Chevron offers lower prices to win buyers for unsold Gorgon LNG

(Reuters; Feb. 1) - Chevron is sweetening its sales pitch to attract new buyers to the under-booked $54 billion Gorgon liquefied natural gas export plant off northwest Australia, which has been hit by high costs as LNG prices and demand have plunged. The move is a departure for Chevron, which has for years stuck to its ambitious asking prices, sources said, only yielding as global demand slumped and new supply gave buyers cheaper alternatives. Production at the giant plant is due to begin within weeks.

"Lousy" is how Chevron CEO John Watson last week described the global LNG market that Gorgon — the world's most expensive such venture — will sell into. Chevron faces a unique double-blow from record growth in gas supplies from Australia and the United States and from battered crude oil markets pushing LNG prices below Gorgon's high cost of production, according to analysts.

A scarcity of customers leaves Chevron on the hook for a quarter of its share of Gorgon's unsold volume this decade, leaving it few options but to dump supplies onto already depressed spot markets, industry sources said. Chevron needs more long-term buyers paying oil-linked prices, such as its five Japanese clients, to help guarantee earnings over the project's 40-year life. Since December, the firm has lined up two preliminary, 10-year deals with Chinese buyers for Gorgon, starting in 2019 and 2020.

The price of the deals, on which Chevron declined comment, are estimated at 12.2 to 12.3 percent of the price of a barrel of crude oil, plus a small fixed fee and a floor price, sources said. That compares with higher prices paid by Chevron's Japanese clients at 14.85 percent of oil for 25 years of supply, sources said. While contract differences between make direct comparisons tricky, an LNG negotiator said lower prices offered to China may open the door to price reviews between Chevron and its Japanese clients.

Read more: Oil and gas news Feb. 4, 2016

Japan’s utilities looking to sell surplus LNG

(Reuters; Jan. 28) – Japan’s liquefied natural gas buyers are having to hone a new skill — selling. After decades of negotiating with suppliers for the lowest possible prices, the world's top importer is moving from customer to competitor, seeking to sell surplus LNG. Japan is unlikely to shift vast volumes of gas off its books, but it is delaying or diverting some cargoes after overestimating its needs, adding pressure to a market already in a global glut. Sources say the utilities can only justify selling surplus gas if it turns a profit.

"These end users that have been conservatively trying to buy LNG at the best possible price, these people now have to morph into sellers and optimizers, which is definitely not in their DNA," said a trader, estimating Japan may need to resell about one or two cargoes per month. LNG imports by the world's top buyer declined 3.9 percent to 85.046 million metric tons last year, the first dip since the 2011 Fukushima nuclear disaster drove purchases to successive records, Ministry of Finance data showed.

Utilities have already cut import contracts to minimum levels. Utilities also aim to further trim supply as mild weather curbs heating demand, and atomic reactor restarts and cheap coal crowd gas from the power mix. To lighten its burden, Kansai Electric Power Co. is looking at swapping out cargoes with firms outside Japan, traders say. "The (Japanese) end users are slightly overbought so they're all working either independently if they're the bigger ones, or with trading houses if they're the smaller ones, to either delay those cargoes or to sell them on the open market," a trader said.

Read more: Oil and gas news briefs Feb. 1, 2016

Canada imposes new climate tests on pipelines, LNG projects

(Bloomberg; Jan. 27) - Prime Minister Justin Trudeau’s government is changing the approval process for pipelines and other energy projects in Canada, requiring more thorough environmental and emissions reviews in a bid to win public support for the projects. Environment Minister Catherine McKenna and Natural Resources Minister Jim Carr unveiled the changes Jan. 27, which will apply to proposals currently under review for pipelines, liquefied natural gas production and export terminals and other projects.

The new “transition plans” will add nine months to the deadline for a government decision on TransCanada’s Energy East oil sands pipeline project and four months to the environmental review deadline for Kinder Morgan’s Trans Mountain oil sands pipeline expansion to the West Coast. Each pipeline will now be subject to “deeper consultations” with indigenous peoples and a review of the project’s impact on carbon emissions — data the government intends to publish.

“Projects will only get done if they’re done sustainably and responsibly,” McKenna said. The interim rules are a precursor to a broader update of environmental reviews. The rules will apply to LNG projects, particularly proposals for the B.C. coast. That includes the Pacific NorthWest LNG project led by Malaysia’s Petronas, which has been under federal review for almost three years. The sponsors say they are ready to make a decision as soon as the Canadian Environmental Assessment Agency makes its ruling.

Read more: Oil and gas news briefs Jan. 28, 2016

Japan’s LNG imports lowest since 2011; coal imports hit record

(Reuters; Jan. 25) – Japan’s 2015 oil imports fell to the lowest since 1988, reflecting the country's declining population and low economic growth, while at the same time its liquefied natural gas imports fell for the first time since the Fukushima nuclear disaster. Yet in the same year that the world agreed to combat climate change, Japan's utilities continued to increase the use of the cheapest but dirtiest fossil fuel, ramping up coal imports to a record.

Continuing a steady decline since the mid-1990s, Japan's oil imports last year fell 2.3 percent to 3.37 million barrels per day, official figures released Jan. 25 showed. Similarly, Japan's power generation fell for a fifth straight year in 2015 to 866.26 billion kilowatt hours, the lowest since at least 1998. The declines reflect deep changes in Japanese society since an asset bubble burst in the 1990s and its population declines and people change the way they consume energy.

"The fall in consumption in Japan is mainly down to slower economic growth," said Jeremy Wilcox, of consultancy Energy Partnership. "At the same time, increased focus on energy efficiency is really starting to constrain imports.” Japan's changing energy profile has hit LNG the hardest. LNG imports fell 3.9 percent to 85.046 million metric tons in 2015 from a record 88.51 million tons the year before, marking the first drop in six years and the lowest since 2011. LNG usage should fall further as overall energy demand declines and the country reopens nuclear reactors.

Read more: Oil and gas news briefs Jan. 25, 2016

Korean shipyard launches icebreaking LNG carrier for Yamal project

(Korea Joongang Daily; Jan. 19) - Daewoo Shipbuilding and Marine Engineering n Jan. 15 launched the world’s first icebreaking liquefied natural gas carrier at its Okpo shipyard in Geoje, South Gyeongsang, the company said. It was the first ship to be launched for Russia’s Yamal LNG project and part of a 15-ship order that is supposed to help turn around the troubled South Korean shipbuilder. The LNG export project is under construction on an Arctic peninsula and is scheduled to start up late 2017.

]The 980-foot-long, 164-foot-wide vessel is an Arc 7 design ice-class LNG carrier with a capacity to carry up to 3.7 billion cubic feet of natural gas superchilled into LNG for transport. The ship is designed to break through ice seven-feet thick. While existing ice-class vessels climb above the ice and break the ice with downward pressure, the new model collides directly with the ice.

Super high-strength steel plate and a 360-degree rotating propeller were installed to aid the vessel’s icebreaking and its ability to move forward and backward, the shipbuilder said. The 15 LNG carriers are said to cost $300 million each.

Read more: Oil and gas news Jan. 21, 2016

Wood Mackenzie expects half of U.S. LNG will go to Europe by 2020

(Bloomberg; Jan. 14) - Europe is set to be the key destination for liquefied natural gas supplies from the U.S. as prices have fallen in Asia, the world’s biggest consumer of the fuel, according to global energy consultancy Wood Mackenzie. The U.S. is forecast to ship about 55 percent of its total LNG production, or 32 million metric tons a year, to Europe by 2020, according to Alex Munton, the Houston-based principal analyst for Americas LNG at Wood Mackenzie.

That’s because Europe is so close, has ample import capacity and liquid markets, and now has prices nearer to those in Asia. The U.S. will ship its first tanker of LNG from the Sabine Pass plant in Louisiana this quarter, marking the start of a wave of export projects resulting from the shale gas boom. Atlantic basin producers are focusing on Europe as the premium that buyers such as Japan used to pay has mostly disappeared amid waning demand and new supply from Australia and Papua New Guinea.

“A significant amount of LNG will end up in Europe,” Munton said. “The spread between European and Asian prices has disappeared, and based on the proximity to the Gulf Coast, Europe will become a more attractive market.” LNG flows from nations surrounding the Atlantic Ocean to areas around the Pacific fell 16 percent to 82 million tons in 2015, Wood Mackenzie said, while European net imports of LNG increased 14 percent to 37 million tons. For Europe, U.S. gas will diversify its sources as the region is dependent on Russia for about a third of its gas, while domestic production is declining.

Read more: Oil and gas news briefs Jan. 18, 2016

Global LNG production rose in 2015, but sales to Asia dropped

(Wall Street Journal; Jan. 13) - Liquefied natural gas shipments to Asian economies that are the world’s biggest gas importers dropped in 2015, according to a report published Jan. 13, including a first-ever decline in China. The decline in Asia came as global LNG global production rose 1.6 percent to 250 million metric tons, or 32 billion cubic feet a day, energy consultant Wood Mackenzie said in an annual report on the industry.

The increase in LNG supply comes amid a steep drop in spot-market prices in Asia over the past year to below $7 per million Btu. Prices may remain depressed with the start of shipments this year from the U.S. Gulf Coast and a ramp-up in exports from Australia. The new supplies will help boost global LNG production by an estimated 50 percent over the next five years, which is beyond the capacity of Asia to absorb, Giles Farrer, Wood Mackenzie’s research director for global gas and LNG, said in an interview.

Asia represents more than 70 percent of worldwide demand for LNG, but Wood Mackenzie said demand from the region’s largest buyers dropped in 2015, including a first-ever decline in shipments to China, which fell about 1 percent after years of double-digit growth. South Korean imports of LNG fell 11 percent on the year and shipments to Japan declined 4 percent, the report said. That was offset by growing demand from newer importers such as Egypt, Jordan and Pakistan, the report said. And lower prices for LNG will likely spur increased demand from other markets, Farrer said.

Read more: Oil and gas news briefs Jan. 14, 2016

Shell-led LNG project on B.C. coast wins 40-year export license

(Globe and Mail; Canada; Jan. 8) - The board that regulates natural gas exploration and production in Canada has approved its first 40-year export license to a joint-venture company led by Shell. The National Energy Board permit will allow LNG Canada to export liquefied natural gas from a terminal proposed for the coastal British Columbia community of Kitimat. Until the National Energy Board Act was amended in June 2015, the maximum term length of an LNG export permit was 25 years.

The license must still be approved by Canada’s prime minister and his cabinet. The announcement comes days after the B.C. Oil and Gas Commission approved LNG Canada’s facility permit, outlining design, construction and operation requirements. The joint venture’s partners are Shell, PetroChina, Korea Gas and Mitsubishi. LNG Canada has not made a final investment decision on the project, which is estimated at close to $30 billion and could handle as much as 3.6 billion cubic feet of gas per day.

“The board is satisfied that the gas resource base in Canada, as well as North America overall, is large and can accommodate reasonably foreseeable Canadian demand, including the exports proposed in this application, and a plausible potential increase in demand,” the NEB said. The license will expire Dec. 31, 2022, unless exports have begun. LNG Canada expects to make a construction decision later this year. It is one of 20 LNG proposals for the B.C. coast; none have reached final investment decision.

Read more: Oil and gas news briefs Jan. 11, 2016