Anticipated golden age of LNG not turning out as predicted

(Bloomberg; Sept. 15) - Add cheap coal to the challenges holding back the golden age of liquefied natural gas. Coal is gaining market share in the European Union while the role of gas in the region has shrunk in the past year, Christopher Jones, a director for energy with the European Commission, said at a conference in Tokyo Sept. 16. “Cheap coal and increasing competitiveness of renewables are squeezing gas in many markets,” said Fatih Birol, executive director of the International Energy Agency. “For many, this means the golden age of gas remains more of a dream than reality.”

Japan’s return to nuclear power after its 2011 disaster and less costly alternatives also are undermining demand that prompted the IEA to envision a golden age for gas four years ago. LNG producers are forecast to add 50 million metric tons of new capacity next year, the largest single annual increase in history and equivalent to a fifth of current global demand, according to Sanford C. Bernstein & Co. Meanwhile, LNG buyers are in no hurry to commit to purchases, according to Qatar, the world’s biggest LNG exporter.

LNG shipped to northeast Asia has tumbled to $7.10 per million Btu, more than 60 percent below the record $19.70 in February 2014, according to New York-based Energy Intelligence Group. A worldwide glut will cap LNG prices for years, according to Citigroup. “The energy industry assumed that Asian consumers would take any amount of LNG at any price because Asia is the center of global demand growth,” Birol said. “But this assumption was a grave mistake.”

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

Japanese operator announces delay in Australia LNG project

(Reuters; Sept. 11) - Inpex Corp., Japan's biggest oil and gas developer, said Sept. 11 that the start-up of its Ichthys liquefied natural gas project in Australia would be delayed until the third quarter of 2017, later than the original plan for 2015 and a revised end-of-2016 start, due to construction hold-ups. In addition, the project's total cost will likely rise about 10 percent from a January 2012 estimate of $34 billion when Inpex made the final investment decision.

The company also said it has engineered a small gain in capacity at the plant, from 8.4 million metric tons per year to 8.9 million tons. The increase in output comes from the use of a more efficient gas-fired power generation unit, officials said. Inpex President Director Australia Seiya Ito said the company aims to direct about 70 percent of the plant's output to Japan, the world's biggest LNG buyer. The plant’s second liquefaction train is set to start up late 2017, bringing Ichthys to full production, officials said.

Condensate and liquefied petroleum gas production will also rise from the previous outlook of 100,000 barrels per day and 1.6 million metric tons per year, but it is not clear how much, officials said. An Inpex official said despite the recent slump in oil prices, the project remains "very profitable." Inpex has a 62.2 percent stake in the project, with France’s Total and several Japanese and a Taiwanese company holding the rest.

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

Short-term LNG trade will increase, says BP Asia manager

(Platts; Sept. 9) - Growing supply, new market participants and increasing shipping availability are likely to boost spot- and short-term trade in global LNG markets, BP's LNG trading manager for Asia and the Middle East said at an industry event Sept. 9. Tetsuro Toyoda said the result of that increase in liquidity was already being felt, and will become more apparent as new participants enter the market and new projects start or ramp up operations.

"The number of participants in the LNG markets has dramatically increased," he said at the Asia Pacific Summit held in Singapore, adding that shipping availability was also on the rise. "In the past, LNG ships ... were there to move from point A to point B and that was all," he said. "Now, BP has a fleet of eight ships, none of these dedicated to [specific projects] ... but to find optimal shipping movements, depending on the market, the arbitrage, and contractual agreements."

Buyers are also enjoying more flexibility, according to Toyoda, as their shipping capabilities grow and long-term contracts become more flexible. "Before, security of supply was a key factor of their operations," Toyoda said, adding buyers will now likely start to become more confident in the spot- and short-term markets as supply increases.

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

Australia LNG projects will struggle to break even at low prices

(Australian Financial Review; Sept. 6) - Six LNG projects under construction in Australia at a cost of $200 billion will struggle to break even because of the oil-price slump, the International Energy Agency said, and there is little prospect of three in the planning stage going ahead. The agency said even if oil prices recover and average $60 a barrel for the next few years, Australia’s LNG industry will struggle to be profitable. "In a $60 oil environment the Australian projects will continue, but you are probably not breaking even," IEA senior gas expert Costanza Jacazio said in an interview from Paris.

Singapore-based energy forecaster Fereidun Fesharaki said the economics of the planned LNG projects in Australia are a "tragedy" due in part to over-optimistic expectations that Asian buyers would continue to pay historically high prices. "I am looking at oil to average a maximum of $75 a barrel over the next decade, and even then they just won't get a rate of return to justify the investment," said Fesharaki, a former energy adviser to Iran’s prime minister and with close links to Asian LNG buyers.

The IEA argues that cost overruns and delays combined with the big drop in the oil price and wilting demand from Asian buyers will severely erode the profitability of LNG plants nearing completion. "Many of these projects were sanctioned in an environment of $100-a-barrel oil, so clearly the impact on your earnings and profits has dramatically changed," Jacazio said. "You might just recover your operating costs, but the billions of dollars of sunk costs on the projects will take a lot, lot longer to recoup now."

For example, Origin’s $24.7 billion Australia Pacific LNG venture expects to start cargoes before the end of 2015. The company recently reported that its initial forecasts of earning about $1 billion a year from the project had fallen to $180 million a year at current prices. In addition, Fesharaki said, because spot prices are trading well below LNG contract prices, pressure is mounting for deals to be renegotiated lower, pointing to speculation that China's Sinopec wants to modify its contract terms on APLNG.

Read more: Oil and gas news briefs Sept. 8 2015

• Oil and gas news Sept. 3,

Analysts predict further price drop for LNG in Asia

(Reuters; Aug. 31) - Asian liquefied natural gas prices could drop 25 percent in coming months as new supply, falling demand and weaker oil prices put it on par with iron ore and coal as the worst performing commodity of recent years. Asia's LNG market has already fared worse than slumping oil markets, with spot prices down 60 percent since 2014 to $8 per million Btu, ending half a decade of high prices. Analysts and traders said Asia LNG prices could fall to $6, representing a 70 percent drop since 2014’s peak.

Research group Energy Aspects estimates Asian LNG imports fell 8.5 percent in the first half of 2015 from the same time last year, as the region's economies slow. Add to the mix El Nino, which usually means milder winters in northern Asia, and a unique cocktail for falling prices may appear. "The traditional power houses in north Asia are all showing signs of (demand) weakness at a point when there is lots of supply coming on to the market," said Neil Beveridge of Bernstein Research.

China's LNG imports have slumped from double-digit growth in recent years to a 3 percent slip in the first half of 2015 from a year earlier. For Japan, the world's top LNG importer, the restart of its nuclear power plants is eating away at LNG's market share. Imports into South Korea have also fallen due to a slowing economy and rising nuclear power output. The slowing demand comes just as output soars, particularly with new plants coming online in Australia and the U.S. next.

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

Yamal LNG struggles to complete financing for $27 billion project

(Wall Street Journal; Aug. 27) – Russia’s $27 billion energy project rising rapidly on an icy peninsula jutting above the Arctic Circle is racing to shore up its finances as it has emerged as a test of Moscow’s ability to weather Western sanctions. Restrictions on Novatek, the project’s leader, are squeezing the Yamal liquefied natural gas venture, a centerpiece of President Vladimir Putin’s plan to reduce his nation’s heavy dependence on sales to Europe by increasing exports to Asia and fortifying Russia’s ties with China.

Barred by the sanctions from raising long-term dollar loans, Novatek and its foreign partners, Total of France and China National Petroleum Corp., are seeking more money from Chinese lenders than they had intended, in addition to kicking in nearly $10 billion of their own, according to company executives. But they have, so far, failed to secure the $15 billion or so they need to complete the project. Last year, the Kremlin allocated $2.7 billion to keep Yamal on track and also approved large tax breaks for the project.

Russia had hoped that Chinese investment would help soften the blow from its souring relations with the West. But that bet looks more perilous as China, which had already proved slower to invest than Moscow expected, struggles with its own deepening economic slowdown. Time is growing short for the Yamal partners, which have contracts to ship almost all of the gas, mostly to Asia, starting in 2017. A major holdup could force the Kremlin or the partners to cover the financing shortfall, or, analysts say, the companies could have to buy gas on the spot market to fulfill contracts.

Read more: Oil and gas news briefs Aug. 31, 2015

Yamal LNG may have Chinese investment fund as new partner

(Reuters; Aug. 24) - Russia's second-biggest gas producer Novatek is close to selling a 9.9 percent stake worth an estimated $1.4 billion in its Yamal liquefied natural gas project in the Russian Arctic to a Chinese investment fund, Kommersant business daily reported Aug 24. The deal could close in the coming weeks, three sources familiar with the talks were quoted by the Russian newspaper. One of the sources identified the buyer as China's Silk Road infrastructure fund, the paper said.

The sale could help Novatek line up project financing from Chinese banks after sanctions over Russia's actions in Ukraine shut access for Russian companies to Western capital markets, Kommersant said. Novatek declined to comment. Bank of America Merrill Lynch estimated that the 9.9 percent stake could be valued at up to $2 billion. China National Petroleum Corp. paid about $1 billion for a 20 percent stake in Yamal LNG in 2013 and France's Total spent $425 million for 20 percent in 2011.

Novatek aims to retain more than 50 percent of the project, which is due to start shipping LNG in 2017 and projected to hit peak output of 16.5 million metric tons a year in 2021. China announced last year that it would contribute $40 billion to set up the Silk Road fund to boost connections across Asia. The fund made its first acquisition in April, investing $125 million in a Chinese company developing energy projects in Pakistan.

Read more: Oil and gas news briefs Aug. 27 2015

• Oil and gas news briefs Aug. 24,

LNG market headed for ‘structural oversupply’ that will cap prices

(Bloomberg; Aug. 20) - The golden age of gas lost some of its luster this month. Japan, the world’s biggest LNG buyer, restarted is first nuclear reactor Aug. 11, re-embracing atomic power to shrink its energy-import costs. A week later, a production milestone was marked at Santos’ Curtis Island plant in Australia, a new LNG plant that’s part of a record capacity increase in that country. Japan’s return to nuclear power and China’s economic slowdown are fouling up the plans of companies that sank hundreds of billions of dollars into new LNG supply. A glut will cap prices for years, Citigroup said.

“Japan is going to do very well out of this,” Christopher Haines, a senior oil and gas analyst at BMI Research in London, said Aug. 20. “Australia will probably be hit the hardest, there is a lot of new (LNG) capacity coming online.” Meanwhile, utilities have applied to restart 25 of Japan’s 43 reactors. Next year, 11 units may restart, according to Polina Diyachkina, an analyst at Macquarie Group.

“Japan has certainly not been positive for global LNG” even as the pace of nuclear restarts has been slower than anticipated, said Trevor Sikorski, an analyst at Energy Aspects in London. “It looks like the market is going into structural oversupply.” LNG producers are forecast to add 50 million metric tons of new capacity next year, the largest single annual increase in history and equivalent to a fifth of current global demand, according to Sanford C. Bernstein & Co.

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