Low costs are essential for new projects, say LNG hopefuls in B.C.

(Bloomberg; Oct. 15) - Competition hasn’t been this stiff for liquefied natural gas developers since the 1990s. Companies backing export proposals in British Columbia need to keep costs low for their projects to survive as a global surplus of the fuel emerges, according to LNG hopefuls ExxonMobil, Shell and Chevron. “The situation … right now is quite similar to the 1990s … where there was a supply overhang,” Andy Calitz, CEO of the Shell-led LNG Canada proposal, told reporters at an LNG conference in Vancouver Oct. 14.

“Only the most competitive, in terms of cost of supply and the projects which are best connected to markets, will survive,” Calitz said. Analysts including Citigroup’s Ed Morse have cast doubt on Canada’s ability to deliver LNG export projects this decade. The market is entering a period of oversupply as demand is slowing in Asia — just as the oil slump has lowered prices for LNG along with companies’ ability to finance projects. Adding to tough market conditions, a new pricing model from U.S. LNG exports is causing developers and buyers to rethink contract terms.

The glut of new supply will start to ease past 2021, and the current oil-price rout offers a chance for proponents to reduce costs, Steve Lidisky, president of ExxonMobil LNG Market Development, said at the conference. “The dramatic drop in energy prices provides the catalyst today for a cost shakeout, and only the strongest projects from financially strong developers will succeed,” Lidisky said.

Read more: Oil and gas news briefs Oct. 15, 2015

Analyst says world will need only 5 more LNG projects by 2025

(Bloomberg; Oct. 8) - Five years ago, energy companies hungry for the next big thing started planning as many as 90 terminals to liquefy natural gas and ship it around the globe. Now, it seems the world only needs five more. Consulting firm IHS Inc. said only one in 20 proposed projects are actually necessary by 2025 as weakening Asia economies, cheap coal, the return of nuclear power in Japan and the ever-expanding glut of North American shale gas temper demand for the power-plant fuel.

Barring an unusually cold winter in Asia, global LNG supply will outstrip demand by next year, said Trevor Sikorski, an analyst at Energy Aspects in London. Seven new plants in Australia will flood the market over the next two years. Cheniere Energy is planning the start-up of its Sabine Pass terminal in Louisiana this quarter. “The global LNG industry now resembles a game of ‘musical chairs’ with far more projects than the market can absorb,” said James Taverner, an IHS analyst in Tokyo.

“There is a very narrow window of opportunity for new projects that want to take final investment decision by 2020," Taverner added. "It will be increasingly difficult to convince financial institutions to put major sums of money on the table to construct additional capacity,” said Tim Boersma, acting director of the Energy Security and Climate Initiative at the Brookings Institution in Washington. Meanwhile, the pace of project postponements will pick up as the supply glut expands, Noel Tomnay, head of global gas and LNG research at Wood Mackenzie in Edinburgh, said in a Sept. 3 report.

Read more: Oil and gas news briefs Oct. 12, 2015

‘Buyers’ market’ changing relationships with LNG suppliers

(Bloomberg; Oct. 6) - Encouraged by the plunge in prices, the world’s biggest buyers of liquefied natural gas are demanding more say in negotiations with their suppliers. Two of the largest utilities in Japan, the world’s top purchaser of the fuel, said they will no longer sign contracts that restrict reselling cargoes by limiting the destination of shipments they buy. Customers elsewhere in Asia are pushing to break LNG’s price relationship with oil and to start regional trading and storage hubs.

The changes being sought could reshape the industry, making LNG easier to trade and allowing for expansion of a spot market. “The increasing number of suppliers of gas in the market, of course, makes the hands of the importers stronger,” said Fatih Birol, executive director of the International Energy Agency. “This will also increase the negotiating power when it comes to importing discussions.”

Consumers of the fuel are looking for more flexible contract terms even as producers say that financing LNG projects will continue to depend on long-term deals. The recent plunge in prices is disrupting global supply-chain patterns, according to Qatar’s Energy and Industry Minister Mohammed Al Sada. LNG buyers see no urgency to commit to long-term supply contracts, he said at a conference in Tokyo on Sept. 16.

“Supply options are increasing for the consumers,” said Prabhat Singh, CEO of India’s Petronet LNG. “We are moving into a buyers’ market.” Buyers are not only renegotiating existing deals, they’re also hesitating to sign new long-term contracts, cutting off a crucial source of funding for the development of planned export projects.

Read more: Oil and gas news briefs Oct. 8, 2015

China looks to sell some of its surplus LNG

(Reuters; Oct. 2) - China's energy giants — after years spent scrambling to secure supplies for the world's third-biggest gas market — are being forced to sell off some of the fuel to buyers in other countries as soaring demand in China grinds to a halt. Gas consumption has been hit by a cooling economy and also state policies that ensure the Chinese pay among the world's highest gas prices, threatening Beijing's targets of curbing pollution and emissions by using more of the cleaner-burning fuel.

The sales will increase pressure on Chinese policy makers to speed up planned reforms of its oil and gas sector, and will also weigh on global gas prices that already are low. Chinese state oil firms agreed to a string of long-term liquefied natural gas contracts with producers from Qatar to Papua New Guinea as gas consumption jumped five-fold between 2004 and 2013, but that was before China’s demand growth went from double-digits to less than 3 percent this year.

Faced with a wave of new LNG imports, China's Sinopec is in talks to sell part of the 7.6 million metric tons per year it contracted from 2016 to 2036 from the Australia Pacific LNG project, said an industry source. As a buyer and 25 percent shareholder in the project, Sinopec has leverage on diverting cargoes away from China, but still needs the consent of other shareholders. Facing similar headwinds, China National Offshore Oil Corp. held its first-ever tender to sell two surplus cargoes to buyers outside China.

Read more: Oil and gas news briefs Oct. 5, 2015

FERC issues final EIS for proposed LNG plant in Oregon

(Calgary Herald; Sept. 30) - Calgary-based Veresen Inc. has cleared a key hurdle on the way to winning approval to build a $7 billion LNG export terminal in Oregon that would ship Canadian and U.S. natural gas worldwide. The U.S. Federal Energy Regulatory Commission issued a final environmental impact statement Sept. 30 for Veresen’s Jordan Cove LNG project at Coos Bay, Ore., and the accompanying Pacific Connector Gas Pipeline to feed the plant.

Veresen plans to build a liquefied natural gas export terminal with capacity to produce up to 6.8 million metric tons per year of LNG. A 240-mile gas pipeline from Malin, Ore., to the terminal would deliver gas originating in Canada and the U.S. Rocky Mountain region. The final EIS said the project would cause “some limited adverse environmental impacts,” but those impacts could be reduced to “less-than-significant levels” by the applicants’ mitigation measures and FERC’s recommended measures.

Veresen said it expects to obtain a FERC notice to proceed in mid-2016, allowing it to make a final investment decision. The project developer also needs to sign up customers and financing before making its investment decision. In addition to the EIS, the project also needs to deal with the U.S. Fish and Wildlife Service and National Marine Fisheries Service over how the project might harm protected species, such as the northern spotted owl and salmon.

Read more: Oil and gas news briefs Oct. 1, 2015

Japanese utility signs first LNG contracts for new power plant

(Reuters; Sept. 24) - Japan's Hokkaido Electric Power said it has signed its first agreements to buy up to 330,000 metric tons per year of liquefied natural gas as it prepares to launch its gas-fired power plant in 2019. The northern Japan utility signed basic agreements with Kansai Electric Power and a unit of Malaysia's Petronas on Sept. 24 to buy up to three and two cargoes per year, respectively, for 10 years starting in April 2018, Hokkaido Electric said in a statement.

The utility's 569-megawatt Ishikariwan Shinko plant is set to come online in 2019. The LNG supplies will cover feedstock for the No. 1 plant and the 569-megawatt No. 2 unit, which is set to start operations in December 2021, a company spokesman said.

Kansai will supply Hokkaido with LNG procured from its portfolio contracts, while Petronas will supply LNG produced from Malaysia, Hokkaido said in a statement. Kansai Electric said this marks its first LNG sales under a long-term contract.

Read more: Oil and gas news briefs Sept. 28, 2015

LNG market looks ‘ugly’ today, but better in the 2020s

(Bloomberg; Sept. 21) - The slump in liquefied natural gas prices still has further to go even after a plunge of 60 percent from last year’s peak, according to FGE, an energy consultant. LNG prices may sink as low as $4 per million Btu by 2017 because of a glut and probably won’t rise above $8 before 2020, FGE Chairman Fereidun Fesharaki said in a phone interview. That compares with the latest spot price of $7.10 for LNG shipped to northeast Asia, according to New York-based Energy Intelligence Group.

“It’s an ugly environment,” Fesharaki said. While the International Energy Agency four years ago envisioned the possibility of a golden age of gas, Japan’s return to nuclear power and cheaper energy alternatives are threatening demand. LNG producers, meanwhile, are forecast to add 50 million metric tons of new capacity next year, the largest single annual increase and equivalent to a fifth of current global demand, according to Sanford C. Bernstein & Co. The bulk of the new supply is from Australia.

Spot LNG prices in Asia have declined for six straight weeks, with buyers “on the sidelines,” and have now slumped more than 60 percent from a record $19.70 in February 2014, according to Energy Intelligence Group. “But as we go forward, the outlook looks better and better in the early 2020s,” said Fesharaki, whose firm advises big oil companies and banks. “The challenge is to persuade your board to go forward and put the money up. Nobody wants to spend that kind of money in this environment.”

Read more: Oil and gas news briefs Sept. 24, 2015

LNG buyers making progress in push for more flexible contracts

(Platts; Sept. 18) - Calls for increased contract flexibility dominated discussions at the fourth annual LNG Producer-Consumer Conference in Tokyo this week, as industry participants met once again to deliberate emerging trends in the LNG market. The debate advanced some from a year ago, when price indexation had largely taken center stage. With some flexibility now granted in this area, the focus increasingly turned to the still-restrictive terms around LNG delivery schedules and destinations.

Numerous industry observers saw the removal of destination clauses, take-or-pay terms and wider quantity tolerance in contracts as key components that will be necessary to manage the looming supply glut in LNG. "LNG producers must improve on the contract practices of the past. Simply put, producers need to help increase the flexibility of the trade," said Jae-do Moon, South Korea's vice minister for trade, industry and energy.

Jean-Pierre Mateille, Total Gas & Power's vice president for trading, conceded that changes around delivery and schedule terms in contracts were inevitable. "Contracts are becoming shorter.” Most U.S. LNG exports will allow destination flexibility, Mateille said, “We see the traditional link between producer of gas and buyer has been broken up by this new business model.” Satoshi Kusakabe, commissioner of Japan METI's Natural Resources and Energy Agency, said removal of destination clauses would help the market because it would draw more players and increase liquidity and spot trades.

Meanwhile, market uncertainty and lack of new project sanctions has prompted caution of future shortages. "Even at current projections, we need to add about 20 million metric tons of LNG per year to maintain a stable supply demand balance [from 2023 onward]," said Demus King, general manager for offshore resources at Australia's Department of Industry and Science. "To deliver in 2023, FIDs need to be made in the next few years."

Read more: Oil and gas news briefs for Sept. 21, 2015