Oil and gas news briefs Aug. 20, 2015

Report says U.S. LNG must be price competitive to succeed

 

(RBN Energy; Aug. 17) - The U.S. over the next three to five years will become a top exporter of LNG, and may emerge as the world’s leading exporter by the mid-2020s. The 12 liquefaction trains now under construction at five sites in the Lower 48 states together will have the capacity to export up to 54 million metric tons per annum, about 7 billion cubic feet of gas a day. How much more the U.S. LNG export potential can grow is covered in a report released this week by energy analytics firm RBN Energy.

 

The report, “LNG is a Battlefield — The Prospects for U.S. Success in Overseas Markets,” said that despite gas becoming the “hydrocarbon of choice for power generation, heating and many other uses across much of the global energy market … LNG must not be cost-prohibitive.” And until LNG demand grows as expected over the long term, the short-term view looks week. “A lull in demand growth — coupled with new liquefaction capacity — has bloated LNG supplies and slashed prices in the past year.”

 

Even with low oil prices, which have dropped the oil-linked price charged for LNG under traditional long-term supply contracts, “the U.S. should remain a cost-competitive supplier to international markets,” the report said. A lot will come down to price, it said. “Returns on investment in U.S. LNG export infrastructure as well as the extent of future expansion depend on price competitiveness in international markets.”

Oil and gas news briefs Aug. 17, 2015

Japan’s nuclear reactor restarts expected to push down LNG prices

 

(Bloomberg; Aug. 13) – Japan’s nuclear reactor restarts will pressure liquefied natural gas prices for years as the nation’s electricity utilities reduce their purchases. Japan turned to LNG for gas-fired power generation after shutting down the country’s reactors after the 2011 Fukushima disaster. Japan purchased a record 89 million metric tons of LNG in the year ended March 31, according to the Ministry of Finance, accounting for 46 percent of Japan’s energy mix in that year compared to 29 percent in 2010.

 

Restarting reactors would also dent demand for other fossil fuels. If three reactors restarted this year, it would cut fuel oil demand by 80,000 to 100,000 barrels a day, according to Citigroup analysts. “The restarting of nuclear is only one of several seismic shifts now underway in Japan with substantial long-term impacts on global LNG,” the Citigroup analysts, including Anthony Yuen, wrote in a note dated Aug. 12.

 

Citigroup expects global LNG prices will trade within a range of $6 to $8 per million Btu from now to 2020. In another spoiler for LNG: Supply is increasing from Australia and the United States, further weighing on prices, said Ali Izadi-Najafabadi, an analyst at Bloomberg New Energy Finance. BG Group began shipments from its Queensland Curtis LNG project in Australia late last year, and Cheniere Energy will start operating its LNG terminal at Sabine Pass, La., later this year.

Oil and gas news briefs Aug. 13, 2015

Japan restarts first nuclear reactor since nationwide shutdown

 

(Bloomberg; Aug. 9) - Japan is rejoining the group of nations using atomic power as it sweeps aside public opposition and fires up one of the reactors shuttered for safety upgrades after the Fukushima nuclear disaster more than four years ago. Kyushu Electric Power will begin bringing online the No. 1 reactor at its Sendai facility Aug. 11, starting power generation as early as Aug. 14, and returning it to normal operations next month, the company said in a statement.

 

Two of its reactors on Japan’s southern island of Kyushu are the first to pass tougher safety checks set by the Nuclear Regulation Authority, the agency created after the Fukushima disaster, and to overcome legal challenges. “The Sendai restart is obviously a very big positive for the industry overall and for Kyushu in particular,” Polina Diyachkina, an analyst at Macquarie Group in Tokyo, said by phone Aug. 10. “Going forward, the restarts approval process will be smoother and faster.”

The Sendai restart follows years of evolving safety standards and government approvals in the face of public opposition and court battles as one of the world’s richest countries and biggest energy users struggled with how to power its future. Kyushu Electric Power aims to restart a second reactor by the middle of October. There is still strong opposition to nuclear power in Japan. A newspaper’s public survey published this month showed 57 percent of respondents were not in favor of restarting Sendai.

Oil and gas news briefs Aug. 10, 2015

U.S. adds Russian Far East oil and gas field to sanctions list

 

(Bloomberg; Aug. 7) - One of Gazprom’s largest offshore oil and gas fields, potentially a supply source for the expansion of Russia’s only liquefied natural gas plant, has been added to a U.S. sanctions list. Export administration regulations were amended to require a license from the U.S. Bureau of Industry and Security for the export or transfer of any regulated items to the Yuzhno-Kirinskoye field off the coast of Sakhalin Island in Russia’s Far East, according to a U.S. Department of Commerce statement.

 

Russian relations with the U.S. have sunk to their lowest levels since the Cold War following the annexation of Ukraine’s region of Crimea last year. The U.S. has placed sanctions on Russia, limiting lending and banning exports of equipment and technology to drill for oil and gas offshore in the Arctic, deep-water and shale formations. A U.S. license is warranted because the Yuzhno-Kirinskoye field presents an “unacceptable risk” for the use of sanctioned technology, the Department of Commerce said.

 

Shell, meanwhile, is discussing gaining access to Yuzhno-Kirinskoye, which is included in the proposed Sakhalin-3 oil and gas project, as part of potential asset swaps with Gazprom. The Yuzhno-Kirinskoye deposit holds 22.5 trillion cubic feet of gas and about 800 million barrels of liquids, according to Gazprom. The company has said the field would feed an expansion of Sakhalin-2, Russia’s only LNG export plant. Shell holds 27.5 percent of the Gazprom-led Sakhalin-2.

Oil and gas news briefs Aug. 6, 2015

FERC releases draft EIS for Oregon LNG project

 

(The Daily Astorian; Aug. 5) - Oregon LNG’s $6 billion terminal and gas pipeline project would cause adverse impacts to the environment, a draft environmental review has found, but most could be reduced if the company takes steps to minimize harm to fish and wildlife habitat and water quality and adopts adequate safety features. The Federal Energy Regulatory Commission, which released the draft this week, is still assessing how the project might affect threatened or endangered species and critical habitat.

 

The draft is an important benchmark in the decade-long drive for the project, which includes a liquefied natural gas plant and export terminal along the Skipanon Peninsula in Warrenton, Ore., at the mouth of the Columbia River, and an 87-mile pipeline from Washington state through Columbia, Tillamook and Clatsop counties. Oregon LNG would export natural gas from Canada and the Rocky Mountains in the United States to foreign markets, likely in Asia.

 

Environmentalists, fishermen and residents in Warrenton and Astoria who oppose Oregon LNG will likely tear through the document in search of potential defects that could stall or block the project. Public comment on the draft is open until early October. FERC has set a timetable for completing the final environmental impact statement on the project by February. Separate from any environmental issues, “We conclude that the economic impacts of the Oregon LNG project would be positive,” the draft states.

Oil and gas news briefs Aug. 3, 2015

Chevron warns of another delay at Gorgon LNG

 

(Australian Business Review; Aug. 3) - Chevron has warned that Australia’s biggest resource project, the $54 billion (U.S.) Gorgon LNG ­venture on Western Australia’s Barrow Island, is expected to be delayed again because of potential union disputes, equipment malfunction risk and the northern wet season. The project, which will export 15 million metric tons of liquefied natural gas a year, is set to come on line a year or two after its original target, while the budget, already $17 billion over expectations, is at risk.

 

Chevron also said there was pressure on the timetable of its $29 billion Wheatstone LNG project in Australia because of module construction delays in China. Chevron’s head of petroleum production and exploration, Jay Johnson, told investors July 31 that a 2015 target for first Gorgon exports would likely not be met. “The schedule is dependent on managing commissioning and start-up risks, including equipment malfunctions, possible labor and weather disruptions, as well as other unforeseen issues.”

 

The project is 47 percent owned by Chevron, the operator, with ExxonMobil and Shell each at 25 percent. When it was approved in 2009, it was expected to cost $37 billion and start exporting in 2014. But complications of building on Barrow’s Class-A nature reserve, an overheated construction market, workforce issues and a stronger Australian dollar for most of the construction have added to overruns and delays. The latest union dispute is around work schedules. Last month, the unions were given approval to strike.

Oil and gas news briefs July 30, 2015

LNG exports could increase price volatility in U.S. gas market

 

(Bloomberg; July 29) - After years of languishing in a shale-induced coma, the U.S. natural gas market is waking up. Seasonal price swings will intensify as the country begins shipping liquefied natural gas cargoes to Asia and Europe later this year, says Bank of America, RBC Capital Markets and Wood Mackenzie. While that’s good news for traders yearning for volatility and profits, it could be bad news for consumers.

 

LNG exports will help prices rebound from the slump caused by the U.S. pumping record amounts from shale formations. Growing domestic winter demand is already causing spikes and trading volumes in futures markets have rebounded to the highest level in three years. Average retail natural gas prices also will rise with LNG exports, according to Bloomberg New Energy Finance. “Connecting U.S. natural gas prices into the global market could result in wider spreads at home,” said Francisco Blanch, the head of commodities research at Bank of America in New York.

 

Cheniere Energy will start up its LNG export terminal this year in Louisiana, the first ever in the Lower 48 states. Four more U.S. plants are under development. Demand growth, including LNG, will lead to more seasonal price volatility, said Breanne Dougherty, a gas analyst at Societe General in New York. LNG exports might remove enough supply from the market that volatility will rise during particularly cold winters, said Michael Mitton, director of the commodity investor team at BNP Paribas in New York.

Oil and gas news July 29, 2015

Analysis says Gazprom could lose money on gas deal with China

 

(Reuters; July 28) - At face value, Russia’s $400 billion deal to supply gas to China, via state-controlled Gazprom, sounds like a coup for Moscow. But according to recent analysis, the deal is strongly tilted in China’s favor. Gazprom will be lucky to break even and may even lose substantial amounts of money. While the deal may not make economic sense for Gazprom, it does fit with Russia’s broader geopolitical “tilt to Asia” strategy, and represents “a desperate geopolitical gambit trumping all economic rationale,” according to analysis by the Chatham House, a U.K.-based policy institute.

 

In fact, the deal with China is just one example of how Gazprom operates more as an instrument of Russian President Vladimir Putin’s political ambitions and Russian state power than as a rational profit-maximizing corporation. While Gazprom trades on both Russian and American stock exchanges, it is majority-owned by the government and takes its marching orders directly from the Kremlin. Gazprom is first and foremost a tool of Russian foreign policy, which Putin is not shy about using for Russia’s interests.

 

And while the Russian government frequently promises Gazprom that it will be allowed to raise the price of domestic gas to a level sufficient to at least cover costs, Gazprom continues to lose large amounts of money on domestic sales. Its export sales, particularly pipeline gas deliveries to Europe, are its profit center. While a below-cost pricing strategy may be irrational by normal corporate standards, the Kremlin remains unwilling to risk the political and social instability that higher domestic gas could cause.

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