Unsold LNG will hang over market to mid-2020s, analyst says

(Sydney Morning Herald; Dec. 7) – Though the oil market is in dire straits, the liquefied natural gas market is worse, experts say. Hanging over the market for the next several years are large volumes of U.S. LNG exports in search of end consumers. Consultancy Facts Global Energy says 25 million to 35 million metric tons of the 65 million tons a year of U.S. LNG export capacity under construction has been sold to middlemen, traders or portfolio players such as BG or Mitsubishi, which still need to sell the gas.

"Portfolio sellers and traders are not end users, they must find buyers," FGE founder Fereidun Fesharaki said. In addition, about one-third of Qatar's LNG export capacity is unsold, while the three big Chinese national oil companies and one Indian national oil company have switched from buying to selling as they seek to resell LNG they have committed to buying but no longer need, according to FGE.

That means about 70 million tons a year of LNG still needs a buyer, weighing on the oversupplied Asian market to the mid-2020s, the consultancy said. Fesharaki describes those holding the contracts as "desperate sellers" that will provide stiff competition for producers seeking customers for new LNG projects. Fesharaki names only three new projects that could move forward in the next few years: Anadarko's Mozambique venture; expansion in Papua New Guinea; and Petronas' project in Prince Rupert, B.C.

Read more: Oil and gas news briefs Dec. 10, 2015

Japanese buyer looks for long-term LNG supply for new power plant

(Reuters; Dec. 4) - Japanese oil refiner TonenGeneral Sekiyu is seeking to buy long-term supplies of liquefied natural gas to feed a planned 2,000-megawatt power plant southwest of Tokyo, the company said Dec. 4. The move may mark Japan's first new 20-year LNG supply deal in years at a time when the country is struggling to handle a mounting glut of LNG imports as demand wanes.

"We are in talks with a lot of prominent suppliers to win the best conditions that can be obtained from the market," a TonenGeneral spokesman said. Deliveries are expected to start sometime after 2020 for 20 years, industry sources said, by which time analysts expect Japanese gas demand to have recovered. Suppliers have been shortlisted and a winner should be picked within the next few months, with a deal due to be signed by mid-2016, a source said. It was not possible to confirm the identity of potential suppliers.

Pockets of long-term LNG demand are also emerging in other regions just as 170 million metric tons of new LNG supply ramps up, set to boost current global export capacity by more than half. El Salvador is seeking a 12-year LNG supply deal for 500,000 tons of supply annually, indexed to oil at a percentage of around 12 percent of the price of a barrel of oil, an industry source said. A customer of Chile's Quintero LNG import terminal is also holding a tender to secure multi-year supplies, sources said.

Read more: Oil and gas news briefs Dec. 7 2015

Japan has more LNG under contract than it needs, report says

(Bloomberg; Dec. 1) - Japan is probably set to receive more LNG than it needs, potentially forcing some purchasers to resell cargoes and add to the worldwide glut. Liquefied natural gas volumes contracted by Japanese buyers may exceed their combined demand from 2017 to 2021, according to a report compiled by the Ministry of Economy, Trade and Industry. The report, obtained by Bloomberg News, was distributed at a closed meeting attended by government officials, suppliers and buyers.

Japan in August restarted the first of its nuclear reactors idled for safety checks in the wake of the 2011 Fukushima disaster and a second in October, helping the nation reduce consumption of LNG for power generation. With more reactors expected to be back online in the coming years, the Japanese government estimates LNG demand will fall about 30 percent to 62 million metric tons by 2030, the ministry report shows.

Japan’s annual long-term LNG contracted volumes will probably peak at about 95 million tons in 2017, according to data in the report. The volumes are expected to fall to about 90 million tons in 2018 and about 80 million tons in 2019 and 2020. The International Energy Agency estimates Japan’s LNG demand will decline to 72 million tons by 2020, according to the report. Of the LNG procured by Japan in 2014, spot and short-term deals accounted for about 30 percent, according to the report.

Read more: Oil and gas news briefs Dec. 3, 2015

LNG market analyst says lower prices will stimulate demand

(Power Technology; Nov. 27) – Japan’s resumption of nuclear power is one of many demand-side issues holding back global liquefied natural gas prices and export project development. “The writing is sort of on the wall for the remainder of this decade in terms of supply and demand. … If a terminal hasn't yet began that process now, it doesn't have much chance of being online by 2020,” said Christopher Goncalves, managing director of Berkeley Research Group's energy practice, a U.S-based consultancy.

“What is really interesting and challenging to project for most people in the industry right now is the outlook for the early part of the next decade … in terms of which projects and which supply sources are most likely to succeed when prices and demand begin to rebound as they are expected to,” Goncalves said. “Most people don't expect prices to remain as extremely low as they are right now and to bounce back at some point, probably toward the end of the decade, or at the beginning of the next decade.”

He added, “The benefit of low prices right now is that the low prices will eventually stimulate more demand. There are many buyers in the market who are attracted to LNG at current prices, whereas years ago when the prices were double or triple current levels they didn't find it so compelling. So, in my mind, the key question is once demand and prices begin to rebound toward the end of the decade and into the next decade, which are the next wave of projects that are most likely to be successful in the market?”

Read more: Oil and gas news briefs Nov. 30, 2015

Mozambique may look to partners to help finance its stake in LNG

(Financial Times; London; Nov. 23) - For much of its 35-year life, Mozambique’s state-owned oil company, Empresa Nacional de Hidrocarbonetos, was a little-known entity. Yet in recent years, ENH has had many of the world’s top energy groups knocking on its doors because the waters off Mozambique hold some of the world’s largest untapped gas reserves. Since 2010, Anadarko and Italy’s Eni have made gas discoveries in the Rovuma Basin in the Indian Ocean that are estimated to exceed 160 trillion cubic feet.

These reserves have the potential to transform one of the world’s poorest countries into a key global supplier of liquefied natural gas. As the state energy company, ENH has a stake of at least 10 percent in all of Mozambique’s gas projects, and is the main vehicle through which foreign oil companies interact with the government. Omar Mitha, a former bank economist who became ENH chairman in August, acknowledges that ENH “is feeling the pressure” as an expectant nation waits for the riches to be unlocked.

“What is critical is that we need to speed up the pace to the market because the window of opportunity might shrink,” Mitha said. Output by existing LNG-producing countries, particularly Australia, is expected to increase significantly — with the U.S. due to join this group of nations soon. Anadarko and Eni have both been expected to deliver final investment decisions for their Mozambique projects this year.

The challenge for cash-strapped ENH is how it raises $1.5 billion to $1.7 billion to cover its share of the projects. It has a 15 percent stake in the Anadarko consortium and a 10 percent share of the Eni project. Mitha said ENH is looking at the possibility of initially being “carried” by its partners to finance ENH’s stake. This is likely to be more costly than bank financing but could ease the process of getting the projects started. ENH would look to traditional bank financing once the developments are under way.

Read more: Oil and gas news briefs Nov. 25, 2015

India close to renegotiating price for Qatari LNG

(Reuters; Nov. 20) - India's biggest gas importer Petronet LNG is close to renegotiating a major deal with its Qatari supplier RasGas to lower the cost of gas cargoes and avoid a $1.5 billion penalty for taking less gas than agreed, sources said. The renegotiation is another sign of how falling oil prices and a global LNG glut are bringing producers such as Qatar to the bargaining table.

Petronet, which has a 25-year contract with RasGas to buy 7.5 million metric tons of LNG a year, has reduced purchases by about a third this year due to high prices — even though it is only allowed to take 10 percent less, making it liable for a $1.5 billion penalty. According to sources, the two firms are exploring the possibility of altering the contract's pricing formula, which is based on a 60-month average of oil prices. Instead, a three-month average of Brent crude is being considered, which would be a major coup for Petronet by lowering its LNG costs in line with sharply lower, current oil prices.

Petronet currently pays about $12 to $13 per million Btu for Qatari LNG under a deal that began in 2004, compared with around $7 to $8 in the spot market. Petronet has been increasingly substituting costly Qatari LNG with spot shipments. Under the revised terms, RasGas would also grant relief to Petronet from paying the penalty on the condition that the firm lifts its full volumes in subsequent years, said one of the sources.

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

Osaka Gas interested in selling, trading its U.S. LNG

(Platts; Nov. 18) - Japan's Osaka Gas is keen to resell and trade its offtake volume from the Freeport LNG plant under construction in Texas to boost profits and flexibility in its LNG procurement, the president of the gas utility said Nov. 18. "We want to resell as much of this volume as possible," Osaka Gas president Takehiro Honjo said. "This LNG is Henry Hub-linked and we could consider not only just bringing it back to Japan but also other options such as swapping cargoes with those in Southeast Asia, Europe."

Osaka Gas has a liquefaction tolling agreement with Freeport LNG, which is expected to start-up in 2018. The contract allows Osaka Gas to take 2.2 million metric tons per year of U.S.-sourced gas with no destination restrictions. Honjo said low oil prices would reduce the competitiveness of U.S. LNG but the utility needs to see how energy prices pan out in 2018. If prices to liquefy and deliver U.S. gas are too high, Osaka could choose not to liquefy some of its volume, though it still would be required to pay Freeport a fee for the reserved capacity at the liquefaction plant.

Though Osaka Gas wants to increase its equity in LNG projects, Honjo said he does not currently see any attractive LNG investment opportunities.

Read more: Oil and gas news briefs Nov. 19 2015

Decision date may slip for Anadarko’s Mozambique LNG project

(Interfax Global Energy; Nov. 13) - Sluggish global LNG demand and intense wrangling between Mozambique’s government and Anadarko mean a March 2016 final investment decision for a giant onshore liquefaction project — announced by shareholder Mitsui — looks optimistic. Anadarko still needs to finalize a government agreement, submit its development plan and sign binding offtake deals to anchor $15 billion in debt financing.

While Anadarko has secured heads of agreements for two-thirds of the plant’s capacity of 12 million metric tons per year, they have not been converted into sales agreements. Additionally, Mozambican state oil company ENH will likely rely on Anadarko to fund its 15 percent equity in the project. Interfax understands Anadarko is willing to finance the national oil company’s stake, but at a rate over ENH’s break-even price for the project.

The government also needs to re-award the contract for construction of a logistics hub for operations in the region. South African consortium Muyake originally won the contract, but was later sidelined in favor of a joint venture between Mozambique’s national company and an Italian-Nigerian company, which has an opaque ownership structure that could create compliance problems. Interfax understands Anadarko will not use the base unless the Italian-Nigerian company is removed from the contract.

Other sticking points are how much gas Anadarko will supply from the offshore field to the domestic market and how much it will charge. As negotiations grind on, investor confidence in Mozambique is waning. The government has grown increasingly reliant on promised LNG revenues to meet its growing debt obligations, but the income is now likely to come in lower and later than projected, throwing Mozambique’s debt into doubt.

Read more: Oil and gas news briefs Nov. 16 2015