August 30, 2022

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Cheniere Details Stage Three Expansion

US liquefaction giant Cheniere Energy has laid out key details of a proposed expansion at its Corpus Christi LNG export facility in South Texas as the company aims to keep pace with crushing global demand.

Cheniere just sanctioned Stage Three, itself an expansion of the original Corpus Christi LNG project, in June of this year. The scheme calls for seven midscale trains producing a combined 10 million tons per year. The new project, dubbed Midscale 8-9, would add two more trains that are “near replicates” of the ones already approved, Cheniere told regulators in a recent filing.

US LNG developers have seen a huge increase in commercial interest this year as global buyers seek alternative supplies following Russia’s invasion of Ukraine in February; economies re-opening following the Covid-19 pandemic and bigger pushes for decarbonization worldwide are also providing lift.

Cheniere CEO Jack Fusco had previously teased the possibility of an expansion earlier this year as it was dealing with customers who needed supply beyond what Stage Three could provide. Prior to the filing, Cheniere was signing offtake deals with the likes of Equinor and Chevron for supply from additional Corpus Christi capacity.

Project Snapshot

The two trains at Midscale 8-9 would each be capable of producing up to 1.64 million tons per year of LNG, according to the filing with the US Federal Energy Regulatory Commission (FERC).

The project description also calls for a refrigerant storage facility, a 220,000 square meter above-ground storage tank with loading capabilities and an increase in the site’s authorized LNG loading rate.

“The Project will be interconnected with the existing Liquefaction Project and Stage 3 Project facilities, which will require minor modifications for purposes of interconnection and integration of the expansion facilities,” Cheniere told FERC.

Project Timeline

The filing earlier this month kicked off the pre-filing process for Midscale 8-9. Cheniere plans to submit an official application to FERC in February of next year. According to Cheniere’s timeline, authorization is pegged for August 2024, with construction to start in October of that year. In-service is targeted for the second half of 2031.

However, analysts at Tudor Pickering Holt noted that the timeline leans conservative considering Cheniere plans to spend about three years constructing the first two trains at Stage Three. “Assuming approvals are granted by [second-half 2024], in-service for the trains could occur in ”the second half of 2027 or the first half of 2028," the analysts said.
Caroline Evans, Houston

Inflation Bites Petronas Projects

Petronas is bracing for growing inflationary pressure and supply chain issues to impact some of its projects’ timelines and costs, including its third floating LNG vessel project, dubbed ZLNG.

The current environment “is making final investment decision tricky,” Petronas CEO Tengku Muhammad Taufik said.

He made this comment during the presentation of the company's first half results when asked how rising prices may impact ZLNG in terms of capital expenditure and contracting strategy.

Feed Competition

A ZLNG front-end engineering and design competition is in progress between Saipem and a consortium comprising JGC and Samsung Heavy Industries.

Bids for engineering, procurement, construction and commissioning contracts will come in shortly.

“We will see the numbers as they come,” said Petronas Chief Operating Officer, Adnan Zainal Abidin.

The cost of the $2 billion ZLNG project could be higher than initially expected as steel prices increased by 30-40%, while the cost of other materials jumped by 40-60%.

Daily charter rates also increased due to rising demand while the cost of offshore support vessels soared by 30-40%, Taufik said.

ZLNG Timeline

ZLNG is slated to be sanctioned in the fourth quarter of the year.

The 2 million ton per year ZLNG facility is designed to exploit gas resources near the shores of the East Malaysian state of Sabah.

The facility will be built at the Sipitang Oil and Gas Industrial Park. Operations are expected to start by the end of 2026.

The project is set to double Sabah’s liquefaction capacity to 4.7 million tons/yr.

Inflation bites

Elevated commodity prices, ongoing supply disruptions, intermitted lockdowns in China, strong wage growth and tight job markets are fueling inflation, which in turn impacts upstream projects, Taufik said.

The cost of drilling rigs, whether jack-ups or drill ships went up by a minimum of 200% on some daily rates.

“There is a shortage on installation barges at the moment as they are quite busy in Guyana and Brazil. That is putting a lot of pressure on our projects at the moment,” Petronas CEO Upstream, Adif Zulkifli said.

“Prices are a lot higher than expected and put a lot of pressure on Petronas when it comes to sanctioning projects because even though oil prices are high, Petronas needs to take a long-term view,” he added.

“That does mean as we go to the market and we look to share risks with contractors, a lot more stringent cost estimations need to be locked in,” Taufik said, adding that Petronas also needs to evaluate contractors' respective supply chains.
Marc Roussot, Singapore

Tokyo Gas Next to Sign Contract With New Sakhalin Operator

Japan's gas utility Tokyo Gas has signed a new contract with the new operator of the Sakhalin-2 project in Russia's Far East. This follows a similar move by Jera which said last Friday that it has also signed a contract with Sakhalin Energy.

Tokyo Gas said the key terms of the contract remain the same as with the previous contract. The gas utility is contracted to buy 1.1 million tons per year from the 9.6 million ton/yr project.

Russian LNG has represented about 9% of Japan's total LNG imports in recent years, making it difficult for Japan to forgo that supply despite long-standing geopolitical tensions between the two countries, heightened by Russia's invasion of Ukraine.

The Russia-registered Sakhalin Energy was established by Moscow in early August, aimed at seizing control of the operatorship from the Bermuda-registered Sakhalin Energy Investment Co. following a presidential decree in July. Gazprom is now the sole shareholder while Shell has said it wants to exit the project. The other shareholders, Mitsui and Mitsubishi, said they wish to seek stakes in the new operator but this would be subject to Moscow's approval.

By signing the new contracts with Sakhalin Energy, Japanese buyers avoid having to pay sky-high prices for spot cargoes now priced above $60 per million Btu. However, buyers are still apprehensive over potential risks of supply disruptions just like what has happened to European buyers.

Another six Japanese utilities are yet to sign new contracts but are likely to do so based on the actions of the largest Japanese offtakers at Sakhalin, Tokyo Gas and Jera. Korea Gas and Shell also have term offtake agreements at Sakhalin.

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

Clara Tan, Singapore

Northeast Asia LNG Imports Rise in July

Imports of LNG to Northeast Asia recovered in July after they had slightly decreased the previous month. This follows an upward trend for the first half of the year.

Northeast Asia is the world’s top LNG-importing region, consisting of Japan, China, South Korea and Taiwan. Monthly imports in July rose almost 9% to 16 million tons of LNG, compared to 14.7 million tons in June. Year on year imports fell by 8% from 17.5 million tons in July 2021.

Demand recovery can be attributed to an uptick in buying interest ahead of winter, especially in light of uncertainty caused by the Ukraine war and consequential supply disruptions. The recovery was also due to higher summer demand with heat waves hitting the region.

Japan again maintained its spot as world’s top LNG-importer for the year-to-date after losing it to China last year.

Northeast Asian LNG Imports
('000 tons )Jul '22Jun '22Jul '21Y-o-Y %Chg.
China4,7374,8235,672-16.48%
Japan6,1635,8046,189-0.42
South Korea 3,2632,5324,044-19.31
Taiwan 1,8691,5861,61915.44
Total16,03214,74617,524-8.51%

Japan year-on-year imports were stable at 6.1 million tons of LNG in July, a 6% increase from 5.8 million tons in June.

Chinese imports slowed down on month in July with imports falling by 1.7% to 4.7 million tons, but amounting to a 16% fall from the same time last year. Demand was up on higher summer demand and post-lockdown recovery.

Imports to South Korea rose by almost 29% on month in July to 3.2 million tons, but fell by 19% from the previous year.

Monthly imports to Taiwan recovered to 1.8 million tons in July, a 17% rise on the month and a 15% rise from the previous year.
Top Suppliers
(tons)JapanChinaSouth KoreaTaiwan
Australia2,500,000Australia1,800,000Australia900,000Australia604,000
Malaysia998,000Qatar1,300,000Qatar591,000Qatar559,000
Russia617,000------------
Top Prices
($)JapanChinaSouth KoreaTaiwan
UAE$30.81Japan$18.30Peru$28.07Indonesia$31.19
Indonesia$25.18Oman$17.04Indonesia$26.55Malaysia$23.47
------------Oman$23.28
----------------
Average$17.66Average$13.45Average$19.90Average$16.87

Yousra Samaha, Dubai


In Brief

Northeast Asia's Spot LNG Hits Record

Northeast Asian spot LNG prices rose by $5 and reached a new record of $65/MMBtu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead. Spot prices in Southwest Europe retreated slightly and were assessed $1.40 lower at $60.90/MMBtu.

Extreme volatility was a key theme of the past seven days with the Japan Korea Marker, Asia’s de facto benchmark, crossing the $71/MMBtu threshold for the first time ever.

Prices had inched slightly lower than last week’s record $60/MMBtu due to limited prompt demand. But prices in Asia jumped on extended hikes in the European gas market, as planned maintenance in Norway reduced gas output and sent prices up.

Created with Highcharts 9.0.0($/MMBtu)REGIONAL SPOT PRICESNortheast AsiaSouthwest EuropeSep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Sep …020406080Energy Intelligence

Yousra Samaha, Dubai and Marc Roussot, Singapore and Daniel Stemler, Madrid

Russia Approves Mitsui to Keep Sakhalin-2 Stake

The Russian government has approved Japan’s Mitsui to keep its 12.5% stake in the Sakhalin-2 offshore upstream and LNG project, according to a document signed by Prime Minister Mikhail Mishustin and published on Tuesday.

Mitsui will get a 12.5% stake in the project’s new operator, Russia-registered Sakhalin Energy LLC, the same stake it had in the previous operator, Bermuda-registered Sakhalin energy Investment Co.

Mitsui will hold the stake via the Dubai-registered subsidiary MIT SEL Investment Ltd., according to the document. It held the stake in the previous operator through the Netherlands-registered Mitsui Sakhalin Holdings.

The new operator was set up in early August, in line with a presidential decree of late June. The decree stipulated an option for the foreign shareholders of Sakhalin-2 to apply for their respective stakes in the new operator. The deadline is Sep. 4.

The other Japanese shareholder, Mitsubishi, will likely seek to retain its 10% stake, like Mitsui, while Shell appears to be quitting the project where it has a 27.5% minus one share stake. Russia’s state-controlled Gazprom has 50.1% plus one share in Sakhalin-2.
Staff Reports

Hindustan Petroleum to Commission LNG Terminal in H1'23

Hindustan Petroleum Corp Ltd (HPCL) will commission its 5 million ton per year capacity Chhara LNG regasification terminal on India's west coast in the first or second quarter of 2023, Chairman Pushp Kumar Joshi told shareholders Tuesday.

"The work is progressing well at site," Joshi said. It will start operations in the January-March or April-June quarter of next year, he added.

The startup timeline is later than the September 2022 target that the company stated several years ago.

The terminal is key for the state-owned refiner to diversify its revenue stream away from liquid fossil fuels. Petrochemicals, biofuels and new energy offerings are other pillars of its diversification drive.

However, the terminal comes online as high LNG prices have dented India’s demand for spot cargoes. Half of India's six operational LNG terminals, which have a combined capacity of 42.5 million tons a year, operated at below 20% capacity for the April-June period, according to the latest government data available. Two floating storage and regasification units have suffered commissioning delays as they have not tied up affordable term supplies.

In its latest annual report, HPCL noted that it is “scouting to source LNG at competitive price from international market to meet its captive and marketing requirement.”

India’s state-owned gas pipeline utility Gail India and Petronet LNG have also been struggling to tie-up volumes under term supplies. They are finding it challenging due to high index slopes quoted by suppliers amidst tight markets.
Rakesh Sharma, New Delhi


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India61.6662.1461.7262.1361.3161.1262.6360.7762.5461.7760.9660.6761.03
Sodegaura, Japan62.2963.7463.7663.8562.2658.7463.3461.1463.2164.2261.4860.6162.44
Zeebrugge, Belgium63.6061.8561.4361.9463.0663.4362.6561.4562.5161.4663.1962.2063.28
Huelva, Spain60.2158.5458.1458.6259.6659.4559.2958.0759.1658.1659.7258.6959.73
Isle of Grain, UK51.8250.1949.8250.2651.3551.6651.0549.8350.8149.8351.4450.5351.53
Everett, US7.556.356.636.397.327.220.016.966.796.087.71----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback28. Mar11. Apr25. Apr9. May23. May6. Jun20. Jun4. Jul18. Jul1. Aug15. Aug29. Aug10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0065.004.2765.00
SW Europe0.0060.90--60.90
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.299.049.349.19
NBP, UK (futures)-22.3152.6975.0057.90
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-16.0074.7190.7178.82
Zeebrugge (Belgium)--51.42----
German NCG-5.4774.1279.5978.60
NBP (UK)--52.71--48.02
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.268.989.249.77
Corpus Christi, Texas-0.498.519.009.31
Cove Point, Maryland-0.398.508.899.32
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.299.049.349.19
Second Mth-0.309.109.409.16
Third Mth-0.299.249.539.23
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaSep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Sep …0255075100125Energy Intelligence