Chinese insurance companies will help finance Russia’s Yamal LNG

(Reuters; Jan. 5) - More than 40 Chinese insurance companies and asset managers have jointly started an investment firm, raising 40 billion yuan ($6 billion) for a first fund to finance energy and infrastructure projects overseas, China's insurance regulator said. The new firm, China Insurance Investment, will boost China's energy security by directing part of its first fund to help finance Russia's $27 billion Yamal LNG project, the China Insurance Regulatory Commission said Jan. 4, without providing details.

Yamal LNG, due to start production of liquefied natural gas at the remote Arctic plant in 2017, has been struggling to raise funds because of international sanctions on Russia over its involvement in the conflict in eastern Ukraine. China's Silk Road Fund has already provided 700 million euro ($750 million) to Yamal LNG and obtained a 9.9 percent stake in the project. Chinese lenders are also set to provide $12 billion in credit.

China Insurance Investment, headquartered in the Shanghai free-trade zone, was launched by 46 Chinese corporate shareholders, comprising 27 insurance companies, 15 insurance asset management companies and four private companies. The shareholders each have a stake of less than 4 percent. Its first fund will also help finance China Merchants Steam Navigation's port construction projects in Sri Lanka, Turkey and Djibouti, the nation’s insurance regulator said.

Read more: Oil and gas news briefs Jan. 7, 2016

Too little investment could lead to crude shortage in years ahead

(Wall Street Journal; Dec. 30) - With the world awash in crude, the oil industry is contemplating a new problem that the current oversupply could tee up: an oil shortage. As the oil glut has sent prices to decade lows, plummeting investment by oil-producing countries such as Venezuela and Russia and oil drillers such as ExxonMobil and Shell means fewer barrels will be produced in the future. That could leave the world in exactly the opposite situation as now: short of oil and willing to pay more to get it.

This may herald the beginning of a cycle that other commodities, from gold to copper, find more familiar — a cycle in which a glut leads to lower prices that lead to investment cuts, which chokes supply and prompts the price gains that lead to renewed expansion and future gluts. “A big gap is forming in oil-industry investment,” Claudio Descalzi, chief executive of Italian energy company Eni, recently told reporters. “That will lead in two to three years to an imbalance between supply and demand that will push prices higher.”

This year, global exploration-and-production investments will fall by $170 billion, or 20 percent, said Rystad Energy. If international prices average $50 a barrel next year — a level many analysts say is optimistic — investment could fall an additional 20 percent, the Oslo-based consulting firm estimates. It would be the first time the industry has registered two consecutive years of investment declines in 30 years, according to the International Energy Agency. Crude has fallen almost 70 percent since June 2014.

The rout in prices has seen oil companies cut deeply into investment budgets. Tudor, Pickering & Holt, an energy-focused investment bank, has tallied 150 projects that have been delayed, resulting in an estimated 13 million barrels a day of production deferred indefinitely, equal to 15 percent of global output. “The stage is set for a supply crunch down the line,” said Miswin Mahesh, an oil analyst at Barclays. “Supply from existing fields will fall, while new projects won’t come online to replace them.”

Read more: Oil and gas news briefs Jan. 4 2016

South Korea forecasts long-term drop in natural gas demand

(Reuters; Dec. 28) – South Korea expects its demand for natural gas to fall by 5 percent over the next 15 years, as increased use of gas by households and industry will only partly offset a steep fall in demand for power generation. The world's second-largest liquefied natural gas importer will also seek to diversify its suppliers, and plans to work with other big Asian buyers Japan and China to cooperate over supplies, South Korea’s Ministry of Trade, Industry and Energy said Dec. 28.

Still, South Korea will invest $6.1 billion to expand its gas supply facilities including storage tanks and pipelines through 2029, the ministry said. LNG accounted for about 21.4 percent of South Korea's power generation in 2014. However, gas imports fell more than 9 percent to below 30 million metric tons in the first 11 months of 2015. The ministry said gas-based power generation is too costly compared with nuclear power, which reduces greenhouse gas emissions more efficiently than fossil fuels.

Demand is forecast to fall 0.34 percent a year to 34.65 million tons of LNG in 2029 from 36.49 million tons in 2014, with demand for power generation nearly halving by 2029. Household and industrial consumption is expected to rise 2.06 percent a year through 2029. South Korea will look to diversify its suppliers, and expects to take mid- and long-term contracted gas supplies from 11 countries in 2029, up from seven in 2014, officials said. It will also look to set up two- to three-year contracts instead of longer-term deals.

Read more: Oil and gas news Dec. 30, 2015

Japan’s nuclear restarts will affect oil and LNG imports

(The National; Abu Dhabi; Dec. 27) - Japan’s latest obstacles to getting its nuclear power industry back on track will be a factor for its energy imports in 2016. The country had been making progress toward restarting its nuclear reactors after the 2011 Fukushima disaster, but the latest setback is opposition to the experimental Monju fast-breeder reactor in Tsuruga, Fukui Prefecture, where residents have sued to have its permit cancelled because of safety concerns, news agencies reported Dec. 26.

The loss of nuclear power over the last few years has cost Japan dearly in additional fossil fuel imports. Japan had to spend an additional $270 billion for fossil fuel imports in the three years after the Fukushima accident, or 58 percent more than in the three years before the disaster. The country is the world’s third-largest oil importer, after the U.S. and China. So far, only two nuclear reactors have restarted.

The next test for the industry will be the Takahama plant in Fukui, where residents have played a legal cat-and-mouse game all year to keep the reactors from restarting. The operator plans to restart them at the end of January, but is still awaiting a final court ruling on an injunction. With nuclear offline, Japan’s imports of liquefied natural gas reached a record 86 million metric tons last year. But the government has forecast that could drop to 62 million tons by 2030, assuming multiple nuclear plants restart.

Read more: Oil and gas news Dec. 28, 2015

It looks more likely that U.S. LNG exports will head to Europe

(Bloomberg; Dec. 21) - For years, U.S. energy companies looking to export liquefied natural gas dreamed of a booming Asia. Now, with demand there falling and the first U.S. Gulf Coast shipment weeks away, Europe has emerged as the unlikely savior of American LNG. European gas production is down and countries there want to get more of the heating and power plant fuel from places other than Russia — a major supplier, but one that’s brought plenty of headaches.

“It’s going to make a lot more sense for the U.S. gas to flow into the European market,” said Jason Bordoff, director of Columbia University’s center on global energy policy. “European energy security” comes from having a diversity of supply, he said. It’s the latest twist in the shale gas boom, which is turning the U.S. toward gas exports. Five LNG export projects are being built with a combined capacity to ship 7.76 billion cubic feet of gas a day by 2019, according to an analysis by Bloomberg. That’s enough to put the U.S. in the company of Russia and Qatar, the world’s largest gas exporters.

Meanwhile, Asian demand for gas is slowing down. China will accept only 77 percent of its contracted cargoes in 2015 amid the country’s slowest economic growth since 1990, according to industry consultant IHS Inc. And at today’s LNG spot-market prices in Asia, around $7 per million Btu, there is less incentive to ship U.S. gas halfway around the world. “A lot of this LNG is going to have to go to Europe,” said Massimo Di Odoardo, research director for European gas at Wood Mackenzie. Europe will probably double its LNG imports between 2014 and 2020, the International Energy Agency projects.

Read more: Oil and gas news briefs Dec. 23, 2015

Canadian agency restarts environmental review of LNG project

(Globe and Mail; Canada; Dec. 20) - The Canadian Environmental Assessment Agency has restarted its review of a proposal to export liquefied natural gas from British Columbia after a delay that lasted more than six months. Pacific NorthWest LNG, led by Malaysia’s state-owned Petronas, wants to build a liquefaction plant and export terminal on Lelu Island in the Port of Prince Rupert. The consortium is striving to become the first major LNG project in British Columbia; it is one of 20 LNG plants proposed on the coast.

The agency began its review in April 2013. Since then, there have been five pauses to what industry officials originally thought might be a process that would take two years at most. The latest delay arose when the federal regulator temporarily halted its review on June 2, instructing Pacific NorthWest LNG that it needed to submit new scientific information. The Skeena Watershed Conservation Coalition and other groups have raised concerns about the risk to salmon habitat on Flora Bank, next to Lelu Island.

The agency is expected to make its decision in the spring of 2016 after it scrutinizes Pacific NorthWest LNG’s plans, industry observers say. The agency restarted its assessment on Dec. 11. If all goes smoothly, the regulator could issue a draft report as early as January. That draft assessment report would be issued simultaneously with a separate document outlining environmental conditions for the project to follow. After the draft report and the conditions are released, the public would have 30 days to comment.

Read more: Oil and gas news Dec. 21, 2015

Nuclear plant restarts cut into Japan’s LNG demand

(Platts; Dec. 15) – The restart of nuclear reactors in Japan, growing renewable sources of energy and a slow economy are expected to trim the country's LNG consumption by 2020 as much as 10.5 percent from 2014 levels, Eclipse Energy said this week. Japan's LNG demand is expected to drop to 77 million metric tons a year by 2020 from a record 86 million tons in 2014, according to Eclipse, an analytics unit of Platts.

Kyushu Electric restarted its two 890-megawatt reactors at Sendai in August and October, the nation’s first restarts since Japan shut down all of its reactors following the 2011 Fukushima disaster. Kyushu's consumption of liquefied natural gas in September dropped to the lowest level since May 2011, data from the Ministry of Economy, Trade and Industry showed. From September to November, Kyushu Electric received seven LNG cargoes at its Tobata terminal, down from 13 in the same period last year.

Eclipse estimates that if Kyushu's two 1.18-gigawatt reactors at Genkai start up, it would replace up to three or four LNG cargoes a month. Other power companies are expected to restart five reactors by 2019. Meanwhile, LNG demand is expected to drop over the next four years amid a slower economy. "Our forecasts suggest that U.S.-sourced LNG is only called on during the winter peak season at least until 2020," Eclipse said. Buyers in Japan have contracted for about 17 million tons of LNG a year from three U.S. export projects under construction, though Eclipse expects that the buyers will take just 20 to 25 percent of the volumes in 2018-2019, rising to about 50 percent early in the 2020s.

Read more: Oil and gas news briefs Dec. 17, 2015

Oregon landowners ask FERC to deny gas pipeline to LNG plant

(The World; Coos Bay, OR; Dec. 11) - Landowners along the proposed Pacific Connector Gas Pipeline route through Oregon are gearing up for a fight. They called on the Federal Energy Regulatory Commission on Dec. 9 to shoot down the 232-mile gas pipeline, saying it is not in the public interest, doesn't have the needed customers or easements, and eminent domain to obtain right of way should not be used. The line would deliver U.S. and Canadian gas to a proposed LNG export plant at Coos Bay, Ore.

"FERC should not be putting hundreds of landowners at risk of eminent domain for a project without any proven market demand," said Portland attorney Thane Tienson in a news release on the 139-page filing. "Many of the landowners are united in their efforts to try to stop the pipeline," said Neil Olsen, a lawyer with a different Oregon firm. "The FERC certificate, if it's issued, gives the pipeline company eminent domain under the (federal) Natural Gas Act and also under Oregon law," Olsen said.

“Across that whole path of the pipeline, these people are concerned — and I think rightfully so,” he said. “Besides the issue of being justly compensated for what's being taken from them, they're concerned about the easement and something they possibly have to live with the rest of their lives, their kids' lives, whoever owns the property after them. There's a lot of angst," Olsen said. FERC has completed its environmental impact statement on the LNG plant and pipeline, but has not issued its decision on the project.

Read more: Oil and gas news briefs Dec. 14, 2015