August 3, 2022


Freeport LNG Consent Agreement Signals October Restart

Freeport LNG, offline since suffering an explosion Jun. 8, entered into a consent agreement with the US Pipeline Hazardous Materials Safety Administration (PHMSA) under which the facility could resume "initial operations" — which appear to be equivalent to full operations — in early October.

The agreement "includes certain corrective measures, many of which are currently underway, that Freeport LNG is to take to obtain PHMSA approval for an initial resumption of LNG production from its liquefaction facility," the company said in a statement Wednesday.

The agreement, the text of which was not immediately available, adds some regulatory certainty to a process that as of late June appeared quite daunting, with a complicated list of approvals needed from PHMSA and other federal agencies.

In addition to the repair and replacement of Freeport LNG's physical infrastructure that was damaged in the incident, the company said it is evaluating and advancing initiatives related to training, process safety management, operations and maintenance procedure improvements and facility inspections.

"The obligations under the consent agreement are intended to ensure that Freeport LNG can safely and confidently resume initial LNG production and thereafter ultimately return to full operation of all liquefaction facilities," the company said.

Shifting Timelines

The three-train, 15 million ton per year liquefaction plant in Texas, which at one point was shipping 80% of its output to a supply-stricken Europe, represents about 15% of total US LNG export capacity. The plant's absence from the market caused a significant jump in gas prices abroad and a significant drop in gas prices domestically.

After an initial prediction of a three-week shutdown, Freeport said Jun. 14 that the plant could resume partial operations in about 90 days — or in early September — with full operations not expected until late 2022. Since the end of June, Freeport has been telegraphing an early October ramp-up.

Initial Operations?

What has also apparently changed is the definition of "initial operations," which sound a lot like full operations in the company's announcement.

"Those initial operations are expected to consist of three liquefaction trains, two LNG storage tanks and one LNG loading dock, which the company believes will enable delivery of approximately 2 Bcf per day of LNG, enough to support its existing long-term customer agreements," the company said.

Freeport only has three liquefaction trains and was processing 2 Bcf/d prior to the explosion.

"Freeport LNG continues to believe that it can complete the necessary corrective measures, along with the applicable repair and restoration activities," the company said.

Price Impact

Heightened expectations for Freeport's return could potentially tame worldwide spot LNG prices that soared to nearly $50/MMBtu this week.

Meanwhile, US natural gas futures roared higher after news broke of the consent agreement about 45 minutes before the regular session ended. September gas, which had slumped into the $7.50s, shot as high as $8.48 before settling at $8.266 per million Btu.

The 56-cent gain almost recovered Tuesday’s 57.7¢ fall. Whether the contract will rise from here depends on how the market reacts when it has more time to absorb the Freeport news.

The restart is still two months off, so it doesn’t yet offset bearish drivers of rising production and an inevitable decline in cooling loads that caused the Nymex slide Tuesday.
Michael Sultan, Washington and Tom Haywood, Houston

Taiwan's LNG Supply Copes With Chinese Military Exercises

Taiwan's Ministry of Economic Affairs (MOEA) assured the public that stocks of key fuels are more than adequate to cope with any impact of military exercises planned by China.

The exercises are apparently intended to “punish” Taipei for hosting US House of Representatives Speaker Nancy Pelosi (D-California) for a 20-hour unannounced visit Aug. 2-3.

Pelosi evidently raised the ire of the ruling Chinese Communist Party (CCP) with her visit, during which she reaffirmed Washington's backing for “democratic Taiwan” and met with President Tsai Ing-wen, leading parliamentarians, industry leaders and human rights activists.

The US politician left Taipei Sungshan Airport at about 6 p.m. local time Wednesday, but that has apparently not affected Beijing`s plans.

Emergency Meeting

On Wednesday afternoon, Premier Su Tseng-chang called key ministers to the Executive Yuan (Cabinet) for an emergency meeting on coping with the potential economic and social impact of the planned Chinese air and sea exercises.

Six areas surrounding Taiwan have been earmarked by the Chinese People's Liberation Army (PLA) from 12 noon Aug. 4 through 12 noon Aug. 7, the American Military News reported Aug. 3.

The area earmarked at Taiwan`s northern tip is only 10 nautical miles from Keelung Port, while the zone in southwestern Taiwan is only nine nautical miles from Kaohsiung Port.

Speaking to reporters in a news conference Wednesday evening after the meeting, Economic Affairs Minister Wang Mei-hua said that Taiwan has safety reserves of 39 days for coal, 146 days for oil and 10-11 days for LNG.

Moreover, the economics minister said she had instructed state-owned CPC Taiwan to bolster safety and security measures at its two operating LNG terminals in Yung An in Kaohsiung City in southern Taiwan and at Taichung Port in Taichung City in central Taiwan, as well as at the Guantang, or third, receiving port now under construction in Taoyuan City in northwestern Taiwan.

Created with Highcharts 9.0.0(million tons)TAIWAN'S LNG IMPORTS(by terminal)Yung AnTaichung2008200920102011201220132014201520162017201820192020202120220510152025Source: Kpler

Other Measures

Wang added that, due to the impact of the Covid-19 pandemic, the MOEA had instructed CPC to map out scenarios for various types of changing weather and other unusual situations to adapt LNG carrier schedules.

Other government ministers announced measures to ensure the smooth operation of air and sea travel routes and air and sea ports and bolster defenses against external hacking and use of the internet to disseminate false information, such as faked reports of bomb threats against Taiwan Taoyuan International Airport and Taipei Sungshan Airport.
Dennis Engbarth, Taipei

Warning Signs As Yemen Gets Last-Minute Reprieve

Hours before its Aug. 2 expiry, parties in Yemen’s bloody 7-year civil war managed to extend their truce for another two months.

This is the second such extension since the ceasefire was put in place at the beginning of April. There have been violations, but no confirmed cross-border attacks and civilian casualties are down an estimated 60%. Both ordinary Yemenis and the international community have welcomed the relative calm. But the warning signs of a return to war are mounting, and with this a revival of the threat to the region's vital oil facilities and trade.

Target Balhaf

Yemen’s Houthi rebels “are still intent on taking [oil-rich province of] Marib,” notes Abd al-Ghani al-Iryani of the Sanaa Center for Strategic Studies. The Houthis “did a big show. They paraded all their troops a couple of days ago” to signal they “were ready,” says another source, who adds Marib’s Block 18, which hosts the main field feeding the 6.7 million ton per year mothballed Yemen LNG project at Balhaf, is a target for the group.

UN-led mediation had targeted a longer 6-month extension, which the UN says was aimed at providing humanitarian relief and creating “a conducive environment for reaching a peaceful settlement to the conflict through a comprehensive political process.”

This process would aim to agree on revenue sharing mechanisms that might enable restart of the Total-led Yemen LNG, the country’s biggest industrial facility.

Yemen LNG has been out of action since 2015. There have been false starts since then as well as rocket attacks on the mothballed facility.

Personnel Changes

The truce extension follows on from the first major personnel changes made by the new internationally-recognized Saudi-backed government. In addition to a new governors for Socotra island and the eastern oil province of Hadramawt, the presidential council appointed new heads of the defense and oil ministries. All new appointments have been broadly welcomed.

Local oil operators will especially welcome the departure of oil minister, Abd al-Salam Ba’boud, who was widely seen as being ineffective. His replacement, technocrat and former Aden refinery manager, Said al-Shamasi, is reputedly “a steady hand,” says the other source.

Shamasi has a tough challenge to reboot Yemen's upstream sector. Under Ba’boud foreign investment was discouraged, and, ably assisted by the war, essentially died.

“He threw out [Chinese firm] United Energy Group from Block 5,” notes an oil sector source. This used to produce above 30,000 barrels per day, but Ba’boud has not managed to restart production there. More recently OMV has mobilized to quit the country.

Octavia Energy, a Yemeni-owned firm, which bought up the assets and staff of Canada’s Calvalley in Block 9 back in 2016, is the sole active private operator today. It plans to kick off a six-well drilling campaign in Block 9 later this month and is awaiting approval from the ministry to restart operations at Block S1, where some 5,000 b/d is initially targeted from the former Oxy producing block.
Rafiq Latta, Nicosia

Tellurian Expands Production

Tellurian reported a 47% increase in natural gas production for second quarter 2022.

“While Tellurian continues to add natural gas production and sales revenue, we are also progressing with construction of Driftwood LNG, having cleared the site and begun an extensive pile driving program to set the foundation for the first plant,” said Tellurian President and CEO Octavio Simoes.

Integrated Model

Tellurian has now spent over a year in pursuit of financing for the 11 million ton per year first phase of its 27 million ton/yr Driftwood LNG.

“Tellurian’s business model provides a unique proposition amongst US LNG producers," Simoes said, in reference to the integrated model that the company has been touting. "By having our own natural gas production, we create cash from domestic sales that we can use for further investment, and upon completion of Driftwood LNG, we have an economic hedge for natural gas purchases which creates additional value for our shareholders and Tellurian," Simoes added.

Gas Assets

During the quarter, Tellurian generated $61.3 million in revenues from natural gas sales, up from only $5.6 million in the year-ago quarter, on an increase in production of approximately 47% as compared to the previous quarter.

Subsequent to the quarter end, Tellurian entered into an agreement to acquire various natural gas assets located on approximately 5,000 net acres and including 44 producing wells.

Tellurian ended the second quarter with $823 million of cash on hand and $1.34 billion in total assets.
Michael Sultan, Washington

In Brief

Thailand Receives Commissioning Cargo for New Terminal

Thailand received a commissioning cargo from Qatargas at it newest LNG receiving terminal, the 7.5 million ton/yr LMPT2 Map Ta Phut LNG Terminal.

The terminal is located in Thailand's Rayong Province, west of Map Ta Phut Port, about 220 km from Bangkok.

The PTT-owned terminal can receive vessels with a capacity between 125,000 cubic meters and 264,000 cubic meters. The terminal has two storage tanks, each with an overall capacity of 250,000 cubic meters.

State-owned PTT is the largest piped-gas and LNG importer and aggregator in Thailand.

Thailand's Path

Thailand's existing 11.5 million ton/yr Map Ta Phut 1 began operating in May 2011.

Thailand's LNG imports have soared since Map Ta Phut 1 opened (see graph).

Qatar-sourced LNG has made up a significant share in the overall LNG imports into Thailand.

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

The Cargo

The commissioning cargo was loaded in Ras Laffan on June 4 aboard the Q-Flex LNG vessel, Al Oraiq, with an overall cargo carrying capacity of 210,000 cubic meters, according to a Qatargas announcement.

It arrived at the LMPT2 Map Ta Phut LNG terminal on Jun. 18.
Michael Sultan, Washington

Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India43.1643.6243.2343.6142.8242.6544.0842.3144.0043.2742.4942.2242.58
Sodegaura, Japan43.8345.2245.2445.3243.8040.3944.8542.7244.7145.6743.0542.2143.99
Zeebrugge, Belgium40.0338.4238.0638.4939.5339.8839.1638.0439.0238.0539.6538.7539.75
Huelva, Spain49.5647.8947.5047.9749.0148.8048.6547.4148.5247.5049.0748.0349.09
Isle of Grain, UK34.1032.5532.2132.6133.6533.9533.3732.1933.1332.2033.7432.8833.83
Everett, US6.915.595.905.646.656.540.
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback28. Feb14. Mar28. Mar11. Apr25. Apr9. May23. May6. Jun20. Jun4. Jul18. Jul1. Aug102030405060Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0046.44-0.5646.44
SW Europe0.0050.252.8050.25
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.568.277.718.69
NBP, UK (futures)+1.0645.0744.0145.24
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-1.4259.3960.8161.10
Zeebrugge (Belgium)--31.07--36.38
German NCG-3.8856.4060.2861.31
NBP (UK)2.8034.9432.1443.83
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.117.817.928.67
Corpus Christi, Texas0.057.397.348.54
Cove Point, Maryland0.507.927.428.05
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.568.277.718.69
Second Mth0.568.267.708.55
Third Mth0.568.337.788.53
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22020406080Energy Intelligence