Osaka Gas may not sign new long-term LNG deals for several years

(Reuters; Sept. 13) - Japan's second-biggest city gas supplier, Osaka Gas, may not sign new long-term liquefied natural gas contracts for the next several years as the market shifts toward more active spot trading, a senior company official said. The company has commitments to take about 10 million metric tons of LNG per year in 2020, mostly under long-term contracts, but some of those deals will start expiring in 2021, beginning with Indonesia and Qatar.

"If the market's liquidity has improved to the point where it's possible to buy or sell LNG any time, it would become less necessary to rely on long-term [deals]," said Sunao Okamoto, manager of LNG trading at Osaka Gas. The world's top LNG buyer, Jera Co., a venture of Tokyo Electric and Chubu Electric, is also eyeing drastic cuts in long-term contracts, and those moves are putting question marks over planned large-scale, multibillion-dollar LNG export projects that rely on long-term contracts to gain financing.

"We may perhaps replace all those [contract] volumes with short-term or spot, but lowering the long-term ratio to 50 percent would be too aggressive a move for a utility like us,” Okamoto said. In addition, Osaka Gas has been making a push to expand its resale of LNG. The company is in talks with multiple sellers of long-term LNG supplies, seeking to remove destination restrictions, but has been facing an uphill battle with sellers and is hoping for more support from the Japanese government.

Read more: Oil and gas news briefs Sept. 15 2016

Mitsui needs customer for mega-size floating LNG import terminal

(Bloomberg; Sept. 8) - Nobody will ever accuse shipper Mitsui O.S.K. Lines of not thinking big. Its new $400 million floating liquefied natural gas receiving, storage and regasification terminal, scheduled for delivery as early as the end of this year, is capable of storing enough LNG to power all of Sweden for a day. That heft was supposed to be one of its top selling points for quickly setting up a complete shop to store and transform LNG back into gaseous fuel at a fraction of the cost of building a new terminal on land.

But since the vessel was ordered three years ago from Daewoo Shipbuilding & Marine Engineering in South Korea, global gas supplies have risen and the number of smaller competing ships has grown — lowering ship-leasing rates and dimming the appeal of the floating mega-factory. That means Tokyo-based Mitsui’s 1,130-foot-long investment may sit idle after delivery. It will be more than a year before its first confirmed job, a 20-year charter for Uruguay’s Gas Sayago, a venture of state-owned energy companies.

Construction delays, cost overruns on the energy project, and a change in the project’s developers have postponed Uruguay’s need for the vessel. And now to free up cash, Mitsui O.S.K. is looking for a partner in Uruguay to share the cost of developing the ship, said Takeshi Hashimoto, the company’s senior managing executive who has overseen the project since its start. “We need to think about our balance sheet.” For now, Mitsui O.S.K. is scouting for short-term business to get some cash in the door. “We’re looking for a temporary job where we can deploy the ship,” Hashimoto said.

Read more: Oil and gas news briefs Sept. 12, 2016

LNG not the golden child once expected

(Reuters; Sept. 8) - The liquefied natural gas industry has morphed from energy's golden child to black sheep in the past two years, with demand slumping just as supplies soars. And while low prices are a boon for consumers, the lack of demand and lowered revenue will threaten the efforts of companies to recoup investments in LNG export terminals in the United States and Australia. Further, future projects will have a hard time gaining investment approval.

Asia demand was expected to soak up this supply but the region has turned to cheaper fuels. LNG imports to Japan, the world's biggest LNG buyer, are down 5.3 percent in the first seven months of 2016. South Korea's imports in July dropped 15.2 percent from the same time a year ago. These numbers mirror the lackluster global LNG demand growth that Dutch bank ING said was only 1.5 percent over the past five years. At the same time, existing LNG exporters from the U.S., Australia, and Qatar plan to add a large amount of liquefaction capacity by 2020, a 50 percent increase from current levels.

"To maintain current LNG utilization rates, we need to see LNG demand grow at 7.6 percent between now and 2020," ING said Sept. 7. Once one of the hot commodities, Asian LNG spot prices almost tripled between 2010 and 2014 to over $20 per million Btu, attracting huge investment. But soaring output from Australia and the U.S., as well as the general commodities slump, pulled LNG prices back by almost 75 percent to under $5.50. Yet not all is doom and gloom. Sustained low prices along with spreading environmental awareness against the use of coal mean that LNG demand should rise.

Read more: Oil and gas news briefs Sept. 8, 2016

Japanese bank will finance $400 million of Russia’s Yamal LNG

(Bloomberg; Sept. 1) - Novatek-led Yamal LNG, on a remote peninsula in the Russian Arctic, will get $400 million in financing from the Japan Bank for International Cooperation, the bank’s chief said. JBIC has almost finalized the agreement with the project and plans to sign a memorandum of understanding for strategic partnership with Novatek, which owns a 50.1 percent stake in Yamal LNG, bank CEO Tadashi Maeda said Sept. 2 in Vladivostok, in the Russian Far East.

France’s Total and China National Petroleum Corp. each hold 20 percent stakes, and China’s Silk Road Fund owns 9.9 percent. The Japanese bank loan follows $12 billion in financing the project received earlier this year from the Export-Import Bank of China and the China Development Bank Corp. With the JBIC loan, as well as Russian funding, Yamal will have secured about $18.9 billion in loans for the $27 billion project.

Yamal LNG plans to start output from its first production train in late 2017, with two more liquefaction units in the construction plan.

Read more: Oil and gas news briefs Sept. 6 2016

Qatar plans $10 billion natural gas project for domestic market

(OilPrice.com; Aug. 29) - In a bid to meet growing domestic energy demand, Qatar is getting ready to start operations at its $10 billion Barzan natural gas project this November, which will increase the country’s gas output by up to 2 billion cubic feet per day after capacity is reached in 2017, Reuters reported. Qatar’s huge infrastructure investments ahead of hosting the 2022 FIFA World Cup and its expansion of the civil aviation industry have spurred energy demand, while the country’s demand for refined oil products has more than doubled in the past five years.

The project is a joint venture between Qatar Petroleum and ExxonMobil, which committed to developing the Barzan offshore platform in the North Field in 2011. Plans call for much of the production to go to the power and water sector. And while Qatar is trying to increase domestic gas supply, it is still the largest exporter of liquefied natural gas in the world, though Australia is expected to take over the top spot this decade.

Currently, Qatar has a self-imposed moratorium on new projects in the North Field in order to seek sustainability in output over the long run. The Barzan project is the only potential for a near-term increase in gas production. The project was the last North Field project approved before the moratorium.

Read more: Oil and gas news briefs Sept. 1, 2016

First Nation willing to talk with Petronas if LNG project site is moved

(Bloomberg; Aug. 27) – Petronas’ proposed LNG export plant in Canada is getting a boost as an aboriginal community signals openness to the project amid speculation that the location may be changed. The Lax Kw’alaams Band, which opposes the current site near Prince Rupert, B.C., is optimistic it will be moved, said Mayor John Helin, whose members endorsed talks on impact compensation. The group will meet in the coming days with officials from Pacific NorthWest LNG and provincial and federal governments.

While the developer says the proposal hasn’t changed, an online message circulated among Lax Kw’alaams members said the terminal would be placed at one of two sites farther north than now envisioned. Opponents have said the current project site would harm critical salmon habitat; the two potential alternate sites are not in critical fisheries habitat. Local politics also are shifting; Helin, who was elected nine months ago, came on board after the band had rejected $1.15 billion (Canadian) in compensation.

“We have to look after the environment first, but we also have to look after the benefits side of things,” Helin said Aug. 26. “Most of the First Nations communities in Canada are living in third-world conditions.” Petronas, Malaysia’s state oil company, is joined by project partners China Petroleum & Chemical Corp., Japan Petroleum Exploration, Indian Oil Corp. and Brunei National Petroleum. About two-thirds of 812 Lax Kw’alaams Band members voting in a poll supported continued discussions about the project, provided that the environment is protected, according to results released Aug. 25.

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

Papua New Guinea LNG partner says long-term deals ‘very unlikely’

(Bloomberg; Aug. 23) - ExxonMobil’s partner in a liquefied natural gas export project in Papua New Guinea sees Asian buyers pushing back on the pricing and structure of LNG contracts as a glut of supply gives them greater bargaining power. Oil Search, the Sydney-based producer that owns a 29 percent stake in the Exxon-operated PNG LNG development, sees signing traditional long-term deals “very unlikely” in the current market, according to Managing Director Peter Botten.

The company plans to begin negotiations for new contracts next year, it said in a presentation Aug. 23. "We’re seeing a revolution in the LNG market right now," Botten said in a phone interview with Bloomberg. “With oversupply, which is likely to be the case for some years, customers quite rightly are using this opportunity to recalibrate what they pay and how they pay it and the structure of any future contracts.”

Asian spot prices for LNG have fallen by about 60 percent since September 2014 amid a global glut and as demand growth slows. Japan’s Jera Co., a joint-venture of Tokyo Electric Power and Chubu Electric Power and one of the world’s largest buyers of LNG, has said it will boost its share of supply from spot deals while reducing its reliance on long-term contracts. Woodside Petroleum, Australia’s top oil and gas producer, expects lower LNG prices as it renegotiates short-term contracts, CEO Peter Coleman said.

Read more: Oil and gas news briefs Aug. 25, 2016

Australia LNG project may run at less than full production

(Reuters; Aug. 19) - Spending cuts and weak global liquefied natural gas prices have forced the operator of the $18.5 billion Gladstone LNG project in Australia to consider running the plant at less than full tilt, an unusual move for the industry. It's a sign of how the LNG market — long dominated by large plants running at maximum capacity for cost efficiency — will evolve with exports from a new breed of projects: They are the world's first fed by coal-seam gas in Australia, and U.S. plants fed by gas from the grid.

Traditionally, LNG producers spend billions of dollars building large plants connected to conventional gas fields, with most of their output sold to long-term customers. Operating costs are low once built, which spurs them to run at full capacity to boost returns. But the new plants fed by coal-seam gas have to rely on drilling hundreds of wells a year, an ongoing cost that traditional plants don't face. As a result, they could become more like swing producers, said Saul Kavonic, Wood Mackenzie head analyst for Australasia.

Gladstone is one of three new Australian coal-seam gas LNG projects that have started up since early 2015. Santos has been squeezed by a heavy debt load taken on to build Gladstone, where it is the lead operator, and by low oil and LNG prices, sapping funds needed to drill its coal-seam gas wells. As a result, it has opted to buy more gas from third-parties to meet its LNG contracts. Santos said Aug. 19 it would be willing to run the two-production-train plant below its full capacity of 7.8 million metric tons a year.

Read more: Oil and gas news briefs Aug. 22 2016