Japanese lawmakers see political value in Russian gas pipeline

(Bloomberg; Nov. 8) - Japanese lawmakers are revisiting a proposal to build a $6.7 billion natural gas pipeline from Russia ahead of a visit by President Vladimir Putin to the Asian country next month. A group of about 80 lawmakers from ruling parties will ask the government by the end of this month to carry out a feasibility study on the project, Naokazu Takemoto, the secretary general of the group, said in an interview.

The proposed pipeline linking Russia’s Sakhalin Island with Tokyo could stretch more than 900 miles. Prime Minister Shinzo Abe is seeking to deepen economic ties with Russia in an attempt to resolve a 70-year-old row over which nation owns four disputed islands off Hokkaido. Expanding energy cooperation can help Japan diversify its supply sources, while Russia, struggling to climb out of a recession amid western sanctions and low oil prices, can gain a market share in Asia’s second-biggest economy.

“As we want the return of all four islands of the Northern Territories, we should offer something that makes Russia happy,” Takemoto said Nov. 4. “To that end, the Japan-Russia gas pipeline plan is one of options. Russia’s economy has recovered a bit, but is still in great difficulty. They want to sell natural resources, particularly gas.” The pipeline could transport almost 2.5 billion cubic feet of gas per day. Japan is the world’s biggest buyer of liquefied natural gas, and a large pipeline supply could cut into that market.

Read more: Oil and gas news briefs Nov. 10, 2016

Woodfibre to go ahead with small LNG plant north of Vancouver, B.C.

(Vancouver Sun; Nov. 4) - Woodfibre LNG’s board of directors has approved a final investment decision for the company’s $1.6 billion project near Squamish, about 30 air miles north of Vancouver, B.C., the first LNG project in the province to get the go-ahead. The plant, which will produce 2.1 million metric tons of liquefied natural gas a year, is the smallest of the four leading proposals in British Columbia. Those include a $25 billion venture led by Shell in northwestern B.C. that has been put on hold because of low global LNG prices, growing competitive supply and uncertain future demand.

Work is under way at Woodfibre’s coastal site, a former pulp mill, but major construction will not take place until the company receives permit approval from the B.C. Oil and Gas Commission, expected next year, Woodfibre said Nov. 4. The plant could start in 2020. But Chief Ian Campbell of the Squamish First Nation said it is too early to celebrate. “The Squamish Nation set out its 25 conditions to specifically protect sensitive land and marine habitats — in and around the proposed project site,” Campbell said in a statement. “Only when all those conditions have been resolved will we sign the deal.”

Woodfibre LNG, part of a Singapore-based group of companies, has obtained its export license and environmental approval to build the plant. In May, it signed a tentative 25-year deal to sell about half the plant’s output to Guangzhou Gas Co., of China, which would also become a 10 percent owner of the development. The province made a key concession by granting the project a favorable price for power — Woodfibre plans to use electricity to drive its liquefaction process, not gas as other proposed LNG projects. The lower rate is $60 per megawatt hour vs. $84 negotiated with other LNG developers.

Read more: Oil and gas news briefs Nov. 7, 2016

Insufficient planning to blame for much of LNG cost overruns

(Financial Times; London; Oct. 31) - The total value of capital expenditure overruns in building Australia’s liquefied natural gas industry over the past decade has risen to almost $50 billion (Australian) after Chevron acknowledged a $5 billion overrun at its Wheatstone LNG facility. The latest construction overruns come on top of a fall in global LNG prices, meaning that the profitability of Australia’s LNG industry is being squeezed at a time when it is poised to overtake Qatar as the world’s largest exporter this decade.

“The rampant cost inflation on Australian projects combined with the collapse in oil prices is damaging for a lot of these projects,” said Neil Beveridge, an analyst at Sanford C. Bernstein & Co. “You need a triple-digit oil price to justify the economics of these projects and deliver a return on capital to shareholders,” he said. Much of the LNG is sold under oil-price-indexed contracts. Japan’s Inpex and ConocoPhillips are among other companies acknowledging LNG project overruns in recent years.

Dale Koenders, analyst at Citi, said each Australia project cost overrun has been due to project-specific issues but generally reflect insufficient planning. “There’s also a growing level of complexity involved in LNG projects, which means that any delay, be it because of flare design at Pluto or labor productivity issues for Wheatstone module fabrication, can have bigger flow on impacts to project budget and schedule.” Chevron and other operators say a profitable return on their investments is still possible as the life of the LNG plants are 30 years or more and most of the gas is sold under long-term contracts.

Read more: Oil and gas news briefs Nov. 3, 2016

Chevron says LNG overrun due in part to poor construction estimates

(Sydney Morning Herald; Oct. 30) - Chevron has suffered a significant cost overrun at the Wheatstone gas export project off western Australia at the same time one of the projects in Queensland, Australia Pacific LNG, has confirmed it may not reach full capacity for another six months due to gas-supply constraints. Addressing analysts after the release of its latest results, Chevron said the giant Wheatstone project would cost $34 billion (US) to complete, significantly more than the 2011 estimate of $29 billion.

Chevron cited the overheated construction market at the time work commenced for part of the overrun, along with difficulties in building key modules. "Late module delivery ... was one of the primary drivers behind the cost increase," Chief Financial Officer Patricia Yarrington told analysts. “The contractor was unable to effectively manage the size and the scale of the work." Chevron also said it had failed to estimate the quantity of materials needed for the project, since it took the investment decision when only 15 percent of the engineering had been done "and so the rest was based on rules of thumb," Yarrington said.

Separately, ConocoPhillips, which has a 37.5 percent stake in the Australia Pacific LNG project in Queensland, said it may not be until May 2017 before the two-train, coal-seam-gas-fed plant in eastern Australia hits full capacity. “I expect it will be sometime in the second quarter before we have enough gas supply from the upstream side to be able to run both trains at full tilt,” said Al Hirshberg, head of production, drilling and projects at ConocoPhillips.

Read more: Oil and gas news briefs Oct. 31, 2016

B.C. LNG project opponents plan to file lawsuits to overturn approval

(Reuters; Oct. 26) - Aboriginal and environmental groups plan to file lawsuits Oct. 27 against the government of Canada to overturn the permit for a controversial liquefied natural gas project in British Columbia, representatives of the groups said. The planned lawsuits also will name Malaysia’s state oil and gas firm Petronas, which owns a majority stake in the multibillion-dollar project, the groups told Reuters this week.

In September, Canada gave the green light for the Pacific NorthWest LNG project near Prince Rupert, B.C., with 190 conditions, despite concerns by opponents that it would destroy a critical salmon habitat and produce a large amount of greenhouse gases. A statement from opponents on Oct. 26 said they would be launching “multiple legal actions” against the project the next day at the Federal Court in Vancouver.

Legal challenges put the project’s future at risk after it has already endured a three-year process for its environmental approval and as Asian LNG prices have dropped by two-thirds since 2014. The Canadian government said it stands by its decision to approve the project. “This project underwent a three-year rigorous and thorough science-based process that evaluated and incorporated mitigation measures that will minimize the environmental impacts,” said a spokeswoman for the Environment Minister.

The Gitanyow and Gitwilgyoots aboriginal communities have expressed similar environmental concerns and said they would sue Canada for failing to meaningfully engage with the groups before granting project approval.

Read more: Oil and gas news briefs Oct. 27, 2016

First LNG from Australia’s Wheatstone project expected mid-2017

(Asian Oil & Gas; Oct. 21) - Chevron is expecting the first liquefied natural gas from its giant Wheatstone project in Australia in mid-2017, partner Woodside Petroleum said. “The project completed all construction and commissioning work on schedule and under budget in preparation for Wheatstone start-up in mid-2017,” Woodside CEO Peter Coleman said. Train 1 would come online mid-2017, followed by the second production train six to eight months later. Total capacity will be 8.9 million metric tons per year.

Offshore gas fields will feed the onshore liquefaction plant and marine terminal in Western Australia’s Pilbara region. Total maximum production from Wheatstone’s gas fields and third-party gas fields is expected to reach approximately 1.6 billion cubic feet of gas per day and 30,000 barrels of condensate per day.

Wheatstone is a joint venture between Chevron (64.14 percent), Kuwait Foreign Petroleum Exploration Co. (13.4 percent), Woodside (13 percent), Kyushu Electric Power Co. (1.46 percent), with 8 percent held by a venture partially owned by Tokyo Electric Power. Construction cost is estimated at more than $30 billion (Australian).

Read more: Oil and gas news briefs Oct. 24, 2016

LNG buyers in Asia increasingly turn to short-term contracts

(Bloomberg; Oct. 18) – Australia-based Origin Energy’s managing director Grant King believes new liquefied natural gas projects are less likely to be approved as buyers across Asia favor short-term contracts, threatening the financial model that has underpinned the multibillion-dollar export plants. LNG buyers are increasingly demanding more flexible terms amid a global glut of the fuel, King said.

"Buyers are increasingly buying in smaller volumes and lesser duration, and what that does is make it much more difficult for new greenfield projects to get up in the current environment," King told reporters after the company’s annual general meeting in Sydney on Oct. 19. Origin owns a 37.5 percent stake in the ConocoPhillips-operated Australia Pacific LNG export plant in Queensland state, which last week shipped its first gas from the development’s second production line.

When the project was approved in 2011, it negotiated long-term supply contracts with Sinopec Group and Kansai Electric Power. Suppliers have historically relied on locking in buyers to 20-year deals to help with financing LNG projects. King said winning such deals in the current LNG market would be much more difficult. “There are very, very few customers now willing to write those big, long-term foundation contracts." Origin’s debt ballooned to fund construction of APLNG and, in retrospect, King said, it should have cut down its stake in the venture to closer to 30 percent from its 37.5 percent holding.

Read more: Oil and gas news briefs Oct. 20, 2016

Canada extends proposed B.C. LNG project export license to 40 years

(The Northern View; Prince Rupert, BC; Oct. 14) – Canada’s National Energy Board has approved a 40-year natural gas export license for the proposed Pacific NorthWest LNG project, up from the previous license granted of 25 years. The NEB determined that the amount of gas to be exported in the expanded time frame does not jeopardize supplies for domestic needs. The agency approved the request Oct. 13, eight months after the project developer filed the request. The 25-year export license was granted in 2013.

The NEB said it was satisfied that Canada’s gas resource base is large enough to accommodate foreseeable domestic demand. The agency also said it had taken into account the numerous other export licenses it has granted, not all of which it expects will be utilized. “All of these LNG ventures are competing for a limited global market and face numerous development and construction challenges,” the NEB stated. “Not all LNG export licenses issued by the board will be used or used to the full allowance.”

The Pacific NorthWest license allows the export of up to 3.3 billion cubic feet of gas per day, on average. The project, led by Malaysia’s Petronas, has its federal environmental approval. The sponsors are considering the market economics and permit conditions before making an investment decision on the multibillion-dollar investment for near Prince Rupert, B.C. The sponsors requested the additional years of export authority to provide more certainty for their marketing efforts.

Read more: Oil and gas news briefs Oct. 17, 2016