July 22, 2022

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Spain Resists EU Call for Big Cut in Gas Demand

The European Commission’s ‘Save Gas for a Safe Winter’ scheme has been rejected by Spain, with the country’s minister of ecological transition calling it unfair.

The EC proposed a voluntary 15% reduction in gas consumption in all member states between Aug. 1 and Mar. 31, 2023, which could be transformed into a mandatory measure in case of severe supply disruption, if the proposal receives the support of the qualified majority of member states.

But Spain, Europe’s largest LNG importer, was quick to reject the proposal, with Teresa Ribera, Spain’s minister of ecological transition, labelling it inefficient and unfair.

Supply Secured

The scheme would severely impact the country’s energy market even though a supply cut from Russia would likely have a negligible impact on Spain’s supply security.

This is because Spain does not have any contract with Russia’s state-owned exporter Gazprom and has a diversified supply portfolio, providing it with LNG from a wide range of countries, including the US, Qatar or Nigeria, as well as pipeline gas from Algeria.

The only Spanish company with a supply contract with Russia’s Yamal LNG project is utility Naturgy. Its contract for 2.5 million tons per year runs until 2044.

However, it is unlikely that a Russian supply cut would affect exports from Yamal LNG as the project is in private hands. Its largest shareholder is Novatek, a private Russian company, with French major TotalEnergies and Chinese CNPC and Silk Road Fund also holding stakes in the development.

Spain also lacks the necessary pipeline interconnections that could be used to send gas toward northern Europe, which means that a consumption cut in Spain would not result in more supply to the rest of Europe.

Additionally, thanks to its diverse supply portfolio and large LNG import capacity, Spain has already managed to fill its underground storage tanks to 75% of their capacity, a level which many other EU nations are struggling to reach.

Spain could rightly feel that it has done its homework by diversifying its supply sources and investing heavily in LNG import infrastructure, something that Germany, Gazprom's largest European customer, has not done.

Reloads May Work

The most efficient way to deliver gas from Spain to the rest of Europe would be via LNG reloads, as all of the country’s six operational terminals are capable of reloading LNG from their tanks to vessels.

In fact, a total of six large-scale reloaded cargoes from Spain have been delivered to Northwest Europe so far this year, with several other small-scale reloads also supplying other European countries.

Nonetheless, the scarce slot availability at Spanish terminals and the high costs associated with reloads make them an occasional way to supply the rest of Europe, rather than a long-term solution.

The Market Agrees

Sources active on the Spanish gas and LNG market agreed that a demand reduction in Spain would not help other European countries struggling to fill their underground storage tanks ahead of the winter.

“If Spain reduces its demand that does not free up gas that could be used in another place, so it does not work,” a Spanish market source told Energy Intelligence.

“If the interconnection does not allow for more [flows], reducing demand in Spain is not going to help Germany," the source added.

Another Spanish market source said that the response by the minister of ecological transition to the proposal was coherent and anticipated tough negotiations on the matter.

However, the source also noted the ‘two-way-street’ nature of the situation.

“Right now, the European Central Bank is launching a mechanism to protect the debt of the peripherals, [and] it should not be forgotten that without that Spain would possibly have problems to finance itself. I imagine that [the minister] will be reminded of that on Tuesday in Brussels," the source said.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Daniel Stemler, Madrid

Germany Bails Out Struggling Utility Uniper

Germany's government stepped in with a €15 billion ($15.3 billion) rescue package for Uniper on Friday, after the struggling utility incurred heavy losses as a result of the sharp fall in Russian gas exports to Europe and the accompanying surge in prices.

As part of the package, the government will acquire a 30% stake in Uniper for €267 million, while Finnish parent company Fortum's stake will fall from 80% to 56%.

Berlin also agreed to provide up to €7.7 billion of additional capital, while government-owned lender KfW will increase an existing credit line by €7 billion.

Uniper will be allowed to start passing along the higher cost of gas to customers, but Chancellor Olaf Scholz said the government will provide financial support to ease the burden for poorer households.

The company recently disclosed that it had fully utilized the original €2 billion line of credit from KfW as a result of "the ongoing supply shortfalls of Russian gas."

Germany is Europe's biggest importer of Russian gas and Uniper imports more Russian gas than any other German company.

Fortum CEO Markus Rauramo said Uniper had incurred daily losses running to many millions of euros as a result of curtailments in deliveries of Russian gas to Germany via the Nord Stream 1 pipeline and the resulting spike in European gas prices.

Nord Stream 1 resumed operations on Thursday after a 10-day scheduled maintenance outage, but at only 40% of its capacity — the same rate at which it operated in the month or so before it went down for maintenance.

Russia has attributed the low flow rate to problems with a Siemens Energy gas turbine from one of the Nord Stream 1 compressor stations in Russia.

However, European politicians have dismissed that explanation, saying that Moscow is deliberately withholding gas to gain leverage in its standoff with the West over Russia's five-month-old war in Ukraine.

UK Gas Storage Move

Separately, the UK has granted British utility Centrica a license to reopen the 3.4 Bcm Rough gas storage facility in the North Sea, five years after it decided to close the site.

The license from the North Sea Transition Authority is the first step in a process that will require further regulatory approvals.

The move comes as European countries scramble to stockpile enough gas in storage facilities for the coming winter heating season — a task made vastly more difficult by the big drop in exports from Russia, the region's biggest supplier.

Centrica is reportedly planning to invest £2 billion ($2.5 billion) to revive the Rough storage site, which represented about 70% of UK gas storage capacity before it was closed because of the high cost of refurbishing it.

The EU is requiring member states to fill gas storage facilities to 80% of capacity by Nov. 1 of this year as part of its efforts to make the 27-nation bloc less vulnerable to supply disruptions and reduce its dependence on Russian gas.

The UK — no longer a member of the EU — is far less dependent than other European countries on Russian gas, but it is just as vulnerable to high gas prices.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Simon Martelli, London

Hong Kong Faces Competition for its FSRU

A plan by Hong Kong to complete an offshore terminal this year by using a floating storage and regasification unit (FSRU) is facing delay risks. The designated FSRU has been chartered by Singapore LNG (SLNG) since April this year.

With a storage capacity of 263,000 cubic meters, Bauhinia Spirit — known as the world's largest FSRU — is jointly owned by Mitsui O.S.K. Lines (MOL) and Vopak.

The FSRU is slated to head to Hong Kong under a long-term charter agreement and be operated by Hong Kong LNG Terminal, which is owned by domestic power utilities CLP Power Hong Kong and the Hongkong Electric Co.

But a competing rush in Europe to fast-track LNG imports using FSRUs and anticipation of higher LNG prices in winter, have boosted demand for LNG carriers either for regasification or as floating storage.

Singapore’s Energy Security Focus

As Singapore’s sole terminal operator, SLNG is understood to have chartered the FSRU as a storage play due to limited onshore storage capacity and to ensure supply security for the country following the Ukraine war. SLNG is selling regasified gas to local power generation firms.

SLNG has chartered the FSRU for one year which would only end in April 2023, according to shiptracker Kpler. SLNG did not respond at press time. The FSRU is currently anchored at SLNG’s berth 1.

The 11 million ton per year terminal comprises three onshore storage tanks each of 180,000 cubic meters and a fourth tank of 260,000 cubic meters. Last October, SLNG surprised the market by buying LNG cargoes from the spot market, marking the first purchase for the terminal operator.

This was triggered by curtailed pipeline gas imports from Indonesia, higher-than-usual power demand and tight LNG supplies that led regulator Energy Market Authority (EMA) to introduce several pre-emptive measures to ensure the country's energy security.

A Singapore-based trader said SLNG has chartered at least one more vessel and noted the terminal operator has been buying spot LNG regularly this year. The EMA said recently Singapore may need a second terminal to meet growing demand as some piped gas contracts from Indonesia and Malaysia are due to expire soon. It is now running a tender to appoint two more term importers by end-September which can supply LNG no later than March 2023. Currently four firms — Pavilion Energy, Shell, Exxon Mobil and Sembcorp Fuels — are licensed to import LNG for Singapore.

Around 95% of Singapore's electricity supply is generated from natural gas, with pipeline gas accounting for 70%-75% and LNG 25%-30%.

Hong Kong's LNG plans

A CLP spokesperson told Energy Intelligence this week it would provide an update on the project “in due course,” without providing any specifics. The FSRU would enable first LNG imports for Hong Kong which is trying to wean itself from coal and achieve a carbon-neutrality goal by 2050.

CLP and Hongkong Electric signed a 10-year LNG supply contract with portfolio player major Shell in 2019 which is priced at a competitive price compared with today’s spot prices still hovering at the $40 per million Btu level.

CLP reportedly attributed the temporary deployment of the FSRU to Singapore to delays in completing the project due to Covid-19 disruptions. The firm told local media that it is working closely with MOL to ensure the timely arrival of the FSRU to Hong Kong for the commissioning phase of the terminal.

The original plan envisaged completing the terminal in 2021 but this was subsequently delayed to the middle of 2022 due to construction delays caused by the Covid-19 pandemic. CLP said last October that it expects to complete the offshore terminal in 2022.

CLP has set a target to use more than 50% natural gas-fired power by 2030. Natural gas accounted for 48% of its electricity output in 2020, followed by imported nuclear 36% and coal 15%. It currently sources natural gas from Chinese state firm CNOOC’s gas fields off Hainan and the South China Sea, as well as PetroChina’s second West-East gas pipeline.
Clara Tan, Singapore

Beijing Gas Makes Progress With Tianjin Terminal

Beijing Gas said it has completed lifting the roofs of four storage tanks at its Tianjin Nangang terminal project, marking a step forward for the major gas distributor’s first LNG import terminal.

The four tanks, each with a capacity of 220,000 cubic meters, are scheduled to be put into use by the end of 2023. The new tanks form the second phase of the company’s terminal project which is envisaged to have a total of 10 LNG storage tanks, an LNG berth and 216 kilometers of external pipeline.

Backed by the municipal government, Beijing Gas says the project can achieve an emergency storage capacity of 1.2 billion cubic meters of natural gas.

As of now, a total of eight storage tanks have completed the roof raise. Four of them would be in the first phase which will be mechanically completed by the end of 2022. The remaining two tanks are due to be completed in 2024.

Beijing Gas is understood to have secured a 10-year LNG supply contract with Shell with first supplies due to start in 2023.

The Beijing government requires city gas enterprises to develop an emergency gas storage capacity which is no less than 5% of their annual gas consumption. As a key project for China’s oil and gas infrastructure, Beijing Gas says its Tianjin terminal can effectively alleviate the tight supply of natural gas in the Beijing-Tianjin-Hebei region, especially in winter.

According to the local consulting firm JLC, natural gas consumption in the Beijing-Tianjin-Hebei region reached 55.4 billion cubic meters in 2021, up 21% from 2019.
Staff Reports, Beijing

Chevron to Drill New Well at Aphrodite Gas Field

Chevron has agreed to drill a well at the Aphrodite gas field offshore Cyprus, but there is still no official timeline for a final investment decision on developing the field, which is estimated to hold 4 trillion cubic feet of gas.

A joint announcement was made by Chevron and the Cypriot energy ministry after the US major's East Mediterranean gas team visited Cyprus on Thursday.

Chevron is "in the process of finalizing the optimization of the Aphrodite field's development concept, through possible synergies with other facilities in the region," the statement said.

The drilling of the new well at Aphrodite is being conducted within "the framework of the field's approved development and production plan," it added.

"We confirm that it is the joint venture's intention to drill the A3 well in the coming months," a Chevron spokesperson said.

There has been plenty of interest in the East Mediterranean's gas resources since Russia invaded Ukraine in February, prompting Europe to find ways to reduce their dependence on imports of Russian gas.

The European Commission has signed a provisional LNG supply deal with both Israel and Egypt. Chevron operates the big Leviathan and Tamar gas fields offshore Israel, while Egypt has two LNG plants.

Industry sources in Israel and Cyprus believe that a Aphrodite is likely to be developed in combination with a second phase of development at Leviathan because of the economies of scale that can be reaped by shipping the gas by pipeline to Egypt for liquefaction and then exporting it as LNG to markets in Europe and Asia.

However, Chevron cannot proceed with development of Aphrodite until a dispute over delineation of the maritime border between that field and Israel's smaller Ishai field is resolved.

The governments of Cyprus and Israel have been trying to resolve the dispute and look set to appoint an arbitrator soon.

The joint statement released by the Cypriot energy ministry said that Chevron was expected to present the development concept for Aphrodite for approval by the end of this year.

Tom Pepper, London


In Brief

Sempra, Mexico's CFE Sign Preliminary Agreements to Advance LNG

Sempra Infrastructure has made several preliminary agreements with Mexico's Federal Electricity Commission to advance the development of two LNG projects and one gas pipeline.

Sempra Infrastructure, the unit of California-based Sempra that includes LNG assets, is one of several companies pursuing the export of US gas via Mexican liquefaction projects, an effort that has drawn the support of Mexico's president.

These latest agreements outline the path forward for Sempra's proposed Vista Pacífico LNG terminal in Topolobampo, Sinaloa, including the definition of the project’s configuration to advance engineering and permitting efforts.

The agreements also expand a memorandum of understanding (MOU) signed earlier this year to jointly explore the potential development of an LNG import terminal in Salina Cruz, Oaxaca, to promote economic growth and development of Mexico's isolated South-Southeast region.

The agreements also establish the framework for a joint venture to ultimately enable the restoration of service provided by the Guaymas-El Oro gas pipeline.
Michael Sultan, Washington


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India32.6333.0732.7133.0632.3032.1233.5331.7933.4432.7331.9731.7032.07
Sodegaura, Japan33.3134.6834.7034.7833.2829.9034.3232.2234.1835.1232.5531.7133.48
Zeebrugge, Belgium40.3038.6038.2338.6839.7840.1439.3938.2039.2438.2139.9038.9440.01
Huelva, Spain45.4343.7243.3443.8044.8744.6544.5143.2344.3743.3344.9343.8644.95
Isle of Grain, UK30.7129.1028.7729.1730.2430.5529.9628.7329.7128.7430.3329.4430.43
Everett, US7.365.946.296.007.086.960.016.696.475.627.54----
Created with Highcharts 9.0.0($/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 Asia0.0035.88-0.1035.88
SW Europe0.0046.12-2.6746.12
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.378.307.937.02
NBP, UK (futures)+1.9337.4535.5224.03
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF3.5948.6445.0446.17
Zeebrugge (Belgium)------24.48
German NCG2.5046.7544.2645.53
NBP (UK)-2.6731.5534.2220.75
US Markets
US Spot Prices
Sabine Pass, Louisiana0.138.138.006.58
Corpus Christi, Texas0.478.097.626.53
Cove Point, Maryland-0.468.438.896.09
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.378.307.937.02
Second Mth0.388.207.826.93
Third Mth0.388.177.786.92
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence