H1 2014 LNG market round up

According to ICIS, LNG spot prices started 2014 almost double of where they were by the end of the year. The impetus switched to buyers on falling demand and additional supply.

Consistent production – with the exception of Angola – and a new export plant in Papua New Guinea met declining demand as the year progressed. A sharp fall in oil price raised questions over future investments, with buyers pushing for changes to long term pricing and contract flexibility. Australian exports loomed, Egypt was problematic, Russia suffered and Spain’s reload surge came to a halt.

January

The year started unfavourably for portfolio seller BG Group as force majeure was declared from the Idku export plant in Egypt. This followed the shut down of the country’s other liquefaction plant at Damietta as severe shortages of feed gas meet rising domestic demand. A handful of cargoes are lifted from Idku in 2014, one factor behind BG Group’s increased activity of purchasing in the spot market.

A variety of supply options were discussed for Egypt, including pipe connections to Israel’s Tamar and Leviathan fields or the reverse use of the Arab Gas pipe from Israel to Egypt. While a number of letters of intent were published, no final agreements were reported.

In India, Petronet’ 5 million tpy Kochi terminal was commissioned with Qatar’s RasGas delivering the first cargo. The terminal saw low utilisation and a lack of connection to the rest of the grid. Capacity was put up for sale later in the year as a result.

In South Africa, state oil company PetroSA pushed back the development timeline for its planned floating storage regasification unit (FSRU) by six months before deciding against the Southern Cape as a possible location. Anglo-Dutch major Shell late said it is studying various locations to develop an import terminal while disagreements elsewhere prolong the decision of the country’s gas utilisation master plan.

In Brazil, the country’s third FSRY, the 138 000 m³ Golar Winterm was moved into the port of Salvador and increased the country’s regasification capacity. The newbuild 173 000 m³ Experience was delivered in mid-May into Guanabara Bay.

February

Spot prices in key east Asian markets topped US$20.00/million Btu for March delivery amid strong demand, which was further boosted by a buy tender announced by Argentina’s ENARSA. Brazil’s Petrobras continued to soak up spot cargoes as Atlantic demand becomes an ever more serious competitor to Japan and South Korea.

In Colombia, a consortium composed of power generators and distributor Promigas was chosen to develop the country’s first LNG import terminal, using an FSRU provided by Norway’s Hoegh.

US-based oil and gas explorer Anadarko moved further along in marketing volumes from the proposed Mozambique LNG export project on indices other than crude oil. Multiple non-binding heads of agreement (HoA) for long term sales have been signed with buyers in premium Asian markets covering approximately two thirds of the first 5 million tpy train.

Japan’s Mitsui, which holds a 20% equity stake in offshore gas field Area 1, said it would not take ownership of any Moxambican offtake. Japanese buyers such as Kansai Electric and Tokyo Electric Power Co. (TEPCO) were understood to be among several that have HoAs.

Italy’s Eni revealed plans for three floating liquefactions (FLNG) projects in Mozambique, where it holds more than 85 trillion ft³ – 2.4  trillion m³ – of gas. Eni maintained that it was still committed to hosting a shared onshore liquefaction facility with Anadarko, although it indicated the first sanctioned phase may be smaller than previously expected.

Anadarko reaffirmed its focus on getting a 10 million tpy project ready for financial investment decision by year end.

The first cargo from Mozambique was still targeted for the end of 2018.

March

Pakistani state officials endorsed a plan to fast track an import project with a target state sate of the first quarter 2015. Karachi based Engro teamed up with US Excelerate, which delivered an FSRU. A supply tender was later cancelled in December, citing regulatory constraints, with Qatargas considered the likely long term supplier.

In Jordan, Shell was understood to be close to winning the 3.5 million tpy supply tender for the country’s planned 160 000 m³ Golar Eskimo FSRU, supplied by Norway’s Golar, at the port of Aqaba. However, the government subsequently said that negotiations were continuing.

Supply was initially scheduled to start in December, but this looked increasingly unlikely as the year progressed with work on the jetty delayed and only likely to be completed by mid-2015. A drop in pipe gas supply from Egypt left Jordan in need of alternate supply, with the country turning to diesel and heavy fuel oil.

April

Papua New Guinea became the world’s newest source of LNG supply when US based major ExxonMobil started production at the 6.9 million tpy two train PNG LNG export plant in April. PNG LNG shipped its first cargo in late May to Japanese utility Tokyo Electric. By mid-December, 55 cargoes had been loaded from the plant, according to ICIS data.

Start up of the plant came as global demand cooled off and spot prices started a period of decline. Mild summer weather in east Asia limited demand for electricity generation. Japanese nuclear plants remained offline, but there were increasing signs that restarts would come in early 2015. Japanese nuclear plants remained off line, but there were increasing signs that restarts will come in early 2015. Japanese utilities said a drop in LNG demand over the next five years is possible.

In an otherwise steady year for production, the beleaguered 5.2 million tpy Angola plant suffered failure at a pipe connection on 10 April with restart put back to 2015. Angola LNG had produced 10 cargoes after an 18 month delay in start up.

In India, the decision to hike domestic gas prices was put on hold ahead of national elections in May. The new Modi-led government took charge in June and again deferred the decision to hike domestic gas prices, with negative feedback over the lack of profitability in local production from British BP. The price is subsequently lifted to US$5.60/million Btu from US$4.20/million Btu with the government deciding to review every six months.

Spanish energy company Endesa and its parent company Enel signed a long term, 20 year contract for 2.25 million tpy from US based export developer Cheniere’s 12.5 million tpy Corpus Christi greenfield project.

Japanese utility Tohoku Electric Power reached an agreement with trading company Mitsubishi for 300 000 tpy for a 16 year contract starting in 2022 from the Cameron LNG export project in Louisiana, where Mitsubishi has 4 million tpy in equity offtake.

In Canada, Chinese state owned companies Sinopec and Huadian agreed to acquire a 15% stake in the western Canadian LNG export project led by Malaysia’s state run PETRONAS. State owned CNOOC also secured a deal with BP for the supply of up to 1.5 million tpy for 20 years, starting in 2019.

In Europe, the first ship to ship transfer of the year was carried out at the Montoir terminal between two GDF SUEZ-controlled vessels, with the 177 000 m³ Grace Dahlia transferring volumes to the 150 000 m³ Grace Barleria over a period of two days.

May

On 22 May, Russia’s Gazprom signed a US$ 400 billion pipeline gas deal with China’s state owned CNPC to supply up to 38 billion m³/y to China by 2020. In November, a second deal was signed for up to an additional 30 billion m³/y starting in 2019. The deal would use the existing Altai pipeline and gas reserves in eastern Siberia for China’s growing gas market.

From China’s side, the agreements are one element of its move to diversify supply sources through pipelines and LNG with forecasts pointing to a rapid growth in gas demand out to 2020. This is given further credence following poor results from domestic shale gas drilling revealed later in the year. Several private Chinese companies enter the spot market for the first time in 2014.

Chile’s new government unveiled a new energy strategy, endorsing proposals to construct the country’s third export terminal in the south of the country. Australian mining giant BHP Billiton announced an agreement with Spain’s Gas Natural Fenosa for long term LNG supply into the Mejilones LNG terminal in Chile sourced from the US Sabine Pass Project, beginning in 2016.

Further north, the US Department of Energy abolished a queue of pending export applications through changes in policy to approve non-free trade agreement export licenses.

Instead of having an order of precedence, applicants must now complete the Federal Energy Regulatory Commission (FERC) permitting process first and receive a final FERC approval before being able to receive a final non-FTA license.

June

Shipping charter rates fell as more newbuilds added length without proportionate rise in LNG volumes. An abundance of modern diesel electric ships started creating a two-tier market with older steam turbine ships competing on different cost economics and forced to offer at discounts of more than US$10 00 – 20 000/d.

The market bottomed out over the summer before rising in the third quarter. The rise came in parallel with an uptick in east Asian demand. While the PNG LNG plant provides extra volumes, pricing dynamics still mean east Asia is supplied from distant liquefaction plants in the Atlantic basin.

The number of spot charter transactions in the third quarter almost tripled year on year to 52, according to ship broker Poten & Partners.

Spanish energy companies Iberdola and Gas Natural Fenosa joined the offtakers at US Corpus Christi LNG, taking 0.8 million tpy and 1.5 million tpy respectively from the second train of the South Texas export project.

Australian producer Woodside opened its exposure to US LNG through another 0.85 million tpy, soon to be followed by Indonesia’s Pertamina, which had already secured 0.76 million tpy from Corpus Christi’s Train 1.

Indonesia was one of the main sources of hope behind future growth in global LNG demand as the country’s domestic gas needs continue to rise. A previous export plant, Arun, will be converted into an import facility later in the year.

In July, Indonesian gas company Pertamina doubled its Corpus Christi offtake capacity for another 0.76 million tpy, while France-based EDF Trading secured 0.77 million tpy in long term contractual volumes.

Singapore’s Energy Market Authority (EMA announced a request for proposals process to appoint up to two importers to supply its upcoming LNG requirements. A rise in interest in the process was reported as the year progressed. A final decision is expected by the end of 2015.

Norwegian gas producer Statoil announced its latest offshore Tanzania gas discovery of 2 – 3 trillion ft³ with co-explorer ExxonMobil.

Adapted from a report by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/13012015/lng-market-roundup-062/