June 24, 2022

WWW.ENERGYINTEL.COM

Briefing: Who Can Supply the EU With Quick Gas?

EU leaders are meeting at a summit in Brussels Friday to discuss the threat of a total supply cutoff of Russian gas and soaring energy prices.

Moscow's recent supply curtailments have pushed many EU countries to activate their gas supply emergency plans, including in Germany, Europe’s largest buyer of Russian gas.

Restricted Russian gas flows make it difficult to refill storage ahead of the high-demand winter season, making the EU susceptible to supply shortages and price spikes.

Energy Intelligence analyzes where the EU could get access to additional volumes of gas in the event of a cutoff.

Norway

The bulk of the extra piped gas will come from non-EU Norway, Europe’s second-largest supplier after Russia. The Norwegian Petroleum Directorate (NPD) reported full-year 2022 output estimates at around 123.3 billion cubic meters, slightly over 8 Bcm compared to 2021. Grid operator Gassco expects Norwegian piped exports to Europe to be around 117 Bcm, almost 4 Bcm over last year’s exports.

Remaining volumes could be exported as LNG through Equinor's recently restarted 4.2 million ton per year Hammerfest LNG plant. Producers have taken measures to maximize gas exports, such as taking gas normally reinjected for oil recovery and exporting it instead. NPD preliminary data shows Norwegian gas output up 7.6% year on year during January-May to 50.76 Bcm.

UK

Estimates show production from non-EU UK could grow by as much as 5 Bcm this year to around 36 Bcm. Output is expected to peak at 37 Bcm in 2023. Most of the UK’s production is expected to be used to meet part of its own 74 Bcm demand. However, depending on regional pricing, the UK can send surplus volumes to Continental Europe through two pipelines — the BBL to the Netherlands and the IUK to Belgium.

Netherlands

Expectations that Groningen, once Europe’s largest onshore gas field, could provide extra volumes, have been dashed. The Dutch government says Groningen's output quota would remain at 4.5 Bcm in the 12 months to the end of September, down from 7.7 Bcm last year. Grid operator GTS has suggested the field can safely produce up to 7.6 Bcm. Groningen activity has been restricted to limit earthquakes linked to gas extraction. From October, Groningen wells will be left on standby for supply emergencies and will produce 2.8 billion cubic meters per year. The Dutch still expect to close the field completely in October 2023 or 2024. Total Dutch domestic gas production fell 15% in the first quarter to 5.32 Bcm, according to Statistics Netherlands.

Azerbaijan

Caspian gas headed for Europe this year is expected to run above the Trans Adriatic Pipeline’s 10 Bcm/yr nameplate capacity, with 8 Bcm/yr supplied to Italy, 1 Bcm/yr to Greece, 1 Bcm/yr to Bulgaria as well as some 0.5 Bcm/yr reserved for short-term bookings. This is already higher than the 8.1 Bcm transported through the line in 2021. Plans to double the pipe’s capacity to 20 Bcm/yr are in place but depend on various factors including long-term deals to support upstream developments on the Azeri side to provide the additional volumes.

Algeria

Italy seems the most likely beneficiary of Algeria’s plans to expand gas exports to the EU, with deals for an additional 3 Bcm/yr this year and up to 9 Bcm/yr more by 2024. An untimely geopolitical clash between Algeria and its other major European buyer Spain will cap any potential additional flows between the two countries. Spain’s Algerian gas and LNG imports have dropped almost 39% year on year in the January-May period to 4.3 Bcm — a likely casualty of the shuttering of the Maghreb-Europe pipe after a separate diplomatic spat with Morocco. This is despite Algerian assurances that any lower piped volumes would be compensated via LNG.

Other Domestic EU Output

Additional EU domestic gas production is not expected to provide much relief this year.

The Midia gas development, Romania’s first offshore project since 1989, started producing this month and is planned to supply 500 million cubic meters of gas domestically this year. Output will peak at 1 Bcm/yr during the following three years.

Denmark’s Tyra gas field is expected to restart in 2023 after a redevelopment project had it shut since 2019, producing 60 million barrels of oil equivalent per day (around 3.5 Bcm).

LNG Prospects

The bulk of extra spot LNG supplies to Europe will likely come from the US. The 10 million ton/yr Calcasieu Pass plant is preparing for a full-scale operational start in early 2023. Out of the 25 commissioning cargoes that have been lifted from the plant, 15 have been or are about to be delivered to Europe, according to commodity data firm Kpler.

Africa is another promising region. Eni’s 3.4 million ton/yr Coral South floating LNG (FLNG) project offshore Mozambique received first feed gas volumes earlier this month, with its first LNG cargo expected in the second half, potentially in October. However, it is uncertain that the cargoes will go to Europe due to the close proximity of the Asian markets to the project.

In Congo (Brazzaville), Eni's 2 million ton/yr FLNG project is expected to start in mid-2023, with its output expected to be marketed on a spot basis.

In Mauritania, Phase 1 of the BP-led 2.3 million ton/yr Greater Tortue Ahmeyim FLNG is also set to produce its first cargo in the fourth quarter of 2023.
Jaime Concha, Copenhagen and Daniel Stemler, Madrid

Canadian LNG Backers See Some Rough Sailing Ahead

Political winds are changing in Canada, but perhaps not quickly enough to mobilize the country’s large natural gas reserves in time to alleviate market dislocations exacerbated by Russia’s invasion of Ukraine, say two long-time observers of Canada’s energy industry.

“Canada is the world’s greatest untapped source of LNG potential from a stable, safe supplier,” David Yager, a seasoned veteran of Alberta’s energy industry, told Energy Intelligence in an interview last week. “There is a different tone coming out of Ottawa due to the reality of a world in need.”

Yager, who has spent decades navigating Alberta’s energy industry both in and out of the boardroom, most recently authored a book: "From Miracle to Menace – Alberta, a Carbon Story." He says there is definitely renewed political interest in reviving LNG export projects given recent events, and that geopolitics are also shifting project developers' desire to make long-stalled export plans viable.

From a market standpoint, he noted that European buyers are coming around to the idea that long-term contracts with safe suppliers may be necessary to get the LNG they need as they seek to wean themselves off Russian gas. And Canada could help fill that need — if not for intense opposition from environmental groups, some First Nations and others, mostly at the local and provincial levels.

East and West

Canada currently has only one major LNG export facility under construction — at Kitimat in British Columbia. The Shell-backed LNG Canada is 60% complete and is designed to produce 14 million tons per year starting in 2025. This could double if plans for additional liquefaction trains are approved by Shell and its partners.

However, more numerous are stalled or mothballed projects. Ottawa says that since 2011, 18 export facility projects — including LNG Canada — have been proposed that could have produced and exported 216 million tons/yr of LNG, the equivalent of 29 Bcf/d of gas.

Canada's Natural Resources Minister Jonathan Wilkinson said recently that the country is looking again at projects on its Europe-facing Atlantic Coast. The ministry lists five proposed east coast terminals: Goldboro LNG, Bear Head LNG, A C LNG, Energie Saguenay and Stolt LNGaz. An infrastructure fund recently acquired the Bear Head project near Point Tupper, Nova Scotia.

“We are looking at all of those projects and looking at whether there is a way in which the government of Canada can help in the context of expediting those projects," Wilkinson said.

Given that Canada has proved reserves standing at about 71 trillion cubic feet, according to the US Energy Information Administration, Yager said it is “a cruel thing for those of us in the Canadian business to watch” as Canadian gas — potentially as much as 1,400 Tcf in ultimately recoverable reserves, according to the Canadian Gas Association — languishes without an outlet.

A Slow Boat to Somewhere

Plentiful Russian and spot market gas, combined with seemingly insurmountable political and regulatory barriers to large energy infrastructure projects in Canada, have long stymied efforts to export gas to markets other than the US.

In contrast, the US between 2014-20 built six such facilities and approved more than a dozen more. This is due, says Canada’s pro-business Fraser Institute, to a steep regulatory burden and stiff opposition by various interest groups, often at the provincial level. For example, Fraser Institute analysts point to studies showing that LNG projects in Canada take 19 more months to gain approval than those in the US.

This combination of regulatory burden and political opposition isn’t going away due to events overseas. Instead, they form what Professor Joseph Doucet, dean of Social Sciences and Humanities at the University of Alberta, says is a semi-permanent resistance to large energy infrastructure projects of all types. Much of the opposition is “independent of the project or resource,” he told Energy Intelligence.

From Doucet's perspective, the political winds blowing out of Ottawa are more a gentle breeze than a hurricane. As a result, he does not see significant progress on LNG export development anytime soon, especially given concerns that shipping Canadian gas abroad will raise gas prices within Canada.

Still, Canadians aren’t entirely inured to what’s going on overseas, he said. “There is a realization now that the role Russia plays is different. In Canada, a lot of this is fairly new, but there is an evolving knowledge of how global energy markets work.”

But for leadership on actually moving supply to where it's needed, Doucet said look to the south. “Canada is small and won’t move nearly as quickly as the US."
Jeffrey Cavanaugh , Houston

LNG Floating Storage Count Rises Around Europe

The number of LNG vessels acting as floating storage continues to build around European shores as continental terminals struggle to deal with the influx of cargoes. Terminal maintenance adds to the difficulty.

Based on their voyage routes and waiting times, Energy Intelligence calculated that at least 10 vessels are currently acting as floating storage offshore Europe.

Three such vessels were seen in the Mediterranean Sea, while another three were waiting around the Strait of Gibraltar, according to ship-tracking data by analytics firm Kpler.

In Northwest Europe, four vessels were likely acting as floating storage, while several other ships were also seen waiting nearby regional terminals, although it was not immediately clear whether these are also being used as floating storage.

Terminal Bottlenecks

The high number of floating storage vessels suggests that European terminals, particularly in Northwest Europe — a key demand region of the continent — are struggling to cope with the continued wave of incoming LNG cargoes, intended to replace Russian pipeline supplies.

Energy Intelligence already reported in early February that a massive influx of LNG cargoes would likely create bottlenecks at European terminals, due to the scarce delivery slot availability and terminal capacity limits, which in turn would generate floating storage.

Additionally, terminal maintenance has also exacerbated the floating storage phenomenon.

France’s 9.6 million ton per year Dunkirk and 6.8 million ton/yr Fos Cavaou LNG terminals have both been undergoing planned maintenance, which restricted cargo unloading throughout this month, particularly at Fos Cavaou.

Money to Be Made

With the floating storage count increasing offshore Europe, concern on the market was rising that some of the floating vessels could be redirected toward Asia for a higher profit.

However, after Russian exporter Gazprom further reduced pipeline supplies to Europe, which the company said was due to the protracted maintenance at the Nord Stream 1 pipeline, European spot LNG and hub prices rocketed.

This in turn pushed Europe back into a premium position over Asia for spot LNG volumes, which will most likely keep floating storage vessels around Europe.

The latest spot LNG price assessment — for deliveries four to eight weeks ahead — by Energy Intelligence on Jun. 21, showed Southwest European spot LNG prices holding an $8.50 per million Btu premium over Northeast Asian spot LNG prices.

The European price jump is not only likely to prevent cargoes sailing to Asia, but in some cases companies that kept vessels as floating storage off Europe can now make a much higher profit upon unloading than if they would have been able to discharge them earlier.

"There are loaded vessels waiting to make money," a source at a Spanish utility told Energy Intelligence earlier this month, referring to such a market scenario.
Daniel Stemler, Madrid

Petronas Advances Sour Gas Projects

Malaysia's Petronas and its partners have secured a long-term land lease at Bintulu in Sarawak state, marking a step forward for the development of domestic offshore sour gas projects.

The Malaysian state firm and partners Sarawak Shell and PTT Exploration and Production (PTTEP) have signed a heads of agreement with the Sarawak state government for a land lease in Tanjung Kidurong to build an onshore plant which forms part of the Sarawak Integrated Sour Gas Evacuation System (Sisges) project.

The development plan for the Sisges project is currently undergoing a final review process prior to a final investment decision and statutory approvals.

Projects which would form part of Sisges include PTTEP’s Lang Lebah gas project and Shell’s Rosmari Marjoram project, both of which are targeting first gas in 2025-26.

Gas from both projects is earmarked as feed gas for Petronas’ 30 million ton per year, nine-train Bintulu LNG complex, which has been suffering from flat production and exports.

Strong demand for LNG and high prices in the wake of the war in Ukraine are now encouraging operators to accelerate upstream developments and unlock the potential of high-carbon dioxide fields. Petronas has prioritized cheaper upstream projects, but high LNG demand and prices are making costlier developments more commercially viable.

The planned onshore acid gas removal plant would be equipped to treat high-sulfur content from gas before sending it to Bintulu LNG.

Sarawak Shell operates Block 318, where Rosmari Marjoram is sited, with an 85% stake. Petronas Carigali holds the other 15% interest. With a capacity of 800 million cubic feet per day, Rosmari Marjoram is ranked third among Malaysia’s new greenfield projects — behind the 1,000 MMcf/d Lang Lebah and the 900 MMcf/d Kasawari full-field development under construction, but ahead of the 550 MMcf/d Pegaga, which came on line in late March.

Asian spot LNG prices remain persistently high amid a lack of new LNG capacity and higher demand from Europe, which is scrambling for alternatives to replace Russian piped gas.

Higher European hub gas prices have hoisted Northeast Asian LNG spot prices which jumped by $2.50 to $26 per million Btu this week, according to World Gas Intelligence assessments.
Clara Tan, Singapore


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India22.4922.9422.5622.9422.1321.9623.4221.5923.3322.5821.7921.5121.90
Sodegaura, Japan23.1224.5424.5824.6523.0819.4824.1721.9524.0225.0122.3121.4123.31
Zeebrugge, Belgium31.6629.8729.4829.9631.1131.4930.7229.4430.5529.4631.2430.2231.35
Huelva, Spain27.6125.9125.5426.0027.0526.8326.7025.4126.5625.5227.1126.0527.13
Isle of Grain, UK17.1915.5515.2215.6316.7117.0316.4415.1616.1815.1816.8115.8816.91
Everett, US4.683.103.493.174.374.220.013.943.702.734.89----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback17. Jan31. Jan14. Feb28. Feb14. Mar28. Mar11. Apr25. Apr9. May23. May6. Jun20. Jun102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia26.0025.770.46-0.23
SW Europe34.5028.29-4.90-6.21
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.026.226.246.94
NBP, UK (futures)-2.1020.8222.9224.75
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF0.2039.5939.3937.12
Zeebrugge (Belgium)-1.7126.7228.43--
German NCG-0.8335.8236.6636.10
NBP (UK)-4.9118.0322.9418.40
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.655.826.477.34
Corpus Christi, Texas-0.385.886.267.01
Cove Point, Maryland0.125.745.626.34
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.026.226.246.94
Second Mth0.006.286.286.91
Third Mth-0.026.266.286.86
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaJul '21Aug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22020406080Energy Intelligence