Gas imports likely to play a big part in China’s energy future

(Forbes columnist; April 24) - Although the slowest pace since 1990, China’s economy still grew by nearly 7 percent last year. This economic “slowdown” has cut back the growth in China’s natural gas demand. Yet, gas use in 2015 was still up 4 percent, and an 18 percent gain year-on-year in January 2016 should mean better prospects are ahead this year. Emerging and inevitable climate agreements and increased emission standards mean even more gas. And much of it imported gas.

Production wise, China has generally been a high-cost producer with no single giant field, particularly a major disadvantage when prices are so low like they are now. Gas fields in China are unevenly distributed and often remote from demand centers. Output is monopolized by the three state-owned energy giants, with a constant lack of competition that stagnates efficiency improvements and cost reductions.

Shale development is two to four times more expensive in China than in the U.S. China probably does have the world’s largest shale gas potential with 1,115 trillion cubic feet of technically recoverable resources, but future production doesn’t seem as promising as it did a few years ago, constrained by geological complexity, shortages of water, land access, and the limitations of infrastructure and the service industry. For many reasons, the mindset is that gas imports could be cheaper than domestic production.

Read more: Oil and gas news briefs April 28, 2016

Qatari official says developing economies will need more LNG

(Gulf Times; Qatar; April 21) - Greater demand for liquefied natural gas is expected in many parts of the world because of rapidly developing economies, said Abdullah bin Hamad al-Attiyah, Qatar’s former deputy premier and Minister of Energy and Industry. In the 1980s and 1990s, the “demand for gas was pretty low” around the world, he said. “That situation has clearly changed. Now there is demand for gas in Africa, Asia and even in the Middle East, where there are many oil-based economies.”

Al-Attiyah spoke on “The Role of LNG in a Changing Energy World” at an April 20 event in Doha, Qatar’s capital city. Many oil-based countries in the Mideast “require more LNG as their domestic consumption has gone up phenomenally,” he said. “When your economy is growing, you consume more energy; it is simple.” Energizing the world when 2 billion people have no access to electricity is a major challenge. “Every year, we hear about power shortage in many countries in Asia, Africa and Latin America.”

He said the Doha-based Gas Exporting Countries Forum was not “created to be like another OPEC.” It is different, he said. “OPEC can decide among other things cutting production. In the gas industry, it is difficult to cut production because here we have either long-term contracts or ‘take and pay’ deals.” Al-Attiyah said the gas forum was created to enhance cooperation between producers and consumers and promote LNG as a source of energy. Qatar is the world’s largest LNG supplier.

Read more: Oil and gas news briefs April 25, 2016

Oregon LNG confirms lack of funding killed project

(The Daily Astorian; Astoria, OR; April 18) - Oregon LNG confirmed April 18 it scrapped its proposed $6 billion export terminal and pipeline project on the Skipanon Peninsula because Leucadia National Corp., the New York-based holding company that financed the venture, decided to cease funding. Oregon LNG had been working 12 years to develop a liquefied natural gas terminal at the Warrenton, Ore., site. The original plan was to build an import terminal, but that changed in 2012 to an export project.

“Oregon LNG thanks all those in the project area who supported its 12-year effort to bring good jobs and tax revenues to Warrenton and Clatsop County by building a liquefied natural gas terminal and associated pipeline,” the company said in a statement posted on its website. “Oregon LNG will have no further comment.” The project, and its associated gas pipeline, encountered strong community and environmental opposition. In addition to lacking regulatory approvals, Oregon LNG was short on customers, too.

Dick Hellberg, a former Warrenton city commissioner who favored the project, was disappointed. “I don’t know how many millions of dollars that Leucadia put into that project, but that was insanity in itself, to have to put that much money out to go through a dead-end procedure,” he said. “Very disappointed in the whole thing.” But Brett VandenHeuvel, executive director of Columbia Riverkeeper environmental group that fought the project, said LNG “is the wrong direction and locks the U.S. into dirty fuels.”

Read more: Oil and gas news briefs April 21, 2016

LNG developer in Oregon to withdraw proposal

(The Daily Astorian; Astoria, OR; April 15) - Oregon LNG informed city officials in Astoria, Ore., on April 15 that the company will withdraw its proposal for a $6 billion liquefied natural gas export terminal and pipeline project on the Skipanon Peninsula in Warrenton, at the mouth of the Columbia River. Mayor Mark Kujala said he was told by a company representative that Leucadia National Corp., the New York-based holding company behind the energy project, was no longer willing to bankroll the effort.

Skip Urling, the city’s community development director, said he was told that Oregon LNG would not proceed with an appeal of a city hearings officer’s decision to deny the terminal. Urling said he was told “they’re done.” The company had proposed an LNG plant and marine terminal and an 87-mile pipeline to tie in with the North American grid so that it could liquefy and export gas from Western Canada and the Rocky Mountains. The Warrenton project is different than the Jordan Cove LNG project proposed for Coos Bay, Ore., which was rejected March 11 by the Federal Energy Regulatory Commission.

Oregon LNG had argued its project would be an economic boon for the Warrenton area. But a coalition of residents, environmentalists and fishermen attacked the project, which was facing a host of obstacles. Last year, the state Land Use Board of Appeals upheld Clatsop County’s 2013 decision to deny a permit for a portion of the pipeline. And Oregon LNG was embroiled in a lawsuit with the U.S. Army Corps of Engineers over an easement the Army Corps holds at the liquefaction plant site.

Read more: Oil and gas news briefs April 18, 2016

LNG projects in ‘pause mode,’ waiting for prices to recover

(Bloomberg; April 11) - The oversupplied LNG market is in hiatus as producers await a boost in demand from countries seeking access to energy. Liquefied natural gas producers are in “pause mode” as low prices have stalled development of new supplies, Woodside CEO Peter Coleman said April 11 at the LNG 18 conference in Perth. That respite from new projects means that demand later will exceed supply in the coming years, causing prices to rise back to higher levels, Shell CEO Ben van Beurden said.

The cycle underscores the difficulties in timing construction of multibillion-dollar projects that take years to build. Companies have to focus on long-term demand that is expected to grow by 35 percent over the next 20 years, Chevron CEO John Watson said. “There is LNG that is coming online and it’s clear there is some surplus. Customers are doing what you would expect them to do, they are going to take advantage of that in the short term,” he said. “Once you see that surplus absorbed, you’ll see that market re-emerge.”

“Industry is in this hiatus, in this pause mode where there is really no market to sell into, so it gives us a chance to step back and say what is the best way to move,” Woodside’s Coleman said. “Shorter-term LNG will go through different pricing environments,” Shell’s van Beurden said. “At the moment there is a bit more depth, a bit more room in the market, so short-term prices are probably a little bit discounted,” he said. “When we see that shortness disappear and the market goes tight again,” prices will rise.

Read more: Oil and gas news briefs April 14, 2016

Oversupply steers LNG importers away from long-term contracts

(Nikkei Asian Review; April 7) - China, India and other liquefied natural gas importers are moving away from long-term contracts and want to renegotiate contracts made at the peak of the energy cycle — potentially costing money for investors in LNG projects. These trends have added to the uncertainty affecting the LNG sector, already dragged down by the oil-price crash and uneasiness about delays to major gas projects.

In March, spot-market LNG prices in Japan and South Korea were about $4.50 per million Btu, down 38.7 percent on the comparable month a year earlier. Analysts are forecasting that prices may fall as low as $4 in the next two years. They expect the low spot prices will encourage contract buyers to force producers into renegotiations, strengthening an existing shift away from long-term contract pricing that used to underpin project financing. Long-term contracts often include clauses that allow buyers to renegotiate if prices change by certain percentages or cross threshold price levels.

"In the current weaker LNG environment, buyers are seemingly reluctant to sign long-term contracts,” said analysts at Australian bank Macquarie. Citi bank analysts forecast that China and Japan would soon move to renegotiate contracts. "Demand growth looks limited in the short term due to the slowdown of Asian economies and competition from renewables," Macquarie said. “Excess supply will grow to a peak of about 70 million metric tons per annum in 2019 before returning to a balanced market in 2023.”

Read more: Oil and gas news briefs April 11, 2016

Global LNG trade grew 2.5% in 2015

(Natural Gas Europe; April 4) - World LNG trade grew by 2.5 percent to an all-time high of 245.2 million metric tons in 2015 — equal to more than 32.2 billion cubic feet of gas per day — according to last week’s annual report of the International Group of Liquefied Natural Gas Importers. Europe became a low-priced market of last resort for the global LNG trade, with most world supply growth absorbed by the region with its imports up 16 percent at 83.15 million tons.

“In a global context of lower energy prices and sluggish economic growth, the LNG industry is holding its breath for the impact of an export wave from the U.S.,” said Domenico Dispenza, president of the importers group. Qatar remained the world’s leading supplier, with 32 percent of trade in 2015, but Dispenza noted the “U.S. is on track to challenge Qatar as the world’s leading supplier of flexible LNG.” Australia last year became the second largest exporter, ahead of Malaysia which was No. 2 in 2014.

Although China’s imports increased 5.5 percent, Asia imports as a whole declined 1.7 percent — with top markets Japan and South Korea falling by 4.7 percent and 11.2 percent, respectively. Yet Asia still took 72 percent of world LNG trade. The volume of LNG traded on a spot or short-term basis held stable at 28 percent of world trade. Truly spot trades — delivered within 90 days of transactions — were estimated at 15 percent of trade. In 2015, seven new LNG regasification terminals started up in Indonesia, Japan, Egypt, Jordan and Pakistan, with a total of 23.5 million tons per year of capacity.

Read more: Oil and gas news April 7, 2016

Japanese utilities lose electricity monopoly April 1

(Reuters; March 31) - Japan's power utilities will lose their monopoly over electricity April 1 in an unprecedented shakeup that could give a much needed jolt to Japan's long stagnant economy. Already, a price war has broken out among many of the more than 260 companies that will be allowed to sell electricity in Japan's $70 billion retail market. Consumers will be able to buy electricity from suppliers ranging from telecom Softbank and trading firm Marubeni to travel agency H.I.S. and a supermarket co-operative.

They and others like Japan's biggest city gas operator, Tokyo Gas, are packaging other services and offering loyalty programs. The new entrants are betting they can make money in a low-margin business by undercutting the monopolies hurt financially by the 2011 Fukushima disaster and saddled with a high-cost business model after decades of guaranteed profits. The government is hoping increased competition will boost efficiency and innovation and cut prices that are among the highest in the world.

But the new entrants are competing in a market in long-term decline as the population falls and consumers from factories to homes look to trim power use. What is likely to happen is regional monopolies will merge and relatively few newcomers will survive the coming battle, according to industry officials and analysts. Tokyo Electric Power, owner of the wrecked Fukushima nuclear plant, is likely the biggest loser. Tokyo Gas and JX Holdings are among those targeting TEPCO's 29 million customers. Six other regional utilities have announced plans to sell electricity to TEPCO customers in the Tokyo area.

Read more: Oil and gas news briefs April 4, 2016