July 1, 2022

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What Next for Qatari LNG?

It has been a big few weeks for QatarEnergy. After repeated delays, the state-owned behemoth last month finally announced four of the core international investors for its 32 million ton per year North Field East (NFE) LNG mega-expansion. In addition to finalizing the partnership selection for NFE, progress on Doha’s planned Phase 2 of its expansion, the 16 million ton/yr North Field South (NFS) can be expected in the next year. And QatarEnergy is not stopping there.

When can we expect news on fresh investors and who will it be?

News could come as early as next week. QatarEnergy has announced “an important signing ceremony” for Jul. 5. This could be for a major petrochemicals initiative that has been in the works, but either way, an announcement for the last of the core partnership places will probably be within weeks.

Qatar is in talks for minor equity positions with key Asian customers, but it is likely it will want to get its lead partners in place first. TotalEnergies, Exxon Mobil, Eni and ConocoPhillips were awarded stakes last month, leaving just Shell and Chevron from the original shortlist of six. Only one more core partner will be announced, Energy Intelligence understands. Both Reuters and Bloomberg have reported Shell. And this certainly chimes with earlier Energy Intelligence reporting. Chevron, one source says, has been out of the running for some time.

The question is how big a stake Shell will get. Total and Exxon managed to snag relatively strategic 6.25% stakes each, equivalent to around 2 million tons/yr, but ConocoPhillips and Eni got just half that.

Why is this such a big deal?

Everything about NFE is big, top tier and/or paradigm-busting. For a start, this is the biggest project in LNG history. The economies of scale and geology mean that it is the lowest-cost LNG out there. Ample volumes of associated liquids further boost profitability.

Then there are the carbon considerations. Basically, there is future-proofed advantaged oil and gas, and then there is NFE-level future proofing. Qatari gas is already low-emission, but Doha is investing heavily in further cutting Scope 1 and 2 emissions, with carbon capture and storage, solarization of facility utilities, and the latest flare and methane leak reduction technologies. And if this were not enough to secure long-term demand, Qatar’s location enables it to pivot both east and west. The energy transition may see LNG consumption dip, even seriously, but investors in Qatar can be relatively confident that their product will always find a market.

The attractions of NFE don’t end there. If a company is selected here, it gets into pole position for North Field South (NFS), and a slice of another 16 million tons/yr.

When can we expect a final investment decision on NFS?

The way Qatari Energy Minister Saad al-Kaabi puts it, this project is going ahead … full stop. But there won’t be a formal final investment decision. If Qatar watchers need some point of no return, he advised, maybe they should look to the award of the main onshore contracts, due in the first quarter of next year. Certainly, it is hard in the current market circumstances to see why NFS wouldn’t go ahead.

On the partnership front, al-Kaabi has said he would prefer to maintain the same commercial structure as NFE, provided bids are competitive enough. QatarEnergy is quite prepared to go it alone, if it doesn’t see sufficient value added. Indeed, there could be a mismatch between Doha’s expectations and what firms are prepared to pay. Details are yet to be forthcoming, but NFS is not expected to have quite the same high proportion of associated liquids as NFE. And well productivity (50 wells to make 16 million tons/yar versus NFE’s 80 for 32 million tons/yr) is slightly inferior to its illustrious predecessor.

What is all this talk about expansion beyond NFS?

This would take total Qatar LNG capacity to over 126 million tons/yr. No details have been given beyond "watch this space, it will happen" in signature al-Kaabi fashion.

Sources report enough gas has been located to support another project. But it is always possible that Doha might opt for a Blue Hydrogen project as opposed to LNG. And if it is LNG, there is the issue of space at Qatar’s giant Ras Laffan site. Sources say there really is only space for one more 7.8 million ton mega-train at Ras Laffan.

Of course, QatarEnergy could choose to build away from Ras Laffan but it would lose some economies of scale and integration benefits with a new site. A one-train project would also have the virtue of theoretically enabling both an LNG and a hydrogen project.
Rafiq Latta, Nicosia

Sakhalin-2 Operatorship Change Raises Russian Nationalization Risk

Russian leader Vladimir Putin signed a decree late Thursday to change the ownership structure of the Sakhalin-2 upstream and LNG project — a move that might squeeze out foreign shareholders Shell, Mitsui and Mitsubishi.

Many Russia watchers have expected Moscow to take nationalization steps in response to the planned exodus of investors from “unfriendly” countries and international sanctions amid the war in Ukraine.

Kremlin spokesman Dmitry Peskov suggested Friday that the Sakhalin-2 decree is not the start of a nationalization trend. “Each case will be considered individually,” he was quoted as saying.

Still, even if nationalization does not become widespread, observers do not expect Sakhalin-2 to be the only target.

Still Assessing

The 10 million-plus ton per year LNG development at Sakhalin-2 is controlled by state-run natural gas giant Gazprom and co-owned by Shell and Japan's Mitsui and Mitsubishi.

Shell made it clear in late February it would exit its joint ventures in Russia, including Sakhalin-2, following Moscow’s Feb. 24 invasion of Ukraine. Japan has refrained from following the lead of Western international oil companies due to security of supply concerns.

Japanese Deputy Chief Cabinet Secretary Seiji Kihara was quoted as saying Friday that his government was examining Putin’s decree and analyzing Moscow’s intentions. “Our country’s interests in resources should not be hurt,” he implored at a press conference.

Shell told Energy Intelligence it was also assessing the decree’s implications. “As a shareholder, Shell has always acted in the best interests of Sakhalin-2 and in accordance with all applicable legal requirements,” the company said.

Decree Details

The decree says the operatorship change is in response to “hostile” actions from the US and other Western countries against Russia, as well as threats to national interests due to the “violation by some foreign entities and persons” of obligations under the 1994 Sakhalin-2 Production Sharing Agreement (PSA). No details of violations were provided.

The current operator, Bermuda-registered Sakhalin Energy Investment Co., will be replaced by a newly established Russian company. The new company will take over Sakhalin Energy’s rights and obligations, including handling current LNG supply and other contracts.

Gazprom will get a controlling stake in the new company, in line with its 50%-plus-one share stake in Sakhalin Energy. The rest will be owned by the new company itself, although Shell, Mitsui and Mitsubishi will have an option to apply for respective stakes.

Shell owns 27.5%-minus-one share in Sakhalin Energy, while Mitsui has 12.5% and Mitsubishi 10%.

The decree gives Sakhalin-2's foreign shareholders a month to notify the Russian government as to whether they are ready to take the respective stake. The government then has three days to approve or deny the transfer.

If a partner declines to opt for a stake or its application is rejected, the government is entitled to sell its stake to a Russian entity within four months.

In another important change, all legal disputes related to the PSA will be handled by Russian courts, rather than international courts.

Created with Highcharts 9.0.0(million tons)SAKHALIN-2'S LNG EXPORTS HISTORY20092010201120122013201420152016201720182019202020212022024681012Source: Kpler

More to Come?

Neighboring Sakhalin-1 is the top asset to watch.

Vyacheslav Volodin, chairman of the State Duma, or lower house of Russia's parliament, has been calling for months for the state to take ownership of stakes held by companies from "unfriendly" countries in both Sakhalin-1 and Sakhalin-2.

The Sakhalin-1 oil and gas development is operated by Exxon Mobil's Bermuda-registered Exxon Neftegaz, which holds a 30% stake in the venture. Japanese consortium Sodeco also holds 30%, while Rosneft and India's Oil and Natural Gas Corp. own 20% each.

Exxon and Sodeco — which comprises Marubeni, Itochu, Japex and Jogmec — are seen as the most at risk, whereas India has remained a strong and consistent buyer of Russian crude despite Western pressures to cut back.

Russian sources suggest mounting frustration with Exxon's handling of its planned Sakhalin-1 exit, where the US major has significantly wound down production but has not yet handed over control to its consortium partners.

An Exxon spokesperson told Energy Intelligence on Friday that crude oil production from the scheme has fallen to below 10,000 barrels per day — down from around 200,000 b/d pre-Ukraine. She added that this is the "minimal level" required to still provide natural gas for electricity and heating for Sakhalin-1's Russian Far East customers.

Exxon insists its plans to exit remain intact, citing the "substantial progress" made to date.

Energy Intelligence understands that the elongated process largely reflects the enormous complexity of the Sakhalin-1 scheme and a desire to not damage its still-significant untapped resources. But there appears to be a growing difference of opinion as to whether Exxon needs to be involved to ensure that remains the case.
Staff Reports

Bangladesh Slows LNG Imports

Bangladesh has decided to go slow on spot LNG imports due to the surge in prices.

The South Asian nation, expected to grow into a major LNG importer, is reversing its earlier decision to ramp up shipments from overseas.

The country will revisit its strategy if prices cool, or domestic gas shortages trigger market protests.

“The government is buying spot cargoes at $100 million but selling it at a much lower price, which is adding to its subsidy burden,” a senior executive at Rupantarita Prakritik Gas Co. Ltd. (RPGCL), who did not wish to be named, told Energy Intelligence.

"The government will try to handle the situation under reduced gas supplies. But if the situation deteriorates, it may go back to buying spot cargoes,” the RPGCL executive added.

Spot Cargoes Fade

“We have decided not to buy any spot cargo as of now for July, and will see how prices behave in later months," said the exec at RPGCL, a unit of state-owned Petrobangla.

RPGCL last bought a spot cargo on Jun. 22-23 at $24.75 per million Btu. Northeast Asian spot LNG prices have since soared $11 to $37/MMBtu for deliveries four to eight weeks ahead, according to Energy Intelligence assessments. That was their highest level since early March, when spot prices reached $55/MMBtu.

Fellow South Asian country Pakistan is having similar problems in this bullish price environment.

Bangladesh imported about 12 spot cargoes during the January-June period and had planned for 18 cargoes in the second half, the executive said.

Bangladesh, which meets a fifth of its gas demand via LNG, the majority from Qatar (see pie charts), did not buy any spot cargoes during the winter months of December and January as the prices became unaffordable.

Created with Highcharts 9.0.0BANGLADESH LNG SOURCE COUNTRIES 2021(million tons)Qatar (58%)Qatar (58%)Nigeria (4%)Nigeria (4%)United States (15%)United States (15%)Egypt (9%)Egypt (9%)Algeria (3%)Algeria (3%)Russian Federation (1%)Russian Federation (1%)Equatorial Guinea (3%)Equatorial Guinea (3%)France (3%)France (3%)Indonesia (1%)Indonesia (1%)Angola (1%)Angola (1%)Netherlands (1%)Netherlands (1%)Spain (1%)Spain (1%)Source: Kpler
Created with Highcharts 9.0.0BANGLADESH LNG SOURCE COUNTRIES 2022(million tons)Qatar (70%)Qatar (70%)Nigeria (10%)Nigeria (10%)United States (10%)United States (10%)Egypt (3%)Egypt (3%)Algeria (2%)Algeria (2%)Malaysia (3%)Malaysia (3%)Equatorial Guinea (2%)Equatorial Guinea (2%)Source: Kpler

Fiscal Mess

For the fiscal year that begins Jul. 1, Bangladesh increased subsidies on fuel, electricity, gas and fertilizers by 25% to $8.9 billion, and said it could hike them by a further 20% due to rising oil prices.

Analysts fear that the subsidy bill could see a quantum jump as commodity prices are likely to stay elevated.

Meanwhile, Bangladesh’s foreign exchange reserves stood at $42.2 billion by end of May, their lowest since November 2020. Although the reserves are enough to cover imports over five months, the government is worried that a rise in energy shipments from overseas will deplete reserves at a faster-than-estimated pace, putting the nation in an uncomfortable position.

Prime Minister Sheikh Hasina Wednesday asked people to conserve electricity and avoid the unnecessary import of luxury goods that drain foreign exchange.

Tight Supplies

Bangladesh’s gas supplies, which stood at 3.17 billion cubic feet per day, including LNG imports of 854 MMcf/d on Jun. 28-29, contracted to 2.95 Bcf/d on Jun. 30, with LNG supplies contracting to 617.3 MMcf/d, according to the Petrobangla website.

Actual gas demand is pegged at around 4.1 Bcf/d.

The RPGCL executive said that the LNG supply had been further reduced to 500 MMcf/d from Friday, which could lead to power outages and restricted supplies to industry.
Rakesh Sharma, New Delhi

Marubeni Swaps Australian Horses

Japanese trading house Marubeni has signed an MOU with aspiring Australian importer Venice Energy for a joint venture partnership in an LNG import terminal.

The terminal project is worth A$260 million (US$177 million) and is being developed in South Australia.

No details regarding financials or size of the stake were revealed.

Marubeni and Japanese buyer Jera were previously investors in another project led by rival Australian Industrial Energy (AIE), which is spearheading its project at Port Kembla in New South Wales. Both companies withdrew from that project in 2020.

Australia is facing greater urgency to rely on LNG imports to resolve gas supply shortages on its east coast following a recent power crisis thatsaw its power and wholesale gas prices skyrocket.

Adelaide

Venice is planning to import LNG using a floating regasification and storage unit (FSRU) at the Port of Adelaide in South Australia. The firm said it remains on track to start on-ground work in the second half of this year.

“Through this agreement Marubeni will bring significant skills and expertise to the project and ensure a more secure pathway forward as the energy infrastructure is brought into operation,” said Venice’s Managing Director Kym Winter-Dewhirst.

“At the same time, we will work with Marubeni to develop a long-term partnership that will extend over the next decade as we open up Southeast Australia to international gas supplies and ensure this piece of critical state infrastructure plays its part in securing some of our future energy needs,” he added.

“Importantly, this is a project that has not required taxpayer funding,” he said.

Venice said its project will take an estimated 12 months to complete, and would operate over the next 10 years in support of Australia’s transition to a renewable energy landscape.

Venice has signed a heads of agreement with GasLog for the charter of an FSRU, which is expected to be a converted vessel rather than a new one.

Port Kembla

Rival AIE said recently that it would seek help from federal and state governments to bring customers on board to help it lock in an FSRU, which is also being eyed by Germany.

AIE is considered a front-runner as Australia’s first LNG importer as it has secured all relevant approvals for its project, but it has yet to secure gas supply agreements with domestic buyers.

It signed a conditional charter agreement with Hoegh last year for an FSRU that risks being lost to Germany, which is fast-tracking LNG import plans following the Ukraine war.

Last week, Hoegh confirmed it would provide an FSRU to AIE and that AIE is entitled to time the start-up of the contract between 2023 and 2025 depending on its requirements, suggesting uncertainties remain over when the terminal operator can firm up its domestic gas supply deals.
Clara Tan, Singapore

Increased Yamal LNG Volumes Keep Spanish Imports High in June

Spanish LNG imports remained elevated during June as the country imported the most LNG among European countries, driven by a jump in cargo arrivals from Russia’s Yamal LNG plant.

Spain received a total of 1.95 million tons of LNG in June, up from 1.9 million in May, with imports from Russia’s 17.4 million ton per year Yamal LNG plant accounting for 0.58 million tons, a new record in monthly imports from the Russian facility, according to data by analytics firm Kpler.

Most of the Russian cargoes were delivered to northern Spanish terminals, with Mugardos and Bilbao each receiving three cargoes, while the terminals in Barcelona and Huelva took one cargo each.

Spot Cargoes

The massive jump in Yamal imports was likely due to the increased cargo purchases by European buyers from the Russian plant, including on a spot basis.

Buyers across the continent likely view Yamal LNG volumes as less politically toxic than piped gas from state exporter Gazprom.

A Spanish cargo arrival schedule obtained by Energy Intelligence showed that two Yamal cargoes in June were most likely purchased on a spot basis for delivery to Spain by Switzerland-based commodity trading firm DXT Commodities.

Additionally, utility Naturgy, which is the only Spanish company with a term supply agreement with Yamal LNG, also increased its offtake through its d.e.s. contract and received five cargoes from Yamal in June, according to the arrival schedule.

Naturgy generally imports around two to three cargoes from Yamal into Spain per month.

More to Come?

High Spanish LNG imports from Yamal could continue in the months ahead, as the Russian export plant is set to keep running above its nameplate capacity, despite the rising temperatures.

Moreover, the prolonged shutdown of the US Freeport plant, which so far this year has supplied 0.32 million tons of LNG to Spain, could also force some buyers into the spot market, which in turn could favor imports from Yamal.
Daniel Stemler, Madrid


In Brief

Rosneft Elects Qatari Chairman

Rosneft elected Qatari Tayeb Belmahdi chairman of the board of directors, replacing former German Chancellor Gerhard Schroeder, who left the Russian company in May.

Rosneft said that Belmahdi is an "esteemed oil and gas industry expert with 45 years of experience in the key Middle East energy production facilities, who held executive positions in Qatar Energy."

The appointment cements Rosneft-Qatari ties. Qatar Investment Authority (QIA) holds 18.46% in the Russian state controlled major and is to be one of the top beneficiaries of the record-high dividends that Rosneft approved Thursday.

QIA's two representatives — Faisal al-Suwaidi and Hamad Rashid al-Mohannadi — kept their seats on Rosneft's board.

Western directors left Rosneft's board — including BP's current and former CEOs Bernard Looney and Robert Dudley — because of Russia's invasion in Ukraine. Schroeder and others stepped down recently following the EU sanctions against Rosneft that came into force on May 15.

The new 11-member board also includes another non-Russian— Pedro Aquino Jr. , CEO of Oil & Petroleum Holding International Resources, will serve as an independent director.

Other directors are all Russian officials.
Staff Reports

Editor's Note: US Independence Day

LNG Intelligence will not be published Monday, July 4 due to a public holiday in the US.

Michael Sultan, Washington


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India22.2922.7422.3722.7321.9421.7723.2021.4223.1122.3921.6121.3421.73
Sodegaura, Japan22.9524.3424.3724.4422.9119.4223.9821.8223.8324.7922.1621.2923.13
Zeebrugge, Belgium40.5038.6638.2538.7539.9440.3239.5338.2239.3638.2340.0639.0140.18
Huelva, Spain29.7828.1027.7428.1829.2329.0128.8827.6028.7327.7129.2828.2429.31
Isle of Grain, UK19.3617.7417.4117.8118.8919.2018.6217.3618.3617.3718.9818.0719.09
Everett, US4.102.572.952.643.803.660.013.383.152.224.30----
Created with Highcharts 9.0.0($/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 Asia0.0025.550.3925.55
SW Europe0.0030.461.2030.46
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.315.735.426.22
NBP, UK (futures)-0.8929.1530.0420.53
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.5345.2345.7739.12
Zeebrugge (Belgium)2.6930.4927.8127.04
German NCG0.3640.9040.5436.26
NBP (UK)1.3320.2018.8717.78
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.805.726.525.82
Corpus Christi, Texas-0.325.706.025.88
Cove Point, Maryland-0.725.105.825.74
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.315.735.426.22
Second Mth0.325.715.396.28
Third Mth0.325.735.416.26
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaJul '21Aug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence