LNG producers work at building demand to match new supplies

(Wall Street Journal; Oct. 15) - After spending hundreds of billions of dollars to transform themselves into global natural gas giants, some of the world’s biggest energy companies face a new challenge: generating more demand as supplies threaten to balloon and prices languish. Producers are promoting the use of LNG for industrial trucking and shipping. Companies also say they are considering building the power plants and infrastructure necessary to provide gas and electricity in developing markets.

“We have to ultimately help the end customer,” said Peter Mackey, an executive at GE Power, which designs LNG facilities. After the energy industry spent $725 billion from 2007 to 2016 on LNG projects, according to consultant Wood Mackenzie, large new supplies are coming online in the U.S., Russia, Australia and Qatar. The opportunities and challenges of developing more demand will be a focus for energy companies gathering this week in London at an industry conference. LNG prices are mired at about half their 2014 peak, with LNG delivered to Asia trading around $8.70 per million Btu.

So far, companies have found customers for much of the new LNG, mostly because it was inexpensive and technological innovations cut the cost of building import terminals. The number of countries importing LNG has risen to 40, from 17 a decade ago. After building so much new LNG production capacity, companies now are forced to look to less-developed and potentially riskier markets. “The next wave of LNG consumers are less creditworthy, less experienced, less organized, and politically less predictable,” said Jason Feer, head of business intelligence at consultancy Poten Partners.

Read more: Oil and gas news briefs for Oct. 16, 2017