August 26, 2022

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Jera Signs Contract With New Sakhalin Operator

Japan’s largest LNG buyer Jera said Friday it has signed a new contract with the new operator of the Sakhalin-2 project in Russia’s Far East. This represents the first time a Japanese buyer has formally confirmed signing a contract with the new operator Sakhalin Energy.

Japanese media previously reported that Jera and Tokyo Gas have signed contracts with the operator. Jera is the largest Sakhalin-2 buyer with a total contracted volume of 2 million tons per year, while Tokyo Gas is contracted to buy 1.1 million tons/yr.

Jera said the main conditions such as volume, price and payment currency remained the same as the previous contract. Other Japanese buyers are now expected to follow suit since key contractual terms have not been changed. Sakhalin Energy is believed to have asked its buyers to switch the payee bank to Gazprombank.

The signing came just one day after Japanese trading houses Mitsui and Mitsubishi said they would seek to retain their respective 12.5% and 10% stakes in the new operator.

A total of eight Japanese power and gas utilities — Jera, Tokyo Gas, Osaka Gas, Hiroshima Gas, Toho Gas, Tohoku Electric, Kyushu Electric and Saibu Gas — have contracted to buy a combined 5 million tons/yr from the 9.6 million ton/yr project. These supplies are currently priced much more competitively than today’s high LNG spot prices above $60 per million Btu, which means buyers would want to cling to their term supplies amid tightening global supplies.

Exports Continue 'As Usual'

The Sakhalin-2 project continues with exports in accordance with existing contractual commitments, Sakhalin Energy said in a statement Friday.

The Russia-registered operator, which replaced the Bermuda-registered Sakhalin Energy Investment Co. earlier in August, said its oil and gas production, as well as exports continue “as usual in accordance with the current schedule and current market situation.”

“Today, we are actively searching for new markets and expanding our customer portfolio enhancing the competitiveness of the Sakhalin LNG,” CEO Roman Dashkov said in the statement. Dashkov was the CEO of the previous operator as well.

The statement follows reports earlier this week that the company scrapped shipments to at least one Asian customer due to payment issues and delays in resigning supply contracts originally signed with the previous operator. It also told customers to pay in rubles or other currencies if sanctions lead to issues with payments in dollars, Bloomberg reported.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >


Who Are Sakhalin-2's LNG Term Offtakers
BuyerVol. (million tons/yr)
Japan
Jera 2.00
Tokyo Gas1.10
Kyushu Electric0.50
Toho Gas0.50
Tohoku Electric0.42
Osaka Gas0.20
Hiroshima Gas0.21
Saibu Gas0.07
Others
Korea Gas1.50
Shell1.00
Gazprom Global LNG1.00
Total 8.50

Clara Tan, Singapore

Gail India Sets 2040 Net-Zero Emissions Goal

State-owned Gail India aims to achieve net-zero emissions by 2040, in line with Prime Minister Narendra Modi’s aim to make India, the world’s third-largest greenhouse gas emitter — and fourth-largest LNG importer — carbon neutral by 2070.

“Gail has completed a comprehensive study on science-based net-zero ambition and intends to achieve 100% reduction in Scope 1 and Scope 2 emissions and a 35% reduction in Scope 3 emissions by 2040,” Chairman Manoj Jain said during the annual shareholders meeting Friday.

Gail follows other state-owned oil and gas sector companies like refiner Indian Oil, which Thursday set a 2046 net-zero goal for operations. Bharat Petroleum and Hindustan Petroleum earlier set a 2040 deadline for emissions reduction.

Jain said that Gail will be investing 400 billion rupees ($5 billion) in the next five years on expansion of pipelines and other infrastructure, but did not specify how much investment will flow into cutting its carbon footprint.

Some climate activists have been skeptical of companies setting net-zero targets which are seen as an image-building exercise as there are not clear standardized definitions on achieving that goal.

As a part of cutting India’s emissions, Modi has set an aim of raising the share of gas in the energy mix to 15% by 2030, up from the current 6.3%, a move that is seen as benefiting gas players including Gail.

Price Sensitivity

India's LNG imports continue to demonstrate price sensitivity on the upswing and on the downswing.

India’s LNG imports rose 4.9% in July on month helped by a fall in prices of the supercooled fuel, data published by the Petroleum Planning and Analysis Cell website showed.

Even with the rise in volumes, its LNG import bill last month was flat at $1.2 billion.

Compared with the year-earlier period, LNG imports in July contracted 2.8%, as the import bill surged 20%.

LNG imports are likely to again weaken as Northeast Asian spot LNG prices skyrocketed by $9 to a new record of $60 per million Btu, according to Energy Intelligence assessments for delivers four to six weeks ahead.

India's Gas Demand
(MMcm)Jul '22Jun '22%Chg.Jul '21
LNG Imports2,5712,4514.9%2,644
Domestic Production 2,8112,7472.32,819
Total Consumption 5,3825,1983.5%5,463

Supply Shortfall

Analysts at Jefferies, in a note Thursday, said that rising LNG prices could lead to a supply shortfall in the second half of the current financial year that began Apr. 1 as Indian buyers could get priced out of the spot markets.

Although Indian buyers are largely staying out of the spot market due to high prices, its term imports, too, have come under pressure as state-owned Gail India is witnessing disruption in supplies under a deal with Gazprom’s former subsidiary that has been taken over by the German government.

Gail is trying to to tackle the issue “both at the company level and also at government-to-government level,” Chairman Manoj Jain told shareholders Friday. He said that Gail is also trying to secure more volumes under term deals to mitigate any such situation in the future.
Rakesh Sharma, New Delhi


In Brief

Bulgaria May Be Forced Back into Russian Gas Talks

Bulgaria may be forced to renegotiate its natural gas deal with Gazprom amid tight supplies, four months after Moscow cut flows following its demands that payments be made in rubles.

Bulgaria's interim Energy Minister Rossen Hristov was quoted this week as saying such talks were “inevitable."

His comments follow the dismissal in late June of former Prime Minister Kiril Petkov's pro-European government, a possible casualty of the EU’s energy-price crisis. They also follow delays in the startup of the 3 Bcm/yr Interconnector Greece-Bulgaria pipe to Oct. 1.

The new caretaker government in Sofia, expected to operate until parliamentary elections on Oct. 2, now looks ready to mend ties with Moscow to mitigate supply risks.

Bulgaria's 3 Bcm/yr supply contract with Gazprom is expected to expire this year. Sofia has so far taken only 1 Bcm from the supply contract, meaning it still must pay for another 1.4 Bcm, Hristov said.

In a statement, Hristov noted that the matter could be subject to arbitration if Bulgaria doesn’t offtake this volume, which the country wants to avoid.

He also said Russian gas is now the second cheapest supply source after Azerbaijan, adding that two LNG cargoes for September delivery contracted by the previous government were 50% more expensive.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact >
Jaime Concha, Copenhagen


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India56.8257.2856.8857.2756.4756.2957.7555.9557.6756.9256.1355.8656.20
Sodegaura, Japan57.4758.8858.9058.9957.4454.0358.4956.3658.3759.3556.6955.8557.62
Zeebrugge, Belgium75.6273.7473.2873.8475.0475.4474.6073.3274.4573.3275.1774.1175.27
Huelva, Spain78.1476.2875.8276.3777.5377.2877.1275.7676.9875.8577.5976.4377.60
Isle of Grain, UK64.1962.4262.0062.5063.6764.0163.3462.0363.0962.0363.7762.7863.86
Everett, US7.796.596.876.637.557.460.017.207.036.327.95----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback21. Mar4. Apr18. Apr2. May16. May30. May13. Jun27. Jun11. Jul25. Jul8. Aug22. Aug10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0060.120.2560.12
SW Europe0.0078.852.9678.85
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.089.309.389.34
NBP, UK (futures)+5.8875.7869.9154.54
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF6.2296.3790.1571.55
Zeebrugge (Belgium)-1.5158.2159.71--
German NCG2.1092.6990.6072.21
NBP (UK)2.9665.0962.1342.72
US Markets
US Spot Prices
Sabine Pass, Louisiana0.159.469.319.13
Corpus Christi, Texas-0.218.718.928.52
Cove Point, Maryland0.068.728.668.08
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.089.309.389.34
Second Mth-0.079.279.349.32
Third Mth-0.099.339.429.39
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaSep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '220255075100125Energy Intelligence