Report says Algeria may be unable to stem decline in gas production

(Interfax Global Energy; May 23) - New projects will not be able to compensate for the drop in Algerian gas reserves, according to a U.K. think tank. The development of "small and costly reservoirs" is not enough to stem the decline of the huge Hassi R’Mel field, warned a report published May 23 by the Oxford Institute for Energy Studies, called “Algerian Gas: Troubling Trends, Troubled Policies.” Algeria was the first country in the world to export liquefied natural gas, starting up its initial production line in 1964.

According to report author Ali Aissaoui, subsurface issues and above-ground problems at the 60-year-old field will be difficult to overcome with current recovery techniques, but need to be tackled swiftly to prevent a significant drop in Algerian production. "Not only will the new upstream projects hardly make a difference in compensating for the decline of Hassi R’Mel and other mature fields, but most of them are tight, dry, or, in the case of southwestern formations, have high [carbon dioxide] content [and are] therefore too costly to be able to offset the notable shortfall in government revenues," the report said.

Aissaoui said state-owned Sonatrach is "increasingly being perceived as structurally short on gas supply." Proven reserves were downgraded by the Algerian government in November 2015 to 97 trillion cubic feet compared with previous estimates of 159 tcf. According to the report, Sonatrach could be exporting just 530 billion cubic feet per year by 2030 compared with the current figure of 2.4 tcf. The utilization rate of the country’s export capacity has already fallen to 52 percent. The government’s current plans to prevent the decline in production could be too little, too late, according to the report.

Read more: Oil and gas news briefs May 26, 2016

Gazprom slows down gas line to China, but still looks to grow sales

(UPI; May 20) - Delivering more gas to expanding Asian economies is a central part of Gazprom’s portfolio diversification plan, as the Russian company’s board of directors met in Moscow to review their long-term objectives. While Europe is its main customer, the company said it aims to increase its gas export options for Asia. "The key task in achieving export diversification is to strengthen the company's position in the most promising and fast-growing gas market of Asia-Pacific, primarily China," Gazprom said.

Gazprom has a 30-year sales agreement with China National Petroleum Corp. to deliver gas through a new pipeline dubbed the Power of Siberia, but the project faces delays. In order to control spending, Gazprom is scaling back its short-term vision for the 2,500-mile pipeline after building about 70 miles, said board member Vitaly Markelov.

Liquefied natural gas shipments by sea, which are less exposed to geopolitical risk than cross-border pipelines, can offer more market options, Gazprom said. In April, however, Gazprom accused its counterparts at China National Petroleum Corp. of using the LNG option as a bargaining chip for negotiating the price it was willing to pay for Russian gas deliveries. Nevertheless, Gazprom said expanding its 7-year-old LNG export plant at Sakhalin Island is a "high priority" for the company.

Read more: Oil and gas news briefs May 23, 2016

South Africa looks to LNG imports to reduce coal-fired power

(Bloomberg; May 16) - South Africa is creating a unit to import liquefied natural gas for power plants. The Gas Industrialization Unit will initially focus on importing LNG as the country seeks to reduce its dependence on coal-fired power, Garth Strachan, a deputy director general at the Department of Trade and Industry, said May 16 in a presentation in Cape Town. Eventually, the new unit will also seek to tap domestic sources of natural gas, he said.

Cheniere Energy, which operates the first U.S. Gulf Coast LNG export terminal, is among the companies interested in supplying South Africa’s gas-to-power program, which plans to add 3,126 megawatts of capacity between 2019 and 2025. That could require annual LNG imports worth about $530 million, said Trevor Sikorski, an analyst with Energy Aspects in London. "Almost anyone with gas is looking for demand at the moment,” Sikorski said. “The most competitive supply" for South Africa would be from Nigeria, Angola, the U.S. and possibly Qatar, he added.

Read more: Oil and gas news briefs May 19, 2016

LNG suppliers seek new markets to help boost prices

(Wall Street Journal; May 15) - Natural gas transported across the oceans has helped to displace coal in Europe’s power plants and China’s household cookers. Now, producers want it to become a fuel for cruise liners, container ships and trucks. In doing so, Big Oil hopes to boost demand to help drag liquefied natural gas prices out of the doldrums. LNG prices last month sank to a seven-year low in Asia as demand is failing to keep up with rising supply. Wood Mackenzie, a U.K.-based consultancy, expects the global gas glut will take years to clear, with 70 million metric tons of LNG uncontracted by 2021.

This downbeat outlook helps to explain why energy companies are continuing to seek new markets for LNG. Shell has signed a deal with cruise operator Carnival to provide LNG at major ports for the recently launched AidaPrima. Woodside Petroleum in April signed a five-year deal to supply Australia’s first LNG-powered marine-support vessel serving offshore installations. “Companies are going to have to create new markets. We can’t simply rely on buyers to supply it for us,” said Peter Coleman, Woodside’s CEO.

Analytics provider IHS Inc. said last year additional demand for LNG as a transport fuel could be critical in reducing oversupply. It forecast LNG demand in transport — where it is a relatively niche product — would grow to account for 10 percent of all traded LNG by 2030. Still, there are big challenges. Growth of LNG as a transport fuel is being held back by a lack of refueling facilities. But many say the market holds promise. Yoon Namgoong, principal researcher at Korea Gas, said LNG demand as a marine fuel is forecast to rise as high as 13 million tons a year in 2020 and 64 million tons in 2030.

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

Partnership suspends effort on small-scale LNG plant in B.C.

(Reuters; May 10) - Japanese oil refiner Idemitsu Kosan said May 10 that it and its joint-venture partner, Calgary-based AltaGas, would suspend their quest to build a liquefied natural gas export project in British Columbia for the foreseeable future due to low energy prices. The two firms had conducted a feasibility study to export about 2 million metric tons per year of LNG to Asia from Canada's West Coast as early as 2017. The project, called Triton LNG, had not selected a site for the plant and marine terminal.

The venture would not be able to make a commitment to development if currently low LNG prices continue into the future, Toshiaki Sagishima, executive officer and general manager of Idemitsu Kosan's treasury department, told reporters during a briefing on the company's full-year earnings. But Idemitsu left open the possibility of continuing with the project when energy prices recover.

The Triton LNG suspension was the second in three months for AltaGas and Idemitsu. In February, the companies, along with two other partners, halted development of the proposed Douglas Channel LNG project, a barge-mounted export facility (550,000 metric tons per year) planned for near Kitimat, B.C. The companies cited unfavorable market conditions for stopping work on that venture, too. The AltaGas/Idemitsu decisions are among multiple delays in proposed LNG projects for the B.C. coast.

Read more: Oil and gas news briefs May 12, 2016

Low prices give LNG buyers opportunity to renegotiate contracts

(Bloomberg; May 5) - Just a few years ago, faced with limited supply and relentless demand growth, liquefied natural gas buyers were happy to lock in contracts that ran through nearly the middle of the century, often paying prices linked to the cost of oil. Now, as the market moves deeper into oversupply, those same contracts are shifting from a blessing to a curse for buyers. Less than 15 percent of long-term LNG supply contracts will expire in the next five years, according to data compiled by Bloomberg.

Meanwhile, new projects in Australia and the U.S. are saturating the world with LNG, depressing spot prices this year in Asia even as oil has risen about 20 percent. That’s giving buyers the incentive to try to renegotiate their oil-linked deals with suppliers, according to analysts at Citigroup and Energy Aspects. “Serious tensions will be seen in the market when oil starts transitioning to higher levels, driving contracted gas prices upwards,” Trevor Sikorski, an analyst with Energy Aspects in London, said by e-mail.

“At the same time, the LNG spot market should stay low — and that wider gap between the two prices will mean a number of buyers unhappy with that spread, and this will drive calls for renegotiation,” Sikorski said. Petronet LNG in December renegotiated its deal with Qatar, dropping by more than half the price the Indian importer was paying. China National Petroleum Corp. wants new prices in its deal with Qatar, and China’s CNOOC is negotiating within its existing supply contract with Shell’s BG Group unit.

About two-thirds of 160 long-term LNG contracts with known commercial terms are linked to oil prices, according to Bloomberg. Buyers will try to change the basis of their deals from an oil-based index to a gas index such as U.S. Henry Hub, Sikorski said.

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

B.C. may have to wait years for its first LNG investment, analysts say

(CBC News; May 3) - By now, British Columbia should be rolling in cash from an LNG industry — tens of thousands of new jobs, billions in royalties and a roaring economy with all that new investment in the province. Instead, it's still waiting for ground to break on any new facility, or even a final investment decision. While several liquefied natural gas plants are proposed, they have all struggled to get off the ground as sponsors wait for regulatory approval, delay making spending decisions, or cancel plans altogether.

There is a growing possibility that no companies will make investment decisions on LNG projects until at least 2020, said Martin King, a commodities analyst with Calgary-based FirstEnergy Capital. Delays have put B.C. Premier Christy Clark under considerable pressure. She charismatically praised LNG in 2013 as an industry that would build incredible wealth — money to pay off provincial debt and create a $100 billion prosperity fund. The province would start collecting LNG revenues by 2017, Clark told voters.

British Columbia may never see any commercially viable LNG projects built, said energy economist Kenneth Medlock, with Rice University in Houston. "I think if something were to happen, it would be 15 or 20 years down the road when there is actually enough demand. Absent that, I just don't see it." The projects will have to keep costs low, which could be difficult because they are planned for remote sites. Pipelines are necessary to bring in gas from the east side of B.C. and Alberta. "Canada is still behind the 8-ball in terms of getting these projects off the ground," King said. "It's still really iffy right now."

Read more: Oil and gas news briefs for May 5, 2016

LNG producers may invest downstream to help build demand

(Wall Street Journal; April 28) - The world’s natural gas suppliers don’t have enough customers, so they might have to create some themselves. Some of the world’s biggest entrants into the growing global gas market have considered investing in power plants and other big projects that could help slurp up the supply glut that has mushroomed just as their multibillion-dollar LNG export terminals are about to open, executives said at the Columbia Global Energy Summit in New York City on April 27.

Buyers have become stingy and hesitant to lock in deals because of the new wave of supply from export terminals under construction worldwide. Prices are already down about 40 percent from a year ago and the glut could last for years. “We’ve had a cozy 10 years where we could just sit on the fence and wait for the buyers to come to us, the sellers,” said Woodside Petroleum CEO Peter Coleman. “We now need to think about how we start to create market. We can’t wait for market to be created for us anymore.”

Woodside recently decided to explore the downstream options, Coleman said, and could target markets like Vietnam and Myanmar that are hungry for development but often don’t have domestic developers with the money or credit to build expensive projects such as power plants and floating LNG import terminals. Cheniere Energy, which recently opened its export project in Louisiana, has encountered similar problems and explored similar solutions. It took a 50 percent stake in Chile’s Penco Lirquén LNG Terminal, attached to a power-plant project to be fueled by Cheniere-supplied gas.

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