July 29, 2022

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LNG Canada Resolves Cost Dispute With TC Energy

LNG Canada and Coastal GasLink have reached an agreement on a long-running dispute over costs.

The Shell-led LNG Canada project will pay TC Energy more than originally agreed for constructing the Coastal GasLink pipeline across northern British Columbia. The agreement sets the cost to build the 416 mile, 2.1 billion cubic foot per day capacity pipeline at C$11.2 billion (US$8.7 billion). That’s 70% more than the original estimated cost of C$6.6 billion from 2012.

TC Energy CEO Francois Poirier said in a call this week that a sheaf of revised agreements with LNG Canada "settles all outstanding disputes'' and will allow the pipeline to be completed by late 2023 in time for first production at LNG Canada.

A year ago, the outlook wasn't as bright, with the two sides at loggerheads over costs and scheduling.

The pipeline stretching from Dawson Creek in the Montney Shale to Kitimat on the BC coast is now about 70% complete, with two of eight sections finished, 199 miles of pipeline installed and grading more than 75% complete.

Costs, Alignment Increased

Costs were higher due to scope increases and the impact of Covid-19, weather, "and other events outside of Coastal GasLink LP’s control," which may have included the impact of blockades carried out by project opponents.

But the new cost level is in line with Scotiabank's expected range of C$10 billion-C$12 billion, although well above "the very dated initial C$6 billion estimate," the bank said in a note.

But the improvement in partner alignment likely outweighs the new cost level in terms of project momentum.

"Our revised agreements with LNG Canada establish a better framework for project advancement and further strengthens our long-term partnership," the company said. "The agreements resolve uncertainty over specific and anticipated costs, mitigate project funding and execution risks and allow us to continue the safe and timely execution of the project."

Canadian LNG Revival?

LNG Canada is slated to have 18 million tons (2.4 Bcf/d) of export capacity on line by the mid-2020s, with a same-sized expansion project and a nearby floating project potentially pushing total export capacity around Kitimat to as high as 40 million tons/yr (5 Bcf/d).

"Together with LNG Canada, the 2.1 Bcf/d project will provide the first direct path for Western Canadian natural gas to reach global LNG markets," TC Energy said.

TC Energy highlighted the environmental benefits of the pipeline, displacing coal-fired power in Asian markets and potentially reducing global GHG emissions by 60 million to 90 million tons/yr as a result.

However, backers of a broad Canadian LNG export revival still see rough sailing ahead for some projects beyond LNG Canada.

Together on Expansion

TC Energy also supports the idea of doubling LNG Canada's export capacity.

"Global LNG fundamentals remain supportive of additional LNG exports from Western Canada that we believe can be supported by the expansion of the Coastal GasLink project," TC Energy said. It added that subject to a final investment decision, the company anticipates a potential second phase of Coastal GasLink, which "could enhance TC Energy's project returns."

CEO Poirier said that Phase 2 could expand Coastal GasLink throughput from 2 Bcf/d to about 5 Bcf/d.
Michael Sultan, Washington

US Supermajors Ramp Up LNG Portfolios

US supermajors Exxon and Chevron each touted a bullish outlook on LNG in their second quarter wrap-ups.

With an array of present and future LNG projects, the two companies are ramping up their LNG volumes.

Exxon Ramps Up LNG Volumes

Exxon, despite last month's landmark selection as a partner in Qatar's North Field East project, focused on other projects in the works.

Gas began flowing at Coral South LNG off Mozambique and the project remains on track to ship first LNG later this year, the company said.

Golden Pass LNG, which will increase US Gulf Coast LNG capacity by 20%, remains on schedule to start up in 2024.

Exxon said that among its corporate priorities is to maximize output at existing facilities as a way to squeeze out incremental production in today’s tight market at minimal cost/lead time.

The company cited Papua New Guinea LNG as an example, which set record daily production in July.

Can Exxon Help Europe?

Exxon said it was evaluating projects to expand its European LNG import capacity though did not provide details.

Adriatic LNG, majority-owned by Exxon, announced earlier this year that it was expanding import capacity.

In terms of European energy security, Exxon said it could potentially help develop Germany’s unconventional gas resources, should that opportunity present itself.

Exxon cited another incremental way it is responding to Europe’s gas crisis — stepping up efforts to reduce its own natural gas consumption. Wider work has reduced Exxon’s gas consumption across its European refining circuit by 65% already — enough to power 2 million homes in Europe.

“And so there are some substantial steps that we can take with respect to optimizing our current operation,” said Darren Woods, Exxon CEO.

Exxon’s European gas output actually rose from the first quarter to the second — up from 770 MMcf/d to 825 MMcf/d — instead of declining per usual for seasonality reasons. Exxon noted that this reflects the shortages seen in the continent.

But Woods qualified that rise in output. He doesn't see the higher second quarter volumes “as the new norm” – the “big question mark” is weather.

Chevron Ramps Up LNG Volumes

Chevron said it shipped 87 LNG cargoes from its Gorgon and Wheatstone plants in the first half of 2022, up over 10% from the same period last year.

All five trains have been through the first round of turnarounds, the company said, adding that Gorgon Stage 2 is on track to deliver first gas in September.

Chevron “continues to focus on incremental capacity increases” at Gorgon and Wheatstone via debottlenecking or actually expanding capacity, noting that improving reliability also adds volumes.

The company emphasized recent agreements to export 4 million tons of LNG from the US Gulf Coast, with 1.5 million tons starting in 2026. These agreements “leverage our growing US gas production and expand our value chains in Atlantic Basin markets."

Meanwhile, Equatorial Guinea LNG is “one of those more hidden jewels” acquired from Noble, which represents a “very good return to us” with upside potential.

Created with Highcharts 9.0.0(million tons)FOUR CHEVRON PROJECTSGorgonEquatorial GuineaWheatstoneAngola20172018201920202021202205101520253035Source: Kpler

Chevron's Portfolio Path

Chevron upstream head Jay Johnson said the company is “pretty agnostic” when it comes to looking at ownership versus commercial (i.e. offtake) LNG deals.

“We’re looking for the returns and the scale that we can build out of the business. We’re looking at multiple points of supply so that we can maintain an active and profitable portfolio.” He added that commercial deals that are capital light “are always a nice way for us to go.”

However, "where it makes sense, we’ll also make investments as we have in other places and own the facilities or run them through joint venture facilities or non-operated facilities."

It just comes down to returns, he said.

From Angola to the East Med

“So the ongoing effort is to keep that plant running," Johnson said of Angola LNG, which just secured fresh feedstock.

"It's really economic because it builds on existing infrastructure ... the investments have already been made. And importantly, it's supplying needed LNG into the European market and also gives us exposure to that Atlantic Basin," he said.

On the East Med, Johnson emphasized yet again that floating liquefaction is a “viable option” given “benign conditions” of the Mediterranean. But still no timeline was discussed.

The opportunity to supply Israel “continues to grow as coal is displaced,” and the Eastern Mediterranean nation is supplying Jordan for power generation and now also taking gas to Egypt, potentially with an export option.

“Developing additional gas capacity at Leviathan and Tamar is well within the scope of those projects and would allow us to access these additional marketing opportunities through LNG and the flexibility that provides," he said.
Casey Merriman, Phoenix


In Brief

Eni Ups Abu Dhabi Gas Estimate

Eni said it is looking at fast-track development options for a gas discovery in Abu Dhabi's Offshore Block 2 after finding more gas in a deeper zone.

The Italian major reported an initial find in February and now estimates that it has found an additional 1 trillion-1.5 trillion cubic feet of gas in place.

It estimates the combined gas in place from the two zones at 2.5 Tcf-3.5 Tcf.

"The gas-bearing reservoirs were tested with excellent flow rates, and fast-track development options are currently under evaluation," Eni said

Eni holds a 70% operated stake in Offshore Block 2, which it won in January 2019 under Abu Dhabi National Oil Co.'s (Adnoc) inaugural licensing round. Thailand's PTT Exploration & Production holds the remaining 30%.

The concession has a maximum exploration phase of nine years and, subject to success, an overall term of up to 35 years for development and production.

Adnoc — which hopes to make the United Arab Emirates self-sufficient in gas by 2030 — has the option of taking a 60% stake once the production phase begins.

Eni operates three exploration licenses in Abu Dhabi and holds stakes in three offshore development and production concessions — Lower Zakum (5%), Umm Shaif and Nasr (10%) and Ghasha (25%).

Oliver Klaus, Dubai


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India40.5641.0240.6341.0140.2240.0441.4939.7041.4040.6639.8839.6039.97
Sodegaura, Japan41.2242.6242.6442.7341.1937.7442.2540.1042.1143.0840.4339.5841.38
Zeebrugge, Belgium43.5441.8541.4741.9343.0243.3842.6341.4542.4841.4643.1442.1843.24
Huelva, Spain36.1334.5634.2134.6335.6135.4235.2834.1035.1534.2035.6734.7035.69
Isle of Grain, UK31.3129.7429.4129.8130.8631.1630.5829.3830.3429.3930.9530.0731.04
Everett, US6.825.455.785.516.556.430.016.165.965.147.00----
Created with Highcharts 9.0.0($/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 Asia0.0043.840.4343.84
SW Europe0.0036.80-10.4736.80
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.098.238.138.30
NBP, UK (futures)+4.1842.8638.6838.02
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-2.2557.4659.7148.70
Zeebrugge (Belgium)-5.8727.3833.25--
German NCG-3.7355.8959.6246.69
NBP (UK)-10.4732.1542.6332.03
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.328.348.668.13
Corpus Christi, Texas-0.048.118.158.09
Cove Point, Maryland0.247.837.598.43
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.098.238.138.30
Second Mth0.098.218.128.20
Third Mth0.088.288.208.17
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Aug…020406080Energy Intelligence