July 12, 2022

WWW.ENERGYINTEL.COM

Shell Suspends Prelude LNG Production

A failure to win consensus for Shell’s proposed enterprise agreement for its workforce on Prelude has led to a suspension in production at the 3.6 million ton per year floating LNG vessel off Western Australia.

Shell has informed customers of disruptions until at least Jul. 21, which aligns with the period of protected industrial action.

Shell said the proposed enterprise agreement was voted down by 95% of the workforce following a three-day vote last week.

One of the bans undertaken by members of the Australian Workers’ Union and Electrical Trades Union is on mooring of vessels which would prevent loading of cargoes.

Shutting Down

Shell said a decision was made to commence a safe and orderly shutdown of the facility as it anticipates reaching capacity at its storage tanks this week. Shell last said it would not stop production despite extended industrial action which was last expected to end on Jul.14. The industrial action first started on Jun.10.

“Until the bans on the offtake of cargoes are lifted and the plant can be safely restarted, staff required to perform safety-critical functions will remain on board while all other workers will be demobilized,” a Shell spokeswoman said Tuesday.

The spokeswoman said Shell would continue to negotiate in good faith for a mutually acceptable enterprise agreement, as it has for the past 18 months. It is understood that the union demands are focused on increased pay and conditions, which would likely increase Prelude’s annual operating cost by $40 million annually.

“Through negotiations, Shell is trying to strike a balance between offering to protect current key employment conditions with union demands for increased conditions,” the spokeswoman said.

According to Kpler shiptracker, Prelude last loaded a cargo on Pan Europe which left on Jul. 7 despite the extended industrial action. Symphonic Breeze is due to arrive at Prelude on Jul.17, destined for Japan.

Created with Highcharts 9.0.0('000 tons)PRELUDE FLNG EXPORTSSouth KoreaJapanTaiwanMalaysiaUnknownMay'20Aug'20Sep'20Oct'20Nov'20Dec'20Jan'21Feb'21Mar'21Apr'21May'21Jun'21Jul'21Aug'21Sep'21Oct'21Nov'21Dec'21Jan'22Feb'22Mar'22Apr'22May'22Jun'22Jul'22050100150200250300350Source: Kpler

Bad Timing

The suspension in Prelude's production has come at a time when Asia is entering a summer cooling season while Japan is bracing for a power crunch in the coming winter. Japan is facing increasing risks of supply disruption from Russia’s Sakhalin-2 following Moscow’s seizure of operatorship, prompting the Tokyo government to ask LNG buyers to seek alternative supplies and local gas and power users to reduce consumption.

Shell owns an operated 67.5% stake in Prelude, alongside Inpex, Korea Gas and Taiwan’s CPC, all of which are also buyers of Prelude volumes. Other Prelude buyers are Osaka Gas under a portfolio contract with Shell, while Japan’s Jera and Shizuoka Gas have purchased Prelude volumes from Inpex.
Clara Tan, Singapore

Novatek Posts Lower LNG Portfolio Sales

Novatek’s LNG sales from its portfolio decreased 5.2% on the year to 4.05 billion cubic meters in the first half of 2022, the Russian privately owned company said Tuesday, citing preliminary estimates.

In the second quarter, sales fell 8.3% on the year but increased 18% on the quarter to 2.2 Bcm, Novatek said.

The company did not provide a reason behind the year-on-year decline in LNG portfolio sales. Its 50.1%-controlled flagship Yamal LNG plant in the Arctic operates well above its 17.4 million ton per year capacity this year and will likely exceed last year’s record production of 19.6 million tons thanks to the ramp-up of the 900,000 ton/yr Train 4 launched in May 2021.

It is not clear whether Novatek’s sales are hindered in some way by logistical and other difficulties because of Russia’s war in Ukraine and international sanctions against Moscow. Novatek CEO Leonid Mikhelson in April insisted that LNG supplies continued without interruptions, with payments made and processed without delays.

Spot Vs Contracts

Novatek offtakes 2.4 million tons per year into its trading portfolio under a direct long-term supply contract with Yamal LNG. It also sells 60% of Yamal’s spot cargoes.

As Yamal’s long-term contracts ramped up in previous years, the share of Yamal’s spot sales was decreasing, leading to a decline in Novatek’s LNG portfolio sales. That might also be the case this year, as record high spot prices make buyers want to maximize offtake under lower priced long-term contracts.

China is a good example. The large Asian importing country has cut its overall LNG imports this year due to high spot prices, but its LNG imports from Russia, where China National Petroleum Corp. has a 3 million ton/yr long-term oil-linked offtake deal with Yamal LNG, increased 22% on the year to some 1.8 million tons in the first five months of 2022.

Yamal’s spot cargoes tend to go to Europe this year, attracted by high margins on the tight market.

LNG for Rubles?

An increased flow of spot LNG from Yamal to Europe irritates Russia’s sole pipeline gas exporter Gazprom, which recently complained that competition from Yamal has only increased because of Moscow’s new two-step payment rule for pipeline gas exports to “unfriendly” countries in Europe, which doesn’t apply to LNG.

The buyers who rejected the new payment rule tend to buy gas from alternative sources, including Russian LNG, which has proven to be less toxic than Gazprom’s pipeline gas amid the war in Ukraine.

In an interview with business daily Vedomosti on Tuesday, Russian Finance Minister Anton Siluanov said he supported an idea to apply the new payment rule to LNG exports as well.

The two-step payment scheme involves conversion of dollars and euros into rubles and might only complicate things for Novatek and especially Gazprom’s Sakhalin-2 LNG project in Russia’s Far East, as the latter’s major customer is Japan. Moscow deems Japan an “unfriendly” country, but one which might not be willing to shift to ruble payments despite the importance of LNG supplies for its energy security.

Gas Production Up

Novatek’s natural gas production increased 1.9% on the year to 40.89 Bcm in the first half and 1.5% year-on-year to 20.25 Bcm in the second quarter of 2022.

The company expects its full-year gas production to grow some 2%-3% in 2022 from last year’s 79.89 Bcm.

Its domestic sales of pipeline gas however fell 2% on the year to 34.16 Bcm in the first half of 2022.

Novatek H1'22 Operational Results
Production*Q2'22Q2'21%ChgH1'22H1'21%Chg
Natural Gas (Bcm)20.2519.951.5%40.8940.111.9%
Liquids (million tons)2.853.11-8.55.8016.24-7.0
Total Hydrocarbons (million boe)156.60156.700.0316.6314.80.6
Total Hydrocarbons (million boe/d)1.721.720.01.751.740.6
Natural Gas Sales (Bcm)Q2'22Q2'21%ChgH1'22H1'21%Chg
Domestic Sales14.7915.31-3.434.1634.86-2.0
LNG Exports2.22.4-8.34.054.27-5.2
Total Sales16.9917.70-4.0%38.2239.13-2.3%

Staff Reports

Fluor to Build First Two Fast LNG Units for New Fortress

New Fortress Energy (NFE) advanced plans to deploy 2.8 million tons per year of LNG production in the US Gulf of Mexico early next year by inking a deal with Fluor for a second 1.4 million ton per year unit on Jul. 12.

Fluor was tapped to provide the first of NFE’s plants back in the first quarter. However, whereas Fast LNG 1 is destined for a repurposed jack-up rig, Fast LNG 2 will be mobile and won’t be directly installed by Fluor.

The deal is part of NFE’s Fast LNG program that will see the company build and deploy eight modular, mid-scale liquefication units on existing offshore infrastructure.

Each will produce 1.4 million tons per year of LNG for a total of 11.2 million tons — of similar capacity to an onshore plant. But, NFE’s design and deployment scheme cuts per-unit financial and time costs by 30%-50% and 50-70% respectively, the company said.

The first two units will sit off Grand Isle, Louisiana. A third unit should also start up in 2023, but NFE aims to place it and the other remaining units off Texas. All will be operational by mid-2025.

NFE’s CFO Christopher Guinta said in May that the company’s goal was to create a “Model-T factory for LNG.

"Our units will use the same design, the same equipment, the same operations, and the same unified team to piece everything together," said Guinta.

So far, NFE has placed orders for all long-lead items for its first three Fast LNG units and is in the process of ordering units four through nine.

Further afield, NFE recently announced plans to develop LNG infrastructure in Mexico, Brazil, Sri Lanka, Congo (Brazzaville) and Mauritania.
Jeffrey Cavanaugh , New Orleans


In Brief

Asian Spot LNG Pricing Takes Lead Again

Northeast Asian spot LNG prices rose $1 week on week to $42 per million Btu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead. In contrast, spot prices in Southwest Europe were assessed $2.70 lower at $40.20/MMBtu.

Spot LNG prices in Asia were supported by the temporary suspension in production at the Shell-operated Prelude Floating LNG facility offshore Australia.

Hot weather was also spurring spot buying demand in Northeast Asia despite high regional LNG inventories. The Chinese and South Korean meteorological centers have issued heat wave warnings, with temperatures expected to rise above 40°C (104°F) in some parts of China. Japan’s meteorological agency says temperatures in the country have a 70%-80% chance of being higher than usual until the end of the week.

Meanwhile, spot LNG prices into southwest Europe fell amid lower hub prices as fears temporarily subsided that the Nord Stream pipeline would not come out of maintenance on Jul. 21.

Across the pond, the US Energy Information Administration (EIA) said it expects US LNG exports to average 10.5 billion cubic feet per day during the second half of 2022, which is a 6% decrease from the first half of the year, according to the agency’s July 2022 Short-Term Energy Outlook. EIA said that amount is a 14% decrease in US LNG exports from EIA’s June forecast.

EIA said it revised its estimates based on an outage at the Freeport LNG facility, which is expected to last until late 2022. Freeport accounts for 17% of US LNG export capacity.

Refinitiv data shows a current 30-day moving average of 10.8 Bcf/d in feedgas going to US LNG export terminals.

Created with Highcharts 9.0.0($/MMBtu)REGIONAL SPOT PRICESNortheast AsiaSouthwest EuropeAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence

Marc Roussot, Singapore and Daniel Stemler, Madrid

Kenai Reversal Plan Needs More Time

Marathon Petroleum’s Trans-Foreland Pipeline unit is asking FERC for more time to convert the Kenai LNG export plant in Alaska into an import terminal.

FERC originally approved Trans-Foreland’s request to convert the legacy plant for imports in December 2020, giving the company until December 2022 to complete the work. This latest request would extend that deadline until December 2025.

Trans-Foreland said it has yet to make a final investment decision due to “uncertainty and volatility in the global LNG market” stemming mainly from the Covid-19 pandemic and the war in Ukraine, which have upended economic and logistical conditions.

The facility would import up to four full LNG cargoes a year, supplementing declining domestic production and would use its boil-off gas management system to deliver imported gas to the adjacent Kenai Refinery.

The Kenai LNG export plant entered service in 1969 and mainly supplied LNG to Japan. It has not exported LNG since 2015, closing operations right before Cheniere began export operations at Sabine Pass in February 2016.
Tom Haywood, Houston


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India38.6439.1238.7239.1238.2638.0839.6337.6939.5338.7437.9137.6138.02
Sodegaura, Japan39.2340.7240.7640.8439.1835.4540.3338.0040.1741.2238.3737.4639.42
Zeebrugge, Belgium47.6645.7845.3645.8747.0847.4846.6645.3446.4945.3447.2146.1447.33
Huelva, Spain39.5137.7637.3937.8538.9438.7138.5737.2638.4237.3638.9937.9139.02
Isle of Grain, UK29.2427.5527.2027.6328.7529.0728.4627.1628.1927.1728.8427.8928.95
Everett, US5.023.533.903.594.734.590.014.324.093.185.22----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback7. Feb21. Feb7. Mar21. Mar4. Apr18. Apr2. May16. May30. May13. Jun27. Jun11. Jul102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0042.000.3542.00
SW Europe0.0040.203.4240.20
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.266.166.435.52
NBP, UK (futures)+2.5929.0226.4334.54
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF2.3351.3849.0447.71
Zeebrugge (Belgium)6.3837.8731.4935.08
German NCG-0.2350.5050.7450.18
NBP (UK)4.5230.0925.5731.52
US Markets
US Spot Prices
Sabine Pass, Louisiana0.036.806.775.67
Corpus Christi, Texas6.576.570.005.60
Cove Point, Maryland-0.156.056.205.28
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.266.166.435.52
Second Mth-0.306.026.325.49
Third Mth-0.306.006.305.50
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence