Final pieces of Australia’s LNG construction boom move into position

 

(Reuters; Aug. 14) - The last massive component of Australia's multi-year $180 billion liquefied natural gas construction boom arrived Aug. 14, stepping up a race between Shell and Japan's Inpex to start chilling gas for export in 2018. Company reputations are at stake, as well as first access to overlapping offshore gas fields. The two liquefaction plants will leapfrog Australia over Qatar as the world's largest exporter of LNG.

 

The Ichthys Venturer, a floating production, storage and offloading facility, traveled from a South Korea shipyard and will be moored 136 miles off Western Australia to handle condensate from the Ichthys field. Inpex, Japan's top oil and gas explorer, runs Ichthys LNG — the country's biggest overseas investment and first LNG megaproject. "This project is a huge source of pride for Japan and an important addition to … energy supplies," said Tom O'Sullivan, head of energy consultancy Mathyos Japan. "All eyes are on Inpex to see if they can pull this off without more budget blow-outs and delays.”

 

First production, due by March 2018, will be more than a year behind target. Costs have grown more than 10 percent to $37 billion since the project's approval in 2012. Nearby, Shell's $12.6 billion Prelude project — the world's largest floating LNG facility — is also behind schedule. Shell's facility, six times the size of the biggest aircraft carriers, arrived last month from its South Korea shipyard. Shell expects hook-up and commissioning to take up to 12 months, meaning start-up between April and July 2018. Ichthys is planned to produce 8.9 million tonnes of LNG per year; Prelude would make 3.6 million tonnes.

Read more: Oil and gas news briefs for Aug. 17, 2017

LNG glut leads buyers to renegotiate deals, but it can’t last forever

 

(Forbes columnist; Aug. 11) - Welcome to the largest, steepest, most prolonged drop in prices the liquefied natural gas industry has ever faced. Since the giddy highs of LNG prices a few years back, prices have collapsed by more than two-thirds. And structural LNG oversupply is only beginning, which will see spot LNG prices remain depressed through to early next decade. There is still plenty of under-construction LNG supply capacity to come online, without enough demand to meet it.

 

LNG supply will be curtailed where the marginal cost is highest: U.S. LNG and the coal-seam gas projects in Australia. These projects have to spend big dollars every year to keep plants full. U.S. LNG capacity will feel the brunt of the curtailment, as LNG prices won't cover production costs. For the first time in the industry's history, new LNG plants are being deliberately run below capacity. The overcapacity will hold down global prices.

 

This will place increasing tension on legacy LNG contracts, signed at relatively higher oil-linked prices. There will be an unprecedented level of pressure on contract sanctity as buyers try to renegotiate better terms. Meanwhile, buyers are reluctant to sign new contracts, which are becoming shorter, smaller and more flexible. While there is a lot of extra LNG around now, about 10 new liquefaction trains could be needed by 2025.

 

With many supply sources chasing this future market share, cost will be king. High-cost greenfield projects will remain little more than ideas on paper. The elephant in the room will be Mozambique gas, which could displace a lot of competing volumes. Meanwhile, buyers will take advantage of the glut to improve their position, but it may well come back to bite them in the future. Any buyer threats to renegotiate existing contracts now will impede their ability to underpin new supply projects when they need to in the future.

 

 

Petronas CEO explains decision to cancel LNG project in B.C.

 

(The Edge, Malaysia; Aug. 10) – Petronas CEO Datuk Wan Zulkiflee Wan Ariffin talked with Malaysian news magazine The Edge about the company’s decision last month to cancel its liquefied natural gas project in British Columbia. He called it a “negative final investment decision.” The action came after the company and its partners had spent years designing, engineering and permitting the LNG plant, marine terminal and pipeline from the gas fields — all together spending more than $1 billion on the preliminary work.

 

While working through government permit conditions, Petronas looked at “how we could bring down the costs … but the market was very, very challenging,” the CEO said. “Today, the market is very weak, so that is why we decided not to proceed with the project. We are disappointed with the market conditions, but this is something I have mentioned in the past. We go through a very stringent sanctioning process and … before we proceed with a project, it must be commercially viable.”

 

Petronas and its partners, however, continue to produce gas from their leases in Western Canada, with output at about 500 million cubic feet a day, all of which is being sold into the North American market.

 

 

Nuclear restarts coming slower than expected in Japan

 

(Interfax Global Energy; Aug. 11) - The slower-than-expected pace of Japan’s nuclear restarts means the country will need more liquefied natural gas than previously thought, the Institute for Energy Economics, Japan said late last month. However, this is unlikely to worry a country that is already long on LNG supply.

 

The institute’s latest forecast, Economic and Energy Outlook for Japan through FY2018, anticipates just 10 reactors being in operation by the end of March 2019 — seven less than the number it expected would be operational by March 2018 in its previous outlook, published in December 2016. That previous figure was particularly ambitious given that just three reactors were operational when it was published.

 

Japan shut down all its nuclear power reactors as a safety precaution after the 2011 meltdown at the Fukushima Daiichi reactors caused by flooding from a tsunami. The country’s power plant operators have struggled to restart the nuclear stations amid new, tighter safety rules and public opposition. Japan operated almost 50 power reactors before the shutdown.

 

 

LNG imports for Australia ‘an absurd proposition’

 

(The Guardian; Aug. 10) - As Australia ramps up to become one of the world’s biggest liquefied natural gas exporters, skyrocketing local gas prices are driving one company to consider building an LNG import terminal, highlighting an apparently absurd situation for local gas users. Australian electricity supplier AGL said Aug. 10 it is moving closer to building a $A250 million LNG import terminal about 50 miles south of Melbourne.

 

“This project will enable access to the world market for gas, injecting some much-needed competition into the Australian market and help ease the tight gas supply,” said Richard Wrightson, AGL executive general manager. “If all goes to plan,” he said, construction could start in 2019 and imports would arrive 2020-2021.

 

Commentators have pointed to Australia importing gas while becoming one of the world’s biggest LNG exporters. “This is on the same level as Saudi Arabia building an oil import terminal. It is the most absurd proposition,” said Bruce Robertson, of the Institute for Energy Economics and Financial Analysis. “But in today’s crazy gas market where we pay so much more than our customers do in Asia, it sort of makes sense.”

 

The high local price for gas is being driven up by huge LNG export terminals in Queensland buying up local supply and shipping it overseas. The exports are locked in under long-term contracts linked to oil prices. The contracts have resulted in Australian gas sometimes being sold for less to overseas customers than to local customers.

 

 

Winds and currents help to clear Russian Arctic of older, thicker ice

 

(Reuters; Aug. 11) - Russian shipping in the Arctic is benefiting from winds that are driving the oldest and thickest sea ice toward North America, further opening a remote region that is thawing amid global warming, scientists say. The thinning Russian ice could help liquefied natural gas tankers, due to start exports from Russia's Yamal Peninsula in late 2017, navigate the icy route to Asia for more than the LNG project’s planned six months of the year, they said.

 

The shifts in the age of the ice, driven by prevailing winds and currents, are helping Russia. U.S. National Oceanic and Atmospheric Administration maps show that almost all the ice near Russia in winter is now only a year old and typically up to about 6.5-feet thick, with older and more jagged ice concentrated toward North America. By contrast, in 1985, ice older than five years was found across the Arctic Ocean, NOAA data show. Old ice can build up into hull-tearing ridges perhaps 65-feet thick.

 

"The old ice is like a bar of butter straight out of the freezer, hard as rock. The new ice is like warm butter, you can put a knife through it," said Robert Corell, a U.S. Arctic expert at the Global Environment & Technology Foundation. "Russia will benefit most," he said, because the younger ice will allow ships including LNG tankers to travel more of the year to Asia. The Yamal LNG project is having a fleet of tankers built to deliver its output, but is currently planning to make the voyage east to Asia just six months a year.

 

 

Thailand’s state energy group looks for small stakes in LNG projects

 

(Reuters; Aug. 10) - Thai state energy group PTT's July purchase of a stake in a liquefied natural gas production plant operated by Malaysia's Petronas will be its model for securing natural gas in the future, its chairman told Reuters. Thailand plans to triple its LNG imports by 2022 as its domestic gas output dwindles, and the strategy it is adopting is similar to Japanese utilities such as Tokyo Gas and Osaka Gas that are taking small stakes in Australian gas developments to lock up supplies.

 

In July, PTT Global LNG, took a 10 percent stake in a Petronas liquefaction plant for $500 million. That was after PTT signed a 15-year LNG purchase agreement last year with the Malaysian state oil and gas company. "Investments will follow a similar model of starting with a long-term purchasing agreement, and then jointly investing in a liquefaction plant," PTT Chairman Piyasvasti Amranand told Reuters. "In the past, PTTEP would produce. Now we are investing more in 'midstream' capacity.”

 

Thailand imports about 5 million tonnes of LNG per year, according to government data, with 70 percent used for power generation. Last year, policy makers targeted annual imports of 17.4 million tonnes by 2022. PTT Group, with nearly $15 billion in cash, is better placed for acquisition than its peers such as Petronas and Indonesia's Pertamina. Its biggest overseas investment is offshore Mozambique in southeastern Africa, where it holds an 8.5 percent stake in an LNG export project being developed by Anadarko.

 

 

India commits to develop biofuels as alternative to fossil fuels

 

(Reuters; Aug. 10) - India will soon announce a new policy to promote biofuels as part of efforts by the world's third-largest emitter of greenhouse gases to cut imports of fossil fuels like oil, gas and coal, a government minister said Aug. 10. The government aims to develop a biofuel economy worth 1 trillion rupees ($15.6 billion) in the next two years, Oil Minister Dharmendra Pradhan told a conference on renewable energy.

 

India's top three state-owned oil companies have pledged a combined $2 billion to fund research to develop biofuel technologies, and the government has pledged to guarantee a return on their investments, Pradhan said. "The roadmap to lower crude oil imports is connected to biofuel," he said. India, the world's third-biggest oil consumer, aims to cut its oil imports 10 percent by 2022. India needs private investment in the sector, but also needs to reduce the cost of production, said Indian Oil Corp. chairman Sanjiv Singh.

 

New Delhi also plans to lower its carbon footprint by raising the use of natural gas in its energy mix to 15 percent in the next three to four years, up from 6.5 percent currently. Energy consumption in India is expected to grow as the government aims for economic growth of 8 to 9 percent this fiscal year, up from 7 percent in 2016/17.

 

 

India’s growth in coal consumption slows down

 

(The Financial Post; Canada; Aug. 9) - Within the wild energy market of the world’s second-most populous nation, predictions are proving tricky. India had been projected to become a carbon-belching behemoth, fueled by thermal power plants demanding ever more coal for decades to come. Now, some analysts say that may not happen. In the past two years, the growth in coal consumption has eased to its slowest pace in two decades, even with the economy growing at a steamy 7 percent annual pace.

 

Factors at play include fast progress in adding renewable energy capacity and new measures to improve energy efficiency. By washing coal before it’s burned, power plants now burn less to produce the same amount of power. Thermal power plants have been running below full capacity for years and as of June were operating at only 57 percent of total capacity, the lowest ever. India is the world’s third-largest carbon emitter and relies on coal-fired plants to produce most of its energy. With a population of 1.3 billion and a fast-industrializing economy, its energy needs had been forecast to soar.

 

“India’s future coal demand could actually be near flat,” said Tim Buckley, the Asia energy finance director for the Cleveland-based Institute for Energy Economics and Financial Analysis. “The technology-driven changes are happening faster than predicted.” A similar correction is under way in China, where officials and analysts have had to walk back earlier predictions that its annual coal needs would peak in 2030. Instead, the International Energy Agency says China’s coal use topped out in 2013.

 

 

New Egyptian law will make it easier to import Israeli gas

 

(Haaretz; Israel; Aug. 9) - After years of delays and uncertainty, Egypt could be on its way to becoming a major market for Israeli natural gas exports after President Abdel Fattah al-Sissi signed legislation Aug. 8 forming a gas regulatory authority and permitting private-sector companies to import gas. Egypt, along with Turkey, is one of two regional markets that could buy large quantities of gas from Israel’s Tamar and Leviathan offshore fields, though none of the deals in the past have panned out.

 

But the new Egyptian law should make it easier for deals to go through. David Stover, CEO of Houston-based Noble Energy, the operating partner in the Tamar and Leviathan fields, hinted as much last week. “The [Leviathan] team continues to progress on new contract discussions with customers in Israel, Jordan and Egypt. I’m confident that the gross 1.2 billion cubic feet per day of Leviathan Phase 1 capacity will be mostly filled,” he told analysts Aug. 3.

 

Egypt’s new regulatory authority and law are expected to pave the way for private-sector companies to import and distribute gas using Egypt’s pipeline network, activities currently monopolized by the government. After a string of major discoveries led by the giant Zohr offshore field, Egypt will end many years of gas shortages and once again become gas self-sufficient by the end of 2018. Nevertheless, imported Israeli gas could be a key part of the equation.

 

 

Increase in gas liquids worries Permian investors

 

(Wall Street Journal; Aug. 9) - Investors helped turn the West Texas Permian Basin into America’s fastest-growing oil field, but their confidence is cracking over whether drillers can keep production rising. Questions mounted last week after Pioneer Natural Resources reported that its Permian wells are producing more gas and gas liquids such as propane than expected. That worried investors, who care a lot more about oil. The issue for Wall Street is whether the Permian — with nearly half the rigs drilling for oil in the U.S. — will continue apace or will fall short of investors’ expectations. “The Permian is going to have some growing pains,” said Scott Hanold, of RBC Capital Markets.

 

Most wells produce natural gas as a byproduct alongside oil, and that gas output tends to rise over time. That is because as a reservoir is depleted, its pressure drops and gas vapors separate from liquid — reaching the “bubble point” at which gas production accelerates. Pioneer last week indicated that some of its Permian wells are reaching this point sooner than it anticipated. “Why everyone’s so concerned is that it could mean at some point in the future, that oil declines are steeper than what the company and the investment community thought they would be,” said Ben Shattuck, research director at consultancy Wood Mackenzie. “It raised that big question mark.”

 

Some skeptics have long suspected that the ultimate recoverability rates of oil from tightly packed U.S. shale rocks might be lower than many drillers were forecasting.

 

 

British Columbia looks to join fight against oil sands pipeline

 

(The Canadian Press; Aug. 10) - The British Columbia government wants to join the legal fight against the expansion of the Trans Mountain pipeline, warning the company behind the project that it cannot begin work on public land until it gets final approval from the province. The province has hired former judge Thomas Berger to provide legal advice as it seeks intervener status in legal challenges against the federal government's approval of the project to move more Alberta oil sands production to the B.C. coast.

 

The newly installed New Democratic Party-led government opposes the project, which was supported by the province's former government. Premier John Horgan promised in this spring’s provincial election to use "every tool in the toolbox" to stop the $7.4 billion project by Trans Mountain, a subsidiary of Kinder Morgan Canada. First Nations and municipalities have filed legal challenges against the expansion to triple the capacity of the pipeline and increase the number of tankers in Vancouver-area waters seven-fold.

 

B.C. Environment Minister George Heyman said increased tanker traffic is not in the public’s best interests. "Not for our economy, our environment, or thousands of existing jobs. We will use all available tools to protect our coastal waters and our province's future." Trans Mountain has said construction is set to begin in September, but Heyman said only three of eight environmental management plans required for work to begin have been accepted and it is unlikely the others will get approval before September.

India’s largest gas company wants U.S. LNG supplier to cut its price

 

(The Times of India; Aug. 7) - State-owned gas utility GAIL India is seeking to renegotiate the price for liquefied natural gas it has contracted from the U.S. to reflect current market realities. GAIL, India's biggest gas distributor, has deals to buy 5.8 million tonnes of U.S. LNG per year for 20 years from export terminals on the Gulf Coast and East Coast. "We need to be in sync with the market. … So, if market dynamics have changed and there is a glut of gas the world over with falling rates, the same should also reflect in our prices," a source said.

 

GAIL is approaching U.S. LNG sellers to reopen the contracts. It wants to renegotiate the 2011 sales and purchase agreement it signed with Cheniere Energy to take 3.5 million tonnes a year at the company’s terminal in Sabine Pass, La., starting in 2018. The fixed liquefaction fee on that gas of $3 per million Btu would cost GAIL almost $550 million a year. The cost of buying the gas to feed the plant would be additional.

 

The source said GAIL wants the fixed portion reduced to bring down total landed cost of LNG (gas, liquefaction and shipping) to about $7 to $8 per million Btu as against more than $9 at today’s U.S. natural gas prices. LNG in the August spot market is available for less than $6. In addition to the Cheniere contract, GAIL has booked 2.3 million tonnes of annual capacity at Dominion's Cove Point liquefaction facility in Maryland. GAIL in late 2015 successfully renegotiated a lower price under its long-term contract with Qatar, cutting the price by almost half but agreeing to take additional volumes over the years. GAIL also has asked to reopen its contract with Gorgon LNG in Australia.

Read more: Oil and gas news briefs for Aug. 10, 2017

Russia-to-Japan gas pipeline an ‘ultra high-risk’ project

 

(Nikkei Asian Review; Aug. 3) - A proposed gas pipeline linking Japan and Russia remains on hold, even though it was discussed at a meeting between Japanese Prime Minister Shinzo Abe and Russian President Vladimir Putin in April. The governments are aware of the economic difficulties facing the project but have kept the idea alive to show that, at least superficially, they are trying to strengthen bilateral economic ties.

 

A joint study by a group of Japanese lawmakers in the ruling party, along with Japan Oil, Gas and Metals National Corp. and a Russian energy company, envisions building a 900-mile pipeline to transport gas from the southern tip of Sakhalin — a Russian island rich in gas resources — to Japan's Kanto region via Hokkaido, Japan's main island in the north, and the Tohoku region. The project is estimated at $6 billion.

 

Gas-fired power plants produce more than 40 percent of Japan's total electricity, and the country relies entirely on costly maritime deliveries of liquefied natural gas. Since gas can move by pipeline without the added expenses of liquefaction and regasification, power-generation costs could drop by 30 percent to 40 percent. But Japanese and Russian energy experts have long regarded the pipeline as unrealistic. In recent years, however, Russia has confided with Japan its readiness to hold talks on the project.

 

Still, hurdles remain. The two countries have yet to pick a gas field to tap. Sakhalin fields have been reserved for Asia, and a Russian expert said there is no surplus gas for the pipeline. Meanwhile, Japanese experts warn the pipeline and gas supply network may cost much more than estimated. Energy companies in Hokkaido have already spent huge amounts on LNG import terminals, and few would welcome the pipeline. A Japanese trading firm executive said the pipeline is an "ultra-high risk" project.

Read more: Oil and gas news briefs for Aug. 7, 2017

South Asia looks to be strong growth market for LNG imports

 

(Reuters; Aug. 2) - South Asia, long a backwater for energy markets, is emerging as a hotspot for liquefied natural gas, with Pakistan and Bangladesh set to join India as major consumers, helping to ease the global oversupply. Only India and Pakistan now import LNG in South Asia, taking in a combined 25 million tonnes, or 8 percent of global demand last year. But with a fast-growing population, economic growth and soaring energy demand, more import projects are being built, led by Pakistan and Bangladesh.

 

"Both countries already have extensive gas infrastructure due to legacy production from domestic gas fields," said Chong Zhi Xin, Asia LNG analyst at consultancy Wood Mackenzie. "As domestic production has failed to keep up with demand, both markets are a natural fit for LNG imports." Pakistan started importing LNG in 2015, and surprised some in the industry by developing its first terminal on schedule and on budget. A second facility is about to start up and a third is expected to be completed next year.

 

With Bangladesh set to start imports next year, the region could take 80 million to 100 million tonnes a year by the mid-2020s, analysts said, making it the world's second biggest importer, ahead of Europe. With its own gas reserves depleting and seeking to almost double its power capacity to 24,000 megawatts by 2021, Bangladesh is tapping cheap and plentiful supplies on world markets and investing heavily in LNG. Several floating storage and regasification units are due to begin accepting cargoes in 2018.

Read more: Oil and gas news briefs Aug. 3, 2017

Shell still looks toward investment decision in 2019 for LNG Canada

 

(Bloomberg; July 27) - Shell said it hasn’t written off its liquefied natural gas project in Kitimat, B.C., although a global supply glut killed off a competing project in British Columbia earlier this week. Shell-led LNG Canada, which is also backed by Mitsubishi, PetroChina and Korea Gas, is still weighing an investment decision that’s expected by early 2019, Shell CEO Ben van Beurden said on a conference call July 27.

 

"We need to get the timing properly right — we think we can," he said. "If we look at an investment decision in the next 18 months or so, this is going to be a project that could start producing right at the moment when the spot market, the short-term market is getting very tight again." Low prices have thrown the economics of LNG projects worldwide into question as increasing exports from Australia and the U.S. inundate the market with so much supply that analysts say demand may not catch up until the 2020s.

 

Shell and its partners in 2016 delayed for the second time a decision on their Canadian project, citing industry challenges. Shell is trying to reduce costs to a "break-even price that is very resilient,” the CEO said. “This needs to be a project that can survive under down cycles." He added, "If you have the best possible project on the cost-of-supply curve for new projects, then you are a little less obsessed with the timing because you will be able to get it into the market.”

Read more: Oil and gas news briefs July 31, 2017

Petronas and Asia partners cancel LNG project in British Columbia

 

(Canadian Press; July 25) - Malaysian national energy giant Petronas and its partners scrapped the Pacific NorthWest LNG megaproject July 25, ending hopes for what would have been one of Canada's largest private infrastructure investments. The decision to cancel the development boiled down to economics — a world market awash in liquefied natural gas, which has driven down prices, making Pacific NorthWest LNG no longer financially viable, said Anuar Taib, CEO of the oil and gas division at Petronas.

 

"Unfortunately for us, we don't believe we have that mix of where the sweet spot can be hit," Taib said. While Pacific NorthWest LNG, the most advanced of multiple proposals for Canada’s West Coast, successfully worked its way through regulatory channels over the past several years, numerous other LNG export projects have come online around the world. The project would have totaled $36 billion, including a 560-mile pipeline from gas fields near the B.C./Alberta border to an LNG terminal on Lelu Island in front of Prince Rupert, B.C., as well as development costs for the gas fields.

 

“The extremely challenging environment brought about by the prolonged depressed prices and shifts in the energy industry have led us to this decision," Taib said. The partners were Petronas, Japan Petroleum Export Corp., Petroleum Brunei, Indian Oil Corp. and Sinopec-China Huadian. The partners are still committed to developing their 800,000 acres of Montney Shale gas assets in northeastern B.C., which they had bought in part to supply LNG exports but now will sell into the North American market. The consortium said its work has identified 15,000 locations for horizontal drilling and hydraulic fracturing to tap 52 trillion cubic feet of economically viable gas reserves.

Read more: Oil and gas news briefs for July 27, 2017

Canadian court sends gas pipeline case back to energy regulator

 

(Terrace Standard; Terrace, BC; July 20) - A successful legal challenge regarding provincial jurisdiction of TransCanada’s proposed Prince Rupert Gas Transmission pipeline may place the project in the hands of federal regulators. Michael Sawyer, a former environmental consultant from Smithers, B.C., argued that the $5 billion, 550-mile pipeline to serve a proposed LNG export terminal should be regulated by the National Energy Board and should not have been transferred to provincial jurisdiction.

 

Insisting that TransCanada is a nationwide network of gas pipelines, Sawyer filed an application with the NEB to declare the gas pipeline under federal jurisdiction. He was denied, but then the Federal Court of Appeal delivered its judgment in Ottawa on July 19, ruling in favor of Sawyer. “The court found that the board (NEB) essentially had been too quick to dismiss the request by Mr. Sawyer to have a hearing into jurisdiction over the pipeline,” Sawyer’s lawyer said. TransCanada has 60 days to appeal.

 

“The NEB didn’t take into account the jurisdictional consequences of the fact that the purpose of the Prince Rupert pipeline is to bring gas from the northeast of B.C. to Prince Rupert for export — it’s that ‘for export’ that is a factor pointing to federal jurisdiction,” the attorney said. The line would serve the Pacific NorthWest LNG project, proposed by Malaysia’s Petronas. The B.C. government approved the pipeline earlier this year. Petronas has yet to make a final investment decision on the multibillion-dollar project.

Read more: Oil and gas news briefs for July 24, 2017