July 26, 2022

WWW.ENERGYINTEL.COM

Shell Withdraws Prelude Lockout Plan

Shell said an original plan to implement lockouts at its operated floating Prelude facility on Jul. 25 will not proceed in order to allow for safety critical work to be carried out. Meanwhile, a protected industrial action (PIA) by union workers has again been extended by one more week.

The last cargo exported from the 3.6 million ton per year facility was aboard the Pan Europe, which left Prelude on Jul. 6, according to Kpler.

Last week, the operator said it would pursue lockouts and stop paying workers if they are not mobilized to the facility.

A Shell spokeswoman said Tuesday this planned lockout will not proceed. “The safety of all people on site and integrity of the facility remains our priority,” Shell said. “For people on board doing partial work due to the work bans in place, their pay will continue to be pro-rated.”

Shell wants negotiations for a new enterprise agreement to resume only after the industrial action has ended. It said it remains committed to reaching an agreement, "but we cannot continue to bargain until the PIA is lifted and we have returned to safe, stable operations."

The spokeswoman said production at the Prelude facility remains suspended. Some of the work bans include bans on the mooring of vessels and upcoming bans on loading of hydrocarbons that preclude normal operations.

The ongoing industrial action, which started on Jun. 10, was last expected to last until Aug. 4.

Australia’s Electrical Trades Union said Tuesday it would extend industrial action at Prelude to Aug. 11. The union called for an extended ban on a number of works, including transfer and supply of hydrocarbons or any products from the facility off Western Australia.

Shell claims that the union demands, which focused on increased pay and conditions, would likely increase Prelude’s annual operating cost by $40 million annually.
Clara Tan, Singapore

EU Targets More Nigerian LNG

The European Union (EU) is looking to double imports of LNG from Nigeria, as it steps up its quest to secure replacement for Russian gas both in the short and long term.

This week, the EU’s deputy energy commissioner, Matthew Baldwin, visited the Nigerian capital Abuja to discuss gas with senior officials, including the Minister of State for Petroleum Resources Timipre Sylva and the top management of Nigerian National Petroleum Corp.

“Following gas cuts by Russia, the European Union is looking to Nigeria as an alternative to augment its gas needs,” the local media quoted him as saying.

Dim Prospects

But Nigeria is unlikely to be able to do much to rescue Europe from its current gas predicament.

The EU currently gets around 14% of its LNG from Nigeria, all of which comes from the six trains operated by Nigeria LNG, the Shell-operated consortium that operates facilities with the capacity to produce 22 million tons per year.

But actual shipments have been running far below capacity due to problems with securing sufficient gas feedstock. Nigeria exported only 17.2 million tons in 2021, or about 78% of capacity, according to Kpler, and the output trend has been flat to decreasing in recent years (see graph below).

The majority of Nigeria LNG’s output is tied up under long-term offtake contracts with more than a dozen buyers, leaving little scope for spot sales.

Created with Highcharts 9.0.0(million tons)NIGERIA'S LNG EXPORTSEuropeAsiaAmericasAfricaJan'17Mar'17May'17Jul'17Sep'17Nov'17Jan'18Mar'18May'18Jul'18Sep'18Nov'18Jan'19Mar'19May'19Jul'19Sep'19Nov'19Jan'20Mar'20May'20Jul'20Sep'20Nov'20Jan'21Mar'21May'21Jul'21Sep'21Nov'21Jan'22Mar'22May'22Jul'2200.511.522.5Source: Kpler

Additional Capacity

Over two years ago, Nigeria LNG kicked off construction of a seventh train that when completed will push up capacity to 30 million tons/yr. But the expansion took some 15 years to get the green light, underlining the difficulties in getting funding and gas throughput guarantees.

The Train 7 start-up date is now projected for 2025.

Additional volumes of Nigerian LNG are set to come from the country’s first floating terminal, led by UTM Offshore, with a capacity of just 1.2 million tons/yr.

The UTM facility, which will be built by US construction firm KBR and is being financed by African bank Afreximbank, is one of several FLNG projects under construction in Africa. The largest, the Eni-operated Coral South project in Mozambique, is due to start up in October with a 3.4 million ton per year capacity.

EU's Other Targets

The EU is targeting other producers around the world to step up their gas sales.

Last week, chief commissioner Ursula Von Der Leyen signed an MOU in Baku with the president of Azerbaijan, Ilham Aliyev, to double imports of Azeri gas to 20 Bcm/yr by 2027.
Paul Sampson, London

Cheniere Signs Offtake Deal With Thailand's PTT

Cheniere Energy has signed up Thailand's state-owned energy company PTT to an LNG offtake deal.

Subsidiary PTT Global LNG (PTTGL) has agreed to purchase 1 million tons per year for 20 years, starting in 2026, from Cheniere unit Corpus Christi Liquefaction.

The sales and purchase agreement calls for a combination of free-on-board and delivered ex-ship deliveries. "This customized structure represents a further evolution in Cheniere’s commercial offerings tailored to the specific needs of LNG customers around the world," Cheniere said.

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

“This is the first direct LNG contract from a US LNG producer for PTTGL," said Jack Fusco, Cheniere’s president and CEO.

It was not clear whether the offtake will come from Corpus Christi LNG's existing three-train, 15 million ton/yr plant, from the newly sanctioned 10 million ton/yr Corpus Christi Stage Three capacity, or from the proposed Stage Four.

Thailand's Bullish Plans

PTT owns and operates Thailand’s first LNG import facility, the 11.5 million ton/yr LNG Map Ta Phut Terminal 1. The 7.5 million ton/yr LNG Map Ta Phut Terminal 2, or Nong Fab, is slated to be completed by the end of this quarter.

“We actively engage in the LNG business and target to be a global LNG player by managing an LNG portfolio of 9 [million tons per year] by 2030. By the end of this year, PTT’s LNG receiving terminals will be able to accommodate regasification capacity up to 19 million tons per year with our new terminal,” said Auttapol Rerkpiboon, PTT’s president and CEO.

Thailand's LNG imports have increased every year since 2014 and are on track for another record year in 2022 (see graph below).

US LNG as a share of Thai imports peaked at 9.7% in 2020, then dropped back to around a 5% share in 2021-2022.

Created with Highcharts 9.0.0(million tons)THAILAND'S LNG IMPORTSQatarMalaysiaAustraliaNigeriaUnited StatesTrinidad and TobagoIndonesiaOmanBruneiOthers201120122013201420152016201720182019202020212022012345678Source: Kpler

Yet Another Asian Deal

Once again, despite Europe's desperate need for gas supplies, this latest deal for US LNG is with an Asian buyer.

So far this month, offtakers agreed to buy 10.3 million tons/yr of US LNG. All but two of the buyers were either Chinese or Thai, with Vitol and ConocoPhillips rounding out the month with portfolio deals.
Michael Sultan, Washington

European Gas Prices Soar Despite Demand Cut Deal

European natural gas prices surged on Tuesday, even as the EU's 27 members states approved a plan to reduce their gas consumption by 15% over the next eight months.

The front-month (August) Dutch TTF gas futures contract rose more than 20% to an eye-watering €214 per megawatt hour ($65/MMBtu) and futures contracts with delivery months as late as next March, all saw jumps of around 20%.

The run-up in prices came one day before Russian gas giant Gazprom was set to cut gas flows to Germany via the Nord Stream 1 pipeline to 33 million cubic meters per day, or just 20% of the line's total capacity.

The prospect of that immediate reduction in supply seemed to outweigh thoughts of the potential loss of demand resulting from the passage of the EU's "Save Gas for a Safe Winter" plan in Brussels.

EU Energy Commissioner Kadri Simson told reporters ahead of the meeting that the bloc needed to be ready for Russia to cut off gas supplies to Europe completely "at any moment."

Dialing back consumption now should help Europe refill its gas storage, which currently sits at about 66% of capacity, and would also narrow the gap between supply and demand in the event of new supply disruptions further down the road.

The plan, which covers the period from Aug. 1 through Mar. 31, will be voluntary unless a majority of member states agree to declare a gas supply "emergency."

A proposal to declare such an emergency could be put forward for approval by the European Commission or by five member states (article continues after graph).


EU member states have outlined a variety of plans that they have put in place to meet the 15% goal.

Some of them rely on turning from natural gas to other fuels for electricity generation, including fuel oil or coal, as well as increasing the share of renewable energy in power generation and keeping nuclear plants online.

Many member states have also outlined plans to scale back the use of gas and electricity in public sector buildings as well as starting public information campaigns to encourage businesses and households to use less energy.

Gazprom Spurs Negotiations

While the Gazprom announcement looks to have spooked the European gas market, EU diplomats said it had also galvanized the group to reach agreement on a response.

Simson said there was "no technical reason" for state-controlled Gazprom to slash its gas exports to Europe. She called it a "politically motivated step" that showed EU countries need to be prepared for a complete halt in supplies.

Simson declined to say whether the latest reduction in gas flows via the Nord Stream 1 pipeline would trigger an emergency declaration under the new plan.

One EU diplomat involved in the talks told Energy Intelligence that Gazprom's announcement of reduced flows had been "a gift" to those involved in the negotiations about the plan.

The initial proposal — rolled out before Gazprom's announcement — led to public pushback from more than a dozen EU member states.

After the announcement, just one country — perennial maverick Hungary — remained opposed to the idea of rationing gas, Energy Intelligence understands.

At that point, however, attention had shifted from whether to support the plan to how to amend it into one that could work for all member states.

But, but, but …

However, skeptics point to a range of exemptions available to member states and their industries that could allow them to dodge the requirement to reduce gas demand.

Six exemptions were inserted into the agreement. For example, island countries such as Ireland and Malta, or those without good physical connections to European gas markets, such as Spain and Portugal, could seek exemptions.

There are also exemptions for key industries that use natural gas as a feedstock or in processes that require high temperatures.

There are also potential exemptions for the Baltic nations, whose power grid is connected to that of Russia, and for any country where a reduction in gas use could trigger a power emergency.

Those countries which have stored more gas than the EU's target of 80% of capacity by Nov. 1 would be allowed to count the excess against the mandate to reduce demand.

Czech Industry Minister Jozef Sikela, who led the negotiations, defended the carve-outs saying their overall impact was unlikely to erode the targeted 15% reduction in demand.

"I firmly believe we managed to preserve our high ambition," he told a press conference in Brussels.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Noah Brenner, Brussels


In Brief

Spot LNG Prices Leap Again

Northeast Asian spot LNG prices jumped by $6.50 to $43/MMBtu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead. Spot LNG prices in Southwest Europe rose to their highest level in three weeks, leaping by $7.11 to $44.96/MMBtu amid Russian plans to further cut supplies to Germany.

Asian prices climbed on stronger European gas hub prices following Gazprom’s decision to further reduce gas exports to Europe via the Nord Stream pipeline to around 20% of capacity.

Prices also rose on higher trading activity in Asia, where hot weather prompted higher cooling needs.

Shell’s decision to suspend production at its 3.6 million ton/yr Prelude FLNG facility offshore Australia also tightened the market.

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


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India39.7340.1839.8040.1739.3839.2140.6538.8740.5639.8339.0538.7739.14
Sodegaura, Japan40.3941.7841.8141.8940.3636.9241.4139.2841.2742.2439.6138.7640.55
Zeebrugge, Belgium58.6456.7856.3556.8858.0758.4657.6456.3557.4956.3658.2057.1458.31
Huelva, Spain44.2842.6242.2442.7043.7343.5243.3842.1443.2442.2443.7942.7643.81
Isle of Grain, UK39.4937.8337.4737.9139.0139.3238.7137.4538.4637.4639.1038.1739.20
Everett, US7.345.976.306.027.076.950.016.686.485.667.52----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback21. Feb7. Mar21. Mar4. Apr18. Apr2. May16. May30. May13. Jun27. Jun11. Jul25. Jul102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0043.006.8343.00
SW Europe0.0044.96-0.5744.96
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.278.998.737.26
NBP, UK (futures)+3.8242.4238.6026.08
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF8.3758.3549.9844.95
Zeebrugge (Belgium)3.0433.6830.64--
German NCG23.0057.1234.1344.38
NBP (UK)9.4040.3530.9623.37
US Markets
US Spot Prices
Sabine Pass, Louisiana0.879.398.527.35
Corpus Christi, Texas----8.347.12
Cove Point, Maryland0.478.357.888.80
Elba Island, Georgia----8.40--
Nymex Henry Hub Futures
Near Month0.278.998.737.26
Second Mth0.258.838.577.15
Third Mth0.248.798.557.13
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22020406080Energy Intelligence