Tokyo Gas buys 25 percent stake in Texas shale gas formation

(Reuters; June 21) - Tokyo Gas said June 21 it has bought a 25 percent stake in an Eagle Ford shale gas formation in South Texas, in what could be among the first shale investments in the U.S. by a Japanese firm since the tumble in energy prices. Japan's biggest city gas supplier said it purchased the stake from VirTex Producing Co. Tokyo Gas did not give a breakdown of the value, but said it expects to spend up to 8 billion yen ($76 million) for the stake plus subsequent investments in drilling.

The project, which already is under commercial production, is expected to supply gas equivalent to 200,000 metric tons per year of liquefied natural gas output for 20 years, Tokyo Gas said. That would be in addition to the shale gas stake Tokyo Gas bought in 2013 in Texas' Barnett Basin from Quicksilver Resources for $485 million, providing the utility output equivalent to 350,000 to 500,000 tons of LNG per year. But hurt by falling energy prices, Tokyo Gas has twice posted impairment losses for the Barnett project.

The company's senior general manager of global business department, Hisashi Nakamura, told Reuters after a briefing that the firm is considering buying more U.S. gas field stakes in future. "We would look for more deals if there are good ones, but only the cost-competitive projects that are profitable even at low prices would survive, so they are not found everywhere," he said.

Read more: Oil and gas news briefs June 23 2016

‘Sellers are listening’ to Japan’s request for better LNG contracts

(Wall Street Journal; June 19) – Japan is testing its clout while trying to rewrite the rules of a saturated market for liquefied natural gas. Buyers are chafing at the premiums they have long paid for the fuel. The nation’s utilities are renegotiating contracts, questioning practices such as linking LNG prices to oil prices, and pushing back on restrictions that prevent them from reselling surplus cargoes. The moves are part of government-backed efforts to crack open an opaque, rigid market in which Asian buyers pay higher prices.

Japanese buyers and policy makers see an opening now as excess supply is driving prices sharply lower. “Now is our chance, and we have a window of three or four years to act,” before the balance of supply and demand might change, said Ken Koyama, a managing director and senior economist at Japan’s Institute of Energy Economics. “Sellers are listening to our requests,” said Hiroki Sato, vice president of fuel procurement at Jera Co., a joint venture between Tokyo Electric Power and Chubu Electric Power that is set to become the world’s single biggest buyer of LNG.

Sellers would do well to take note of Japan’s confidence, said Jonathan Stern of the Oxford Institute for Energy Studies. “It’s a flag in the ground,” Stern said, noting that the government-backed Japan Bank for International Cooperation will help fund shorter-term contracts based on spot prices, which are cheaper in an oversupplied market than oil-linked long-term contracts. “Japan will never again be paying vast amounts more for its gas … that could eventually transform the underpinnings of the entire LNG market.”

Read more: Oil and gas news briefs June 20, 2016

LNG producers may need to curtail supply if prices fall further

(Australian Financial Review; June 16) - One of the world's energy experts has suggested that some of Australia's liquefied natural gas producers may have to mothball capacity as the Asian market becomes awash with supply and spot prices collapse further. Fereidun Fesharaki, chairman of London-based consultancy FGE, is predicting that the price weakness that will be most severe in 2018 will affect some U.S. export plants and potentially two coal-seam gas liquefaction trains in Queensland, Australia.

Some producers may be forced to share losses from reselling contracted LNG into the spot market, he said. "Somebody has to lose a lot of money — there is no escape from it — the question is how do you divide the losses," said Fesharaki, a former energy adviser to the prime minister of Iran who is known to have close links with LNG buyers. The bleak outlook is based on expectations of a prolonged glut in LNG, made worse by large amounts of contracted output that has yet to be sold to end-users of gas.

"For the LNG market we don't see a correction quickly, it will take many, many years," he said, forecasting a "sloshing around" of the market lasting up to 2025 unless capacity is shut in or demand stimulated. FGE calculates that at least one-third of globally traded LNG is still looking for an end-market, based on gas in Australia, the U.S. and Qatar that has been sold to intermediate players that still need to sell it to actual users. "We say 2018 is the year that spot prices will hit the floor," Fesharaki said. "We are saying $3.50 will be the annual average [in 2018], but during the year it is going to hit $3."

Read more: Oil and gas news briefs June 16, 2016

LNG plants will run below capacity until demand comes up to supply

(Bloomberg; June 9) - Liquefied natural gas plants will run below capacity and investment in new projects will be delayed as demand struggles to catch up with a record jump in production, according to the International Energy Agency. Annual LNG demand is forecast to increase by 5 trillion cubic feet from 2015 through 2021, which isn’t enough to absorb almost 6.7 tcf of new capacity set to become operational during that time, the IEA said in its Medium-Term Gas Market Report 2016 published June 8.

“The oversupply situation in LNG markets that emerged in 2015 is worsening in 2016 and will not substantially improve until 2019, at the earliest,” the IEA said. Australia and the U.S. will account for 90 percent of an unprecedented 45 percent jump in LNG capacity during the six-year period, just as demand stagnates or falls in Japan and Korea, the biggest buyers of the fuel. Billions of dollars in investments in new production facilities were made when commodity prices were higher and demand outlooks brighter.

Even as demand rises in China and emerging Asian nations, this won’t be sufficient to balance the market, especially in 2017 and 2018, according to the IEA. While utilization rates at export plants will slip to below 90 percent of capacity in 2018 before recovering, they probably won’t reach the 96 percent level of 2011. For new LNG projects, that will mean returns on investments will be “low for some years,” the IEA said.

Read more: Oil and gas news briefs June 13, 2016

Oversupplied LNG market will persist into next decade, IEA says

(Financial Post; Canada; June 8) - Global natural gas prices will remain under pressure in the medium-term as tepid demand persists, leaving suppliers looking at new markets, according to the International Energy Agency. “Weak demand, low prices and a sharp cutback in investment weigh on growth,” the Paris-based energy watchdog said in its latest five-year gas forecast, published June 8. The IEA expects gas demand to grow 1.5 percent a year until 2021, down from 2.2 percent annual growth the past five years.

“The IEA expects global gas markets to remain heavily oversupplied until 2018 and then to rebalance gradually, as the wave of new [LNG] capacity tails off, import infrastructure comes online and the full effect of low prices filters into consumption patterns.” However, as the oversupplied market and low prices curtail investments in new projects, it could set up gas-supply risks over time, the agency said. “This could sow the seeds for much tighter markets into the next decade.”

"The next five years will witness a reshaping of global gas trade," said IEA executive director Fatih Birol. Weakening demand in Japan and South Korea will result in major shifts in trade patterns as LNG suppliers look for buyers elsewhere, Birol said. Low prices have not revived growth in Asia and producers will have to look to other markets such as Europe, but weak demand growth and low coal prices will limit how much gas Europe can absorb."Well-supplied markets help accelerate changes toward more flexible contractual structures. As spot prices remain under pressure, buyers will search for better pricing and non-pricing terms from sellers," the IEA report said.

Read more: Oil and gas news briefs June 9, 2016

B.C.’s LNG advocate says province can help save lives in China

(Vancouver Sun; June 2) – B.C. Premier Christy Clark’s hand-picked advocate for liquefied natural gas says the province has a “moral obligation” to develop the industry to save the lives of Chinese residents dying of air pollution. Gordon Wilson, the controversial former leader of the B.C. Liberal Party, made the comment during a heated presentation to a crowd of almost 600 at a North Saanich community meeting this week held in opposition to a proposed LNG plant in a nearby inlet on Victoria Island.

“So let me just say this ... when you’ve got 500,000 Chinese dying each year attributed to air pollution specific to coal,” Wilson said. “That’s the number … that dies every year because they can’t breathe the air. And we have an opportunity to not only maintain and build our economy here, but we have an opportunity to provide an alternative fuel that will save lives abroad and help the global climate,” he said of LNG exports from the province. “I say we have a moral obligation to do it and we need to get on with the job.”

Wilson’s comments were greeted with applause, laughter and boos. In an interview, he said B.C. has a moral obligation to address climate change. The premier named Wilson as the province’s LNG advocate more than two years ago. He travels the province to sell the benefits of a proposed LNG industry and to link local businesses with potential work. But so far, no LNG projects have been built and his website, which cost taxpayers more than $850,000, has few job opportunities. Critics have accused the premier of giving Wilson his $150,000-a-year job as a reward for endorsing her 2013 election.

Read more: Oil and gas news briefs June 6, 2016

India wants to renegotiate lower price for Exxon LNG from Gorgon

(Financial Express; India; May 31) - India’s largest liquefied natural gas importer, Petronet LNG, has initiated negotiations with ExxonMobil to rework pricing on Petronet’s contract to buy 1.4 million metric tons of LNG per year from the U.S. company’s share of production at the Gorgon project in Australia. Petronet started to seek changes in the 20-year deal after spot prices crashed, making long-term supplies more expensive.

Spot-market prices are hovering near $4.70 per million Btu, Platts data shows. Gorgon LNG would cost Petronet at least $6.50, based on the contract’s index to the Japanese Crude Cocktail price. “The Gorgon gas is priced at a slope of around 14 percent of JCC (a blend of oil prices),” a source said. Petronet signed its deal in 2009 with Exxon, which has a 25 percent stake in Gorgon. Initial cargoes have started at Gorgon, which is operated by Chevron. Exxon’s shipments to India are scheduled to start late this year.

Petronet last year successfully renegotiated its long-term contract for 7.5 million tons per year from Qatar’s RasGas after customers slashed the amount of gas they would take from Petronet, looking instead to buy less expensive gas on the spot market. Petronet was able to cut its price with RasGas more than half, though it agreed to buy more gas for a longer period of time in return.

Read more: Oil and gas news briefs June 2, 2016

Japanese utilities sell unneeded LNG into European market

(Bloomberg; May 26) - Japan’s Jera Co., one of the world’s largest buyers of liquefied natural gas, has agreed to sell some of the fuel it does not need to a unit of France’s Electricite de France (EDF). Jera, a joint venture between Tokyo Electric Power and Chubu Electric Power, will sell as much as 1.5 million metric tons of LNG between June 2018 and December 2020, it said May 26. That could be about 20 to 25 LNG cargoes. The price will be linked to European gas market prices, according to the statement.

Jera’s debut as a seller to Europe underscores how the oversupplied market has challenged traditional exporters that relied on steady, long-term demand from buyers in countries like Japan, the world’s largest consumer of the fuel. Japan’s new role as a middleman — with the new ability to resell the LNG it does not need — adds further pressure on LNG producers that are losing bargaining power because of the glut.

“This deal represents an entry point for Jera into the European market, at a time when the company’s LNG contracts from the U.S. will be ramping up significantly,” Michael Jones, a Singapore-based analyst at Wood Mackenzie, said by e-mail. “The demand outlook in Jera’s home market remains uncertain, so EDF gives Jera the ability to offload some flexible U.S. volumes into Europe.” Japan’s LNG consumption is expected to fall to 72 million tons in 2020 and 62 million tons in 2030, compared to 85 million tons in 2015, according to data compiled by Japan and the International Energy Agency.

Read more: Oil and gas news briefs May 31, 2016