July 14, 2022

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ConocoPhillips Looks to Expand LNG Reach with Sempra Deal

US independent ConocoPhillips plans to bolster its North American LNG footprint through a sweeping deal to partner with Sempra on export facilities in the US and Mexico.

Under an initial, non-binding agreement announced Thursday, ConocoPhillips would acquire a 30% direct equity holding in the proposed 13.5 million ton per year first phase at the Port Arthur LNG project in Texas.

The deal would also consider a potential 20-year tolling agreement that would see ConocoPhillips become the facility’s largest offtaker so far, with 5 million tons/year.

Global Reach

The deal marks another expansion by ConocoPhillips into the LNG space following the Russian invasion of Ukraine, which has left Europe with few options for natural gas supply. The announcement comes weeks after the Houston-based company snagged a 3.125% stake in QatarEnergy’s North Field East expansion.

But the independent was already growing its LNG portfolio before the European energy crisis. In February, a week before the invasion, ConocoPhillips increased its stake in the Australia Pacific LNG consortium to 47.5%.

“The decision to enter into this agreement with Sempra provides us with a ground-floor opportunity to participate in premier LNG developments, reinforcing our commitment to helping solve the world’s energy supply needs as we transition to a lower-carbon future,” CEO Ryan Lance said Thursday.

ConocoPhillips could also invest in other Sempra projects in Mexico, since the agreement provides an option to acquire offtake and equity stakes of the second phase of the Energia Costa Azul development on the West Coast.

Port Arthur Plan

For Sempra, the deal puts the once-sidelined Port Arthur LNG project more firmly on a path toward a final investment decision. With between 9.65 and 11.65 million tons/year of offtake now secured, the company said it had reached substantial completion of the marketing phase for the project.

ConocoPhillips could also have a hand in future developments at the Port Arthur site. The deal would give it the option to acquire offtake and equity stakes in the Phase 2 expansion, which is being marketed, as well as hydrogen projects.

Sempra Infrastructure would also potentially participate in carbon capture and sequestration (CCS) projects developed by ConocoPhillips in Texas or Louisiana in connection with the Port Arthur LNG project.

While Sempra has already laid out plans to develop CCS at its projects, this could be the first time ConocoPhillips has mentioned such projects in a specific way. Late last year, the company said it would spend $200 million this year on emissions reduction projects, including “early-stage low-carbon energy technology opportunities” such as CCS and hydrogen.

In another low-carbon effort, ConocoPhillips may provide certified natural gas to Sempra facilities in the future, under the initial agreement.
Caroline Evans, Houston

Dutch Confident They Won't Face Winter Gas Shortage

The Dutch gas grid operator has expressed confidence that the Netherlands can avoid natural gas shortages during the coming winter season — even if Russia cuts off all supplies to Europe — but only if certain crucial conditions are met.

Gasunie Transport Services (GTS) said that therefore it does not expect that it will have to resort to compulsory interruptions of supplies to Dutch gas consumers.

"Other emergency measures such as extra production from the Groningen field do not appear to be necessary in the coming months either," said GTS director Bart Jan Hoevers.

The Dutch government considers extra production from Groningen — once Europe’s largest onshore gas field — as a last resort during a supply emergency.

It has curtailed output from Groningen since 2013 to limit the occurrence of earthquakes triggered by gas production, and it plans to close the field by 2024.

The Netherlands consumed 40 Bcm of natural gas in 2021, of which 13.4 Bcm was imported. Before the Groningen output restrictions, the Netherlands was a net exporter of gas for several decades.

Preparing for Worst

European countries are currently preparing emergency measures in case Russia cuts off all gas supplies to the region.

Russia has traditionally been Europe's biggest gas supplier, but relations between the two sides have been tense since Moscow invaded Ukraine in February.

State-controlled gas giant Gazprom had already reduced supplies to Europe and its Nord Stream pipeline to Germany is currently offline for planned maintenance until Jul. 21, but there are concerns that it may not restart supplies after that date.

GTS says that to ensure the Netherlands has enough gas, the country will need to maintain its current low level of gas consumption and refrain from placing limits on electricity generated by coal-fired power plants.

The Netherlands will also need to double its LNG import capacity from 12 billion cubic meters per year to 24 Bcm/yr through the planned expansion of the Gate terminal in Rotterdam and the launch of the new EemsEnergy import terminal in Eemshaven.

Storage Target

The country will also need to fill its gas storage facilities to at least 80% of capacity by the start of winter. GTS expects that this target can be achieved, even with an extended shutdown of the Nord Stream pipeline.

Dutch storage facilities are currently 56.9% full, according to Gas Infrastructure Europe.

A final necessary condition to avoid shortages is limiting German imports of gas from the Netherlands to a maximum of 35 Bcm/yr.

However, GTS does warn that the Netherlands could face a gas shortage if there is a colder than expected winter or problems with securing sufficient LNG supplies.

The start of nitrogen production at the Zuidbroek plant near Groningen has been postponed by a month to October after GTS resolved an issue with its contractors.

However, GTS said the revised timeline will not affect gas production from the Groningen field.

Nitrogen from Zuidbroek must be added to imports of high-calorific gas so that it can be used to replace Groningen's low-calorific gas.

The launch of the nitrogen plant has been postponed several times, but once it comes online it will facilitate the supply of up to 10 Bcm/yr of low-calorific gas.
Jaime Concha, Copenhagen


In Brief

Shell Nears FID on Sour Gas Project

Shell is on track to sanction the billion-dollar Rosmari Marjoram sour gas project in Malaysia this year after awarding a contract to build the project's onshore gas treatment plant in Sarawak state.

Samsung Engineering said it was awarded the $680 million contract for engineering, procurement, construction and commissioning of the gas plant which has a design capacity of 800 MMcf/d.

The plant, which is expected to start operations in 2025, will remove sulfur from the Rosmari Marjoram gas stream before sending the treated gas to Petronas' Bintulu LNG Train 9.

The contract for the gas plant represents the largest component of the overall project cost, which is estimated to run up to around $1 billion, according to Rystad Energy.

Contracts for the upstream portion of the Rosmari Marjoram gas project are expected to be finalized in the coming weeks leading up to a final investment decision for the project in August, according to Rystad.

Rosmari Marjoram is one of several sour gas projects that are planned in Malaysia.
Staff Reports, Singapore

China’s Natural Gas Imports Decreased  

China’s natural gas imports, including pipeline gas imports and LNG imports, decreased 10% in the first half of this year, compared to the same period of last year, due to weak domestic demand and high international spot LNG prices, customs data showed this week.

China’s gas imports were 53.57 million tons in the first six months, 8.72 million tons this June, according to the General Administration of Customs.

The trend of gas imports reduction will continue for the rest of this year if international oil and gas prices remain high.

It's About Cost

The total cost of natural gas imports increased 51.4% in the first half of this year, compared to the same period last year, customs data showed.

Due to high international spot LNG prices, some Chinese LNG importers that have secured long-term LNG supply from overseas resold their contracted volumes to other countries, for profit maximization.

China’s LNG imports will continue to sharply decease if international spot LNG prices remain high.

Consumption

China’s natural gas consumption dropped 1.8% year on year to 26.6 billion cubic meters in June, due to low gas demand from industrial users. But that drop was an improvement from a 5.7% year on year drop in May because of economic recovery amid China's easing of COVID-19 restrictions, according to the Chongqing Oil & Gas Exchange Centre.
Dawn Lee, Beijing

OMV Secures Gas Pipeline Capacity

Austria's OMV said it has secured an additional 40 terawatt hours (around 3.7 Bcm) of gas pipeline capacity in Europe for one year from Oct. 1.

The announcement comes as the continent prepares for lower energy supplies from Russia this winter amid strained relations between Europe and Moscow over the war in Ukraine.

OMV said the extra capacity was booked on pipelines entering Austria from Germany and Italy. It is equivalent to almost half of Austria's annual gas demand and covers the company's domestic delivery obligations, it added.

"It will enable us to bring the gas to Austria which we produce ourselves in Norway, as well as LNG volumes we have purchased," said CEO Alfred Stern.

Although Austria is landlocked, OMV has previously taken delivery of LNG at a terminal in the Netherlands.

Stern hailed the booking of the pipeline capacity as a "milestone" in diversifying gas supply as European countries seek to reduce their heavy reliance on Russian energy.

Earlier this week, OMV said it was it was receiving 70% less gas than it had ordered after the Nord Stream pipeline that carries Russian gas to Germany beneath the Baltic Sea was closed for scheduled maintenance until Jul. 21.

However, OMV said healthy storage volumes will keep supplies of gas flowing to its customers.

"Since we started storing natural gas very early in March and have continued to do so consistently over the past few months, OMV's own storage facilities are already almost 80% full," Stern added.
Tom Daly, London


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India38.5839.0638.6639.0638.2138.0239.5737.6439.4838.6837.8537.5537.96
Sodegaura, Japan39.1740.6640.7040.7839.1235.3940.2737.9440.1241.1638.3237.4039.36
Zeebrugge, Belgium47.9146.0245.6146.1247.3347.7346.9145.5946.7445.5947.4646.3947.58
Huelva, Spain38.6036.8636.4936.9538.0337.8037.6736.3637.5236.4638.0937.0038.11
Isle of Grain, UK28.3126.6426.2926.7127.8328.1527.5426.2527.2726.2527.9226.9828.03
Everett, US5.013.513.893.584.724.580.014.304.083.175.20----
Created with Highcharts 9.0.0($/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 Asia0.0041.94-0.0741.94
SW Europe0.0039.29-3.7739.29
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.096.606.696.30
NBP, UK (futures)-3.9128.1632.0735.47
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-1.2052.4153.6154.38
Zeebrugge (Belgium)----38.9338.33
German NCG-1.6251.8053.4254.33
NBP (UK)-3.7829.1632.9426.28
US Markets
US Spot Prices
Sabine Pass, Louisiana0.236.866.635.83
Corpus Christi, Texas0.256.686.43--
Cove Point, Maryland-0.035.976.005.45
Elba Island, Georgia------5.92
Nymex Henry Hub Futures
Near Month-0.096.606.696.30
Second Mth-0.086.516.596.26
Third Mth-0.076.506.576.25
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence