July 20, 2022

WWW.ENERGYINTEL.COM

Shell Turns to Lock Outs at Prelude

Shell, facing extended industrial action at the Prelude LNG facility off Western Australia, will pursue lock outs starting Monday.

Shell said earlier this month that it would suspend production at its 3.6 million ton/yr floating liquefaction plant and that it has informed customers. The industrial action, which first started on Jun.10, was last expected to end on Jul.21, but is now expected to last until August 4.

The industrial action, undermining LNG exports, comes amid already tight world LNG markets.

Work Bans

In a letter to Shell this week, the Communications, Electrical and Plumbing Union informed the Prelude operator that they would carry out 49 work bans from Jul. 29 to Aug. 4.

The work bans cover key operations such as facilitating the side-by-side mooring of tankers and transferring of hydrocarbons from Prelude to an offtake carrier.

Lock Outs

"Since industrial action commenced on Jun. 10, we have endeavored to find every option to work around bans and stoppages and find alternate duties for our people to avoid an outcome where our staff and contractors would not be paid," Shell said.

"However, following the production shutdown caused by the protected industrial action, we cannot continue to operate in the same way. As a consequence, we will be resorting to lock outs as the mechanism available under the Fair Work Act. Once the lock outs are in effect, people will no longer be paid if they are not mobilized to the facility," the company added, confirming that the lock outs will begin as of Monday.

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

"Shell remains committed to reaching an agreement and working together to find a way forward with our workforce, and we have every confidence this remains the best outcome," the company said.

Checkered Past

Prelude is expected to receive carrier Minerva Chios on Jul. 25 which would head to China when it departs on Jul. 27, according to Kpler.

The floating export plant has seen several stops and starts — due to an electrical problem in 2020 and a fire in 2021 — since its 2019 initial start up (see graph).

Created with Highcharts 9.0.0('000 tons)PRELUDE'S LNG EXPORTSJan'19Mar'19May'19Jul'19Sep'19Nov'19Jan'20Mar'20May'20Jul'20Sep'20Nov'20Jan'21Mar'21May'21Jul'21Sep'21Nov'21Jan'22Mar'22May'22Jul'22050100150200250300350Source: Kpler

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

Cheniere Signs PetroChina to Long-Term LNG Deal

A subsidiary of Cheniere Energy has entered into a long-term LNG sale and purchase agreement (SPA) with a subsidiary of PetroChina.

Under the SPA, PetroChina International (PCI), has agreed to purchase up to 1.8 million tons per year of LNG on a free-on-board basis from Cheniere Marketing.

The purchase price is indexed to the Henry Hub price plus a fixed liquefaction fee.

Deliveries under the SPA will begin in 2026, reaching the full 1.8 million tons in 2028, and continue through 2050.

Beyond 2049

The PetroChina deal has the second-longest term — 24 years — among US LNG deals signed this year, next only to a 25-year China Gas deal for Lake Charles LNG supplies signed in June.

The durations of the two deals — through 2050, past when the European Commission would like to see long-term LNG contracts ended — is indicative of the different attitude toward the LNG trade in Asia than in Europe.

In fact, Cheniere President and CEO Jack Fusco touted that this is its "first LNG contract that crosses over into the second half of this century.”

“Natural gas continues to play a vital role in enabling energy transition in China," said Tian Jinghui, executive chairman of PCI, which now has approximately 3 million tons per year of offtake agreements with Cheniere.

Corpus Christi Stage Four?

Meanwhile, half of the total deal volume, or about 0.9 million tons/yr, is subject to Cheniere making a positive final investment decision (FID) to construct additional liquefaction capacity at the Corpus Christi LNG terminal in Texas — that is, beyond the seven-train Corpus Christi Stage 3 Project.

This is the third Cheniere deal signed this year that depends on the FID, amounting to about 2.8 million tons/yr of offtake.

Last month, Norway's Equinor signed with Cheniere for a combination of volumes from Corpus Christi Stage 3 and from additional Corpus Christi capacity. Later in the month, Chevron signed on for 1 million tons/yr from the additional Corpus Christi capacity.
Michael Sultan, Washington

Swiss Trading Firms Keep Bringing Yamal LNG Cargoes Into Spain

Cargoes from Russia’s Yamal LNG project continue to attract interest from commodity trading houses for delivery to Spain, with increased output from the plant likely being marketed on a spot basis.

Deliveries of Yamal LNG cargoes to Spain reached a new all-time high last month when a total of 588,000 tons of LNG was unloaded at Spanish terminals, according to data from commodity analytics firm Kpler (see graph below).

The high Spanish imports of Yamal LNG volumes reflect the strong output of the Russian plant, which has been producing LNG above its nameplate capacity for months, Energy Intelligence understands.

“Now that we have entered summer and temperatures are increasing, production has decreased, yet [the plant] is still producing above nameplate capacity, around 104%,” a source with knowledge of the matter told Energy Intelligence.

This high capacity utilization, in turn, likely allows Yamal LNG to offer the extra volumes on the spot market, which provides an opportunity for market participants, who do not have term contracts with Yamal LNG, to snap up these spot volumes.

This could be especially relevant at a time when other producers in the Atlantic Basin, such as Nigeria, are struggling to offer cargoes on a spot basis.

Created with Highcharts 9.0.0(million tons)YAMAL LNG EXPORTSFranceChinaSpainBelgiumNetherlandsUnited KingdomTaiwanSouth KoreaJapanPortugalIndiaOthersJul'20Aug'20Sep'20Oct'20Nov'20Dec'20Jan'21Feb'21Mar'21Apr'21May'21Jun'21Jul'21Aug'21Sep'21Oct'21Nov'21Dec'21Jan'22Feb'22Mar'22Apr'22May'22Jun'22Jul'2200.20.40.60.811.21.41.61.82Source: Kpler

Swiss Traders in Action

In particular, a couple of mid-sized Swiss trading houses have embraced this opportunity and purchased Yamal cargoes into Spain in recent weeks.

Last month, Lugano-based trader DXT Commodities bought two cargoes from Yamal for delivery to Spain.

And the cargo delivered by the 172,000 cubic meter Nikolay Zubov on Jul. 11 to the Mugardos terminal was purchased by another Lugano-based trading firm, Enet Energy, according to a Spanish cargo arrival schedule obtained by Energy Intelligence.

The fact that none of these companies has a supply contract for Yamal volumes, further reinforces the likelihood that the cargoes were purchased on a spot basis.

Spanish Imports Fall

Spanish imports of Yamal LNG volumes are set to fall by around 50% month on month in July.

Four cargoes have been delivered from the Russian facility to Spain so far this month and no other Yamal cargo is expected for the remainder of this month at Spanish terminals, the arrival schedule showed.

Looking ahead for August, the same arrival schedule showed that there are three Yamal cargoes already set to be delivered to Spain during the first half of next month, all of them for utility Naturgy, the only Spanish company with a term supply contract with Yamal LNG.
Daniel Stemler, Madrid

Putin Warns of Extended Shortfall in Gas Exports

President Vladimir Putin has suggested that Russian exports of gas to Europe could remain at sharply lower levels, even after Thursday's scheduled restart of deliveries via the Nord Stream 1 pipeline.

The European Commission, meanwhile, has proposed that EU member states should reduce their gas consumption by 15% until next spring as a precaution against low deliveries from Russia, or even a complete halt in its exports to Europe.

Speaking during a trip to Iran on Tuesday, Putin said recent reductions in flows of Russian gas to Germany were attributable to problems with the maintenance of turbines at a Nord Stream 1 compressor station in Russia.

Putin said western sanctions have delayed maintenance work carried out by the manufacturer of the turbines, Siemens Energy of Germany.

European politicians have dismissed this, saying Russia is using the issue as a pretext to retaliate against Europe for sanctions that were imposed in response to Putin's war in Ukraine.

Russia is the biggest supplier of natural gas to the EU, which produces little gas of its own.

Germany is the EU's biggest importer of Russian gas and the Nord Stream 1 line has typically been the main conduit for Russian gas entering Europe.

Underutilized Capacity

Nord Stream 1 is supposed to resume operations on Thursday after going offline for 10 days of scheduled maintenance, but there have been concerns that Russia might not restart deliveries on time.

The head of Germany's Federal Networks Agency (BNetzA), Klaus Muller, tweeted on Wednesday that Russia's Gazprom had indicated that the pipeline would supply gas at 30% of its capacity on Thursday, but added that "further changes are possible."

Nord Stream 1 can carry about 170 million cubic meters of gas per day, but since mid-June volumes were limited to around 40% of that capacity, or around 68 MMc/d.

State-controlled Gazprom attributed this to delays in maintenance work on one of the turbines from the Portovaya compressor station at a Siemens Energy plant in Canada.

The turbine has since been shipped to Germany after Canada granted a sanctions waiver, but Putin suggested on Tuesday that delayed maintenance caused by western sanctions could continue to limit gas flows via Nord Stream 1.

Putin — who has served as Russia's president or prime minister for more than 20 years — said volumes could even fall to 30 MMcm/d around Jul. 26, when another turbine is scheduled to undergo routine maintenance.

Russian Resilience

Russia's economy has proved more resilient in the face of western sanctions than many pundits had predicted, with high global prices for both oil and gas bolstering budget revenues.

By restricting gas exports and driving up prices, Moscow could undermine public support in the West for military and financial assistance to Ukraine.

But Russia could overplay its hand.

A complete halt of gas exports to Europe could backfire by strengthening the region's resolve, while China's growing appetite for Russian gas would not be sufficient to offset the loss of sales to Europe any time soon.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Staff Reports

EU Commission Proposes 15% Reduction in Gas Demand

The European Commission has proposed that EU member states should target a voluntary 15% reduction in their gas consumption over the next six months, amid concerns about the security of supplies from Russia.

The commission has also recommended that the 27-nation block should diversify its sources of supply via a joint purchasing platform that it believes will strengthen Europe's hand in negotiations with producers.

The proposed 15% reduction in demand would be for the period from Aug. 1 until Mar. 31, 2023.

If the proposal is supported by the required qualified majority of member states, the commission would be able to make the 15% reduction mandatory if there were a risk of a severe gas shortage or exceptionally high demand.

The main reason for the proposed regulation is to enable EU countries to attain the target of filling up gas storage facilities to 80% of capacity by Nov. 1 of this year.

The latest move shows the challenge the EU is facing as it seeks to reduce its dependence on Russian pipeline gas by two-thirds this year.

It has tried to source more gas from Norway, North Africa, Azerbaijan, Egypt and Israel, while also boosting imports of LNG from the US.

The commission — the executive branch of the EU — said that in the first half of this year, the bloc's non-Russian LNG imports rose by 21 billion cubic meters versus the same period of last year.

Non-Russian pipeline gas imports — from Norway, Azerbaijan, the UK and North Africa — grew by 14 Bcm over the same period.

Demand Reduction Plan

To achieve the targeted reduction in demand, the commission has presented a plan that calls on member states to switch from gas to renewables or other less carbon-intensive options, wherever possible.

It acknowledges that some temporary switching to coal, oil or nuclear power may also be necessary.

The commission is also urging all EU countries to launch public awareness campaigns to promote reductions in the use of energy for heating and cooling buildings.

The commission has set up an EU Energy Platform to aggregate energy demand at a regional level and facilitate future joint purchases of gas and green hydrogen. The platform is divided into five regional groups of member states.

Germany Picks LNG Import Site

Separately, Germany — Europe's largest economy and its biggest national gas market — confirmed this week that Stade, near Hamburg, will be the site of one of four planned floating, storage and regasification units (FSRU) for imports of LNG.

The FSRU vessel is expected to be ready to import LNG by the end of 2023 as part of the planned Hanseatic Energy Hub.

NPorts — the port authority for the German state of Lower Saxony, which includes Stade — is also involved in preparations for a land-based terminal, which is expected to be completed during the same time period.

The Hanseatic Energy Hub will be located in the existing Stade industrial park and will be directly connected to the German natural gas pipeline network.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Tom Pepper, London


In Brief

Australia’s East Coast States Face Gas Crunch

The Australian Energy Market Operator (AEMO) has activated the gas supply guarantee mechanism amid growing risk of a gas shortfall on the country’s east coast.

The mechanism consists in asking LNG exporters in Queensland, namely Shell, ConocoPhillips and Santos, to divert gas to meet peak demand periods in the National Electricity Market (NEM). At stake is about 25.3 million tons of LNG export capacity, which resulted in about 23 million tons of exports in 2021 (see graph below).

NEM supplies about 80% of Australia's total power consumption covering the states of Queensland, New South Wales, South Australia, Victoria and Tasmania.

“The producers and pipeline operator have responded positively to the request for additional gas supply,” AEMO said in a statement.

This is the second time the mechanism is activated. The first time was in June.

The mechanism was developed by the gas industry and introduced back in 2017.

AEMO expects Victoria, Australia’s most populous state, to be facing a gas shortfall until the end of September.

Created with Highcharts 9.0.0(million tons)EASTERN AUSTRALIAN LNG EXPORTSChinaSouth KoreaJapanMalaysiaSingapore RepublicIndiaThailandOthers201520162017201820192020202120220510152025Note: Gladstone LNG, Australia Pacific LNG, and Queensland Curtis LNG Source: Kpler

Marc Roussot, Singapore

Papua LNG Launches Upstream Feed

TotalEnergies said Wednesday the partners in the 5.4 million ton/yr Papua LNG scheme had launched initial front-end engineering and design (Feed) studies for the project's upstream facilities.

The move comes as demand for the super-chilled fuel soars and Total has stopped providing capital to its Arctic LNG 2 project in Russia in the wake of the invasion of Ukraine and ensuing sanctions.

Papua LNG — in which operator Total is partnered by Oil Search and Exxon Mobil — is targeting a final investment decision around end-2023 with start-up envisaged by end-2027, the French major said.

It will be the second LNG project in Papua New Guinea after the launch of Exxon-led PNG LNG, which has a capacity of more than 8.3 million tons/yr, in 2014.

Papua LNG will be supplied by the Elk-Antelope onshore gas fields. Total said the project would incorporate carbon capture and storage for the fields’ CO2, which will be reinjected into the reservoirs.

“The Papua LNG project is well positioned to contribute to growth in LNG supply worldwide, especially for customers in Asia seeking to decarbonize from coal to gas, in line with our strategy to lower global greenhouse gas emissions,” said Julien Pouget, Total’s senior vice president Asia-Pacific for E&P and renewables.

Feed studies for Papua LNG's liquefaction facilities are progressing and the plan is to launch the integrated Feed in the fourth quarter of this year, Total said.
Tom Daly, London


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India33.1833.6333.2633.6232.8532.6834.0932.3434.0033.2932.5232.2532.62
Sodegaura, Japan33.8635.2335.2635.3333.8330.4434.8732.7734.7335.6833.0932.2634.03
Zeebrugge, Belgium40.3238.6238.2538.7039.8040.1639.4238.2239.2638.2339.9238.9640.03
Huelva, Spain45.4943.7843.3943.8644.9344.7144.5643.2844.4243.3844.9843.9245.00
Isle of Grain, UK30.7829.1828.8429.2530.3230.6330.0428.8129.7928.8230.4129.5230.51
Everett, US6.525.115.455.176.246.120.015.855.644.796.70----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback14. Feb28. Feb14. Mar28. Mar11. Apr25. Apr9. May23. May6. Jun20. Jun4. Jul18. Jul102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0036.44-0.0636.44
SW Europe0.0046.188.3346.18
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.748.017.266.69
NBP, UK (futures)+6.2032.1325.9332.30
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF1.1646.3845.2254.46
Zeebrugge (Belgium)------38.32
German NCG1.9646.0844.1252.59
NBP (UK)8.3831.6123.2333.17
US Markets
US Spot Prices
Sabine Pass, Louisiana0.207.557.356.63
Corpus Christi, Texas0.197.317.126.43
Cove Point, Maryland-1.137.678.806.00
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.748.017.266.69
Second Mth0.757.907.156.59
Third Mth0.747.877.136.57
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence