Price cuts help boost China’s switch from coal to natural gas

(Bloomberg; March 28) - China’s natural gas demand has been boosted by price cuts aimed at switching users from coal to the cleaner-burning fuel, according to one of the country’s biggest gas distributors. ENN Energy has seen its gas sales rise more than 15 percent in January and February as lower prices encouraged customers to switch, Vice Chairman Cheung Yip Sang said in an interview in Hong Kong. ENN expects full-year sales to rise 15 percent, following last year’s 11.5 percent jump to 400 billion cubic feet.

“The movement really picked up a lot of momentum,” Cheung said. “The higher burning efficiency of gas and government pressure for better emission standards will help convert more industrial users from coal to gas.” ENN supplies 12 million households, plus commercial customers. Chinese President Xi Jinping’s government lowered gas prices twice last year to stimulate demand and shift consumption from coal, which comprises 64 percent of the country’s energy mix. Gas holds just a 6 percent share.

China’s gas demand grew 3.3 percent in 2015, while coal consumption dropped 3.7 percent, declining for a second year, according to the National Bureau of Statistics. Coal use will slip further this year amid tepid demand from industrial users, according to the China Coal Industry Association. However, the gains by natural gas may be limited, Cheung cautioned, as it is unlikely China will lower prices further because the rate reductions are already cutting into the earnings of state-owned producers/importers.

Read more: Oil and gas news briefs for March 31, 2016

Analysts warn of LNG supply gap in 2020s if projects don’t go ahead

(Bloomberg; March 23) - The demise of LNG projects is probably what will lift the market out of its rut. Buyers now have the advantage of an oversupplied market, which, along with the fall in energy prices, has discouraged developers from committing to new liquefied natural gas projects. “Ultimately, we’ll set ourselves up for a shortage at the other end, and there will be another scramble some time toward the end of this decade for LNG,” said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein.

“Gas is structurally going to be in demand long term,” he said. Lower-cost projects should be able to survive the downturn and capitalize on rising demand next decade. But starting large new projects in countries including Canada and Mozambique will be difficult and investors should expect setbacks, Beveridge wrote in a note March 23. The market could see a supply deficit of 75 million metric tons of LNG per year by 2025, which would require $250 billion in investment through 2020, Bernstein reported.

Given the long lead times for LNG projects, if investment decisions aren’t made in the next several years to meet that demand, a supply squeeze is on the horizon, said Saul Kavonic, an analyst at energy consulting firm Wood Mackenzie. “We anticipate that the market will tighten and a supply demand gap to arise in the first half of the 2020s due to the natural decline of existing production facilities and longer-term demand growth,” he said. “You are going to create a potential supply gap, there’s no doubt in my mind,” Peter Coleman, CEO of Australia’s Woodside Petroleum, said March 23.

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

Partners call halt to $30 billion Australian floating LNG project

(The Australian; March 23) - Woodside Petroleum, Australia’s second-largest oil and gas producer, said March 23 it will not go ahead with near-term development of the $30 billion Browse floating LNG development off Western Australia, as low oil prices bite into project economics and access to development funds. Woodside, along with its partners in the massive offshore floating LNG production and storage project, said the “extremely challenging” energy market environment had stalled progress.

Woodside had been targeting a final investment decision this year. The announcement represents the shelving of Australia’s last chance to continue a run of resources mega-project approvals that have seen $200 billion of LNG investments approved in the past decade. “The Browse joint venture participants have decided not to progress with the development at this time considering the current economic and market environment,” Woodside said. Shell, BP, PetroChina, Mitsubishi and Mitsui are also partners.

“Woodside remains committed to the earliest commercial development of the world-class Browse resources and to FLNG as the preferred solution, but the economic environment is not supportive of a major LNG investment at this time,” Woodside CEO Peter Coleman said. The Browse project sits on an estimated resource of 15.4 trillion cubic feet of dry gas, plus 453 million barrels of condensate, in a basin about 260 miles north of Broome in Western Australia.

Read more: Oil and gas news briefs March 24, 2016

Federal environmental review delayed for LNG project in B.C.

(Reuters; March 19) - A major liquefied natural gas export project ran into another delay March 19 when the Canadian Environmental Assessment Agency was granted an extra three months to finish its impact study. The Malaysian state-owned oil giant Petronas and its partners have been waiting nearly three years for a permit to build the Pacific NorthWest LNG project near Prince Rupert in northern British Columbia. Environment Minister Catherine McKenna approved the agency's request for the extra three months.

Once the agency has filed its report, the federal Cabinet will decide whether to approve the project. There is no time limit on the Cabinet. The plan to build Canada's first LNG export facility has faced challenges from the start, including controversy over its site, which aboriginal and environmental groups said would destroy salmon habitat. It is also the first major project to have its environmental assessment completed under new rules that include the impact of upstream gas production on the project’s total emissions.

The agency, which had been due to deliver its report by March 22, said it needed more data from the project: "The agency has requested additional information from the proponent in order to determine whether the project is likely to cause significant adverse environmental effects.” The agency released a draft review last month that found the project would likely have "significant adverse environmental effects" on greenhouse-gas emissions and harbor porpoises, but not on salmon. The review started in April 2013.

Read more: Oil and gas news briefs for March 21, 2016

Citigroup says LNG glut to last until 2022; new projects needed 2025

(Sydney Morning Herald; March 17) - A glut of liquefied natural gas is likely to plague the market until 2022, triggering further delays to new projects and potentially forcing some producers in Australia and elsewhere to cut back production, Citigroup analysts said. But the LNG market will "balance, not fail," the bank said, adding it expects long-term contracts still to be honored. It also pointed to opportunities, particularly in growing markets such as India and Thailand that will benefit from access to cheap LNG.

Citi estimates global LNG oversupply will peak at 28 million metric tons a year by 2019, about 11 percent of current production, just from plants now running or in construction. More than 100 million tons a year of supply is set to come into the market from new projects in the next five years, mostly from Australia and the U.S. LNG spot-market prices are expected to dip under $4 per million Btu in the low-demand season, while the bank has also cut its forecast for contract prices as terms fall in line with a softer market.

Some 60 million tons a year of additional supply still will be needed by 2025, but that is far less than the 318 million tons of new capacity proposed within that timeframe, said the Citigroup analysts led by Sydney-based Dale Koenders. Despite the need for some new capacity, a "disconnect" between pricing and project costs will hinder projects from going ahead, the bank predicted. It said "buyer paralysis" has obstructed new long-term contracts from being signed, and that the problem would likely last into next year.

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Citigroup likened the situation of new LNG projects jostling for contracts with a large number of taxis looking for customers outside a building. "The building is surrounded by vacant taxis undercutting each other," it said.

Read more: Oil and gas news briefs March 17, 2016

LNG oversupply gives buyers more negotiating power

(Bloomberg; March 11) - The global LNG oversupply has strengthened the negotiating power of buyers, and long-term contacts have probably never been this vulnerable as plunging spot prices encourage buyers to seek revisions, said Jeff Brown, Singapore-based president of consulting firm FGE. China National Petroleum Corp. this week said it wants to renegotiate for lower prices in its long-term LNG supply deal with Qatar — just as India’s Petronet was able to do in December, dropping the price by almost half.

“The pressure is building for long-term LNG contracts” as buyers seek lower prices, said James Taverner, a Tokyo-based analyst at IHS. “Buyers serving markets with the strongest long-term prospects for LNG growth, such as India and China, will likely be in the strongest position in contract discussions.” And there may be even more pressure to come as buyers seek to join forces. Japan’s LNG-buying consortium Jera Co. said last month it’s in talks with Chinese and South Korean companies to form a larger alliance.

“We believe that certain countries could be well-placed to exact similar concessions from Qatar,” Peter Lee, an analyst with BMI Research, said in an e-mail. “Just as India has been able to capitalize on its position as a large and growing off-taker of Qatari LNG, Japan and South Korea remain significant buyers.” Long-term LNG contracts are typically linked to oil prices and often include reviews at specified times or if market conditions change. “Producers should be concerned but they should also expect this to continue,” said Jonathan Stern, chairman of the Oxford Institute for Energy Studies.

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

China wants to renegotiate lower LNG price from Qatar

(Bloomberg; March 9) - China National Petroleum Corp., the nation’s biggest producer of oil and gas, is seeking opportunities to renegotiate the pricing of its liquefied natural gas purchase contract with Qatar, CNPC Chairman Wang Yilin said in Beijing. CNPC’s PetroChina unit, which has a contract with Qatargas to buy 3 million metric tons of LNG per year through 2037, is among the buyers taking advantage of greater bargaining power gained from a supply glut of natural gas and tumbling prices.

Qatar last year renegotiated its contract with India’s Petronet LNG, resulting in a price cut of almost half. “We have always been looking at price renegotiation opportunities on LNG term contracts,” Wang said. “We are seeking the proper time window of setting up a price renegotiation mechanism.” Asian spot LNG prices are below $5 per million Btu, and the price for LNG in Asia under long-term contracts, which are traditionally linked to oil, may fall to near $4 in June, according to a report from Credit Suisse Group.

Rising demand for price renegotiation could unnerve LNG suppliers, said Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co. PetroChina is “racking up losses on LNG (imports)” despite lower prices, he said. “With Petronet able to successfully renegotiate prices, CNPC is now looking to do the same,” Beveridge said in an e-mail. “While each contract is different, this will certainly create nervousness among LNG suppliers that have spent vast sums of money building LNG capacity.”

Read more: Oil and gas news briefs March 10, 2016

U.S. natural gas futures fall to lowest level since 1999

(Arkansas public radio KUAR; March 3) - While declining crude oil prices have roiled international markets from Beijing to New York’s Mercantile Exchange, natural gas futures have quietly plummeted to levels not seen in this century, and the low prices are pushing many companies in the energy sector closer to bankruptcy, industry experts say. On March 3, natural gas futures for April delivery closed at $1.678 per million Btu on the NYMEX — the lowest since Feb. 26, 1999, according to U.S. data.

“Shale gas producers have done an amazing job growing production despite the continued low gas prices,” said Wall Street oil and gas analyst Fadel Gheit, of Oppenheimer & Co. Even though most gas producers have sharply reduced capital spending and rig count, they have continued to add reserves and grow production. “This is all driven by efficiency gains and this is expected to continue, unfortunately exacerbating the current glut, which continues to depress prices,” Gheit said.

Even with prices touching a 17-year low, December dry natural gas production was the highest for the month since the U.S. Energy Information Administration began reporting dry gas production data in 1973. All that gas is keeping storage at high levels. In its last report, the EIA noted that U.S. gas inventories stood at 2.584 trillion cubic feet as of Feb. 19, almost 30 percent above the historical five-year average for this time of year.

Read more: Oil and gas news briefs March 7, 2016