Mozambique says contract changes will help make LNG project viable

(Reuters and Interfax Global Energy; Dec. 7) - Mozambique has approved changes to contracts with Anadarko and Italy's Eni to allow the companies to sell the government's share of gas from proposed Rovuma Basin LNG projects. "The government opted to relinquish its right to receive in-kind its quota of gas as well as the gas production tax. The aim is to turn the projects viable," a government spokeswoman said Dec. 6.

"The concessionaires commit themselves to a joint-sale of liquefied natural gas in order to offer huge volumes and get better prices,” the spokeswoman said. The contracts cover Anadarko's Dolphin Tuna project and Eni's South Coral project. Eni is expected to make a final investment decision this month; Anadarko's decision is expected next year.

The decrees approved by the Council of Ministers update exploration and production contracts awarded a decade ago for the two blocks. The original contracts were drafted assuming oil would be found, and the contracts have been updated to promote gas and LNG development. The government confirmed that it wants the Anadarko-led consortium to pay the petroleum production tax of 6 percent in cash rather than in-kind.

The new agreements will help “obtain financing,” the spokeswoman said. State-owned oil and gas company ENH plans to finance its minority stake by taking loans from its partners and repaying them from its share of the profits. Raising the debt was always going to be a challenge in a frontier market, but today’s environment — with oil prices and LNG demand low — is especially tough. Mozambique is effectively bankrupt after the government guaranteed $2 billion in debt to quasi-state-owned maritime security companies that it cannot pay back, which has made lenders even more cautious.

Read more: Oil and gas news briefs Dec. 8, 2016

Papua New Guinea wants new fiscal terms for LNG plant expansion

(Reuters; Dec. 4) - Papua New Guinea is preparing to negotiate new fiscal terms for a $10 billion expansion of ExxonMobil's liquefied natural gas project in the Pacific nation in a push to boost revenue, Patrick Pruaitch, the nation’s treasurer, said Dec. 4. The effort comes amid rising concern among rural landowners that they have yet to see the full benefits of the $19 billion LNG project after more than two years of operation. ExxonMobil and its partners want to add a third production unit to the plant.

Pruaitch said the government aims to reach a deal with ExxonMobil over new tax terms for expansion of the LNG project in 2017, to ensure it goes ahead in time for an expected upturn in the LNG market early in the next decade. It is important to negotiate better terms for the country on what is expected to be a $10 billion project, Pruaitch said. The country has been hit hard by a slump in oil and gas prices and a drought that has crippled farming and brought production to a halt at its largest copper mine.

To boost revenue, the government also wants to raise $640 million by selling a 4.27 percent stake in the LNG project to landowners, but a deal has been stalled by disputes over landowner entitlements. "I'm desperate to ensure that every available revenue that I can use to fund this year's budget I will put my hands on, including proceeds of the sale,” Pruaitch said. PNG recently lined up a $500 million bank loan after putting on hold plans to raise $1 billion with a sovereign bond issue due to market volatility.

Read more: Oil and gas news briefs Dec. 5, 2016

Australia coal-seam gas LNG projects may need to scale back output

(Australian Financial Review; Nov. 29) - All three of Queensland's liquefied natural gas plants could end up running at less than full capacity as they struggle to make a profit at currently low LNG prices, according to global energy consultancy Wood Mackenzie. The firm is warning that as the Australia ventures extend their drilling to lower-quality coal-seam gas acreage, many wells will not be economic unless LNG prices recover. Up to a quarter of the projects' total output risks becoming unprofitable, Wood Mackenzie said.

While Santos has said it would not run its $18.5 (U.S.) billion Gladstone LNG venture at full production given the cost of buying additional gas, Origin Energy's Australia Pacific LNG plant and Shell's Queensland Curtis facility could end up in the same position should LNG prices remain depressed, said Wood Mackenzie analyst Saul Kavonic. "We think that with time it's going to impact all three," he said of the new plants. "They're just not delivering the way they were expected when they took sanction" in 2010 and 2011.

The three Queensland projects differ from the conventional LNG projects on Australia’s northwest coast as they require ongoing drilling of coal-seam wells to maintain gas production. But with Asian LNG spot prices in a slump that is expected to last several years, making that extra investment may not be worthwhile, especially as drilling extends beyond the "sweet spots" that hold the richest resources. "What's new about this is … it's always been once they are up and built and most of the capex is sunk, you try and squeeze out every drop that you can," Kavonic said.

Other analysts have also pointed to the possibility the Queensland LNG projects will export less than envisaged. Credit Suisse's Mark Samter recently said that at lower oil prices that scenario was "possibly the most financially rational outcome for all parties.”

Read more: Oil and gas news briefs Dec. 1, 2016

IEA director pins hopes for LNG market revival on China

(Reuters; Nov. 24) - China's natural gas demand will grow significantly and may help to speed up the end of the global LNG glut, the director of the International Energy Agency said. China imported 1.84 million metric tons of LNG in October, up 15.1 percent from a year ago. Chinese imports over the first nine months of 2016 were 17.87 million tonnes, up 26.5 percent over the same period in 2015. In contrast, LNG imports to Japan fell 3.5 percent in the first nine months of the year, with a 5.8 percent decline in South Korea.

The deepening supply glut has reduced buyers' interest in signing traditional long-term contracts since there is little value in committing to volume when there are ample supply options available, IEA Executive Director Fatih Birol told Reuters in an interview on the sidelines of an energy conference Nov. 24. China is the hope. "When you look at the global energy mix today, the share of gas is about 25 percent. And in China, it is about 5 percent. … We expect the Chinese gas market will grow significantly,” Birol said.

China's demand could boost the LNG market, but it remains stressed by oversupply. Mohammed Al Sada, energy minister for top LNG exporter Qatar, acknowledged at the same conference that the global LNG price is projected to stay under pressure over the short to medium term as new U.S. and Australian production capacity come online.

Read more: Oil and gas news briefs Nov. 28, 2016

Tokyo Gas will swap U.S. LNG for gas produced closer to home

(Nikkei Asian Review; Nov. 21) - Tokyo Gas and major British utility Centrica will start swapping liquefied natural gas cargoes next year in an arrangement designed to lower the costs of transporting the fuel to their respective customers. The deal will involve the Japanese city-gas company supplying U.S. LNG to Centrica, and the U.K. utility will provide Asian LNG to Tokyo Gas. Actual swap volumes will change depending on regional and seasonal demand.

Tokyo Gas in 2013 signed a 20-year contract for 1.4 million metric tons per year of output from the Cove Point LNG project under construction on Chesapeake Bay in Maryland. The Dominion Resources project is scheduled to go online in late 2017. Moving LNG from the East Coast to Japan requires a trip through the Panama Canal and across the Pacific Ocean. "Because tolls for the Panama Canal are expensive, bringing LNG [from the Cove Point project] to Japan may not make economic sense depending on fuel costs," said an official at a foreign consulting firm in Japan.

By swapping LNG that Centrica buys in Asia with LNG from Cove Point, Tokyo Gas could cut transportation costs by several hundred thousand dollars per shipment. Some of the LNG that Tokyo Gas will receive through the swap agreement with Centrica may be supplied to its partner utilities in Southeast Asia, depending on demand in Japan.

Read more: Oil and gas news briefs Nov. 23, 2016

Italy’s Eni moves closer to investment decision on Mozambique LNG

(Platts; Nov. 18) - The board of Italy's Eni has approved investment for the first phase of developing the Coral floating LNG facility off Mozambique, a key step toward a full final investment decision on the project. There has been much speculation over the Coral project and whether it would move forward given the industry’s downturn and low LNG prices. Total cost of the development has been estimated at up to $10 billion for six subsea wells and the floating liquefaction and storage facility.

Eni said approval by its board of the investment moved the project — based on the 16 trillion cubic feet of resources in the Coral field in Area 4 — closer to FID. "The approval of this investment by Eni's board is another fundamental step toward FID on the project, which will turn effective once all Area 4 partners have approved it and the project financing, which is currently being finalized, has been underwritten," Eni said.

The project received a boost last month when Eni and its partners signed an agreement with BP for the sale of the entire volume of LNG produced by the Coral project for 20 years. The floating production and storage facility will have a capacity of over 3.3 million metric tons of LNG per year. Eni is the operator of Area 4 with a 50 percent interest. The other partners are Portugal's Galp Energia, Korea Gas and state company ENH, each with 10 percent. China National Petroleum Corp. holds a 20 percent interest.

Read more: Oil and gas news briefs Nov. 21, 2016

Japan Fair Trade Commission investigating restrictive LNG contracts

(Reuters; Nov. 16) - Japan's Fair Trade Commission has ordered the country's liquefied natural gas buyers to provide details on contract requirements that prevent them from reselling the fuel to third-parties, a source told Reuters. The move suggests the government’s powerful anti-monopoly regulator has launched a formal investigation into whether the so-called destination clauses in long-term contracts limit competition. The probe could lead to hundreds of billions of dollars of LNG contracts being renegotiated.

Japan, the world's biggest LNG buyer, and other Asia buyers have complained that the long-established practice in LNG contracts puts unfair restrictions on trading the fuel when it would make more economic sense for buyers to resell to other markets. The inquiries were made under the country's anti-monopoly law, and companies failing to comply with the order could be subject to penalties, said the source at one of Japan’s main LNG buyers. The deadline for responses is the end of this month, the source said.

Producers have rebuffed objections to the clauses, but the market is changing as U.S. LNG, linked to natural gas prices instead of the traditional connection to oil prices, has become available. In the past decade, the European Commission forced renegotiation of billions of dollars of contracts after finding that such clauses hurt competition. Japan's trade ministry issued a recommendation in May to abolish or relax destination clauses so that utilities could choose to resell gas they hold under contract, profiting from market opportunities. But removing the clauses could trigger “a flurry” of unrestricted cargoes from Japan, pushing down LNG prices for as long as five years, BMI Research said.

Read more: Oil and gas news briefs Nov. 17, 2016

Growth in Australian, U.S. LNG could push Qatari gas out of Asia

(Reuters; Nov. 10) - Global flows of liquefied natural gas are set to change as the growth in a supply glut will peak in 2018 because of new production from Australia and the United States, energy consultancy PIRA Energy Group said. The growth in Australian and U.S. LNG supplies means traditional trade flows such as Qatari exports to Asia could end up being diverted to other destinations, PIRA Energy's head of global gas and power Ira Joseph said.

Following the expansion in Australian production set to near completion in late 2017, a second phase of growth in 2018 will come from new U.S. LNG production totaling an additional 27 million metric tons per year. Qatar, the world's largest LNG exporter, will be faced with the decision about where to sell its cargoes after new Australian supplies enter the Asian market, Joseph said. Qatar will have to decide whether to divert its LNG to other markets to avoid oversupplying Asia, “to make sure prices (in Asia) don't fall."

The deepening supply glut is also casting doubt on the fate of traditional long-term contracts as buyers with ample supply options see little value in committing to large volumes. Japan's Jera, the world's biggest LNG buyer, has plans to cut the amount of gas it buys under long-term contracts by 42 percent by 2030, while Osaka Gas may not sign new long-term deals for the next few years as the market shifts toward more active spot trading. New contracts will be more flexible and with smaller volumes, Joseph said.

Read more: Oil and gas news briefs Nov. 14, 2016