More LNG project cancellations in war of attrition, analysts predict
(Bloomberg; March 23) - The global LNG boom is turning into a war of attrition amid a glut in the seaborne natural gas market. The conflict spanning from Australia to Qatar to the U.S. claimed a major casualty this week when Woodside Petroleum, with partners Shell and BP, scrapped plans for the $40 billion Browse liquefied natural gas project in Australia amid the market slump. More cancellations or delays are expected as the current oversupply kills any incentive to invest, according to BMI Research.
The world’s LNG supply is set to surge over the next five years as projects already under construction add to an emerging glut, according to analysts including Energy Aspects and Poten & Partners. “The current pricing environment is simply killing off the weaker ones and Browse was definitely one of those,” said Madeline Jowdy, senior director of global gas and LNG at energy consultancy PIRA in New York. “It’s going to look like a bloodbath in the 2017 and 2018 timeframe with cutthroat LNG prices.”
“It’s going to be a really difficult period and some companies are not fully prepared for the changes coming to the market,” said Jason Feer, head of business intelligence at Poten & Partners in Houston. “There has never been a period where the oversupply is going to be as big as it is going to be over the next few years. The question for some people won’t be, ‘How do I make money?’ It will be, ‘How do I manage my losses.’"
Exxon reported in talks to buy stake in Mozambique gas development
(Wall Street Journal; March 24) - ExxonMobil is in advanced talks to acquire a stake in a giant Mozambique gas project from Italy’s Eni, a sign that major oil companies are again hunting for deals. The acquisition could be announced in the coming weeks, according to sources. The terms aren’t clear, but one person indicated Exxon is in talks to buy a stake of about 20 percent from Eni, which owns 50 percent of the development. Of course, timing could slip or talks could fall apart or the size of the stake could change.
The Mozambique Area 4 offshore development is expected to eventually become a major supplier of liquefied natural gas. Eni has said it may hold 85 trillion cubic feet of gas. For Exxon, the assets would represent an important move toward adding to oil and gas reserves with acquisitions during the fall in oil prices, a step many analysts have estimated it would take at low prices. Last year, Exxon was only able to replace about two-thirds of the oil and gas it produced — the first time that has happened in 22 years.
Exxon’s backing could be a lifeline for Eni as it seeks to make the discovery viable. Exxon is said to have an interest in becoming an operator in the development, sources said. The Mozambique project involves separate giant gas discoveries in the Indian Ocean that a host of companies want to exploit. Eni and Anadarko Petroleum made the original discoveries in the area and agreed last year to coordinate development that is likely to cost in the tens of billions of dollars. Anadarko is not a partner in Area 4.
Yamal LNG partner looks to Russian banks as Chinese lenders balk
(Russia Beyond the Headlines; March 25) - Next month, Novatek shareholders will vote on terms of major loans from Russian banks Sberbank and Gazprombank for the Yamal LNG project. The project has so far received financing only from the government, even though Novatek has promised it will attract foreign credit in the coming months. Chinese banks are unlikely to finance the project, sources told the Russian business newspaper Kommersant. They’re wary of getting involved, as Novatek is a target of U.S. sanctions.
Novatek, therefore, is likely to seek more financing from Russian banks. On April 22, Novatek will ask its shareholders to approve “a large deal that is of interest to the company.” Novatek officials told Kommersant the deal concerns loans worth 3.6 billion euros ($4 billion) for Yamal LNG from Sberbank and Gazprombank. The China Development Bank and China Eximbank promised to lend the project $12 billion, but sources familiar with the situation said the Chinese are afraid of sanctions.
Yamal’s sponsors have been looking for external financing for almost two years, but U.S. sanctions against Russia over the Ukraine crisis have made it hard to raise money. For now, the project has been financed almost entirely by the partners. As of the end of February, Novatek, Total and China National Petroleum Corp. had put in $12.5 billion. The $27 billion liquefaction plant and marine terminal in Russia’s Arctic is under construction, and Novatek says the first production unit will come online late 2017.
Tokyo Gas building new LNG storage tanks
(Reuters; March 24) - Tokyo Gas, Japan's biggest natural gas utility, said March 24 it plans to build a new liquefied natural gas storage tank at the Sodegaura LNG terminal on Tokyo Bay. The tank, slated to begin operations by March 2024, will be able to hold about 4.4 billion cubic feet of natural gas as LNG, making it larger than two aging tanks that are set to be demolished, a company spokesman said. Tokyo Gas jointly operates the Sodegaura terminal with Tokyo Electric Power.
Tokyo Gas also said it began commercial operation March 23 of the Hitachi LNG terminal, which is equipped with a storage tank that can hold almost 5 bcf of gas stored as LNG. And the utility said it will build a second tank — twice the size — at the Hitachi terminal by March 2021. Taking into account government efforts to open up the market to competition, Tokyo Gas recently lowered its projected growth of gas sales for the next five years to a little over 2 percent a year on average.
Qatar looks to Europe to take its unsold LNG
(Reuters; March 22) - Qatargas is looking to Britain and the Netherlands in an effort to weather a looming global glut of LNG supplies by expanding import deals into Europe's most liquid markets, industry sources said. The world's biggest exporter of liquefied natural gas wants to lock in buyers for its unsold supply just as new Australian and U.S. producers muscle into its prized Asian markets.
Slowing demand globally is only adding to producer woes, thrusting Europe's gas markets and dozens of underused import terminals into the spotlight. Qatargas has held talks with Petronas UK to gain greater access to the Dragon import terminal in Wales, as well as with Uniper, formerly known as E.ON Global Commodities, for the Gate terminal in Rotterdam, two sources said.
Unlike the past four years, import capacity at Gate and other northwest European terminals is becoming more valuable in response to the start of U.S. LNG exports. "As more people are looking to Europe, the capacity value has increased,” said Stefaan Adriaens, commercial manager at Gate. “Everybody was hoping for Asia demand, but their demand was slower so I think capacity value has decreased there.”
LNG market adjusts to new Australian supply
(Reuters; March 21) - Australia's ascent as a liquefied natural gas giant is choking off LNG trade from Atlantic to Pacific markets established after Japan's Fukushima nuclear disaster in 2011, giving rise to new routes. Mass LNG diversions had earned traders fat margins as Asian markets commanded steep price premiums, partly driven by Japan's scramble to replace lost nuclear output. But waning Asian demand, new supply from Australia and converging global prices are putting a halt to long-haul Atlantic diversions.
At 40 cents per million Btu, Asia's price premium over European markets is less than the cost of shipping gas from Britain to Japan, a trader said, slamming the brakes on cross-basin trade and keeping gas in the Atlantic. Varying qualities of LNG, including the more recent super-lean coal-bed gas exports from Australia, are also complicating trade flows. Some buyers are more flexible and able to take a broader range of gas specifications, such as Jordan and India.
"More volumes from Australia are going to India, especially lean cargoes, as Japan, Korea and Taiwan don't like to receive lean gas," one trader said. The specific quality of the resulting LNG, called lean, cannot be easily absorbed by some countries in Asia, although importers are making strides in handling greater quantities of lean supply expected to come from the United States.
Petronas talking with Canadian officials about delayed LNG project
(Reuters; March 24) - Malaysian energy firm Petronas continues to hold talks with Canadian authorities on how it can move forward with its much-delayed liquefied natural gas project, a company official said March 22. State-owned Petronas and its project partners have been waiting for nearly three years for a permit to build the Pacific NorthWest LNG facility near Prince Rupert, B.C. The project has come under contention as aboriginal and environmental groups have said it would threaten salmon habitat.
Canada's federal environment assessment agency last week was given an additional three months to finish its impact study on the project. "We will continue to work constructively with the Canadian government and regulators to see how we can move forward," Adnan Zainol Abidin, Petronas vice president of global LNG projects, told reporters on the sidelines of an industry conference.
Asked if Petronas will reconsider its position on the project, Abidin said: "We will make that call when the time is prudent." The Canadian government has said it will announce a final decision on the project this year.
Support for LNG industry slips in B.C. public opinion poll
(Vancouver Sun; March 23) - Support for the B.C. government’s plan to create a liquefied natural gas export industry has slipped since just after the 2013 election, an Insights West poll has found. In an online survey of 802 adults conducted this month, 43 percent of British Columbians said they supported the provincial government’s push to expand the development and export of LNG, while 41 percent were opposed.
That’s a change from a more positive sentiment registered in an August 2013 survey, when 50 percent supported LNG expansion and only 32 percent were opposed. At the same time, the new survey shows British Columbians are increasingly concerned about hydraulic fracturing — the oil and gas production process that has attracted opposition from environmental groups, some First Nations and some residents in northeastern B.C.
Only 23 percent of British Columbians surveyed support fracking, while 61 percent are opposed. Opposition has jumped 14 percent since August 2013. “We went from half of the people saying yes let’s do it (LNG), to essentially a split between those who support going for LNG and those who don’t want to see it. And I think that it is really related to the animosity that many feel toward fracking,” said Insights West vice president public affairs Mario Canseco.
U.S. gas production at highest level ever in February
(Wall Street Journal; March 24) - U.S. natural gas production hit its highest level ever over the winter even in the face of low prices, a conundrum at the heart of one of the year’s worst-suffering markets. Energy companies have responded to lower prices by cutting back drilling. But they are continuing to pump aggressively from their most productive wells, which, along with an unusually warm winter, has left the industry heading into spring with a supply glut and prices down by nearly a quarter this year.
Average daily output in the continental U.S. set a record in February of 73.3 billion cubic feet, data firm Platts Bentek said. That is up about 2 percent from January and adds pressure on prices already were too low to make many wells worth drilling. Meanwhile, the U.S. Energy Information Administration March 24 said producers began stockpiling gas during the week ended last Friday, signaling an unusually early end to the winter heating season. Historically, gas still is being withdrawn for furnaces at this time of year.
Prices usually peak in winter, but instead they have declined steadily in the absence of cold weather. Gas futures for April delivery ended this week at $1.806 per million Btu, down roughly 40 percent since last May. Many analysts expect prices to remain around these levels at least until summer when electricity producers ramp up their buying to meet demand for air conditioning. Nearly 2.5 trillion cubic feet of gas were in storage on March 18, about 51 percent more than the five-year average for this time of year.
Oil market recovery means at-sea storage in tankers a money loser
(Bloomberg; March 21) - One of the warning lights that there’s too much oil around is no longer flashing, adding to signs that global crude markets are finally on the mend. Just a month ago, oil traders were weighing whether to park unwanted crude aboard tankers. Yet instead of offering bumper profits, as in previous market gluts, stockpiling barrels on ships would result in a financial loss, just as it has done the past six months, in a sign that the current surplus may not be as big as feared.
Declining U.S. production coupled with disruptions in Iraq and Nigeria have helped revive crude to $40 a barrel, leading the International Energy Agency to conclude the worst of the rout is over. Contrary to predictions that tankers would be needed, onshore storage hasn’t been exhausted, said Torbjoern Kjus, an analyst at DNA in Oslo. “There is less going into floating storage rather than more in the past few months,” Kjus said. “Fundamentals are gradually improving. The worst of the price rout was just sentiment.”
A crude trader would lose about $7.6 million if it wanted to park 2 million barrels at sea for six months, more than double the loss it would have swallowed in February, according to data compiled by Bloomberg from E.A. Gibson Shipbrokers and oil futures exchanges. The economics also give an insight into the oil market itself. Storing crude at sea becomes profitable when the spread between the current price and longer-term higher prices, known as contango, is wide enough to cover the cost of hiring a tanker.
Alberta oil and gas towns hit hard by job losses
(Calgary Herald; March 24) - Medicine Hat (Alberta) Mayor Ted Clugston is feeling the heat. Over the past month, two major oil field service companies have laid off about 300 people in the area, a tough blow for the community of 63,000. The city’s own natural gas company normally transfers about $25 million a year to offset the local tax base, but the dividend has evaporated with low commodity prices. Food bank use is up by 500 percent in a little more than a year.
Clugston notes the city doesn’t have a say when companies make decisions, yet he still gets angry calls and Facebook messages when bad news arrives. “Every time there are layoffs, I take the heat … ‘Why isn’t the mayor doing something about this,’” he laments, a day after Trican Well Services cut 100 jobs at its nearby Redcliff facility. “Municipal leaders across this province are having a difficult time right now because we feel powerless. I don’t control the price of oil. It’s really hard for me to get a pipeline built.”
In communities across the province, the ramifications of the oil and gas price collapse are spreading and it’s uncertain what — if anything — can be done to soften the blow. Statistics Canada reports 63,800 Albertans collected employment insurance in January, up 91 percent from a year earlier. No one feels the crunch harder than workers on the ground. “It’s pretty dismal in Medicine Hat right now for anybody in oil and gas looking for work,” said Alf Steinke, who was laid off last fall. “I’ve never seen anything like this.”
BC Ferries awards contract to retrofit vessels to run on LNG
(Business in Vancouver; March 24) - BC Ferries has awarded a contract to a Polish shipyard to convert two of its vessels to run on liquefied natural gas. BC Ferries awarded the conversion contract to Remontowa Ship Repair in Gdansk, Poland. The shipyard will convert two 547-foot Spirit Class vessels, which currently use diesel, to run on LNG. It’s the same company that earlier received the contract to build three new duel-fuel ferries that will be able to run on either LNG or diesel.
BC Ferries said the conversion will not only save money but will also reduce carbon dioxide emissions. “Last fiscal year we spent approximately $118 million on diesel fuel, of which the two Spirit Class vessels consumed approximately 16 percent,” said Mark Wilson, vice president of engineering. The shipyard work will include mid-life retrofits of the ferries, which are more than 20 years old. The contract is for $140 million.
The contract is being partly subsidized by Fortis BC Energy, which will provide up to $10 million to help with the conversion. Although BC Ferries has not yet signed a contract with FortisBC to supply the ships with LNG, it is expected the company will supply BC Ferries with LNG from its plant on Tilbury Island, near Vancouver.