India wants Qatar to invest in power plants as condition of LNG deals

(Reuters; June 20) - India said it would sign future long-term liquefied natural gas purchase deals with Qatar only if the exporter agrees to acquire stakes in Indian power plants, Oil Minister Dharmendra Pradhan said June 20. India is the latest major LNG buyer to seek concessions in long-term supply contracts from Qatar, the world's biggest LNG exporter. Amid a global supply glut and a slump in prices, other buyers have sought more flexible contracts, including allowing them to resell gas they do not need.

"Yesterday, we have given a firm proposal to Qatar. If they want to have a long-term offtake assurance, there is a window,” Pradhan told Reuters. “They can deal with our stranded power plants. From end to end they can give some solution.” India is suffering from gas shortages that have required power plants to shut down or run at lower rates. "It won't be quid pro quo but mutual interest. … They can share the profit of those power plants," Pradhan said.

India wants to move to a gas-based economy, raising its annual LNG import capacity to 50 million tonnes in the next few years from 21 million tonnes now. India is also open to granting stakes to Qatar in local oil and gas companies and LNG import terminals. India's biggest gas importer Petronet LNG buys 8.5 million tonnes a year under a long-term contract and also buys additional Qatari gas under spot-market deals. Qatar's RasGas is India's biggest LNG supplier.

Read more: Oil and gas news briefs June 22, 2017

BP will invest $6 billion with partner in offshore-India gas project

(Wall Street Journal; June 15) - BP said June 15 it is pushing ahead with long-delayed efforts to develop natural gas offshore India, partnering with Reliance Industries to plow $6 billion more into the first big investment it made following the Deepwater Horizon disaster. BP and Reliance, one of India’s biggest energy companies, expect to produce 425 million cubic feet of gas a day from deepwater fields 45 miles off India’s east coast by 2020 in the first of three projects they plan to develop with the $6 billion.

Between 2020 and 2022 the partners expect to add another 1 billion cubic feet a day of new gas production, assuming the other two projects are approved by the government. BP first partnered with Reliance in 2011, spending $7.2 billion for a 30 percent stake in oil and gas fields operated by the company. The deal was the company’s first major investment since its fatal blowout in the Gulf of Mexico in 2010, and came at a time when BP was desperately selling assets elsewhere to help pay the costs of the spill.

The investment was meant to mark a step toward new growth prospects in a market where oil and gas demand was growing rapidly, but for years the Indian government’s caps on gas prices limited profitability and stymied investment. The government last year unveiled a new formula for gas prices from deepwater projects, which BP said provides more certainty. Now, the oil giant seems ready to pile in again, hoping to take advantage of India’s rapidly growing market. India consumes over 5 billion cubic feet of gas a day, according to BP, a number which the government hopes to double by 2022.

Read more: Oil and gas news briefs June 19 2017

Nuclear restarts in Japan a key factor in LNG demand

(Nikkei Asian Review; June 14) - Spot prices for liquefied natural gas in Asian markets remain in the doldrums, hovering at levels more than 40 percent below their most recent high in January. While new LNG production capacity comes online one after another in Australia and the United States, demand in Japan, by far the world's biggest importer of the fuel, is weakening now that several nuclear power plants have gone back online. As of early June, LNG spot prices in Asia were hovering in the mid-$5 range.

If the price slump sticks, it could put more downward pressure on Japan's long-term LNG import contracts as the deals are renewed in the next few years — concerns over a supply glut are weighing on prices. By 2020, projects now under construction are expected to add more than 100 million tonnes a year of LNG capacity to the market. In addition, Qatar said in April it would resume developing its North Field, the world's largest gas field. Production is not expected to begin for five to seven years. When it does, the expansion could boost Qatar's annual LNG capacity by 15 million tonnes.

There is a strong possibility that competition among gas-producing countries will further intensify as supply continues to outpace demand. One factor in demand forecasts is the return of nuclear power in Japan, where all of the nuclear plants were shut down after the 2011 Fukushima meltdown. Japan currently has five reactors at three nuclear power plants online, reducing the country's need for LNG to generate electricity. Japan's LNG imports shrank for the second consecutive year in 2016, declining 2 percent.

Read more: Oil and gas news briefs June 15, 2017

Talks stall on new Russian gas pipelines to China

(Reuters; June 7) - Talks over new routes for natural gas supplies to China from Russia have stalled while Beijing rethinks the balance of its energy needs, including how much liquefied natural gas it might use, two Russian sources told Reuters. Gazprom, which is already building its first gas pipeline from Eastern Siberia to China — the 2,000-mile Power of Siberia line — was in talks over two more routes: the so-called western gas route and a pipeline into Eastern China from Russia’s Pacific Island of Sakhalin.

"There are a lot of factors, and they (China) are not yet ready to take any decisions," a source familiar with the Russia-China energy talks said. A Gazprom source also said there were no developments on the two pipelines, whose combined capacity, if built, could provide an additional 1.4 trillion cubic feet a year in Russian gas supplies to China (almost 4 billion cubic feet per day). The Power of Siberia line, expected to be launched by the end of the decade or in the early 2020s, would carry up to 1.3 tcf a year to China.

Gazprom in May 2014 clinched the Power of Siberia deal after 10 years of painstaking talks with Beijing. As of this past spring, about 400 miles of the pipeline had been built, according to Russian news reports. "We don't see a room yet for (additional) pipeline gas from Russia to China (before 2035), except for the Power of Siberia contract," said Vladimir Drebentsov, head of Russia economics at BP. Almost 60 percent of China’s gas imports arrived by pipeline in 2015, mostly from Turkmenistan, with 42 percent as LNG. Final numbers are not available for 2016, but LNG’s share grew last year.

Read more: Oil and gas news briefs June 12, 2017

Rising supplies, falling prices, new buyers drive LNG market changes

(Wall Street Journal; June 6) - One day in March, the tanker Rioja Knutsen, filled with liquefied natural gas, was traveling from the U.S. to Portugal. Suddenly, Mexico’s power company offered a higher bid for the cargo. At the Bahamas, the ship abruptly made a starboard turn and headed south. How LNG is bought and sold in the world’s scattered regional markets for the fuel is changing rapidly. Ships such as the Rioja Knutsen are stitching those regions together and a single global market is emerging.

This is already how nearly every other hydrocarbon, from oil to petrochemicals, is sold. As LNG joins the club, the effects will ripple through energy prices, company profits, the environment and geopolitics. In addition, a global oversupply of gas has producers working to develop new consumers all over the world. The result is growing flexibility in once-rigid LNG contracts and a convergence in prices long dictated by local factors.

Thirty-nine countries now import LNG, up from 17 a decade ago. Several more are expected to lift the total to 46 in the next couple years. The changes are contributing to rapidly narrowing regional price differences. In 2012, Asian spot prices for LNG were $5.74 per million Btu higher than gas prices in Europe, according to S&P Global Platts. So far this year, the spread has averaged under $1. At any given time, there are about 170 tankers filled with LNG on the world’s oceans, up from 150 a year ago. At the heart of the changes is supply. Huge new discoveries in the U.S., Middle East, East Africa and Australia have expanded the amount of gas available for export.

Read more: Oil and gas news briefs June 8, 2017

Eni confirms go-ahead for offshore Mozambique LNG project

(Reuters; June 1) - Italian energy company Eni signed an $8 billion deal June 1 to develop a gas field off the coast of Mozambique, the first of a series of projects that could transform the poor African nation into a major energy supplier to Asia. Developing the Coral South field, discovered in May 2012 and operated by Eni, requires building six subsea wells connected to a floating facility capable of producing about 3.4 million tonnes of liquefied natural gas per year, Eni said. Exports are expected to start in 2022.

The Coral South field contains about 16 trillion cubic feet of gas. The field lies in the Rovuma Basin, with estimated reserves of about 85 tcf. Mozambican authorities approved the project's development plan in February 2016, and eight months later Eni signed a 20-year deal to supply BP with the project’s entire LNG output. The floating LNG production platform will be built in South Korea by a consortium led by Samsung Heavy. The group includes France’s Technip and Japan’s JGC.

Partners in the development include China National Petroleum Corp., Korea Gas and Mozambique's state-run Empresa Nacional de Hidrocarbonetos. Eni said project finance [debt] would fund 60 percent of the cost of building the LNG facility. The financing agreement has been subscribed by 15 major international banks and guaranteed by five export credit agencies. U.S. firm Anadarko is planning its own separate onshore LNG project in northern Mozambique, also to be fed by the country’s vast offshore reserves.

Read more: Oil and gas news briefs June 5, 2017

Asian LNG buyers reportedly considering contract arbitration

(Reuters; May 31) - A spat brewing between Qatar, the world's No.1 producer of liquefied natural gas, and its biggest customers in Japan underscores rising tensions between buyers and sellers as a supply glut unbalances the market. Importers of LNG have been pushing for greater benefits amid the surplus, signing new, cheaper contracts that give them more-flexible terms, while exporters try to preserve long-term supply deals written in their favor during tighter markets.

Worried some buyers are becoming too bold, Qatar Petroleum warned customers in Japan — by far the world’s biggest LNG importer — not to press too hard in long-term supply talks because it could result in Japanese companies being squeezed out of Qatari gas projects. While suppliers have granted more flexible terms on some new contracts, many are worried buyers could seek arbitration to renegotiate contracts.

Arbitration is a form of legal resolution outside formal courts in which both sides of a contractual dispute agree to be bound by the decision of a third party. While Asia's top LNG buyers in Japan and South Korea are not saying so publicly, several sources familiar with the matter said there are high-level internal talks over the possibility of arbitration. "Virtually all major Asian LNG buyers would like to seek arbitration. They just don't want to be the first to do so, as this would likely create negative publicity," said one source who advises companies on such cases, speaking on condition of anonymity.

Read more: Oil and gas news briefs June 1 2017

Greens reach deal to help govern B.C.; oil and gas impacts unknown

(Reuters; May 29) - British Columbia's minority Green Party has struck a deal with the left-leaning New Democrats to govern Canada's western-most province, a move that casts doubt on the future of key oil and gas projects. Announcement of the partnership May 29 ends a stalemate that emerged last week when the final tally of votes from the May 9 provincial election stripped Premier Christy Clark of her more pro-development, pro-business majority of legislative assembly seats.

Green Party leader Andrew Weaver did not reveal what the political pact says about Kinder Morgan's plans to expand its Trans Mountain oil pipeline from Alberta to the British Columbia coast. Both the Greens and NDP have opposed the project. Clark had backed Trans Mountain’s pipeline, as well as liquefied natural gas export projects. Any move by the new government to block Kinder Morgan will be a blow to federal Canadian Prime Minister Justin Trudeau, whose government approved the project last November.

Trudeau says the Alberta energy industry needs the pipeline to boost exports to Asia and reduce reliance on U.S. buyers. Opponents say risks of spills are too large. While there is some dispute whether British Columbia can formally block the line, it can raise multiple hurdles such as denying construction permits that could make it impossible to build. The deal between the Greens and New Democrats still needs to be voted on May 30. A minority government would be the province's first in 65 years. The Greens and the New Democrats together have 44 of the 87 seats in the provincial legislature.

Read more: Oil and gas news briefs May 30, 2017