Pennsylvania governor will try 3^rd time for gas production tax

(EnergyWire; Jan. 30) - President Trump is casting a shadow on Pennsylvania politics, empowering Republicans in a long-running battle with Democratic Gov. Tom Wolf over how to tax the state's natural gas industry. Wolf is preparing to ask the Legislature for a gas production tax for the third time since he was elected in 2014. The GOP-dominated House and Senate have rebuffed him twice, even though polls show the idea of a production tax is popular with voters. Pennsylvania is the only major energy-producing state that doesn't tax gas production. Instead, drillers pay an annual fee for each well.

Trump's odds-defying victory in Pennsylvania appears to tilt the field toward the GOP in the Legislature, and Republican candidates are already jockeying to challenge Wolf in 2018. That makes it unlikely the two sides will find a solution this year to the long-term budget problems that have led to underfunding in schools and layoffs at state agencies, said Christopher Borick, a political science professor at Muhlenberg College in Allentown, Pa. "This has all the makings of ugliness," he said.

Wolf pitched the production tax as a clean solution to the state's problems when he took office. Wolf’s predecessor, Republican Tom Corbett, had cut funding to Pennsylvania's schools in the wake of the 2008 recession. Meanwhile, the gas industry boomed as companies drilled into the Marcellus Shale formation. Wolf's first budget proposal, for the 2015-16 fiscal year, would have raised about $1 billion in new revenue by taxing the gas industry. The state faces an estimated budget gap this year of $2.8 billion.

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

Delays, cost overruns cut into rate of return on Australian LNG

(Reuters; Jan. 26) - Australia's development schedule for a huge increase in liquefied natural gas output is being dealt a big blow by a series of production delays as energy companies struggle with technical problems and cost overruns. The country is still likely to become the world's biggest LNG exporter, dispatching about 85 million tonnes a year by the end of the decade, up from 31 million tonnes in 2015 and 45 million last year. But the pace of growth is much slower than expected because of snafus and higher-than-expected costs that have delayed plans to start up or finish new LNG export projects.

At least three of the megaprojects — Shell’s Prelude floating LNG production vessel, the Ichthys project (led by Japan’s Inpex), and the third liquefaction train at Chevron’s Gorgon operation — won’t begin exporting until 2018 or even later, rather than 2017 as previously planned, according to several sources. Making matters even worse, the project developers are having to go to their rivals to fulfill gas delivery contracts.

"The Australian producers have supply commitments, so when there are production delays they have to buy these supplies from competitors in the spot market," said an LNG trader. The projects are among the biggest and technically most challenging ever attempted in the industry. In addition, developers have struggled to find enough qualified and experienced staff. "On average, Australia's recent LNG projects were forecast to achieve an internal rate of return of around 13 percent," Wood Mackenzie's Saul Kavonic said. "They are now only forecast to realize below 8 percent.”

Read more: Oil and gas news briefs Jan. 30, 2017

Floating LNG import terminals open up new markets

(Financial Times; London; Jan. 23) - A rapid increase in liquefied natural gas supplies is threatening to flood the market for at least the next three years, forcing producers and traders to find more nimble ways to place cargoes into global trade. The looming glut is focusing attention on whether existing customers stretching from Asia to the U.K. will benefit from lower prices and whether LNG can increase its market share by utilizing a growing fleet of ships that can deliver directly into power plants and pipeline networks.

These floating storage and regasification units (FSRUs) have become the key to opening up new markets for LNG over the past five years, allowing deliveries into countries like Egypt and Argentina without the need for costly new onshore import terminals. Over the next two years or so the number of operating FSRUs is set to grow by about 40 percent to almost three dozen worldwide, potentially opening up new markets and helping LNG move one step closer to becoming truly global.

“The overwhelming majority of new markets in recent years have been FSRU markets,” said Hadi Hallouche, head of LNG trading at commodity house Trafigura. “The coming oversupply will only accelerate this trend.” LNG supplies are forecast to increase by as much as 50 percent between 2015 and 2020, with the U.S., Australia and Russia adding significant export capacity. While the main LNG demand centers like Japan and China still rely on onshore terminals, which generally take years to build at a cost of billions of dollars, the tie-ups and links for an FSRU often can be put in place in a matter of months. Vessels can be built for $300 million or existing tankers can be converted.

Read more: Oil and gas news briefs Jan. 26, 2017

Toshiba lacks firm customers for its U.S. LNG commitments

(Bloomberg; Jan. 19) - Toshiba, already reeling from a crisis at its nuclear business that has sent its market value down by almost half, is seeking help from one of the world’s biggest buyers of liquefied natural gas to avoid billions of dollars in potential losses. Toshiba is working with Japan’s Jera Co. to help it find buyers for the U.S. LNG that it is obligated to “take or pay” starting in 2019, said spokesman Hirokazu Tsukimoto.

Since Toshiba has not secured long-term contracts to sell the LNG, it may be forced to sell in spot markets at a loss or opt not to use its contracted capacity at Freeport LNG in Texas, Tsukimoto said. Either way, it pays a fixed tolling fee to Freeport, which is under construction. The potential for unsold gas is another blow to Toshiba, which is facing billions of dollars in losses at its nuclear business after a profit-padding scandal in 2015.

“Finding new buyers is difficult in the current market structure,” said Junzo Tamamizu, managing partner at Clavis Energy Partners in Tokyo. When Toshiba struck the deal with Freeport in 2013, the outlook for profit seemed bigger. Gas sold in Asia was at a larger premium to U.S. prices then, making future export shipments more attractive. But a global supply glut has narrowed the U.S.-Asia spread since Toshiba agreed to pay for the right to liquefy 2.2 million tons a year for 20 years at the Freeport plant.

Toshiba has conditional agreements to sell more than half its output from the Freeport project, but none are legally binding, Tsukimoto said. Other buyers of U.S. LNG are also seeking to resell or swap the fuel amid narrower margins. Jera, a joint venture between Tokyo Electric and Chubu Electric, is helping Toshiba market LNG from Freeport. Under tolling agreements like the one Toshiba signed with Freeport, buyers typically pay fixed fees for the ability to liquefy gas, regardless of the amount they actually take. Toshiba’s fixed fees over 20 years could be as much as $8.2 billion. “It’s a bloody disaster,” said Amir Anvarzadeh, Singapore-based head of Japanese equity sales at BGC Partners.

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

Japanese LNG buyers joining forces to win better deals

(Bloomberg; Jan. 17) - In the increasingly competitive world of Japan’s energy market, there may be safety in numbers. Natural gas sellers, including smaller utilities, are considering clubbing together to get cheaper fuel from their suppliers and help undercut competitors in the 2.4 trillion yen ($21 billion) retail gas market, which the country is opening to new players in April. Tokyo Gas, the country’s largest gas utility by market capitalization, said it sees more than a dozen Japanese LNG importers possibly joining into three large partnerships to secure cheaper fuel through greater bargaining power.

“We are considering various alliances,” said Tsutomu Sugimori, president of JX Nippon Oil & Energy, an oil refiner that aims to expand its power and gas business. “Everyone who buys natural gas feels the same way. We want to get together as much as possible and buy cheap fuel.” The opening of the retail gas market of more than 26 million customers follows a similar move in the electricity market last April as part of Prime Minister Shinzo Abe’s drive to spur competition and drive down prices.

The liberalization is forcing entrenched monopolies to face new competition. As the world’s biggest buyer of LNG, Japan locks up shipments from across the world, including Australia, the U.S., Nigeria and Qatar. In an increasingly competitive market for customers at home, cooperation on fuel procurement to buy cheaper supplies will be necessary, said Mikiko Tate, a senior analyst at Sumitomo Corp. Global Research.

Japan’s biggest power producers are already ahead of the game. Tokyo Electric and Chubu Electric integrated their fuel-procurement operations last year as a joint venture, Jera Co., forming the world’s biggest LNG buyer. Smaller players are taking initial steps at following the lead. Tokyo Gas is considering joining with Kansai Electric, Japan’s second-biggest power utility, in fuel procurement and development of power plants.

Read more: Oil and gas news briefs Jan. 19, 2017

Malaysia needs to find buyers for expanded LNG capacity

(Interfax Natural Gas Daily; Jan. 13) - Malaysia’s annual liquefied natural gas export capacity is set to rise by 4.8 million metric tons in 2017 with start-up of a ninth train at the country’s LNG plant and Malaysia’s first floating LNG production facility, but analysts say the country could struggle to find markets for all its new capacity. Malaysia’s uncontracted LNG supply is forecast to grow to 17 million tons per year over the next decade, said Edi Saputra, a specialist in Southeast Asia gas at Wood Mackenzie.

"This [oversupply] is driven by additional supply … and [as] major LNG export contracts expire, particularly with Japanese buyers," Saputra told Interfax Natural Gas Daily. "Consequently, [Malaysian state-owned oil and gas company] Petronas will need to manage its long position through securing contract rollovers, signing new LNG sales agreements and by delivering some volumes to the [domestic] market.”

However, the domestic market is oversupplied, leaving few opportunities for Petronas. "Peninsular Malaysia is facing an oversupply situation through 2020, considering both piped gas and LNG import contracts," said Peter Lee, an oil and gas analyst at BMI Research. And to make it worse for Petronas, major buyers such as Japan are planning to reduce the amount of LNG they purchase under long-term contracts because of declining domestic demand and a strategy to secure more cargoes on the spot market.

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

Platts forecasts India’s 2017 energy demand growth to outpace China

(The Economic Times; India; Jan. 9) - Platts Analytics predicts a bigger jump in oil demand by India than China in 2017 — a 7 percent rise to 4.13 million barrels per day in India compared with a 3 percent rise in China’s oil demand to 11.5 million barrels per day. Platts also expects even more significant boosts in liquefied natural gas imports by the two countries this year — 38 percent in India and 28 percent by China.

Platts Analytics forecasts an increase in 2017 LNG production in the Asia-Pacific region to 127 million tonnes, up 16 percent on 2016, led by new capacity in Australia. But as demand in the large, mature Japanese and Korean markets is likely to remain flat, Platts looks to China and India to carry the demand-growth load. With LNG production capacity continuing to expand rapidly, particularly in the U.S. and Australia, Platts forecasts an inevitable global LNG surplus that is expected to last until 2024.

As to the LNG market, “the big question … in 2017 is whether strong signs of the emergence of a truly global gas market, evidenced by a large degree of price convergence between regional markets in 2016, will evolve further,” Platts said. “Traditional pricing in international gas trade has been based on oil indexation, but the oil price rollercoaster of the last few years, increasing LNG production and growing competition between LNG and pipeline gas, have led to a rethink.”

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

First U.S. shale-gas LNG arrives in Japan

(Kyodo News; Jan. 6) - A ship carrying liquefied natural gas produced from U.S. shale arrived at a power plant in central Japan on Jan. 6 — the first such import to the country. The voyage lasted almost a month, covering more than 10,000 miles, after the carrier loaded about 3 billion cubic feet of natural gas as LNG at the Cheniere Energy terminal in Sabine Pass, La., on Dec. 7. The buyer, Jera Co., is a procurement joint-venture of Tokyo Electric Power and Chubu Electric Power.

Japan has been buying most of its LNG from the Middle East, Australia, Asia-Pacific producers and Russia, and it hopes that the addition of U.S. supplies will help diversify its sources. Jera, the world’s largest single buyer of LNG, has plans to take additional supplies of U.S. gas. The delivery is "the first step in cracking the LNG market wide open," said Hiroki Sato, senior executive vice president at Jera.

The first delivery was offloaded at Chubu Electric's Joetsu thermal power station in Niigata Prefecture, on the west side of Japan. The Joetsu plant is the first major power plant Chubu Electric built outside of its central Japan service areas. The Cheniere LNG plant is one of five at differing stages of construction in the U.S. The Sabine Pass plant started operations from its first liquefaction unit in February, and has sent cargoes to South America, Europe and China.

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