August 4, 2022

WWW.ENERGYINTEL.COM

Shell Faces Protracted Strike at Prelude

Shell has been forced to extend the shutdown of its 3.6 million ton per year Prelude floating facility after union workers said they would continue with an ongoing strike for another week until Aug. 18.

This is the latest extension to a protected industrial action (PIA) which started since Jun. 10. The union workers were last expected to end their strike on Aug. 11, but they have extended it due to a lack of progress toward a new enterprise agreement.

Shell wants negotiations for a new enterprise agreement to resume only after the industrial action has ended.

The protracted strike has come at a time when Western majors are reporting bumper profits while Asian spot LNG prices are trending higher due to global LNG supply tightness and stronger demand from Asia and Europe.

Gloves Off

The Offshore Alliance, a partnership between the Australian Workers’ Union and the Maritime Union of Australia, claims Shell has unlawfully pro-rated workers’ July pay packages for industrial action carried out in June.

“Earlier today, Shell HR confirmed that they ripped off the Prelude FLNG workforce by taking twice as much as what they were lawfully allowed to deduct from members' July pay packets for the June PIA stoppages,” the Offshore Alliance said in a Facebook post. “Our lawyers are currently reviewing Shell's actions with a view to prosecuting them in the Federal Court. It has the stench of coercion and adverse action about it.”

Shell is understood to have made an error in calculating the deductions for those who have participated in the protected industrial action and is working to fix the issue as a matter of priority.

The union added Shell's management has advised its Prelude workers that they are “digging in for the long haul and will be preparing for the Prelude to be shut down for months.”

Cargoes Missed

In its latest second-quarter results released last week, Shell said it expects its LNG output to be lowered to 6.9 million-7.5 million tons in the third quarter, compared with 7.66 million tons in the second quarter and 8 million tons in the first quarter. Shell was forced to shut down Prelude last December due to a power loss and the facility resumed production in April.

According to the union, Shell has missed six LNG loadings at Prelude since the industrial action started, which are worth $960 million in revenue, and a shutdown until Christmas would cost Shell an additional $5.5 billion. Shell declined to comment on the number of cargoes affected by the strike.

Negotiating Benchmark

The Offshore Alliance successfully negotiated in April a new enterprise agreement with Inpex, the operator of the Ichthys LNG project at Darwin. It is likely using the agreement with Inpex as a benchmark in its demands for a new enterprise agreement with Shell.

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

Cheniere Works to Resolve Issues Surrounding EPA Toxics Rule

Cheniere Energy on Thursday said it is working to resolve issues with a looming US Environmental Protection Agency rule on turbine emissions that potentially threatens to upend US LNG exports.

"We have been in touch with the EPA regarding our concerns with respect to the rule," Jack Fusco, Cheniere's president and CEO, said on the company's second quarter earnings call. "We are working diligently at our facilities to perform the initial testing required."

The EPA recently lifted a near two-decade stay of the air toxics rule that covers emissions from the types of turbines used at both Cheniere LNG export terminals on the US Gulf Coast, Sabine Pass and Corpus Christi, potentially affecting as much as 45 million tons per year of current export capacity.

Under the Clean Air Act, industrial facilities with stationary equipment are required to curb emissions of “hazardous air pollutants,” or those with known human health effects, such as known carcinogens or chemicals linked to reproductive toxicity. For emissions from combustion turbines, the EPA has identified formaldehyde, toluene, benzene and acetaldehyde as possible pollutants, although Cheniere argues that risks from turbine emissions are minimal.

"While we don't believe our turbine should be subject to the rule as the use in LNG operations was not contemplated by EPA in the original 2003 rulemaking, we will work with the EPA and the relevant state agencies to develop an acceptable path forward to compliance, if applicable," said Fusco.

Fusco said it was too early to discuss any specific changes that would be needed, but he expressed confidence that a solution could be developed "that would enable compliance without a material financial or production impact."

Fusco, a former performance engineer with PG&E in the 1980s, has "worked in and around the EPA for well over my 40-year career ... I'm very familiar with the EPA, their processes and what their expectations are."

September Deadline

The CEO noted that the test procedure for formaldehyde is "very difficult ... it relies heavily on correlations and calculations, and estimates and guesstimates." He said the maximum allowed concentration of 91 parts per billion "is an awful small number and very difficult to measure at least with today's technology."

But Cheniere is working closely with the EPA on "what an accessible test program looks like" and has been testing the turbines with Baker Hughes, "to try to make sure that we provide the data that they want," by a Sep. 5 deadline.

Fusco believes that the turbines should be put into an exempt subcategory, since the rule was put in place in 2003-04 and the facility was approved in 2011.

"But if not, we would go into negotiations, some type of consent degree most logically with the state [of Louisiana]," he said.

Bullish Plans

Meanwhile, Cheniere has bullish growth plans for its Sabine Pass and Corpus Christi plants.

"Both of those sites are ripe and ready for much larger expansions," said Fusco, noting that his company is currently working on early-stage development of more than 30 million tons/yr of capacity between the two sites.

Corpus Christi LNG is growing to just over 25 million tons/yr with the addition of Stage Three, which saw a final investment decision earlier this summer.

"We have a clear line of sight to get Corpus over 30 million tons on par with Sabine Pass," with the addition of a few more mid-scale trains a well as some debottlenecking and tuning efforts, he said.

The brownfield additions are expected to be "extremely cost effective" and "potentially seamless" with contractor Bechtel already on site.
Michael Sultan, Washington

Gail Says Eight LNG Cargoes Remain Undelivered by Ex-Gazprom Unit

Gail India Thursday said that Gazprom’s former unit, Gazprom Marketing and Trading Singapore (GMTS), has not delivered eight LNG cargoes under its term-deal since mid-May, forcing the state-owned gas pipeline utility to cut supplies to end-consumers.

The New Delhi-based company is now resorting to a series of measures like advancing some 2023 contracted deliveries, bringing some uncontracted US LNG term volumes to India, which it had planned to sell in the international market, and also turning to spot LNG to bridge the shortfall.

Under its term deal with GMTS, a unit of Gazprom Germania, Gail was to get 2.5 million tons of LNG, roughly 36 cargoes this year. However, the supplies got hit after Gazprom Germania was blacklisted by Russia due to its takeover by the German state. It has been renamed as Securing Energy for Europe.

“In order to secure supplies for Europe they are not certain about supplying LNG under this contract,” Rakesh Kumar Jain, Gail’s director finance, Thursday told an analyst conference call. He added that there was no clarity as to how long this will continue or how much volume will be impacted.

“The situation is an area of concern as of today,” Jain added.

Gail has reduced production at its Pata Petrochemical plant in the northern state of Uttar Pradesh by half and is supplying the lowest possible levels to industries, which will help it avoid penalties from the consumer due to restricted volumes, Jain added.

If the situation does not change, it will hit Gail’s profitability as Gazprom accounts for about 18% of the company’s total LNG portfolio of 14 million tons per year.

Prices Bite

Gail has been in the market to secure at least 750,000 tons of annual supply per year for next five to ten years, but did not get the desired response amid tight markets. Jain said that the LNG supplies for 2023 and 2024 are available at uncomfortable prices and they are trying to work a term deal under which some deliveries can be made in 2023-24.

Gail, which has two term deals totaling 5.8 million tons—including 3.5 million tons from Sabine Pass and 2.3 million tons from Cove Point, both in the US — is bringing some of the uncontracted volumes to India and also trying to advance purchase of some 2023 volumes to bridge the shortfall.

Jain said that if there is still a gap, Gail will buy spot LNG to supply its consumers.

India’s LNG imports declined 9.6% on year during the April-June quarter of the current financial year to 7.4 billion cubic meters, but its LNG import bill has risen 41.7% on year to $3.4 billion. The volumes dropped as buyers have largely stayed clear of the spot market due to unaffordable prices.

The high prices have impacted the conversion of new industrial consumers to gas, Jain said. Analysts say that it may hurt India’s plans to raise the share of gas in its energy mix to 15% by 2030 from 6.7%.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Rakesh Sharma, New Delhi

Repsol Confirms Talks Over Canadian LNG Exports

Spain’s Repsol has confirmed it is in discussions about exporting gas to Europe from its Saint John LNG terminal in Canada, which currently operates as a regasification facility.

The talks come as Europe seeks to secure more LNG supply from North America and elsewhere while trying to wean itself off Russian pipeline gas supplies following the invasion of Ukraine.

Canada’s Deputy Prime Minister Chrystia Freeland on Wednesday said the resource-rich country had a political responsibility to support its allies in Europe with energy security.

Addition, Not Conversion

“We are not talking about converting but adding a new facility — having the dual regasification plus liquefaction unit,” Repsol CEO Josu Jon Imaz told analysts last week when asked for his views on turning Saint John LNG, previously known as Canaport LNG, into an export scheme.

Repsol has operated the New Brunswick-based project since 2009.

“Recently, we have met [with] authorities, and there is an interest [in] Canaport in some European countries — Germany — as a potential provider of gas [to] Europe,” Imaz said.

It “probably makes sense from a geopolitical point of view, taking into account the situation in Europe,” he added, noting that the idea was discussed as part of the Nato summit in Madrid in late June.

Committed Offtaker

Canadian officials had previously said they were looking at using Saint John LNG to send supply overseas, with environment minister Steven Guilbeault saying the country’s East Coast only had enough gas for one LNG export project.

Canada’s most advanced liquefaction projects are on its West Coast, within easy reach of Asian markets. Its biggest gas-producing region is the western province of Alberta, where Repsol itself has gas and liquids assets in the Greater Edson area.

“What is crucial and important is — first of all — to have an offtaker that is going to commit to buy this gas in [the] coming 15-20 years,” Imaz said.

It is unclear whether European buyers would be willing to commit to such long-term deals. Their recent investments in LNG import infrastructure have focused on floating storage and regasification units, which can be deployed quickly, but can also be removed.

West to East

Getting gas from Alberta to the Atlantic coast is another complication, Imaz added. “It could be done but it’s not easy to guarantee,” he said, noting some extra infrastructure and a toll framework would be needed to have competitive gas in the Atlantic.

“I’m talking about things that are not in our hands, but it could be possible in the framework of the energy crisis we are seeing.” With a committed offtaker and access to the gas, “that would be a very interesting project,” Imaz said.

“But again ... it's not an easy game ... there are a lot of difficulties."
Tom Daly, London


In Brief

Russia to Invest in Northern Sea Route

Russian has approved a development plan for the so-called Northern Sea Route (NSR) and estimates that it will require total investment of 1.8 trillion rubles through 2035 — about $30 billion at the current exchange rate.

The NSR is the shortest maritime route between the Atlantic and Pacific oceans and it is regarded as a strategic transport route to Asian markets for Russian oil, LNG and other goods. It is also expected to spur investment projects in the Russian Arctic.

Among other things the plan calls for construction of an oil terminal in the Sever Bay and an LNG and gas condensate terminal on the Gydan peninsula.

The oil terminal will be used to export crude oil from Rosneft's Vostok Oil project, where production is expected to reach 2 million b/d by 2030.

The LNG terminal — to be built at the port of Sabetta — will be used to ship LNG produced by Novatek.

The NSR development plan also includes construction by Novatek of two LNG transshipment terminals in Murmansk and Kamchatka.

These are intended to reduce transportation costs and to develop into LNG trading hubs over time.




Staff Reports


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India42.7743.2242.8443.2142.4342.2543.6841.9143.6042.8742.1041.8242.18
Sodegaura, Japan43.4344.8244.8444.9343.4140.0144.4542.3344.3245.2842.6641.8243.59
Zeebrugge, Belgium36.3334.7634.4134.8335.8536.1835.4934.3935.3534.4035.9735.0836.06
Huelva, Spain45.8844.2443.8744.3245.3445.1344.9943.7744.8643.8745.4044.3945.42
Isle of Grain, UK30.4328.9228.5928.9829.9930.2829.7228.5629.4928.5830.0829.2430.17
Everett, US6.875.555.865.606.616.490.016.236.045.257.04----
Created with Highcharts 9.0.0($/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 Asia0.0046.04-0.4046.04
SW Europe0.0046.56-3.6146.56
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.148.128.278.13
NBP, UK (futures)+1.0946.1345.0438.64
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF0.8960.7259.8359.83
Zeebrugge (Belgium)----30.8433.18
German NCG0.3956.3755.9859.50
NBP (UK)-3.6531.2734.9142.58
US Markets
US Spot Prices
Sabine Pass, Louisiana0.588.397.818.66
Corpus Christi, Texas0.517.907.398.15
Cove Point, Maryland-0.117.817.927.59
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.148.128.278.13
Second Mth-0.158.118.268.12
Third Mth-0.158.188.338.20
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaAug '21Sep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22020406080Energy Intelligence