Exxon gains sales volume in exchange for lower LNG price

(Reuters columnist; Sept. 11) - ExxonMobil’s deal to cut the price of liquefied natural gas supplied under long-term contract to an Indian buyer has largely been viewed as a bad outcome for producers. Certainly, the trade made by Exxon to supply more gas to Petronet LNG, but at a lower price, does seem to favor the utility. Exxon will increase the volume supplied from its share of the Chevron-led Gorgon project in Australia by 1 million tonnes a year to 2.5 million tonnes, but at a lower cost than agreed in 2009.

The revised deal has sparked market speculation that this is the first domino to fall, and that more renegotiations of long-term LNG contracts are likely. Up until now it has been extremely rare for these agreements to be amended, and so far it has only been in India, where a deal with top LNG supplier Qatar was reworked in 2015. Producers are probably nervous that major buyers in Japan, South Korea and China, which account for more than half of the global LNG market, will be tempted to seek better terms.

The Exxon-Petronet deal is a further sign that the era of long-term contracts with prices linked to moves in oil markets are going the way of the dinosaurs. The LNG trade is already moving toward spot and short-term deals, ranging from several months to a few years. While market observers have tended to focus on the lower price Exxon will receive, of perhaps greater importance is the fact that Petronet will buy 1 million tonnes more a year. In this light, Exxon’s deal doesn’t look bad. The U.S. giant is taking a hit on prices, but it is also clearing volumes that it may have had difficulty selling otherwise.

Read more: Oil and gas news briefs for Sept. 14, 2017

India negotiates lower price with Exxon for Australia LNG

(Reuters; Sept. 10) - India has won a price cut on a 20-year liquefied natural gas deal with ExxonMobil in a rare contract renegotiation, a bad sign for producers in a heavily oversupplied global market. In a trade-off for ExxonMobil, India’s Petronet LNG will increase its volumes from the Gorgon project in Australia by 1 million tonnes a year to about 2.5 million tonnes a year, but at cheaper rates than initially agreed in 2009.

Long-term contracts are rarely revised in the LNG market, and for a big producer to cave in shows how supply from new plants in Australia and the United States over the past two years has transformed the market, analysts said. “This trend is overall a negative for sellers, as they are forced to provide more flexibility to buyers’ needs to maintain their markets,” said Saul Kavonic, with consultancy Wood Mackenzie.

India has been aggressive in seeking cheaper deals, also renegotiating a contract with Qatar in 2015, but the real pain for producers would come if major Asian buyers in Japan, Korea and China followed suit. “Happy to share good news that India has yet again been able to address the long-term price issue of LNG from Gorgon to suit Indian market,” India’s Oil Minister, Dharmendra Pradhan, said Sept. 9 on social media. If Exxon had not agreed to renegotiate, Petronet might have scrapped the agreement, leaving the major to pursue damages and resell the volumes on a weak spot market.

Exxon agreed to charge 13.9 percent of the Brent oil price at the port of delivery, rather than the original deal’s 14.5 percent at the port of loading, a source said. At $50 oil, for example, the LNG would have cost India $7.25 per million Btu at the port of loading. Adding about $1 in transport for the 4,000-mile voyage would make a delivered price of $8.25 under the old contract. Under the new formula, Gorgon LNG delivered to India would cost $6.95, slightly above current spot market. Exxon holds a 25 percent stake in Gorgon; Chevron leads the venture. Each partner markets its own share of output.

Read more: Oil and gas news briefs Sept. 11, 2017

Japanese buyers will take 60% of Australia LNG project output

(Nikkei Asian Review; Sept. 7) – The fuel supply joint-venture between Tokyo Electric and Chubu Electric will begin buying liquefied natural gas from the Wheatstone LNG project in Australia, diversifying its purchases amid tensions in the Middle East. The procurement venture, known as Jera Co., gets more than 20 percent of its LNG from Qatar, its biggest supplier. But once the Wheatstone project goes into full production in 2018, Jera’s purchases from Australia will surpass those from the Mideast nation. Wheatstone, in northwestern Australia, is set to begin shipments as soon as this month.

Jera is among the world's top LNG purchasers, acquiring 35 million tonnes in fiscal 2016. Tokyo Electric and Chubu Electric handed over their long-term LNG contracts to the joint-venture when it was established in 2015. Shipping LNG from Australia typically takes about 10 days, roughly two-thirds of the time to ship from Qatar. In addition to lower shipping costs, the shorter distance means the Japanese venture will be able to more easily and quickly adjust procurement flexibly depending on demand.

The Wheatstone project estimates annual capacity of 8.9 million tonnes, of which Jera will purchase 5.2 million tonnes (almost 60 percent) to supply to Tokyo Electric and Chubu Electric. Chevron leads the Wheatstone project. A 10 percent interest is held by PE Wheatstone, which is backed by Jera, Mitsubishi Corp., Nippon Yusen, and Japan Oil, Gas and Metals National Corp.

Read more: Oil and gas news briefs for Sept. 7, 2017

U.S. proposes easier approval process for small-scale LNG exports

(The Hill; Sept. 1) – The U.S. Energy Department is proposing to ease the approval process for companies that want to carry out “small-scale” exports of liquefied natural gas. Under a proposal published Sept. 1 in the Federal Register, companies would get automatic approval of LNG export applications as long as the proposed exports are 140 million cubic feet per day or less and the Energy Department does not need to do an extensive environmental review of the project. Public comments are due by Oct. 16.

The proposal comes as the administration seeks to ramp up exports under President Trump’s “energy dominance” agenda. “The United States has an abundant supply of affordable natural gas that studies have shown will significantly exceed domestic demand. Meanwhile, foreign demand for natural gas imports from the United States has increased as many countries, such as those in the Caribbean, Central America, and South America, seek to import cleaner sources of energy,” the department wrote.

The Energy Department is obligated to review requests for exports to countries without U.S. free-trade agreements and determine whether such exports would be in the “public interest.” Most of the applications to date have been for large-scale projects — as much as 10 or 15 times larger than the small-scale definition the department is proposing. But officials say there is a significant market for small-scale exports, particularly to Western Hemisphere countries, and that they should be assumed to be in the public interest.

Read more: Oil and gas news briefs Sept. 5, 2017

LNG demand growth will depend heavily on emerging economies

(Wall Street Journal; Aug. 30) - Emerging nations in Asia are turning to liquefied natural gas imports to offset dwindling domestic supplies, bolstering LNG trade in the region as demand from bigger markets eases. Nearly 90 percent of global LNG demand growth will come from emerging and frontier economies by 2022, the International Energy Agency estimates. Natural gas prices fell to their lowest in a decade in 2016, according to the IEA, making it a more affordable source of energy for developing countries.

While most of the demand growth will come from economic behemoth China, as it competes with Singapore and Japan to establish itself as an LNG hub, the rest will come from smaller economies, the IEA said. Domestic gas reserves are running low in countries such as Bangladesh, Pakistan and the Philippines, forcing them to turn to imports. Bangladesh has 12 years of domestic gas left, said Lance Crist, head of oil, gas and mining at the International Finance Corp., a branch of the World Bank Group.

As demand growth slows in traditional consumers such as Japan and South Korea, those smaller players will make up 20 percent of the global LNG trade by 2022, the IEA said. “What really drives the demand is the shortages of electricity,” said Victoria Zaretskaya, lead operations research analyst at the U.S. Energy Information Administration. Metropolitan areas experience rolling blackouts to conserve energy. “They do load shedding. That means you don’t provide electricity 24 hours a day.”

While LNG prices will likely stay low for the foreseeable future, the real question is what happens to demand when prices rise, said Mel Ydreos, executive director of public affairs at the International Gas Union.

Read more: Oil and gas news briefs Aug. 31, 2017

China’s gas consumption growth to average 10% a year, report says

(Gulf Times; Qatar; Aug. 26) - China’s natural gas consumption will increase at an average annual rate of 10 percent over the next five years as part of a broader clean-energy drive to reduce carbon intensity and improve air quality in the country’s urban centers, a new BMI Research report said. China’s gas consumption rose 11 percent year-on-year in the first half of 2017, supported by government efforts to increase the share of the cleaner-fuel in the national energy mix.

Gas consumption also benefited from stronger-than-expected economic growth over the first half of the year, which led to greater uptake among industrial users, the Fitch Group company’s report said. Policy backing from Beijing will be crucial to ensuring that gas demand continues to grow. The National Development and Reform Commission has called on local governments to encourage greater fuel switching among industrial and residential end-users by providing subsidies and financial incentives to advance gas-related projects such as power plants, storage facilities and pipelines.

Robust growth in consumption will be matched by comparable growth in production. China’s gas output grew 12.8 percent year-on-year in the March-July period and BMI forecasts growth to average 4 to 5 percent a year to 2020. The bulk of the growth will come from offshore and unconventional sources. Beijing is also gradually opening up previously state-dominated shale gas exploration acreage to foreign investors. The report also noted that LNG imports edged out pipeline gas imports in the first half of this year. Ongoing liberalization of the domestic LNG market will help imports by allowing smaller, private players to participate in the spot market.

Read more: Oil and gas news briefs for Aug. 28, 2017

Petronas considers buying KOGAS stake in B.C. LNG project

(Globe and Mail; Canada; Aug. 21) – Malaysia’s Petronas is considering acquiring a South Korean firm’s minority stake in a British Columbia liquefied natural gas project led by Shell after canceling its rival venture in the province last month. State-owned Petronas had led the Pacific NorthWest LNG proposal on B.C.’s coast but scrapped it in July. The company is now seeking other ways to move natural gas from its properties in northeastern B.C. to market, an industry source familiar with Petronas said.

Options for Petronas include acquiring the 15 percent interest held by Korea Gas in the Shell-led LNG Canada proposal in Kitimat in northwestern B.C. Shell holds 50 percent; KOGAS and Mitsubishi each hold 15 percent; PetroChina owns 20 percent. Petronas is also exploring the economic viability of moving its gas through existing pipelines to the U.S. Gulf Coast for liquefaction and export through terminals under construction there. And the company is looking at a new pipeline. “We are now looking at the possibility of working together with partners or parties on a pipeline that could be built to connect that area to the rest of Canadian market,” said Petronas’ upstream chief executive.

LNG Canada expects it would need to invest up to $40 billion in the project that includes a 416-mile, $5 billion pipeline to move gas to the coast. Petronas declined to comment but confirmed its strategy of looking for ways to unlock the value of its gas from B.C.’s Montney Shale. A global glut of LNG and low prices in Asia have squashed the dreams of the vast majority of proposals for Canada’s West Coast. The Shell-led venture had planned an investment decision in 2016 but now says it may not happen until 2019.

Read more: Oil and gas news briefs Aug. 24, 2017

China boosts natural gas imports to keep up with growing demand

(Bloomberg; Aug. 16) - Chinese President Xi Jinping’s government has beaten expectations in its drive to help clear the nation’s notoriously smoggy skies by burning less coal and oil in favor of cleaner natural gas. But that success may be too much, too soon. Gas consumption has risen 15 percent in the first half of the year as industrial customers shift toward the fuel and as distributors add more residential users.

That surge during the traditionally low-demand part of the year raises the possibility that the country may find itself short of gas when winter hits, according to analysts at Jefferies Group and SCI International. “China could be setting itself up for a nasty winter gas shortage,” Laban Yu, a Hong Kong-based analyst at Jefferies, said in a research note last week. “We believe gas prices will have to increase, especially in winter.”

China’s drive to use more gas and renewables has seen coal’s share of the energy mix drop to just below 60 percent during the first half of the year, according to the government. It accounted for 64 percent in 2015, and the government is aiming for 58 percent by 2020. China’s gas demand will rise to almost 22 trillion cubic feet a year by 2030, China National Petroleum Corp. said. The country used just over 7 tcf last year.

Domestic gas production is up almost 9 percent this year, while liquefied natural gas and pipeline gas imports are up almost 21 percent. The government will probably push companies to ramp up LNG imports and ensure that new terminals are online to meet winter demand, said Liu Guangbin, a gas analyst at Shandong-based SCI International.

Read more: Oil and gas news briefs Aug. 21, 2017