Yamal LNG expects to ship first cargoes in November

(Reuters; Oct. 10) - Yamal LNG in the Russian Arctic will ship its first two cargoes of liquefied natural gas in November, followed by another four in December, Russia’s customs service said Oct. 10. The $27 billion Yamal project is co-owned by Russian gas producer Novatek (50.1 percent), as well as France’s Total (20 percent), China National Petroleum Corp. (20 percent) and China’s Silk Road Fund (9.9 percent). Construction started in 2013. Russian and Chinese lenders provided financing for the project.

The three-train liquefaction plant will have the capacity to produce 16.5 million tonnes of LNG per year, though only the first production train will be operating this year. The other two units are scheduled to come online in 2018 and 2019. All of Yamal’s output is under contract to European and Asian customers under long-term deals. It will be Russia’s second LNG export terminal. Sakhalin-2, in the Russian Far East, has been operating since 2009. The two-train facility can produce 10 million tonnes a year.

Read more: Oil and gas news briefs for Oct. 12, 2017

Shift to short-term contracts makes it hard on LNG project developers

(Financial Times; London; Oct. 5) - “Gas is a tough market,” said Robin West, of the Boston Consulting Group. “The whole business is in a race to the bottom to get costs down.” At this week’s North American Gas Forum in Washington, D.C., would-be LNG exporters were hopeful that they could find buyers. With steady demand growth, and new supply set to level off, the market could well tighten in the early to mid-2020s.

Given that it takes about four years to construct an LNG plant, customers will have to start signing contracts in 2018-19 if they want developers to build and provide LNG for when supplies become scarcer. One problem is that the business had been based on 20-year contracts with buyers in Asia and Europe, with guaranteed revenues, enabling developers to finance their projects. In 2012-14, when exports to Japan were selling at above $18 per million Btu, buyers were prepared to make generous commitments so that projects could get off the ground. Today, they are much less accommodating.

For decades, sales were point-to-point between specific sellers and buyers. But as supply grew, sales have become more flexible. In 2000, only 5 percent of the world’s LNG was sold on spot or short-term contracts. By last year, that was up to 28 percent, according to the International Gas Union. Today’s markets are “idyllic for most large LNG buyers,” said Christopher Goncalves, chair of energy consulting at Berkeley Research Group. “With attractive prices available in the short- and mid-term markets right now, they have not had much incentive to return to the long-term contract.”

In 2016, there were 13 LNG sales contracts for 15 years or more. This year so far there have been just five, and not one with a term of 20 years or more.

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

Shell-led LNG Canada project wants contractor to take overrun risk

(Globe and Mail; Canada; Oct. 1) – Four engineering groups competing to become the prime contractor for a proposed liquefied natural gas project in British Columbia have agreed to offer bids that will have them accept the risk of construction cost overruns. Under the LNG Canada consortium's request for proposals, the four have been asked to bid a lump-sum contract, agreeing to a fixed price for materials and labor.

The project's co-owners, led by Shell, would be left with little or no risk of extra costs beyond what has been agreed to in the contract. LNG Canada CEO Andy Calitz told employees in an internal newsletter earlier this year about plans for a lump-sum contract. An industry source familiar with the bidding confirmed that if expenses go over budget, the financial responsibility for overruns would shift to the winning contractor.

"There will be a mind-bending array of engineering, procurement and construction pricing that the bidding groups will have to take into account,” a source said. Amid a global oversupply of the fuel, LNG Canada is pondering whether to forge ahead with the project in Kitimat, B.C., that could cost up to $40 billion. Reining in construction bills will be crucial in decision-making because the venture’s gas needs to be price competitive.

The four groups in the running to serve as prime contractor are: Bechtel Canada Co. and Chiyoda Canada; Technip FMC and KBR; Saipem and Chicago Bridge & Iron; and JGC Corp. and Fluor Canada. Bids are due by Nov. 30. Shell holds 50 percent of LNG Canada. Korea Gas and Mitsubishi Corp. each have a 15 percent stake, while PetroChina owns a 20 percent interest. In July 2016, LNG Canada announced a delay in making its final investment decision; it’s now expected by the end of 2018.

Read more: Oil and gas news briefs for Oct. 5, 2017

South Korea power producers ask for relief from higher gas prices

(Reuters; Sept. 28) - Some South Korean power producers are asking the government to take steps to help offset rising liquefied natural gas prices, with the cost of generating electricity from the fuel twice that for coal. Rising gas costs in the world’s No. 2 importer of LNG are undermining government efforts to boost power generation from cleaner sources than coal, which has been the nation’s primary source of electricity for decades.

Seoul is planning to lift its power production capacity by up to a tenth by 2030, mostly using liquefied natural gas and renewable energy. “To increase gas power generation, the government needs to come up with measures to guarantee gas power operators’ profits and ease the burden of LNG price hikes,” Park Won-ju, director of the Independent Power Producer Association, said this week at an industry conference.

It cost more than twice as much to burn LNG to generate electricity in August than from coal, according to data from the Korea Power Exchange. In the first eight months of 2017, state-run Korea Gas, the country’s sole wholesaler, sold 20.73 million tonnes of LNG, down 2 percent from last year, Reuters’ calculations showed. For power generation, KOGAS sold 9 million tonnes over that period, down almost 7 percent.

Meanwhile, the energy ministry said this week that it was in talks with power companies to convert four newly built coal energy plants that would potentially spark more demand for gas in the domestic market, putting further upward pressure on prices.

Read more: Oil and gas news briefs for Oct. 2, 2017

LNG prices must be more competitive, Japanese buyer warns

(Financial Times; London; Sept. 27) - The head of the world’s biggest buyer of liquefied natural gas has warned producers they need to become more competitive on price and allow for flexible contracts if they want to usher in a “golden age” of gas in Asia. Yuji Kakimi, the head of Japan’s JERA — the joint-venture launched in 2015 between Chubu Electric and Tokyo Electric to procure fuel supplies — said LNG producers need to adapt quickly to a market where rising supplies are giving more power to buyers.

“The price of LNG has to be reasonable and there needs to be flexibility,” Kakimi said. “If the market lacks these things, the golden age will never come.” His comments come as fast-growing supplies of LNG have led large buyers to push for the end of so-called “destination clauses” and other restrictions that have for decades governed LNG trade.

The operators that build LNG export facilities have been dependent for years on signing long-term customers to deals linked to oil prices to finance construction of their terminals. Kakimi said the U.S. shale industry has dramatically transformed LNG, smoothing its boom-and-bust cycle and creating a global gas market. “Before [U.S. exports] and after — the market has completely changed. The surge in U.S. shale gas is giving buyers a stronger negotiating position. … If we don’t like the terms [of a certain project] we can say, fine we’ll ask America to make us some,” Kakimi said.

He cautioned LNG suppliers, however, that they are still competing on price with other energy sources, especially coal. “Can emerging markets, which are looking to grow, really push for an environment over economics?”

Read more: Oil and gas news briefs for Sept. 28, 2017

First liquefaction train at Yamal LNG set to start up in November

(LNG World News; Sept. 21) - Russia’s largest independent natural gas producer, Novatek, is set to start up the first liquefaction train at its Yamal LNG project in the Russian Arctic in November. The three-train Yamal plant, designed to produce about 16.5 million tonnes of LNG per year, will liquefy natural gas from the South Tambey field on the Yamal Peninsula in Russia’s West Siberia.

The $27 billion project is being built in three phases, with liquefaction trains scheduled for start-up in 2017, 2018 and 2019. Novatek is the operator and holds a 50.1 percent stake in Yamal LNG. China National Petroleum Corp. and Total of France each have a 20 percent stake, while China’s Silk Road Fund has a 9.9 percent share. Yamal will be Russia’s second LNG export terminal. The two-train Sakhalin-2 LNG plant opened in the Russian Far East in 2009. Novatek already is talking about building another liquefaction plant in the Arctic, near Yamal.

Read more: Oil and gas news briefs for Sept. 25, 2017

Shell-led venture not giving up on LNG project in British Columbia

(Globe and Mail; Canada; Sept. 19) - It seems Andy Calitz didn't get the memo from industry experts about Canada missing the boat on exporting liquefied natural gas to Asia. Far from giving up, the CEO of LNG Canada believes it is a matter of when — not if — a $40 billion export terminal will be built in Kitimat in northwestern British Columbia. This week, the National Energy Board approved the Shell-led consortium's request to extend the deadline for starting exports to 2027 instead of the end of 2022.

"I do not subscribe to the view that the growth period for LNG or natural gas is over," Calitz said. Despite the gloomy outlook for LNG proposals worldwide, he is pressing ahead. LNG Canada has started dismantling aging infrastructure such as storage tanks on the proposed Kitimat site where methanol maker Methanex Corp. closed operations in 2006. Site cleanup began in July and is halfway toward completion.

Next up is to select a prime contractor. The deadline for submissions from four bidding groups is Nov. 30, and the selection process should be finished in the second quarter of 2018. Calitz said a decision to proceed to the first phase of construction will be made after the prime contractor is chosen. He doesn't have a specific target date for revealing a green or red light for the project, although analysts expect an announcement in the second half of 2018. The partners had delayed their decision from last year.

Already two major LNG projects in British Columbia have been canceled this summer — one led by Malaysia’s Petronas, and another led by a Canadian subsidiary of China National Offshore Oil Corp. The Shell-led group is looking for signals that the current global oversupply of LNG will gradually ease and eventually create an opening for new supplies. Shell holds 50 percent of LNG Canada. South Korea's KOGAS and Japan's Mitsubishi each have a 15 percent stake, while PetroChina owns a 20 percent interest.

Read more: Oil and gas news briefs for Sept. 21, 2017

Chinese-led venture cancels proposed LNG project in B.C.

(The Canadian Press; Sept. 14) - The partners behind the proposed $28 billion Aurora LNG project near Prince Rupert, B.C., pulled the plug Sept. 14 after four years of study, dealing another setback to British Columbia’s hopes for a liquefied natural gas export industry. Nexen Energy, the Calgary-based subsidiary of China National Offshore Oil Corp., said it decided with Japanese partner INPEX to stop work on the feasibility study.

The company said in a statement posted on its website that the current economic environment doesn’t support building a large LNG plant. “Our decision was market-based and driven by capital discipline,” said spokeswoman Brittney Price. “We require every business investment to meet minimum criteria including sustainable, long-term profitability.” She declined to say how much was invested in Aurora LNG. China’s state-owned CNOOC acquired oil and gas producer Nexen for $15.1 billion in 2012.

It’s the second multibillion-dollar LNG project in British Columbia to give up this year. In July, a venture led by Malaysia’s Petronas canceled its Pacific NorthWest LNG project, citing a market downturn. Commodity analyst Martin King of GMP FirstEnergy said he’s not surprised at the cancellations. “That was the pipe dream, that everybody was going to capture these big double-digit prices, $14, $15, $18 per million Btu … and here we are at half that,” he said of record-high prices a few years ago vs. current market prices. Aurora would have produced 24 million tonnes a year, though half that at initial start-up.

Like Petronas, CNOOC said the Aurora partners will continue to produce gas from their Horn River wells in northeastern B.C. for sale into the North American market.

Read more: Oil and gas news briefs for Sept. 18 2017