June 30, 2022

WWW.ENERGYINTEL.COM

Freeport's Path Forward Becomes More Fraught

Freeport LNG faces a fresh regulatory thicket that brings further uncertainty to its recovery timeline — likely delaying start-up for at least a month.

The US Pipeline and Hazardous Materials Safety Administration (PHMSA) on Thursday issued a Notice of Proposed Safety Order (Nopsa) outlining the many hurdles ahead.

"Freeport may not return its LNG export facility on Quintana Island, Texas to normal operations until it receives written approval from the director," the agency said. "As a result of the preliminary investigation, it appears conditions exist ... that pose an integrity risk to public safety, property, or the environment."

Freeport LNG, a 15 million ton per year export plant, suffered an explosion and fire on Jun. 8, shutting it down entirely.

After an initial prediction of a three-week shutdown, Freeport announced Jun. 14 that the plant could resume partial operations in about 90 days — or in early September — with full operations not expected until late 2022.

On Thursday, Freeport said that given the new information from PHMSA, it expects an early October ramp-up.

"Safety has always been, and will continue to be, the highest priority for Freeport LNG," the company said. "Since the incident on Jun. 8, the company has worked collaboratively with all local, state and federal officials regarding the incident response, investigation, and safe resumption of liquefaction operations."

What PHMSA Wants

Under the proposed order, the company must now submit for approval an extensive set of reports to PHMSA's director for the southwest region.

That includes an acceptable response to the Nopsa within 30 days, to move the process toward a final order.

Then Freeport must submit its choice of third-party evaluator, after which it must submit a review of operating procedures and a review of control system procedures.

Within 60 days of the final order, Freeport must submit a root cause failure analysis, an assessment and inspection covering the explosion and fire, and an assessment of personnel qualifications and training. A remedial work plan is expected no more than 30 days later.

Freeport could conceivably submit its reports ahead of the deadlines, yet the entire process is essentially open-ended.

"After receiving and analyzing additional data in the course of this proceeding, PHMSA may identify other corrective measures that Freeport must perform," the agency said.

State of the Investigation

In an ominous warning in terms of political risk, PHMSA said that Freeport "is located within an ecologically sensitive area and is also near recreational areas that include beaches and waterways used by the public," including the Gulf Coast Intercoastal Water Way, the nation's third-busiest waterway.

The proposed order also outlined what is known about the damage.

"In addition to the 18-inch vacuum insulated pipe being damaged by the explosion and associated fire, much of the other piping in the area was also damaged and will require repairs or replacement before LNG transfer operations can recommence," PHMSA said.

What the Coast Guard Wants

On the day of the explosion, according to PHMSA, the US Coast Guard issued to Freeport a Captain of the Port Order, restricting all marine cargo operations until Freeport conducts a risk analysis on marine transfers that must be approved before cargo operations can restart.

Credit Rating Woes

Meanwhile, a credit rating downgrade from Moody's on Wednesday doesn't bode well.

The company's "financial profile is likely to remain weak for an extended period and that has been factored into the downgrade," Moody's said, adding that "the downgrade also incorporates ESG [environmental, social and governance] considerations including social risks related to health and safety and governance risks related to use of high financial leverage and limited committed liquidity backstops."
Michael Sultan, Washington

Northeast Asian LNG Imports Slightly Recover in May

The world’s top LNG-importing region saw a slight recovery in May after a downward trend in imports for the past couple of months.

The Northeast Asia region, consisting of Japan, China, South Korea and Taiwan, imported 15.8 million tons of LNG in May, a 6.8% increase from April, but a 7% fall from the previous year, according to customs data.

While historically high spot LNG prices reduced buyers’ appetites, demand picked up slightly in May as prices were more or less stable between $20 and $30 per million Btu, compared to a record $50/MMBtu seen in March following Russia’s invasion of Ukraine.

Japan again became the world's top importer in year-to-date 2022 after losing out to China in 2021.

Northeast Asian LNG Imports
('000 tons)May'22Apr'22May'21Y-o-Y %Chg.
China4,9264,3507,032-29.95%
Japan5,7605,5744,95316.29
South Korea 3,4053,4493,412-0.21
Taiwan 1,7811,4881,815-1.87
Total15,87314,86217,212-7.78%

Japan

Japan imported 5.7 million tons of LNG in May, a 6% increase from April but a 7% fall from the same time last year, according to customs data.

The top supplier of LNG to Japan was Australia, with volumes reaching 2.8 million tons in April, followed by Malaysia at 1 million tons.

The average price of LNG to Japan was $15.59/MMBtu, and the highest price was from the United Arab Emirates at $34.64/MMBtu, followed by Papua New Guinea at $20.66/MMBtu.

Created with Highcharts 9.0.0JAPAN LNG IMPORTS('000 tons)AustraliaAustraliaBruneiBruneiIndonesiaIndonesiaMalaysiaMalaysiaOmanOmanPapua New GuineaPapua New GuineaQatarQatarRussiaRussiaUnited Arab EmiratesUnited Arab EmiratesUnited StatesUnited StatesSource: Customs data

Created with Highcharts 9.0.0($/MMBtu)JAPAN LNG IMPORT PRICESAustraliaBruneiIndonesiaMalaysiaOmanPapua NewGuineaQatarRussiaUnited ArabEmiratesUnitedStates$0$10$20$30$40Source: Customs data

China

Chinese imports fell by 30% year on year in April, but monthly volumes slightly recovered by 13% in May to average 4.9 million tons.

Strict lockdowns caused by an uptick in Covid-19 cases caused Chinese imports to fall dramatically in the past three months, but as the country reopens, demand is expected to pick up.

Australia was also China’s top supplier in April with volumes at 1.9 million tons, followed by Qatar, which sold 1.2 million tons.

The average price to China was $14.51/MMBtu, with the highest price from Oman at $33.08/MMBtu, followed by Russia at $21.57/MMBtu.

Created with Highcharts 9.0.0CHINA LNG IMPORTS('000 tons)AustraliaAustraliaBruneiBruneiIndonesiaIndonesiaMalaysiaMalaysiaNigeriaNigeriaOmanOmanPapua New GuineaPapua New GuineaQatarQatarRussiaRussiaUnited StatesUnited StatesSource: Customs data

Created with Highcharts 9.0.0($/MMBtu)CHINA LNG IMPORT PRICESAustraliaBruneiIndonesiaMalaysiaNigeriaOmanPapua NewGuineaQatarRussiaUnitedStates$0$10$20$30$40Source: Customs data

South Korea

Imports to South Korea remained stable in April according to customs data, averaging 3.4 million tons.

The country’s main supplier in April was Australia with volumes at 859,000 tons, followed by Qatar at 795,000 tons.

The average price was $14/MMBtu, with the highest coming from the United States at $19.34/MMBtu, followed by Australia at $15.95/MMBtu.

Created with Highcharts 9.0.0SOUTH KOREA LNG IMPORTS('000 tons)AustraliaAustraliaEgyptEgyptEquatorial GuineaEquatorial GuineaIndonesiaIndonesiaMalaysiaMalaysiaNigeriaNigeriaOmanOmanQatarQatarRussiaRussiaTrinidad and TobagoTrinidad and TobagoUnited StatesUnited StatesSource: Customs data

Created with Highcharts 9.0.0($/MMBtu)SOUTH KOREA LNG IMPORT PRICESAustraliaEgyptEquatorialGuineaIndonesiaMalaysiaNigeriaOmanQatarRussiaTrinidadand TobagoUnitedStates$0$5$10$15$20Source: Customs data

Taiwan

Taiwan monthly imports of LNG increased by 19% in May to 1.7 million tons, from 1.4 million tons in April, a 1.8% fall from the same period last year.

Qatar was top supplier of LNG to Taiwan in May, as volumes reached 628,000 tons, followed by Australia at 571,000 tons.

The average price was $15.07/MMBtu, and the highest price came from Australia at $22.26/MMBtu, followed by Indonesia at $13.78/MMBtu.

Created with Highcharts 9.0.0TAIWAN LNG IMPORTS('000 tons)AustraliaAustraliaIndonesiaIndonesiaPapua New GuineaPapua New GuineaQatarQatarRussiaRussiaUnited StatesUnited StatesSource: Customs data

Created with Highcharts 9.0.0($/MMBtu)TAIWAN LNG IMPORT PRICESAustraliaIndonesiaPapua New GuineaQatarRussiaUnited States$0$5$10$15$20$25Source: Customs data

Yousra Samaha, Dubai

Novatek's Emissions Grow on Higher Production

Novatek’s Scope 1 greenhouse gas (GHG) emissions increased 11% in 2021 on higher production, Russia’s second-largest natural gas producer and LNG export champion said in a sustainable development report published on Thursday.

Novatek is sticking to emission goals alongside ambitious plans to produce up to 70 million tons of LNG per year by 2030 in the Arctic, up from 19.6 million tons in 2021, although those plans are complicated by international sanctions in response to Russia’s invasion of Ukraine.

Withdrawal of its strategic partner, France’s TotalEnergies, from new projects will particularly complicate Novatek’s decarbonization efforts, including the proposed hydrogen/ammonia, wind power generation and carbon capture and storage ventures in the Arctic.

Emissions Up

Direct Scope 1 emissions amounted to 10.048 million tons of carbon dioxide equivalent last year, up from 9.056 million tons in 2020.

The launch of the 900,000 ton/yr Train 4 at Novatek’s flagship Yamal LNG plant in the Arctic, as well as the launch of production from gas condensate reservoirs at the fields of the North Russky cluster in West Siberia, were among key factors behind the growth in GHG emissions, Novatek said.

Scope 2 (purchased energy) and Scope 3 (indirect emissions) emissions also increased 18% and 2.6% to 270,000 tons and 177.8 million tons of CO2e in 2021 (see table).

Novatek's GHG Emissions
('000 tons of CO2e)20212020%Chg.
Scope 1 (Direct Emissions), incl:10,0489,05611.0%
- Production Facilities6,2425,51813.1%
- Processing Facilities66558912.9%
- LNG Production Facilities2,9772,8066.1%
- Energy Service Facilities16414314.7%
Scope 2 (Purchased Energy)27022918.1%
Scope 3 (Indirect Emissions)1781732.6%

Intensity Down

Despite a growth in absolute emissions, greenhouse gas (GHG) emission intensity ratio decreased 0.3% on the year to 294 kilogram of CO2e per barrel of oil equivalent, Novatek said.

The intensity ratio is calculated by dividing the total GHG emissions from total hydrocarbon production by hydrocarbon production volumes, including interests in joint ventures.

GHG emission intensity of LNG production decreased 0.4% year on year to 243 kg of CO2e per ton, Novatek said.

Created with Highcharts 9.0.0(million tons)NOVATEK'S YAMAL LNG EXPORTS2017201820192020202120220510152025Source: Kpler


Methane Reduced

Emissions of methane, a more potent GHG than CO2, decreased 8% on the year to 8,155 tons in 2021, Novatek said.

Novatek attributed the reduction to reduced wastewater combustion driven by a pilot project to treat and inject process water into the reservoirs at the Yurkharovskoye field in West Siberia.

Methane emissions from LNG production facilities, however, jumped 77% to 479 tons in 2021.

Novatek's Methane Emissions
(tons)20212020%Chg.
Production Facilities7,5158,391-10.4%
Processing Facilities8184-3.6%
LNG Production Facilities47927077.4%
Energy Service Facilities80141-43.3%
Total8,1558,886-8.2%

Internal Carbon Pricing

Novatek in early 2022 introduced an internal carbon-pricing mechanism to improve the assessment and analysis of carbon regulation risks, the sustainable development report revealed.

The company has amended its local regulations to include the internal carbon pricing impact into approval criteria for investment projects.

Carbon prices will be based on a differentiated approach for projects in Russia and abroad, considering applicable laws and established industry practices, Novatek said.
Staff Reports

Sempra Lines Up Wood for Cameron Expansion

Sempra Infrastructure, the lead partner of south Louisiana’s Cameron LNG project, awarded Wood Group an engineering contract covering the expansion of facilities there by a fourth liquefication train.

Train four will add 6.75 million tons of LNG per year to current output of 12 million tons/yr. Wood will also improve the operation of the existing trains, so the final nameplate capacity could sit near 19 million tons.

A fourth train has been in the works since 2016 when regulators granted permission to increase production via two trains, each capable of 4.98 million tons. This plan was scaled back to just one train in January. Partners signed on in April.

In addition to a reduced scale, Cameron LNG’s partners will now use an electric drive for compression instead of a gas-fired turbine and build infrastructure tie-ins to allow for sequestration of carbon dioxide from Train 4’s acidic gas.

A final investment decision for the expansion is expected sometime in 2023 should permits and definitive agreements be secured in time.

Signing Up Customers

Backing the expansion, as well as Sempra’s proposed 13.5 million ton/yr facility in Port Arthur, Texas, are recent deals inked with customers.

The company recently signed a heads of agreement (HOA) with a subsidiary of UK-based Ineos covering the sale and purchase of 1.4 million tons of LNG sourced from either of Sempra’s Gulf Coast projects over a 20-year span.

Separately, Sempra also recently signed a 3 million ton/yr HOA with Poland's PGNIG and a 2.25 million ton/yr HOA with RWE Supply and Trading. LNG for the Poland deal could be sourced from either plant, while RWE’s LNG is to come from Port Arthur.
Jeffrey Cavanaugh , New Orleans

Taiwan's CPC Hikes LNG Prices

Taiwan's CPC has raised LNG prices by 5% for utilities, effective Jul. 1.

Taiwan remains the world's fifth-largest LNG importer, year to date 2022, with a shifting set of source countries (see graph).

Created with Highcharts 9.0.0(million tons)TAIWAN'S LNG SOURCES201720182019202020212022QatarAustraliaRussian FederationMalaysiaPapua New GuineaIndonesiaUnited StatesNigeriaBruneiOmanTrinidad and TobagoUnited Arab EmiratesOthers02468Source: Kpler

The Hikes

State-owned CPC raised its price to supply LNG to power generators by 5% to NT$17.59 (US$0.59) per cubic meter effective Jul. 1, according to a corporate announcement.

The hike, which follows two 10 percentage point adjustments, affects state-owned Taiwan Power and six independent power producers, but will not impact industrial users or household users.

The basic cost of LNG for households remains at NT$12.09 per cubic meter and for industrial users at NT$12.78 per cubic meter, rates which have remained stable since May 2021.

The Rationale

A CPC spokesperson said that the hike was required due to soaring LNG fuel prices since the outbreak of the war, but was adopted in line with government policy to stabilize domestic prices.

The spokesperson added that the state-owned supplier had absorbed pretax losses in income of NT$50 billion in the first five months of 2022 and over NT$80 billion by end-June as a consequence of higher world LNG prices. The company anticipates additional losses of NT$20 billion in July.

The 5% adjustment will compensate somewhat by adding NT$7.6 billion in income, the spokesperson added.

The Series

Since the outbreak of the Russian war against Ukraine Feb. 24, CPC raised the price for LNG supplied to electric power companies, including Taipower and six independent power producers using LNG, four times from NT$11.54 per cubic meter to the current rate for a combined 52% increase.

On Jun. 27, the Ministry of Economic Affairs announced average power rate hikes of 8.4%, including 15% increases for extra-high-voltage or high-voltage users.
Dennis Engbarth, Taipei


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India22.7623.2122.8423.2022.4122.2423.6821.8923.5922.8622.0821.8122.20
Sodegaura, Japan23.4224.8124.8524.9223.3819.8824.4522.2824.3125.2722.6321.7623.61
Zeebrugge, Belgium36.1434.3533.9634.4435.5935.9735.1933.9235.0333.9335.7234.6935.83
Huelva, Spain28.5726.9126.5526.9928.0327.8227.6826.4227.5426.5228.0927.0528.11
Isle of Grain, UK18.1416.5416.2216.6117.6817.9917.4116.1617.1516.1717.7716.8717.87
Everett, US4.763.223.603.294.464.310.014.033.802.864.96----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback24. Jan7. Feb21. Feb7. Mar21. Mar4. Apr18. Apr2. May16. May30. May13. Jun27. Jun102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0026.02-0.2226.02
SW Europe0.0029.26-2.5929.26
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-1.075.426.506.24
NBP, UK (futures)+9.0330.2421.2122.75
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF3.1246.0042.8839.12
Zeebrugge (Belgium)-2.6727.6730.3428.62
German NCG1.3140.3439.0236.91
NBP (UK)-2.6819.0021.6822.77
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.166.526.686.47
Corpus Christi, Texas-0.586.026.606.26
Cove Point, Maryland-0.695.826.515.62
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-1.075.426.506.24
Second Mth-1.105.396.496.28
Third Mth-1.115.416.526.28
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaJul '21Aug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence