Exxon/Qatar venture wins LNG export approval for Texas project

(EnergyWire; April 25) - The U.S. Department of Energy on April 25 authorized an ExxonMobil/Qatar Petroleum project in Texas to export as much as 16 million metric tons per year of liquefied natural gas to countries that lack free-trade agreements with the United States, the first official move by the Trump administration on LNG. The Federal Energy Regulatory Commission approved the project in December, and the export approval now sets the stage for the partners to make a decision on the project.

The $10 billion export project is a joint-venture between Qatar Petroleum, which owns 70 percent, and ExxonMobil, at 30 percent. The plan is to build three liquefaction trains — each capable of making 5.2 million tons of LNG per year — at the site of the Golden Pass LNG import terminal near Sabine Pass, in Jefferson County, Texas. Golden Pass originally opened in 2010 to channel Qatari LNG imports into the U.S. Gulf Coast, but the U.S. shale gas boom killed the need for gas imports into the market.

There is one LNG export terminal in operation in Louisiana — Cheniere Energy’s Sabine Pass facility — with more capacity under construction at that plant plus five more export terminals under construction in Louisiana, Texas, Maryland and Georgia. Adding up the projects being built and those with federal export approval but without an investment decision by their owners, the Department of Energy has approved almost 20 billion cubic feet a day of gas exports — close to 20 percent of U.S. gas production.

Read more: Oil and gas news briefs April 27, 2017

Trump adviser supports LNG project on Oregon coast

(Washington Post; April 21) - A top adviser to President Trump on April 20 appeared to throw the administration’s support behind a controversial liquefied national gas terminal in Oregon that was rejected by federal regulators last year. “The first thing we’re going to do is we’re going to permit an LNG export facility in the Northwest,” said Gary Cohn, chair of the White House National Economic Council.

Cohn called the opportunity for U.S. LNG exports “enormous” in his comments at the Institute of International Finance. While he did not name the project, the White House confirmed that he was referring to the Jordan Cove LNG export terminal, proposed by Calgary-based Veresen for Coos Bay, OR., 100 miles north of the California border. Veresen is not a gas producer; it proposes to liquefy gas for customers for a fee.

It isn’t clear what Cohn meant in saying that “we’re going to permit” the project, because final approval actually falls to the Federal Energy Regulatory Commission, an independent agency. In a unanimous decision in March 2016, FERC turned down Jordan Cove, as well as a 232-mile pipeline to link the plant to the North American gas distribution grid. Pointing out that the project lacked customers, the agency found that the pipeline’s “adverse effects on landowners” outweighed the perceived benefits.

FERC rejected a request for reconsideration in December last year. However, Veresen promptly announced plans to re-file and started that process in February — now under the Trump administration. Cohn met with Veresen CEO Don Althoff in March.

Read more: Oil and gas news briefs April 24, 2017

Papua New Guinea LNG out-produces capacity, expansion possible

(Platts; April 19) - Papua New Guinea LNG continued to operate well above nameplate capacity the first three months of this year and has ample feed gas to sustain the strong production levels while discussions to increase plant capacity will take place later in the year, project partner Oil Search said April 19. The plant operated at an annualized rate of 8.3 million metric tons per year during the quarter, 20 percent above the nameplate capacity of 6.9 million tons, said Australian-listed Oil Search, a 29 percent equity holder.

National and local Papua New Guinea elections are due to take place early this summer. Oil Search said it will discuss its expansion plans with the new government. "We look forward to working with the new government when it is formed in August, with discussions regarding LNG expansion expected to be high on the government's agenda.” RBC Capital Markets analyst Ben Wilson said that once the election is over, there is expected to be "rapid progress" toward a formal structure for expansion.

PNG LNG is a two-train integrated project operated by ExxonMobil, which has a 33.2 percent interest. Other partners are Australia’s Santos (13.5 percent), National Petroleum Co. of PNG (16.8 percent), JX Nippon Oil & Gas Exploration (4.7 percent), Mineral Resources Development Co. (2.8 percent), as well as Oil Search (29 percent).

Read more: Oil and gas news briefs April 20, 2017

Total signs short-term LNG contract with Japanese buyer

(Reuters; April 13) - French oil and gas major Total has signed a short-term liquefied natural gas supply contract with Japan's JERA Co., signaling its willingness to offer flexible terms to traditional buyers amid a global glut and lower prices, Total’s president for gas, renewables and power told Reuters. JERA, the world's biggest single LNG buyer, will purchase six cargoes, about 400,000 tonnes of LNG, four of them priced on a traditional oil-indexed formula and two others based on spot-market gas prices.

"We are the first to negotiate a new contract with them. The current market situation favors this type of creativity," said Philippe Sauquet, giving details about the agreement for the first time. Spot LNG prices in Asia have tumbled from over $20 per million Btu in 2014 to currently under $6 due to oversupply. This has put buyers, particularly power producers in Japan and South Korea, in a strong position to impose on suppliers and demand more flexibility because of uncertainty over future demand, Sauquet said.

It is very difficult, he said, for Japanese power producers buying LNG to have certainty whether in 10 years or 15 years nuclear power plants will resume production. While LNG buyers traditionally were locked into 20-year oil-indexed contracts, Sauquet said Total is open to shorter contracts with more flexibility and various price indexes. He said the JERA deal is part of Total's strategy to find new markets critical for development of major LNG projects. JERA is a partnership between Tokyo Electric and Chubu Electric.

Read more: Oil and gas news briefs April 17, 2017

Gazprom says Japan’s long-term gas demand ‘is not clear’

(Bloomberg; April 10) - Russia’s Gazprom isn’t confident in Japan’s future as a growing natural gas user, which may dampen prospects of a proposed pipeline between the countries as Premier Shinzo Abe travels to Moscow later this month. “The demand situation in Japan is not clear for the next 15, 20, 25 years,” said Alexander Medvedev, deputy head of the Kremlin-backed gas exporter. Japan’s nuclear reactor restarts, use of coal and rising energy efficiency are making the outlook for gas uncertain, he said.

Abe, seeking to deepen economic ties with Russia in an effort to resolve a 70-year-old dispute over islands off Hokkaido, is expected to visit Moscow on April 27. Russian gas supplies to Japan, including a possible pipeline, could be discussed during the visit, Russia’s Kommersant newspaper reported last month. Russia has turned to Asia as a growth market for its energy exports to balance its reliance on European buyers. It has challenged Saudi Arabia as the biggest crude seller to China and is aiming to become the largest gas supplier to China through pipeline supplies from Siberia.

Meanwhile, the potential gas line link to Japan, which has been under discussion for years, “has a history with its ups and downs,” Medvedev said. Gazprom’s sales prospects both in China and Japan will depend heavily on the price it’s ready to offer, said Gordon Kwan, head of Asia oil and gas research at Nomura Holdings in Hong Kong. “There is a place for Russian gas in Japan, but only if Gazprom can lower the price enough … to compete with Qatar and Australia,” he said.

Read more: Oil and gas news briefs April 13, 2017

Long-term LNG buyers ‘annoyed’ at lower prices for new customers

(Reuters; April 9) - Buyers in the world’s largest liquefied natural gas markets are concerned upstarts are winning better deals than traditional customers that helped underwrite the industry. New importers in the Middle East and South Asia could be getting cheaper LNG than established users in North Asia, said Hiroki Sato, a senior executive vice president with JERA Co., one of the world’s biggest buyers of the gas.

Sellers may be sweetening deals to lock up fresh customers as new projects, made possible partly by long-term commitments from buyers in countries including Japan and South Korea, flood an oversupplied market, he said. JERA’s wariness over how new importers are being courted highlights the growing pressure on sellers trying to manage old relationships while winning new customers in a market titled in favor of buyers.

“Japan and some other Asian countries are traditional foundation buyers for many LNG projects, but substantial demand is now coming from emerging markets,” Sato said in an email April 7. “I am afraid their price may be cheaper than ours. Who supported the greenfield projects? We traditional buyers have a right to the cheapest price.” Many Japanese customers and other big buyers signed supply deals between 2012 and 2014 when prices were at their peak. Those contracts require them to buy gas at a higher percentage of the price of crude — known as oil indexation — than newer agreements.

Last year, Pakistan State Oil Co. agreed to import Qatari LNG at 13.4 percent of the price of oil, while Japan’s Chubu Electric, Kansai Electric and Tokyo Electric all reached deals in 2012 with Qatar at 14.9 percent of oil, according to Bloomberg New Energy Finance. “These foundation buyers are annoyed that low-credit buyers in emerging markets are getting better deals than them,” said Kerry Anne Shanks, an analyst at Wood Mackenzie in Singapore. “But it is a function of when the deals were signed.”

Read more: Oil and gas news briefs April 10, 2017

Qatar gas expansion presents challenge for LNG rivals

(Bloomberg columnist; April 4) - Half of the world’s biggest natural gas field is back in play. The Qatari moratorium on development of the North Field has been lifted, ending a frustrating 12-year wait for gas producers and customers. The move challenges gas rivals around the world. Saad Sherida Al Kaabi, CEO of state-owned Qatar Petroleum, announced the plans for new development of the North Field on April 3.

The southern part of the field, largely untouched, will be developed to produce 2 billion cubic feet of gas per day, about 10 percent of the field’s current output. With 135 years of reserves at current production rates, Qatar can certainly afford to step up its output. Qatar’s move comes as the global liquefied natural gas market remains deep in a three-year slump, which most observers don’t see ending until 2020 or even 2022.

Four countries are vying to be the world’s top LNG exporter: Qatar, the current leader, with 78 million tonnes per year capacity, is likely to be overtaken by Australia this year. The U.S., awash with cheap shale gas, is building five projects totaling 74 million tonnes per year, with more possibly on the way. Russian President Vladimir Putin said his country will become the top exporter, though that seems a distant aspiration. Gas is easy to find around the world; the hard part is getting it to market at a competitive price.

All these aspirants now realize the giant of the LNG world is back in the game. With its prolific reserves, existing infrastructure and large scale, new Qatari LNG would be the world’s cheapest to produce. This move is partly about deterring new LNG projects, with the threat of more ultra-competitive Qatari gas arriving around 2022, just when many observers expect the market to be tightening again.

Read more: Oil and gas news briefs April 6, 2017

Initial Yamal LNG cargoes will be sold on spot market

(Platts; March 30) - Russia's Yamal LNG Arctic project, expected to start up later this year, plans to start deliveries under its long-term contracts in 2018 while initial cargoes will be sold on the spot market, Novatek CEO Leonid Mikhelson said March 30. "The project participants will enter the spot market with initial volumes, and will sell these volumes where the market is best," Mikhelson told reporters. Novatek plans to launch Yamal’s first liquefaction train this year, with two more going online in 2018 and 2019.

The first LNG tanker is to leave port on the Kara Sea the second half of the year, but it’s hard to give a more precise timeline as plant testing continues, Mikhelson said. Novatek holds a 50.1 percent stake in the project, with its three liquefaction trains each capable of producing 5.5 million metric tons per year of LNG. France’s Total owns 20 percent, as does China National Petroleum Corp. China’s Silk Road Fund owns 9.9 percent.

Key shareholders arrived in the port city on March 30 for the formal welcoming of the first icebreaking tanker for transporting Yamal’s output. The 985-foot-long ship, currently the largest icebreaking tanker in the world, can move through ice almost 7 feet thick. The Arc7 tanker is the first of 15 planned to carry gas from the $27 billion project.

Yamal LNG has nearly fully contracted its entire output, "90 percent or maybe even 100 percent of which will go to the Asia-Pacific region," Mikhelson said. Despite a well-supplied LNG market, Yamal has a competitive advantage due to low production costs, its owners said. Novatek Chief Financial Officer Mark Gyetway has estimated total cost of feedstock gas, liquefaction and shipping at slightly under $3 per million Btu.

Read more: Oil and gas news briefs April 3, 2017