Global LNG trade up 7.5% in 2016

(EnergyWire; March 29) – Liquefied natural gas exports picked up last year after several years of minimal growth, as the industry continues to adjust to weak demand and a shift in market power, industry data show. Global trade grew 7.5 percent last year over 2015, a marked increase from the 0.5 percent growth of the previous four years, said a report from the International Group of Liquefied Natural Gas Importers. It’s a sign that the slowdown linked to weak economic growth in Asia may be in the rearview mirror.

But world LNG markets continue to grapple with a surge in supply from new projects in the United States, Australia and elsewhere coming online in just a few years without a match on the demand side. Industry observers have long said the supply additions gradually would be soaked up by growth in LNG demand, but the latest industry report suggests an alternative resolution to market balancing: curtailed gas production.

"Surplus capacity could be progressively absorbed by additional imports and/or by shut-ins, both as a consequence of low price levels, resulting in a market rebalancing in the first part of the decade," the group said. Energy forecasters have projected a range of dates for a market rebalancing. Some assessments see supply and demand coming into balance in the early 2020s, while others say it could take a few years longer. The importers group is in the middle with its forecast of the mid 2020s.

Meanwhile, the group reported a continued trend away from the industry’s traditional long-term sales contracts toward spot market and short-term contracts — now at 28 percent of global trade last year and possibly moving higher over the next few years.

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

Qatar could be most exposed as LNG buyers push for better deals

(Sydney Morning Herald; March 25) - The world's biggest liquefied natural gas buyers — all in Asia — are clubbing together to secure more-flexible supply contracts in a move that shifts power to importers from producers as the global LNG oversupply grows. Reworking existing deals is feasible, sources said, but may hit hardest at the world's biggest producer, Qatar, as many of its supply deals with Japan start to expire from around 2023, industry sources said.

A senior Qatar Petroleum official hinted that buyers — emboldened by temporarily oversupplied LNG markets to demand better terms — may regret their actions when the cycle turns. "Right now the market is oversupplied, but if we went into a period of a tighter market, how would these buyers organizations hold up? That is an important question," the official said. "If there is a market crunch and gas tightens, it could recreate incentives for buyers to lock in long-term contracts."

The LNG market is undergoing huge changes as the biggest-ever flood of new supply is hitting the market, with volumes coming mainly from Australia and the U.S. In the highest-profile move of late by buyers, Japan’s Jera Co., Korea Gas and China National Offshore Oil Co. in mid-March signed a memorandum of understanding to exchange information and "cooperate in the joint procurement of LNG.” All three companies will have excess supplies in the next few years, said sources at major LNG producers.

Read more: Oil and gas news briefs March 27, 2017

LNG buyers in Japan, China, South Korea join forces for better deals

(Reuters; March 23) - The world's biggest liquefied natural gas buyers are clubbing together to secure more-flexible supply contracts in a move that further shifts power to buyers rather than producers. Korea Gas said March 23 it had signed a memorandum of understanding in mid-March with Japan's Jera Co. and China National Offshore Oil Corp. to exchange information and "cooperate in the joint procurement of LNG." Under the agreement, the three companies also will discuss joint participation in upstream projects, as well as cooperation in LNG shipping and storage.

Japan, China and South Korea are the world's biggest LNG importers, accounting for about 55 percent of global purchases, according to data from energy consultancy Wood Mackenzie. The countries' biggest respective buyers are joining together to extract concessions from producers that would give them supply flexibility such as having the right to resell imports to third-parties, something they are not allowed to do under so-called destination restrictions in most traditional LNG supply contracts.

The unusual alliance across three countries will pressure exporters like Qatar, Australia and Malaysia that prefer to have their clients locked into decades-long contracts that oblige the buyers to take fixed amounts of monthly volumes irrespective of demand, with no right to resell unneeded supplies to other end-users. The global LNG market is undergoing huge changes as a flood of new supply comes online.

Read more: Oil and gas news briefs March 23, 2017

Thailand looking to invest in LNG projects overseas

(Bloomberg; March 19) - The Asian energy companies sitting on the largest horde of cash outside China are ready to put it to use. Thailand’s PTT Exploration & Production and its parent company have nearly $11 billion combined in cash and marketable securities, such as bonds and other short-term investments. The explorer arm of the parent is ready to spend from its portion on projects and exploration acreage to rescue the country’s declining oil and gas reserves, said CEO Somporn Vongvuthipornchai.

PTT E&P is eyeing early-life producing assets or projects that are sanctioned and ready for development, Somporn said in an interview. It is also looking to work with its parent, PTT, to invest in liquefied natural gas plants, which would help feed Thailand’s growing demand. “We’re looking at opportunities in the few hundred million to $1 billion range.”

“Domestic oil and gas production is going to decline over the coming years, so that puts more emphasis on … PTT E&P to go overseas and build supply,” said Neil Beveridge, an analyst with Sanford C. Bernstein in Hong Kong. Parent PTT is looking to expand LNG imports to meet growing domestic demand fueled by economic expansion, while Thailand’s production is declining. Somporn he would prefer a project where the export facilities and production fields are combined, as opposed to projects such as those on the U.S. Gulf Coast where firms buy gas and then pay to have it liquefied for export.

Read more: Oil and gas news briefs March 20, 2017

Easing of power supply worries cuts into Japan’s demand for LNG

(Nikkei Asian Review; March 15) - Import prices of liquefied natural gas in Japan are returning to normal after ballooning as much as 80 percent following the March 2011 Fukushima nuclear disaster, as energy conservation efforts and reactor restarts relieve pressure on the nation's power supply. By May 2012, all 50 reactors were offline, the first across-the-board shutdown in the nation since nuclear power became a base source of electricity. Japan lost a fifth of its installed generating capacity as a result.

More thermal power was needed to fill the gap. Plants that had been closed due to age were restarted at full capacity, feeding demand for fossil fuels including LNG, coal and oil. LNG supplied 40 percent of Japan's electricity. Japanese power companies typically import LNG under long-term contracts that track oil prices. But heavy demand led utilities to increase their buys on spot contracts, driving up prices to $18 per million Btu.

The decline has been just as dramatic. New LNG exports came online in Australia and the U.S., contributing to a global supply glut. Oil prices began sliding in late 2014, which rippled through LNG contracts. Reactor restarts at Kyushu Electric Power and Shikoku Electric Power eased concerns about power supply. In addition, users got serious about conserving power. Electricity demand in fiscal 2015 was down 5 percent from fiscal 2009. No immediate restarts are likely for most of Japan’s other nuclear plants, but the growth of solar power and other renewables has eased worries about electricity supply.

Read more: Oil and gas news briefs March 16, 2017

Gazprom delays plans to expand Sakhalin LNG plant

(Reuters; March 13) - Russia's Gazprom has delayed plans to expand its liquefied natural gas plant on Sakhalin Island in the Far East and to build a new plant on the Baltic Sea, a Eurobond presentation showed March 13. The state-controlled gas producer is meeting with investors this week to discuss a potential debt offering. The project delays could disrupt Russia's plans to carve out a bigger share of the global LNG market, where it aims to triple its market share of less than 5 percent by 2035.

Gazprom plans to expand the Sakhalin-2 plant off Russia's Pacific coast by 2023-2024, the presentation showed, while previously it had announced plans to launch a third LNG production train at the plant in 2021. The Far East LNG plant opened in 2009. The presentation seen by Reuters also showed a 2022-23 launch for a new Baltic LNG plant in the Leningrad region, later than a 2021 start-up previously discussed by Gazprom.

The third train is expected to boost Sakhalin-2 production by 5.4 million tonnes per year, to 15 million. The facility’s partners — Gazprom, Shell, Mitsubishi and Mitsui — have long considered expansion plans, but have been hampered by access to sufficient gas resources. They are considering two options: buying gas from the nearby Sakhalin-1 oil and gas project led by ExxonMobil, developing new resources, or a combination of the two. But Sakhalin-1, where Russian state-controlled oil major Rosneft is a shareholder, has long talked of building its own LNG plant rather than sharing a plant with Gazprom.

Read more: Oil and gas news briefs March 13, 2017

Japanese buyer says new projects must keep LNG costs below $10

(Reuters; March 7) - Global liquefied natural gas projects must control their costs to be profitable at current prices in order to compete against coal and renewable power, the president of Japan’s biggest buyer of LNG told Reuters. Projects should be profitable below $10 per million Btu, or the assumption that emerging-market demand for LNG will rise could be called into question, said Jera Co. President Yuji Kakimi in an interview drawing from remarks he will give March 8 at the CERAWeek conference in Houston.

"It is a must to have the industry that can sustain itself at current LNG prices," Kakimi said. Jera is joint venture of Chubu Electric and Tokyo Electric. "Last year's spot prices ranged from around $5 to $10, and we have to have projects that are economical even at the low end of those prices. … Otherwise the expected golden age of LNG in the mid-2020s may not come because it is questionable whether developing and emerging nations would significantly increase purchases if the price keeps rising," he said.

Companies have struggled with investment decisions on new LNG projects as lower prices combined with rising costs in addressing environmental concerns put a question mark on project viability. Producers have typically insisted on long-term contracts to convince banks to fund them, along with a pricing link to oil. Jera has led the way among buyers in pushing for changes in contracts, including the oil-price link. “We have achieved big success in significantly lowering Asian LNG prices," Kakimi said. "When oil prices rise, will LNG become more expensive? I don't think such an age will return."

Read more: Oil and gas news briefs March 9, 2017

China pushes hard for household conversions to gas or electric

(Reuters; March 3) - China has set itself a staggering task to cure its smothering pollution: Switch coal-fired boilers and heating systems in 1.2 million households in 28 of its smoggiest northern cities to run on gas or electricity by October. Beijing's latest crackdown on pollution, outlined in a policy document Feb. 17 and seen by Reuters this week, dangles a potentially game-changing carrot for the saturated global gas market.

The conversions would significantly boost China's gas demand. That offers the prospect of higher prices in a seller's market amid surging liquefied natural gas production worldwide. But there's an expensive catch. Such expansion is all but impossible without investing in doubling underground gas storage capacity, building thousands of miles of pipeline to carry the gas to eastern cities, and installing pump stations — all of which is supposed to be complete within seven months.

"The magnitude of this policy is unprecedented," said Guo Zihua, head of a rural development department at Beijing city hall. "We are under tremendous pressure to reach the target," said Guo, speaking during a tour March 2 of Beijing's outskirts designed to highlight the scale of the task. The radical plan comes as China ramps up its war on pollution by attempting to wean the nation off coal, its favorite fuel but one that chokes the north during the cold winter months. Most power plants run on coal. The speed suggests the government is determined to tackle the problem — at any cost.

Read more: Oil and gas news briefs March 6, 2017