July 5, 2022

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Shell Gets Last Major Qatar LNG Expansion Slot

QatarEnergy has concluded its line-up for core partnerships on its North Field East (NFE) LNG mega-expansion, selecting Shell for a 6.25% stake in the 32.6 million ton per year project.

Discussions for minority stakes with key Qatari Asian customers are ongoing. But Tuesday’s signing ceremony marks the last NFE deal with a Western major, with a total 25% of the project awarded. In addition to Shell, Exxon Mobil (6.25%), TotalEnergies (6.25%), Eni (3.25%) and ConocoPhillips (3.25%) all won stakes. Chevron was the sole firm out of an original shortlist of six that did not make the cut.

QatarEnergy initially envisaged awarding up to 30% for international investors, suggesting around 5% might still be available for Asian firms. Discussions have focused on Chinese and South Korean firms, sources say.

The four-train NFE, which is due to start up in early 2026, will boost Qatari LNG capacity to 110 million tons/yr, with a 16 million ton/yr Phase 2, dubbed North Field South (NFS), due to come on stream from 2027-28.

The announcement had been expected and follows the first tranche of awards last month. NFE has been much touted as the “single largest project in history of the LNG industry,” and it is low-cost gas. But it is NFE’s environmental advantages as much as economies of scale, or cost, that are perhaps the key draw for environmentally sensitive firms like Shell and Total.

“Through its pioneering integration with carbon capture and storage, this landmark project will help provide LNG the world urgently needs with a lower carbon footprint,” Shell CEO Ben van Beurden said. “Lower-carbon natural gas is a key pillar of our Powering Progress strategy and will also help us achieve our target of becoming a net-zero emissions business by 2050."

In addition to carbon capture, NFE will also use solar power for its utilities, and QatarEnergy is investing heavily in carbon mitigation technologies, targeting flare and methane leak reduction. Selection for NFE should also give firms an advantage in bidding for NFS.

Like all the selected companies, with the exception of Eni, Shell is an existing investor in Qatar. In addition to its stake in Qatargas-4, Shell partners QatarEnergy in the world’s largest GTL project, the 140,000 barrel per day Pearl GTL, which also produces 120,000 b/d of condensate and NGLs.

All selected firms are believed to have had to bid aggressively for their stakes. In Shell’s case, its NFE win marks an exception to a decade that has seen the supermajor wind down its Gulf presence.

The London-based firm failed to retain its once prized Abu Dhabi onshore assets when they expired in 2014, or win any of the various UAE gas opportunities that have come up in the past 10 years or so. It lost its historical Syria position back in 2011, and it exited its 200,000 b/d Majnoon project in Iraq in 2017. As such, Shell’s NFE win probably reflects the project’s pulling power.
Rafiq Latta, Nicosia

Russia's Decree on Sakhalin-2 Raises Risks for Asian Firms

Russia’s recent decree to seize control of the Sakhalin-2 upstream and LNG project has heightened risks for investors and term buyers in Asia. Compounding the uncertainties is a proposal reportedly floated by Gazprom for Asian LNG buyers to make payments in rubles, expanding on the same demand it has made for its European piped gas buyers.

Last Friday, Russian leader Vladimir Putin signed a decree to change the ownership structure of the Sakhalin-2 upstream and LNG project by replacing the current operator Sakhalin Energy with a newly established Russian company which will take over its rights and obligations, including its current LNG supply contracts.

Foreign shareholders will have one month to decide whether or not they want to hold stakes in the new company. Japanese trading house Mitsui owns 12.5% and Mitsubishi 10% in Sakhalin Energy.

Japan is the largest LNG buyer of Sakhalin-2.

Created with Highcharts 9.0.0SAKHALIN-2 LNG CUSTOMERS YTD 2022(million tons)Japan (60%)Japan (60%)South Korea (19%)South Korea (19%)Taiwan (7%)Taiwan (7%)China (14%)China (14%)Source: Kpler

Japan-Russia’s Soured Relations

Besides imposing tough sanctions on Russia, Japan has pledged to phase out imports of Russian oil and coal, albeit without providing a deadline. But it stated it remains committed to Russian LNG and wants to retain its energy investments in Russia due to energy security and concerns that its exit would leave a void for China. Unlike his predecessors, Prime Minister Fumio Kishida’s tougher actions on Russia has led Moscow to label Japan as an “unfriendly” nation and pledged it would respond to Japan’s actions.

James Brown, associate professor of political science at Temple University in Japan, said Japan is now in an unenviable position. “There are no alternatives to the cheap LNG that Japan gets from Sakhalin-2,” he said. “On the other hand, if they sign a new energy agreement with Russia at this time, it will look extremely bad and invite criticism from G7 partners. Retaining stakes in the new Russian-controlled Sakhalin company also leaves Japan open to further manipulation in the future.”

This is not the first time Mitsubishi and Mitsui have been exposed to country risks in Russia. When Gazprom sought greater control of the Sakhalin-2 project back in 2006, Mitsubishi and Mitsui had to halve their shareholdings from their original 20% and 25%, respectively.

Brown expects Japan will try to avoid making any decision on how to respond until after the upper house election on 10 July.

Russia’s Term Contracts with Japan

Oil-linked term supplies from Sakhalin-2 are likely priced between $13-16/MMBtu, much cheaper than current spot prices of above $40/MMBtu.

Russia accounted for 9% of Japan's total LNG imports, or 6.6 million tons in 2021. LNG shipments take only five to seven days to reach Japanese end-users, which have contracted to buy a total of some 5 million tons/yr on long-term contracts through to the early 2030s. Jera is the largest buyer with a contract volume of 2 million tons/yr, while Korea Gas (Kogas) lifts 1.5 million tons/yr.

Jera and Kogas said they are continuing to import from Sakhalin-2. “However, we will consider necessary measures in accordance with the contents of international economic sanction,” a Jera spokesman said. Kogas said it has not received any request for payments in rubles.

It is understood that Sakhalin LNG buyers currently do not pay to a Russian bank directly. If Russia expands its gas-for-rubles scheme to LNG, Asian buyers may follow what European buyers have done by opening two accounts with Gazprombank — one in US dollars or euros and another in rubles — as demanded by Moscow.

Uniper, RWE and Eni have resolved the payment issue by opening two accounts. A clearing agent at the Moscow Stock Exchange will convert their payments in euros into rubles. This allows the buyers to continue paying for Russian gas in the currencies specified in their contracts and avoid a role for Russia’s central bank which is subject to the EU sanctions.

Observers expect the new operator to continue enforcing existing term contracts. “It helps both buyers and sellers to continue to let the contract amounts flow,” one of them said. “But if the sellers are changed in an SPA, there should be a right for the buyer to reconsider the contract in the event of a material change in the seller.”

Spot Sales

Excess cargoes sold by Sakhalin Energy via spot tenders have so far benefited Chinese buyers as Japanese and Korean buyers shun Russian spot cargoes. Since the Ukraine war, there has been a uptick in exports to China and the last spot tender for a May. 4 loading cargo was delivered to Sinopec’s Tianjin terminal, according to Kpler tracker.

Sakhalin Energy is now running a tender to sell five cargoes which would be loaded between August and October.
Clara Tan, Singapore

Gazprom: Russia Needs to Revise LNG Targets

Russia needs to review its long-term LNG expansion ambitions because of the recently imposed technology sanctions against the country, an official from Gazprom, the state-run pipeline gas exporter, said Monday.

The recent EU sanctions in response to Russia’s war in Ukraine ban the export of key liquefaction equipment, which the Russian LNG industry relies heavily upon.

Technology is Key

Because of these critical restrictions, “we believe it is reasonable to initiate an assessment of technical and technological possibility to implement Russian LNG projects in order to minimize risks and improve the efficiency of the state support for the LNG industry, because those targets that have been set previously are quite ambitious,” Kirill Polous, deputy director of Gazprom’s strategy department, said at a round table discussion on Monday.

Prospects of Russian LNG projects are doubtful in the current situation and their planned capacity and launch timelines need to be confirmed, he said.

Gazprom’s own 13 million ton per year Ust-Luga facility, scheduled in 2024, looks doubtful due to the withdrawal of the key technology provider and engineering and construction contractor, Germany’s Linde.

Rivalry With Novatek

Gazprom’s position contrasts with that of privately owned Novatek, which believes Russia’s strategic target of up to 140 million tons per year by 2035, up from 30 million tons in 2031, is achievable despite the need to shift focus to yet-to-be-developed domestic technology.

The difference in their positions reflects the rivalry between Gazprom and Novatek for lucrative upstream resources in the Arctic and export markets where Gazprom is feeling increased competition from Novatek’s projects, especially when its own pipeline gas exports to Europe are dropping this year.

Gazprom has its own LNG development plans, but it has traditionally put a greater priority to pipeline gas supplies, with gas processing and petrochemicals also gaining importance in its project portfolio as a gas monetization option.

Novatek, which is believed to be close to Kremlin despite no direct equity ownership by the state, has enjoyed generous support from the government for its LNG projects in the Arctic. Moscow sees LNG as a driver for the development of the strategic region and increased transportation via the Northern Sea Route.

Arctic Upstream Coordination

Gazprom suggests it should be appointed a coordinator of upstream development in the northern parts of Russia, according to Polous. This also looks like a move to limit the role of Novatek seeking to produce up to 70 million tons/yr in the Arctic by 2030, up from 19.6 million tons in 2021.

Gazprom has been in charge of Russia’s Eastern gas development program, which Polous argues is a successful experience that the company can use in the north to improve the use of vast gas resources in the region and increase Russia’s energy security, with a priority given to the domestic market.

He said that the idea to send all the Arctic gas to foreign markets, which “unfortunately, has been heard quite often recently,” is not well thought-out in terms of energy security.

Polous might have been referring to Novatek CEO Leonid Mikhelson’s recent statement that Russia needs to make more LNG investment decisions, because LNG can help it retain a role in the global gas trade when long-term prospects of pipeline gas exports to Europe are dim.

Export Coordination

Gazprom also wants Russia to coordinate exports of pipeline gas and LNG, Polous reiterated, as LNG from Novatek’s Yamal plant poses an increased competition to its pipeline gas in Europe while bringing nothing to the budget because of no export duty. Piped gas is subject to 30% export duty.

Imposition of an export duty on LNG and creation of stimuli for higher LNG exports to the East rather than to the West could help solve the problem. He said that since Yamal LNG started operations in late 2017, more than half of its production has been supplied to traditional markets of Gazprom’s pipeline gas.

Polous said competition from Russian LNG increased also because of the new two-step payment rule for pipeline gas exports to “unfriendly” countries, which doesn’t apply to LNG exports. The new rule made several gas buyers stop purchases from Gazprom and turn to other sources, including LNG from Yamal, which appears to be less toxic than Gazprom’s pipeline gas amid the war in Ukraine.
Staff Reports

Pakistan LNG Launches Tender for 10 Cargoes

Pakistan LNG has launched its biggest tender of the year.

The tender is for 10 spot cargoes for delivery between July and September. The state-owned company is seeking two cargoes for delivery in the last week of July, five in August and three in September, according to a tender document.

The idea is to address chronic power outages in the country. The South Asian nation has been facing power outages lasting 10-15 hours daily as it has not been able to secure LNG cargoes amid tight markets and high prices.

Last month, its tender for four spot cargoes for July delivery got just a single bid for a late July delivery while the three other cargoes did not get any response. That single bid was by QatarEnergy at $39.80 per million Btu, which was too high and was rejected. Pakistan is getting LNG under two term deals with Qatar at prices ranging from $11-$14/MMBtu. It earlier scrapped two tenders for Jul. 3-4 delivery as it did not get even a single valid bid.

The Dawn newspaper reported Monday that Pakistan is facing a shortage of about four to five LNG cargoes every month, or about 400 million-500 million cubic feet a day of gas. In order to conserve fuel supplies, the government has suspended gas supplies to industries like textiles for a week through Jul. 8, leading to wider protests.

Price-sensitive South Asian LNG buyers India, Pakistan and Bangladesh have seen demand for the super-cooled fuel suffer a hit due to prices. Bangladesh has decided not to buy spot cargoes for July due to unaffordable rates.

The Pakistani government’s ability to import costly LNG cargoes faces dwindling foreign exchange reserves, which has led to a balance of payments crisis. The reserve situation improved to $10.3 billion for the week ended Jun. 24 from a low of $8.2 billion just a week back, according to the State Bank of Pakistan.

But the latest LNG tender could again put a strain on reserves as 10 cargoes are likely to cost over $1 billion, considering current rates. It remains to be seen whether Pakistan gets offers for cargoes and how many cargoes it actually buys considering high prices amid tight supplies.
Rakesh Sharma, New Delhi

NextDecade Signs Up China Gas

NextDecade has signed a 20-year sale and purchase agreement (SPA) with China Gas Hongda Energy Trading, a unit of China Gas, for the supply of LNG from the Rio Grande LNG export project in Brownsville, Texas.

China Gas will buy 1 million tons per year of LNG indexed to Henry Hub and delivered on a f.o.b. basis.

The LNG will be supplied from the second train at Rio Grande LNG, which is expected to start commercial operations as early as 2027.

Rio Grande Timeline

NextDecade "anticipates" making a positive final investment decision (FID) on up to three liquefaction trains — each train 5.4 million tons — at Rio Grande in the second half of 2022, "with FIDs of its remaining trains to follow thereafter."

The total project is expected to be five trains for a total of 27 million tons.

With this latest deal, NextDecade now has buyers for 7.8 million tons of Rio Grande LNG export capacity, or about 72% of the first two liquefaction trains, if the company goes forward on a "minimum of two trains" as described last month, when a deal with Engie was signed.

Most of the Rio Grande capacity has been purchased by Chinese buyers — China Gas, ENN and Guangdong for 4 million tons, as well as Engie, and an older deal with Shell.

China Gas Strategy

China Gas is "one of China’s largest natural gas distribution companies supplying approximately 43 million households across China,” said Matt Schatzman, NextDecade’s chairman and CEO.

“The signing of this long-term SPA with NextDecade will further optimize China Gas's portfolio, expand resource supply channels, and ensure that we can meet our customers' growing demand for quality, reliable and low-carbon content energy. This SPA demonstrates China Gas's determination to unswervingly implement China’s national low-carbon energy development strategy,” said Yalong Qi, general manager of China Gas Hongda Energy Trading.

Last month, China Gas signed a smaller deal with Lake Charles LNG.

Since March, Chinese companies have signed up for at least 9.4 million tons of US LNG over seven deals.
Michael Sultan, Washington

New Fortress Bets Big on Mexico

US LNG specialist New Fortress Energy said on Tuesday that the $1.5 billion Lakach deepwater gas field off the coast of Mexico's Veracruz should be fully operational by the end of 2023.

The development is one of several major projects the company has announced in recent days that it will be undertaking in partnership with the Mexican government.

'State of Flux'

During an investor call on Tuesday that noted the “real state of flux” the global LNG market is in after Russia’s invasion of Ukraine, New Fortress CEO Wes Edens said the company plans to finish the Lakach wells, put in place a gas treatment plant and divide the result between a portion for domestic production and part for the company’s own LNG facility. "Our technology and what we have developed is a perfect match for what they've got there," Edens said.

He also said that “a significant amount” of equipment had already been purchased for the project.

Lakach had previously been shelved over concerns about its economic viability amid low natural gas prices.

New Fortress also announced that it had entered into an agreement with the CFE, Mexico’s state-owned electric utility, to further develop facilities in Baja California Sur and create a new LNG hub at Altamira, off the coast of the state of Tamaulipas. New Fortress plans to sell its 135 MW La Paz power plant to CFE with documents to that effect signed in the presence of Mexico’s President Andres Manuel Lopez Obrador and CFE Director Manuel Bartlett.

This means “more diversity and more paths to market,” said Edens. ”Our goal is to get [the projects] operational as quickly as possible.”

Deepening Ties

The moves suggest a big bet on the part of New Fortress to deepen its involvement with the government of the mercurial Lopez Obrador, an often-temperamental populist who has frequently suggested hostility to foreign involvement within Mexico’s energy sector, a stance that has led to what many view as some questionable decisions in the sector.

On Friday, Lopez Obrador inaugurated the Olmeca refinery in Dos Bocas in the southern Mexican state of Tabasco, saying that even though the project remains significantly behind schedule and sharply over budget, it represented an important step in his vision of an energy-independent Mexico.

Lopez Obrador has frequently spoken of his desire for "energy sovereignty" in Mexico, and he has repeatedly pledged that Mexico will stop importing fuel from abroad next year, pouring scorn on renewables and green energy even as the facilities of Mexico's state oil company Pemex show decay after years of neglect. His government has meanwhile frequently refused or canceled contracts of foreign companies operating in the energy sector.
Michael Deibert, Washington


In Brief

Spot LNG Pricing Soars Once Again

Northeast Asian spot LNG prices increased by $4 week on week to $41/MMBtu, its highest level since March, according to Energy Intelligence assessments for deliveries four to eight weeks ahead.

Spot prices in Southwest Europe were assessed $5.70 higher at $42.90/MMBtu, also the highest level since a March spike.

Spot LNG prices in Asia and Europe both rose following higher European hub prices, which are spooked by the tight supply situation exacerbated by a Norwegian offshore workers' strike.

Higher Japanese buying demand and the extension of industrial action at Shell’s Prelude floating LNG facility offshore Western Australia until Jul. 14 also drove spot prices.

The hot weather in Asia could also contribute to more spot buying.

Japan’s meteorological agency says there is a 50%-70% chance for temperatures to be higher than usual up until next week.

Demand for additional prompt cargoes has also emerged from South Korea, which is battling its own heat wave, prompting a surge in power and cooling needs. The Korea Meteorological Administration issued a heat wave advisory across the country.
Created with Highcharts 9.0.0($/MMBtu)REGIONAL SPOT PRICESNortheast AsiaSouthwest EuropeJul '21Aug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence

Marc Roussot, Singapore and Daniel Stemler, Madrid

South Korea to Resume Work on Two Nuclear Reactors

South Korea said it will resume construction on two nuclear reactors, reversing the previous presidential administration's plans to phase out nuclear power.

In a "new government energy policy direction" unveiled Tuesday, the industry ministry said it aims to increase the share of nuclear energy in the country’s power mix to at least 30% by 2030, up from 27% in 2021.

The ministry said construction would resume on two new reactors, Shin Hanul-3 and -4, where work was halted in 2017. A construction timeline was not provided.

The government also plans to extend the operations of existing reactors.

The announcement follows the inauguration in May of new South Korean President Yoon Suk-yeol, who has pledged to revive nuclear power.

The fresh targets also include a goal to reduce South Korea's reliance on fossil fuel imports — including LNG — from 81.8% in 2021 to around 60% by 2030.

Seoul has pledged a 40% reduction in its greenhouse gas emissions from 2018 levels by 2030 as part of its 2050 carbon neutrality goal.

The ministry will also set new targets for solar and wind power by the end of this year and said it aims to "reasonably" reduce coal consumption.

The government is slated to release the next updated long-term electricity plan through 2036 at the end of this year.
Clara Tan, Singapore


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India37.6338.1137.7038.1137.2437.0638.6336.6538.5337.7236.8836.5736.99
Sodegaura, Japan38.1939.7139.7439.8338.1434.3339.3136.9339.1540.2237.3236.3838.38
Zeebrugge, Belgium46.2344.3243.9044.4245.6446.0545.2243.8845.0543.8845.7844.6945.89
Huelva, Spain42.2040.3939.9940.4841.6141.3741.2339.8641.0839.9741.6740.5341.69
Isle of Grain, UK30.8129.0728.7029.1530.3130.6430.0128.6629.7428.6730.4029.4230.51
Everett, US4.302.773.152.834.003.860.013.583.352.414.50----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback31. Jan14. Feb28. Feb14. Mar28. Mar11. Apr25. Apr9. May23. May6. Jun20. Jun4. Jul102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0041.004.6741.00
SW Europe0.0042.90-2.6542.90
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)--5.52--6.55
NBP, UK (futures)+0.9834.7433.7619.94
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.1148.8148.9239.11
Zeebrugge (Belgium)1.1734.2933.1229.23
German NCG1.5849.0547.4736.57
NBP (UK)4.3131.6927.3919.02
US Markets
US Spot Prices
Sabine Pass, Louisiana--5.67--6.57
Corpus Christi, Texas--5.60--6.55
Cove Point, Maryland--5.28----
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month--5.52--6.55
Second Mth--5.49--6.57
Third Mth--5.50--6.56
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaJul '21Aug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence