Spot, short-term LNG sales could hit 43 percent of market by 2020

(Anadolu Agency; Turkey; Oct. 10) - The LNG supply wave is in its infancy and a large increase of spot and short-term deals will be seen in the near future, said Anne-Sophie Corbeau, an LNG expert and research fellow at King Abdullah Petroleum Studies and Research Center in Saudi Arabia. Corbeau, talking at an energy conference in Istanbul, said 150 million tonnes of new LNG supply a year would enter the market between 2015 and 2020, a 50 percent jump in capacity. “This will change the LNG market completely.”

The problem for LNG suppliers is that the market is completely different than anticipated when they made investment decisions. "First of all demand in Asia is weak, while it was expected to be a bottomless sink for LNG supplies. Also, oil prices and gas prices are much lower than what people anticipated when they took the decision to invest in these LNG plants,” Corbeau said. “Buyers want more flexibility; they no longer want to commit to 20-year long-term contracts because they have no certainty on future LNG demand.”

The share of spot and short-term LNG sales in global trade could reach 43 percent by 2020, compared to 28 percent in 2015, she said. “Considering that LNG capacity is increasing 50 percent, we are going to see much more flexible LNG supplies. This could fundamentally change the way LNG is bought and traded, and also threaten existing long-term contracts which have … represented the backbone of the LNG business model.” If prices are too low, some U.S. liquefaction capacity could be shut in, she said.

Read more: Oil and gas news briefs for Oct. 13, 2016

Tokyo Gas looks at swapping U.S. LNG for supplies closer by

(Platts; Oct. 6) - Tokyo Gas may look into swapping its U.S. volumes of LNG for shipments sourced within Asia via “location exchanges,” company president Michiaki Hirose said Oct. 6. "We take our U.S. volumes to somewhere and bring cargoes from nearby in Asia, which could create a win-win situation" for the parties involved, Hirose told a press conference. "We want to look into that possibility.”

Tokyo Gas has contracts to buy a total 0.72 million metric tons a year of LNG from Sempra’s Cameron project under construction in Hackberry, La., and 1.4 million tons a year from the Dominion Resources’ Cove Point project under construction in Maryland. Hirose said transactions to swap cargoes could lower costs. "This could offer resistance to price movements and we could end up getting cheap LNG cargoes as a result.”

The comments come as some Japanese buyers opt not to bring their U.S. LNG cargoes to Japan. Kansai Electric last year agreed to sell France’s Engie 0.4 million tons a year from Kansai's North American LNG portfolio, while Engie will, depending on market conditions, sell an equivalent volume to Kansai Electric from its own portfolio. Jera, a joint-venture of Tokyo Electric and Chubu Electric, has agreed with London-based EDF Trading to sell up to 1.5 million tons of LNG from its stake in the Freeport project under construction in Texas for delivery to Europe between June 2018 and December 2020.

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

BP agrees to buy entire output of Mozambique LNG project

(Bloomberg; Oct. 4) - BP has agreed to buy all of the liquefied natural gas production from a proposed offshore project in Mozambique for a period of 20 years. The company will purchase cargoes from the Coral South Floating LNG plant being developed by partners including Italy’s Eni, which is due to get final investment approval by the end of this year, BP said Oct. 4. The project is expected to have a capacity of more than 3.3 million metric tons a year, BP said, without disclosing commercial terms of the deal.

"I would suspect they have received pricing terms that they view as profitable for re-sale into their end markets,” said Jason Gammel, an analyst at Jefferies. “BP and others do offtake incremental volumes because they can make a profit trading it.” As the world moves toward cleaner energy, many major oil companies are increasing their focus on gas, which is considered a crucial bridge fuel in the transition to a low-carbon future. “The agreement adds to the diversity of our natural gas portfolio beyond the end of the decade,” said Paul Reed, chief executive of BP’s supply and trading business.

Production will start in late 2021 at the earliest, Filippo Gotti, vice president of LNG Mozambique at Eni Gas & Power, said last month. Eni is the operator of the project, with a stake of about 50 percent. China National Petroleum Corp. has an indirect holding of 20 percent, while Portugal’s Galp Energia SGPS, Korea Gas Corp. and Mozambique’s Empresa Nacional de Hidrocarbonetos each have 10 percent.

Read more: Oil and gas news briefs Oct. 6, 2016

Petronas denies report of possible sale of Canadian LNG project

(Reuters; Oct. 1) – Malaysia’s state oil and gas firm on Oct. 1 "categorically denied" a Reuters report that it was considering selling its majority stake in a proposed Canadian liquefied natural gas project. Petronas is weighing several options for the project that was approved earlier in the week by the Canadian government, but has yet to take a final decision, Reuters reported on Sept. 30, citing three people familiar with the matter. Other options are also being considered, including putting the project on ice.

"Petronas reiterates that, together with the project partners, it will study the conditions that come with the (federal) approval and conduct a total review of the project prior to making a decision on the next steps forward," the company said in a statement Oct. 1. Reuters had reported a day earlier that Petronas is weighing options for the project near Prince Rupert, B.C., as a more than 50 percent slide in crude oil prices since the middle of 2014 has hit the company’s profits and prompted cuts to capital expenditure and jobs.

Amid the cost-cutting, the economics of the project on British Columbia’s northern coast — which took three years to win federal approval due to environment concerns — have been called into question as LNG prices in Asia have fallen more than 70 percent in two years. The project is Petronas' biggest foreign investment and seen as a sign of Malaysia's global energy ambitions. An exit would underscore the financial constraints at the state-run firm and also the soft outlook for global LNG prices.

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

Canada approves first LNG project for B.C. coast

(Globe and Mail; Canada; Sept. 27) - The Canadian government has approved construction of a liquefied natural gas export project near Prince Rupert, B.C., subject to an array of conditions to reduce the project’s environmental footprint. Environment Minister Catherine McKenna, who announced the Cabinet decision Sept. 27, outlined 190 conditions that Pacific NorthWest LNG must meet before starting construction, including cutting greenhouse-gas emissions nearly 20 percent below the sponsors’ original proposal. The federal review was the project’s final regulatory hurdle.

Environmentalists have argued the project — and the greenhouse-gas emissions that come with it — would be inconsistent with Canada’s climate commitments, while the B.C government has argued the exported fuel would reduce emissions from coal-fired plants in Asia. Environmentalists, First Nations and a group of scientists have warned the terminal would threaten juvenile salmon habitat in the key Skeena River estuary. The venture is led by Malaysia’s state-owned Petronas, which now has to decide with its partners whether to proceed despite low prices and an oversupplied global market.

The project would be a huge boost for the B.C. economy. The total cost is estimated at $36 billion by its start-up in 2021, including construction of the liquefaction plant, marine terminal, a 560-mile pipeline and gas field development costs. The 190 conditions cover wetlands management, freshwater fish and fish habitat, marine fish and mammals, migratory birds, human health, cultural heritage sites and long-term environmental monitoring. The project partners are Petronas, Brunei National Petroleum Co., China Petroleum & Chemical Corp., Indian Oil Corp.and Japan Petroleum Exploration Co.

Read more: Oil and gas news briefs Sept. 29, 2016

LNG buyers ‘not prepared to pay the price for long-term projects’

(Interfax Global Energy; Sept. 23) - The mood was largely somber at the Asia Pacific LNG Summit in Singapore, where buyers, sellers, traders and regulators gathered to talk about challenges facing bloated global LNG markets. "It’s no surprise the markets are oversupplied — maybe it’s just the beginning of the story," said Philip Olivier, CEO of global LNG at French utility Engie. Stephan Roeper, vice president of LNG marketing at ExxonMobil, conceded that global LNG demand has not increased as fast as the company had expected, particularly in China.

Roeper believes the oversupplied global market will last into the 2020s. However, new demand is emerging in countries such as Jordan, Egypt and Pakistan. In the longer run, Roeper believes LNG has bright prospects, with growing populations in emerging markets and the environmental advantage of gas over dirtier fuels such as coal. But more capital is needed to underpin long-term projects to prevent another boom-and-bust cycle, he warned. "Buyers are not prepared to pay the price for long-term projects.”

Meanwhile, the traditional long-term, point-to-point model is no longer relevant, said Jason Feer, global head of business intelligence at brokers Poten & Partners. The energy consultancy estimates that some 158 million tons of long-term LNG contracts will expire by 2026, which is "an enormous amount in a 250-million-ton market," he added. But new contracts are skewing toward shorter durations, typically two- to five-years and six-to ten-years, coupled with much smaller volumes, Feer said.

Read more: Oil and gas news briefs Sept. 26, 2016

Novatek says first Yamal LNG shipments expected second half 2017

(Reuters; Sept. 19) - Novatek, Russia's second biggest gas producer, plans to launch liquefied natural gas production at Yamal in the second half of 2017 and to ship its first cargoes before the end of that year, a senior executive said. Novatek, which is under Western sanctions over Moscow's role in the Ukraine crisis, needs to deliver its Yamal project on schedule to reassure investors that put up some of the $27 billion cost of what will be Russia's second LNG plant.

"The most important thing … was that the shareholders were 100 percent committed to finance the project … and that there were no delays in the project," Chief Financial Officer Mark Gyetvay told Reuters. Novatek is majority owner of Yamal LNG. Junior partners are China National Petroleum Corp., China’s Silk Road Fund and France's Total. Chinese banks agreed to put up more than $12 billion in financing in April while the project also has the backing of Russian banks and Russia's National Wealth Fund. 

Gyetvay said the second and the third trains at Yamal are expected to start up in the second half of 2018 and second half of 2019, respectively, bringing the total capacity to 16.5 million metric tons of LNG per year. The northern route for cargoes to Asia will be used during summer when the ice recedes enough to allow passage, while the twice-as-long western route around Europe will be used in winter. Ninety-six percent of Yamal's LNG has been pre-sold to clients in Asia-Pacific, as well as France and Spain.

Gyetvay forecast the global LNG market would swing into a deficit in 2023-2025 as no final investment decision has been taken on any project globally over the past two years, and no such decisions are expected next year either.

Read more: Oil and gas news briefs for Sept. 22, 2016

Anadarko could make decision on Mozambique LNG next year

(Houston Chronicle; Sept. 16) - Six years ago, Anadarko struck a huge pocket of natural gas off the coast of Mozambique, stirring speculation that the find could transform the poverty-stricken East African country into one of the largest gas exporters in the world. At the time, China, India and Japan were eagerly snapping up contracts for cargoes of liquefied natural gas. Now, Asia and other parts of the world are overflowing with LNG, which has sharply curtailed investors' appetite for major LNG developments like the $15 billion project that Anadarko wants to build in a remote, poor region in Mozambique.

But in an interview Sept. 16, Anadarko CEO Al Walker said the project may come into production at just the right time, around 2022 or 2023. That's when energy research firms IHS Markit and Wood Mackenzie forecast that global economic growth will have risen enough to spur another wave of demand for LNG. Depending on the market, Anadarko may make its final investment decision by next year, Walker said.

The company has all but completed a key part of its negotiations with the Mozambique government, which involves resettling families living in fishing villages — it could cost some $300 million. Once negotiations are complete, the project will likely face the same challenges that other companies have faced in building LNG plants in regions with little infrastructure or skilled labor, said Bob Fryklund, chief upstream strategist at IHS Markit. The heightened competition in coming years could leave the company little margin for error in a market that will likely get crowded again as rivals expand their LNG plants, he said. "It's not an insurmountable challenge, but this is Anadarko's first LNG project."

Read more: Oil and gas news briefs Sept. 19, 2016