Canadian shale gas will go out as LNG from Louisiana plant

(Bloomberg; Feb. 28) - Canada’s first exports of liquefied natural gas may soon be heading overseas — from a port in Louisiana. A year ago, Cheniere Energy built an LNG export terminal along Louisiana’s coast and became the only company shipping U.S. shale gas by tanker. Now it’s looking for supplies to send abroad from as far away as the Montney shale play, straddling Canada’s Alberta and British Columbia provinces.

“We’re able to build a portfolio of supply from domestic gas producers and take full advantage of the cost-competitive basins across the U.S.,” Cheniere’s chief commercial officer, Anatol Feygin, said in a call with investors on Feb. 28. “In fact, it doesn’t stop at the U.S., as we recently entered into our first supply deal to receive Montney gas.” The deal underscores the great lengths Canada’s gas explorers have to go to get their fuel to market as they face escalating competition from U.S. shale producers at home.

While several LNG export terminals have been proposed on Canada’s West Coast, it will be years before any are up and running. In some ways, Cheniere is doing what environmentalists feared the Keystone XL oil pipeline would do: Bring Canada’s energy resources into the U.S. only to export them from the Gulf Coast. “This is a great potential outlet” for Canada, Madeline Jowdy, senior director of global gas and LNG at Pira Energy Group in New York, said of the deal with Cheniere. LNG export projects in Canada “look like they are going to be a long time coming, if ever, in my opinion.”

Read more: Oil and gas news briefs March 2, 2017

Japan’s most expensive LNG imports in January came from U.S.

(Reuters; Feb. 24) - Japan in January paid nearly twice as much for liquefied natural gas derived from U.S. shale gas as it did for its cheapest imports, official trade data showed Feb. 24. Shale gas from the United States had been touted as a panacea to Japan's energy crisis after the Fukushima nuclear disaster nearly six years ago. The first U.S. LNG arrived in Japan last month to much fanfare, but the revelation of its higher cost would seem to undermine the initial euphoria.

Japan, the world's biggest importer of LNG, received 211,237 tonnes of U.S. LNG at an average cost of $645 a ton, according to a breakdown of customs-cleared imports from the Ministry of Finance (about $13.45 per million Btu). By contrast, the lowest it paid was $337 a ton for 64,246 tonnes of LNG from Angola. The country paid an average of $386 a ton for all 8.3 million tonnes of LNG it imported last month. The 428,626 tonnes of LNG imported from Brunei, at $416 per ton, was the second highest-priced supply. Australia was Japan's biggest supplier in January, sending 2.01 million tonnes at $384.

The prices are for landed cargoes, including shipping, and based on Japan’s official exchange rate for the month. The U.S. supplies came from Cheniere Energy’s Sabine Pass, La., terminal, the first of several export facilities being built to capitalize on the surge of shale gas. The delivered price in Japan is the sum of the market price of U.S. gas, the cost of gas consumed at the liquefaction plant, a contracted fee to Cheniere for liquefaction services, and shipping. "For diversification, it is important to have various price benchmarks, so we will continue to have a certain share of LNG that is linked to U.S. price benchmarks," said a spokesman for Jera, Japan’s largest LNG buyer.

Read more: Oil and gas news briefs Feb. 27, 2017

Moody’s sees LNG market moving away from big projects

(Financial Post; Canada; Feb. 22) - A new report suggests LNG prices will remain low well beyond 2020, further eroding Canada’s ambitions to become a prominent exporter of the gas in coming years. Analysts at Moody’s Investor Service said global LNG markets are likely to remain oversupplied well into the next decade as Asian demand for the gas weakens and new supplies continue coming into the market.

The estimate runs counter to other analysts’ projections, which look for markets to balance in the next few years, creating a so-called “second wave” of opportunity for would-be LNG exporters in Canada and elsewhere. The global LNG market has grown rapidly over the past few years as rising demand for the gas, particularly in Asia, kicked off an international race to meet future supply needs.

Canada was among the countries vying to enter the market, with multiple projects offered along the British Columbia coast and fed by sizable gas fields in northern B.C. and Alberta. In recent years, however, substantial volumes of new supply started coming to the market from Australia, the U.S. and elsewhere, satisfying demand. Mihoko Manabe, a Moody’s analyst, said Canada’s missed opportunity to enter the LNG market is partly a result of oversupply. But she added that it’s also a result of political fumbles and local environmental opposition to the coastal B.C. projects.

The Moody’s analyst doubts demand for large-scale LNG projects will return to its former levels, even after markets eventually rebalance. Investors are more likely to flock toward smaller, more incremental developments at facilities that have already signed contracts with buyers. “It’s a lot more economic to expand an existing plant,” she said.

Read more: Oil and gas news briefs Feb. 23, 2017

Japan’s LNG buyers continue pushing for better contract terms

(Reuters; Feb. 17) - Japan's liquefied natural gas buyers are upending the traditional practices of the market, using their leverage as the world's biggest buyers of the fuel to wrestle concessions for more flexible terms. Electric utilities have won provisions that will allow them to divert surplus contracted LNG cargoes if they restart their nuclear reactors, most of which have been shut since the 2011 Fukushima disaster, sources told Reuters. This could set a precedent as more contracts start coming up for renewal.

LNG buyers are being offered the nuclear-restart provisions to entice them to sign up for new contracts, said an executive at one of Japan's gas importers. Meanwhile, overall LNG demand is down due to a shrinking population and greater use of alternative fuels. Because of that, utilities have pushed to gain allowances to resell imported cargoes and reduce their dependence on long-term contracts. A persistent global supply glut and low spot prices have given Japan's utilities the upper hand in negotiations with sellers.

Even as Asian spot LNG prices have dropped 65 percent from their 2014 peak, Japan's electric utilities still want to restart their reactors since they are a lower-cost power generation source. About 32 million metric tons a year of new global LNG capacity will come online in 2017, according to a forecast from Reuters, equal to about 12 percent of 2016's global trade. “LNG suppliers will offer more innovative deals to secure sales," said Kerry Anne Shanks, head of LNG research for Asia at Wood Mackenzie.

Read more: Oil and gas news briefs Feb. 20, 2017

B.C. and LNG project sponsor reach deal with two First Nation groups

(Bloomberg; Feb. 15) - A proposed LNG plant near Prince Rupert, B.C., got a boost after the province agreed to provide tens of millions of dollars in funding for indigenous groups. The deal with two First Nation groups will allow Malaysia’s Petronas and its partners to work "on a common goal of realizing the project," Wan Badrul Hisham, chief project officer for Pacific NorthWest LNG, said in Victoria on Feb. 15. The negotiated funding would go toward community, economic and social initiatives; some of the funds would be tied to gas production and the plant’s liquefied natural gas output.

The project won approval from the federal government last September following years of regulatory reviews and opposition from indigenous communities, environmentalists and scientists who warned it could disrupt an area critical to migrating salmon. In addition to the financial deal with the First Nation groups, Petronas is looking at changing the site of its LNG loading terminal to avoid the sensitive salmon habitat area.

Among the reported benefits for the Metlakatla community and the Lax Kw’alaams are: An immediate $7 million payout upon a final investment decision by Pacific NorthWest LNG, with more funds to come later; about 2 cents for every ton of LNG that is shipped, going to a coastal fund; and the Lax Kw’alaams would get an additional $4.18 million payout for the gas pipeline to supply the LNG facility, plus $815,000 a year in royalties.

Petronas and its partners — China Petrochemical Corp., Japan Petroleum Exploration Co., Indian Oil Corp. and Brunei National Petroleum Co. — are reviewing government permit conditions and reassessing project costs before making an investment decision.

Read more: Oil and gas news briefs Feb. 16, 2017

Qatar will use its LNG riches to expand abroad

(Bloomberg; Feb. 9) - Qatar Petroleum is the hidden giant of the global energy industry. The country’s colossal natural gas resources allow the state-run company to pump more oil and gas than Rosneft or ExxonMobil. After almost two decades of breakneck growth, however, the company needs to change tack. QP plans to expand abroad as its crude output declines and the government bars new drilling in the offshore North Field, home to the gas that made Qatar the world’s leading supplier of liquefied natural gas.

QP will have no problem paying for overseas expansion. Qatar’s energy minister, Mohammed Al Sada, said this week that almost all the country’s LNG terminals have been paid for. And despite a near-term glut, he said LNG will be in short supply by 2021. Qatar’s energy story, however, began with oil. The nation of 2.6 million residents started drilling wells in 1939 and exported its first oil 10 years later. In 1971, Shell discovered the offshore North Field, which, together with the connected South Pars deposit in Iran, is the world’s biggest reservoir of non-associated gas.

It took more than 20 years for Qatar Petroleum to partner with ExxonMobil, Shell, Total and ConocoPhillips — as well as with Japanese customers Mitsui & Co. and Marubeni Corp. — to start building 14 liquefaction plants that chill gas for tanker shipment overseas. By 2006, Qatar was the biggest exporter of liquefied natural gas; it shipped 78 million tons in 2015, or 32 percent of global supply. Qatar Petroleum, through its LNG-producing divisions Qatargas and RasGas and other investments, holds stakes in an integrated supply chain helps make its LNG the cheapest in the world to produce.

Read more: Oil and gas news briefs for Feb. 13, 2017

TransCanada trying to protect market share against U.S. gas

(Financial Post; Canada; Feb. 8) - TransCanada is back negotiating with gas producers to ship more Western Canadian gas to Ontario in a push to thwart plans for a competing pipeline from Pennsylvania approved by the U.S. government last week. The company confirmed Feb. 8 it is back in discussions with Calgary-based producers to lower tolls on its existing mainline system in an attempt to protect its market share in Ontario, which is threatened by growing supplies from the U.S. Marcellus and Utica shale gas formations.

TransCanada last fall offered to cut the tolls by 40 percent on its mainline between Empress, Alberta, and Dawn, Ontario, to encourage more Canadian producers to ship their gas to the East, but failed to secure enough volume commitments. TransCanada’s mainline has spare capacity. Ed Kallio, an analyst with the Eau Claire Energy Advisory, in Calgary, said it’s increasingly urgent for TransCanada to come to an agreement with its shippers following last week’s U.S. approval of the competing Rover pipeline.

The Federal Energy Regulatory Commission approved Dallas-based Energy Transfer Partners’ Rover pipeline, which would carry gas from the U.S. to the Dawn pricing hub in Ontario. The company said it expects the line, with a capacity of 3.25 billion cubic feet a day, to be fully operational by November. “As soon as you’ve got incremental pipe out of Appalachia into that region (Ontario), it’s another nail in the coffin, a big nail in the coffin,” Kallio said of Canada’s mainline, which he said has lost shippers in recent years.

Read more: Oil and gas news briefs Feb. 9, 2017

U.S. wants to sell more LNG, but Japan may not need it

(Wall Street Journal; Feb. 4) - In early January, a ship carrying liquefied natural gas from Louisiana docked in Japan, where it will fuel a power plant owned by Chubu Electric. LNG has been coming to Japan for decades, but this was the first time it came from anywhere in the U.S. other than Alaska and the first LNG shipment of American shale gas. U.S. natural gas is playing a role in a transformed energy market for Japan.

Ample supplies of gas from around the world are bringing down prices for Japanese buyers previously at the mercy of major oil and gas players. The prospects of an LNG glut and low prices could be propelled further by U.S. shale gas exports and the energy-friendly administration of President Donald Trump, who has said Japan doesn’t buy enough U.S. products. But buyers in Japan “now have more options and can say no to what’s being negotiated. They can walk away,” said Anne Hung, a partner with the law firm Baker & McKenzie, who advises Japanese companies on oil and gas deals.

The changing market isn’t good news for everyone, including those getting into the game late. Companies can get whipsawed by unexpected price swings, such as the one that dropped the spot price of LNG in Japan from nearly $20 per million Btu in 2014 to below $5 in early 2016 before a recovery late in the year. The current price is $8. After misreading prices for their LNG investments, trading companies Mitsubishi Corp. and Mitsui & Co. both recorded multibillion-dollar losses in the year ended March 2016.

Japanese utilities have signed to buy 14 million tons of U.S. LNG a year by 2020, about one-fifth of projected U.S. exports. The issue now is oversupply. Analysts say Japan might not need all the U.S. gas it has committed to buy because contracts with other suppliers fill demand and its slow-growing economy is using less electricity each year.

Read more: Oil and gas news briefs Feb. 6, 2017