August 17, 2022


Eyeing Expansion, Russia to Back LNG Technology Development

Russia plans to provide financial support for the development of domestic liquefaction technology, as it seeks to significantly expand LNG production despite Western sanctions.

The government will provide 1 billion rubles ($16.5 million) to compensate the cost of research and development for the technology, Prime Minister Mikhail Mishustin said during a government meeting Wednesday.

Private investments will exceed 30 billion rubles, Energy Minister Nikolai Shulginov said at the same meeting. Pilot pieces of domestic liquefaction equipment will be produced before 2030, he said.

With the state support, four projects involving medium-sized and large plants will start this year, Mishustin said.

Russia currently lacks its own working technology for large LNG plants, while access to Western technology and key liquefaction equipment is closed by the EU sanctions imposed over Russia’s invasion of Ukraine.

LNG expansion is crucial for Moscow’s plans to diversify gas exports as the EU — the historically key market for its pipeline gas — plans to phase out imports from Russia by 2027 due to the war in Ukraine.

Expansion Target In Question

The technology sanctions, coupled with financial restrictions and the exodus of Western investors and contractors, raises doubts about Moscow’s strategic and ambitious target, set in 2020, to produce between 80 million tons per year and 140 million tons/yr by 2035.

Last year, Russia produced around 30 million tons of LNG, almost entirely exported.

Russia may lower the target when approving a new long-term energy strategy for the period through 2050, expected to be ready by mid-September, but it appears optimistic about expansion prospects despite the growing isolation.

With a focus on domestic technology, Russia seeks to still produce between 80 million and 120 million tons/yr by 2035, Shulginov said.

Novatek Vs Gazprom

Russia’s LNG export champion, privately owned Novatek, shares the optimism, although it faces difficulties in completing the current three-train, 19.8 million tons/yr Arctic LNG 2 project scheduled for next year.

Novatek has its own Arctic Cascade technology working on a medium-sized 900,000 tons/yr train of the Yamal LNG project, and the company plans to scale it up for larger trains in order to keep Russia’s LNG expansion plans on track.

State-run Gazprom, however, believes Russia needs to review its LNG targets and reassess all projects as they might not be feasible given the new political realities. Gazprom has traditionally prioritized pipeline gas supplies and is frustrated by what it sees as “unnecessary competition” posed by Novatek’s LNG projects in its export markets.
Staff Reports

Pakistan Eyes Another LNG Term Deal with Qatar

Pakistan is likely to seek another LNG supply term deal with Qatar during the visit of Prime Minister Shehbaz Sharif to Doha next week, people familiar with the matter said.

However, it is unlikely to secure any molecules in the short-term as the markets are expected to remain tight until 2024, with European buyers competing with Asia to tie up supplies for replacing Russian gas.

Pakistan State Oil sealed its first term deal with Qatar in 2016 for 15 years for 3.75 million tons per year at 13.37% slope of Brent, and the second one for 3 MMTPA in 2021 for 10 years at 10.2% slope of Brent.

Pakistan's second state-owned LNG buyer, Pakistan LNG, earlier this month tendered for 72 cargoes over a six-year delivery period as its five-year term deal with Gunvor for 60 cargoes ended in July. Sharif, who came to power in April, criticized former Prime Minister Imran Khan’s government on Saturday for not allowing Pakistan LNG to seal any term deals when prices were low in 2020, forcing the nation to rely on costlier spot imports.

Local media reports said that the government had also considered selling two LNG-fired power plants — the 1,230 MW Haveli Bahadur Shah and the 1,223 MW at Balloki — both in Punjab province, to Qatar under an agreement for assured LNG supplies. But it dropped the plan as the sale is unlikely to get fair valuations due to high debt that both plants have.
Rakesh Sharma, New Delhi

In Brief

Sakhalin-2 Buyers Asked to Sign Contracts with New Operator

The new operator of the Sakhalin-2 upstream and LNG project in Russia’s Far East has reportedly offered several LNG buyers to re-sign their supply contracts.

Japan’s Kyushu Electric Power and Saibu Gas have received such offers, according to a Nikkei report.

Kyushu Electric Power has a d.e.s. supply contract for 500,000 tons /yr of Sakhalin-2 LNG expiring in 2031 and Saibu has a d.e.s. deal for 65,000 tons/yr expiring in 2027.

It is not clear whether the new operator offers any changes to the contract terms. Moscow previously said that the new operator would take over the previous one’s rights and obligations, including those under the current LNG supply contracts.

The new operator Sakhalinskaya Energiya, or Sakhalin Energy LLC, was established in early August to replace Bermuda-registered Sakhalin Energy Investment Co., in line with a presidential decree signed in late June.

The decree stipulated an option for the foreign shareholders of Sakhalin-2 — Royal Dutch Shell and Japan’s Mitsui and Mitsubishi — to apply for their respective 27.5%-minus-one share, 12.5% and 10% stakes in the new operator. Shell is unlikely to apply, while Japan would like its companies to retain their stakes in the project. They should decide by Sep. 4.
Staff Reports

Santos Nearing Sale of 5% Stake in PNG LNG Project

Australia’s Santos said it is "in advanced discussions with shortlisted counterparties" to sell a 5% interest in the Exxon Mobil-led PNG LNG project in Papua New Guinea as part of efforts to optimize its portfolio.

A deal is expected to close "over the next couple of months," CEO Kevin Gallagher said during the company's second-quarter earnings call.

"There has been strong interest from reputable counterparties with expected proceeds in line with market consensus valuation," Santos said.

Analysts see TotalEnergies, the operator of Papua LNG — the other major LNG project in Papua New Guinea — as the most logical buyer of the Santos stake.

The proposed sale would reduce Santos' stake in PNG LNG from 42.5% to 37.5%.

Marc Roussot, Singapore

Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India47.9548.3948.0148.3847.6247.4548.8547.1248.7648.0647.3047.0347.37
Sodegaura, Japan48.6450.0050.0150.1048.6245.3349.6347.5849.5050.4447.8947.0848.78
Zeebrugge, Belgium43.7142.1541.8042.2243.2343.5742.8741.7942.7441.8043.3542.4843.44
Huelva, Spain54.5352.8952.5152.9753.9953.7953.6352.4353.5152.5254.0553.0454.06
Isle of Grain, UK44.2342.6642.3042.7343.7744.0843.4842.3043.2542.3143.8742.9943.95
Everett, US7.506.276.556.317.
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback14. Mar28. Mar11. Apr25. Apr9. May23. May6. Jun20. Jun4. Jul18. Jul1. Aug15. Aug102030405060Energy IntelligenceWednesday, Aug 17, 2022 Netback: 49.5

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0051.200.2051.20
SW Europe0.0055.211.7655.21
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-
NBP, UK (futures)-0.2953.0153.3046.97
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.2066.9367.1361.15
Zeebrugge (Belgium)--36.85--48.84
German NCG2.3066.5264.2258.88
NBP (UK)1.9345.0743.1430.12
US Markets
US Spot Prices
Sabine Pass, Louisiana0.249.519.277.88
Corpus Christi, Texas0.118.918.807.65
Cove Point, Maryland0.188.448.267.40
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-
Second Mth-
Third Mth-0.079.309.378.27
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaSep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22020406080Energy IntelligenceWednesday, Aug 17, 2022 Dutch TTF: 66.93