H2 2014 LNG market round up

July

The US Department of State issued sanctions that banned Russia’s Gazprom, Rosneft and NOVATEK from accessing credit markets for a period longer than 90 days, making project finance difficult. NOVATEK fell behind on raising capital for its Yamal LNG project with the potential Gazprom Vladivostok plant likely to face delays.

The Russian economy deteriorated further as the year progressed, with diving oil prices hitting income and the Russian rouble depreciating sharply. In December, President Vladimir Putin announced the cancellation of the South Stream pipeline project, which reinforces Russia’s orientation to the Asian gas markets. The project freed up approximately US$50 billion, but Gazprom had invested more than US$5 billion in infrastructure, most of which will no longer be needed.

Russia also stopped delivery of gas to Ukraine over a payment dispute. Flows only resumed in December after Ukraine made a pre-payment.

In Canada, South Korea’s KOGAS widened its search to shed further equity from the planned 12 million tpy LNG export project near Kitimat, British Colombia. KOGAS earlier sold 5% of its stake to project operator Shell, which now has 50% of the project, with KOGAS holding a 15% stake. Mitsubishi (15%) and PetroChina (20%) have the remaining stakes.

Other Kitimat project developer US’ Apache also announced its intent to leave its 50% of the 10 million tpy LNG export venture with US major Chevron. In December, Australian Woodside agreed to buy Apache’s stake, alongside Apache’s 13% stake in the Australian Wheatstone project. In Indonesia, Hoegh completed work on the PGN FSRU Lampuang which completed its first ship-to-ship transfer on 27 July. Some technical issued followed with two more deliveries by the end of November.

August

The 12 million tpy Cameron plant became the second US plant to reach final investment decision (FID) with first LNG due in 2018.

Project partners Sempra, France-headquartered GDF SUEZ and Japan’s Mitsui and Mitsubishi signed financing agreements for the venture on 6 August. The project is structured as a tolling facility, which means each offtaker will secure feedgas and pay Sempra a fixed liquefaction fee to lift the volumes on a free on board (FOB) basis. Tolling fees are understood to be at US$2.00 – 3.00/million Btu.

Japan’s Chubu reached a mid-term supply agreement with US Cheniere for less than 1 million tpy between July 2016 and January 2018. Cheniere had 2 million tpy allocated from the first four trains of Sabine Pass. The first phase includes the two trains and is expected to start up in 2015, with the second phase to commence in 2016.

September

Uncertainty surrounded the status of Egypt’s import terminal for much of 2014 amid reports that state owned EGAS had launched a supply tender for LNG imports for its planned FSRU. Hoegh’s FSRU Gallant was originally scheduled to arrive in August, but this slipped back to the end of the first quarter, 2015. Algeria’s Sonatrach and Gazprom Marketing & Trading were frequently named as potential suppliers, with other portfolio sellers and traders listed by the local media.

The deadline for expressions of interest for 1 million tpy of  India’s GAIL volumes from Sabine Pass closed. The LNG is being marketed on a FOB basis for a five year period. A number of companies are expected to receive the volume, although names were not revealed by December.

In Singapore, Pavilion Energy strengthened its foothold in the market by signing an agreement to purchase long term supply from BP in September. Subsidiary Pavilion Gas will receive 0.4 million tpy from BP for 20 years, starting in 2019. This follows Pavilion Energy’s move in June to boost supply from French major Total from 0.5 million tpy to 0.7 million tpy. Deliveries will start in 2018 over a period of 10 years.

While Singapore was touted as a potential future hub of Asian trade, buyer and trader reaction to the launch of the LNG derivatives market in Japan was less than optimistic. The Japan OTC Exchange, a venture between the Tokyo Commodity Exchange and broker Ginga Energy, opened a platform for non-deliverable forwards contracts, but sources cast doubt over liquidity.

With oil prices starting to drop, Japanese and South Korean buyers became increasingly vocal on the justification for lower outright contract prices, a greater diversity in price indexation and the need for flexibility in delivery terms. Qatari seller RasGas acknowledged the buyers’ push for shorter term long term contracts. With demand starting to pick up in the premium east Asian markets, the Dutch Gate LNG terminal in Rotterdam reloads two LNG carriers simultaneously for the first time.

October

Europe’s latest import infrastructure started up as Lithuania took deloiver of Hoegh’s 170 000 m³ Independence FSRU on 26 October. Norway’s Statoil delivers the first commissioning cargo to the vessel on the next day. The first commercial delivery is scheduled for December. LNG buyer LITGAS has an agreement with Statoil to supply a small volume each year into the terminal for five years.

Poland fared less well with delays to the start of its import terminal. PGNiG and Qatargas renegotiated their contract so that the Qatari company can sell gas previously intended for Poland into other markets in 2015.

In Chile, Gas Natural Fenosa expands its presence through the acquisition of local energy company CGE. The US$3.3 billion deal gives the Barcelona-based company a majority take in Metrogas, one of three offtakers at Chile’s Quintero LNG terminal, where plans to expand capacity to 5 million tpy are also announced.

Mild weather and lower gas demand in Argentina caused a backlog of vessels to build outside country’s ports. Five LNG cargoes were delayed into 2015, gas buyer ENERSA postpones tender plans.

Further north, the British Colombia provincial government released its long awaited LNG tax royalty structure during its second legislative session of the year, in a two tiered structure that caps the tax at half of what was previously indicated.

Tanzania’s Ministry of Energy and Minerals published an energy road map in which it proposed the staged unbuilding of state owned electricity utility, TANESCO. The road map took the long term view, focusing on an increase in installed power capacity to at least 10GW by 2025, at which point the phased unbundling of TANESCO would be complete. BG Group, operator of offshore bloacks 1, 3 and 4, holds 15 trillion ft³ of total gross recoverable resources, while Statoil has 21 trillion ft³ of gas in place in block 2.

November

The Japan Customs-cleared crude price for November fell by 14% from October to a four year low, in line with diving crude oil. The price was used in many long term contracts agreed with major Japanese buyers. While buyers were expected to boost contract deliveries as a result, spot prices in east Asia fell below US$10.00/million Btu on a delivered ex-ship (DES) basis. This is half the price reported one year before, with mild weather and high LNG inventories stemming spot demand in the region.

China’s Sinopec received a commissioning cargo into its Qingdao import terminal from BG Group on 13 November. Sinopec holds a 2 million tpy long term offtake contract from PNG LNG, with the next cargo expected in December.

In South America, Mexico’s state oil and gas company Pemex announced plans for the country’s first ever LNG export project, planned for the southwest coastline. The 4 – 5 million tpy project will look to send domestically produced gas to premium markets in Asia. The push for privatisation within Mexico’s gas and energy sector is a big theme for the year, with plans to boost domestic production and pipe links brining in gas from the US.

Argentine oil and gas company YPF reached an agreement with companies in neighbouring Uruguay for the potential use of that country’s new regasification import terminal.

After a bumper year on reloads, Spain became awash with volumes that cannot be sold as global spot demand evaporates and prices become unworkable.

Legislation in Spain is drafted to cut out loopholes that, although attractive to reloaders, left regulated infrastructure operators operating at a loss in many cases. It is not clear what effects, if any, these changes which recognise LNG storage as an asset in itself as a flexibility tool, will have on the LNG reload sector in Spain.

December

All eyes were on Australia as the 145 000 m³ Methane Rita Andrea headed towards Gladstone as the initial vessel into BG Group’s 8.5 million tpy Queensland Curtis (QCLNG) plant – the first of four Australian export projects due to ramp up in 2015. After four years of construction, the US$20 billion project will be the first to convert coal seam methane into LNG. The timely start up of – or possible delays to – Australian plants will be a central theme for 2015, set against concerns over the mid-term demand outlook.

Looking further ahead, Malaysia’s state run PETRONAS announced its intent to defer FID for its planned 12 million tpy Pacific Northwest LNG export ptoject in Canada’s British Colombia. PETRONAS said earlier it would reach FID before 2014.

Brazil’s government awarded power purchase agreements to gas fired projects proposed by local conglomerate Grupo Bolognesi. Both projects will be linked to new LNG import facilities. Drought continues to leave Brazilian LNG demand at record levels over 2014 despite periods of limited spot interest from state run buyer Petronas. The marine fuel sector awaits stricter emissions regulation from the start of 2015, although there are some concerns that falling oil prices will act as a disincentive to move away from oil based fuels. The EU announced that it would provide US$4 million for a pilot bunkering facility in the UK as well as LNG propulsion systems to two new ships.

Shell confirms plans to build an LNG bunker vessel that will supply LNG as a fuel in ship to ship transfers across northwest Europe.

Adapted from a report by Emma McAleavey.

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/13012015/lng-market-roundup-065/