September 6, 2022

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Woodside Targets European Markets With US, German Deals

Woodside Energy has firmed up its commitment to lift long-term LNG supply from aspiring US LNG exporter Commonwealth LNG. The commitment will allow Woodside to target European markets following a new deal signed with German utility Uniper.

Australia-based Woodside has signed two sales and purchase agreements (SPAs) with Commonwealth LNG that cover up to 2.5 million tons per year of LNG over 20 years from mid-2026. The latest deals firm up a heads of agreement signed in January for 2 million tons/yr which gave Woodside the option to buy an additional 500,000 tons/yr.

Commonwealth LNG is developing an 8.4 million ton per year project at Cameron Parish in Louisiana. The new US supply will allow Woodside to supply Europe, including Germany.

Woodside CEO Meg O’Neill said the agreements provide the basis for a long-term partnership with Commonwealth LNG. “The agreements secure for Woodside low-cost LNG volumes in the Atlantic Basin in a period of expected strong demand as Europe seeks alternatives to Russian pipeline gas,” she said.

Making Inroads in Europe

Woodside has entered into a flexible long-term agreement with Uniper Global Commodities, which makes the German utility among a handful of European buyers to have committed to long-term LNG offtake. Under the SPA, Woodside would supply up to 12 cargoes annually, or about 800,000 tons/yr. First supplies will start in January 2023 and run through 2039, equivalent to a contract duration of 17 years.

Many European buyers have been reluctant to commit to LNG supply deals longer than 10 years in duration amid concerns that they would be at odds with their decarbonization goals. Germany has held talks with major LNG exporter Qatar which offered supplies from its Golden Pass project in the US, but no deal has been announced yet.

Woodside said supply from September 2031 would be conditional on Uniper finalizing its long-term strategic capacity bookings in Northwest Europe, which is expected by March 2023.

O’Neill said the new agreement is built on the company’s existing relationship with Uniper. Woodside already has an ongoing 13-year contract with Uniper for up to 1 million tons/yr of supply whose volumes would double to 2 million tons/yr from 2026, to be sourced mainly from its Scarborough-Pluto Train 2 project in Western Australia.

The Woodside CEO said the latest agreement with Uniper will provide a new source of LNG for consumers in Europe which are seeking alternatives to Russian gas. "It also reflects the increasingly interconnected nature of LNG trade in the Atlantic and Pacific basins as global markets respond to energy security challenges,” she said.

Germany is Europe's largest buyer of natural gas and Uniper is highly exposed to Russian gas, which accounts for some 54% of its portfolio of long-term gas supply contracts that total 33 billion cubic meters per year.

The utility has secured two floating regasification and storage units (FSRUs) from Dynagas — Transgas Force and Transgas Power, both with 174,000 cubic meters of capacity — as Germany seeks to wean itself off dependence on Russian gas. One of the FSRUs would be located at Wilhelmshaven, targeted to start importing by the winter of 2022-23.

Uniper Group CEO Klaus-Dieter Maubach said the agreement with Woodside "will support our security of supply strategy together with the development of our LNG terminal in Wilhelmshaven." Woodside is already one of Uniper's biggest LNG suppliers in Asia.

Expanding US LNG Trade

The new supply from Commonwealth LNG would expand Woodside's US offtake currently focused on a 20-year, 850,000 ton/yr supply deal with Cheniere, sourced from its Corpus Christi Train 2 facility.

Commonwealth LNG is adopting a highly modularized approach in construction and is said to offer flexible commercial terms. The project developer recently announced Farhad Ahrabi as its new President and CEO. Ahrabi was previously the CEO of Cameron LNG, an existing US LNG exporter.

“Our modular construction approach allows Commonwealth LNG to provide greater cost and schedule certainty to customers as we deliver affordable, reliable, cleaner energy to meet global demands,” said Ahrabi.

Last year, Commonwealth LNG signed a memorandum of understanding to sell 1 million tons/yr of LNG to a unit of Bangladesh's Summit Group and launched a formal process with Gunvor that would commit it to taking up to 3 million tons/yr of LNG from the terminal.
Clara Tan, Singapore

India Forms Panel To Review Domestic Gas Prices

India has formed a panel to review the country's domestic gas prices.

The panel will recommend a market oriented, transparent and reliable pricing regime to aid in India’s shift to a gas-based economy.

India's domestic gas prices are currently set by a government formula that many observers believe is entirely unrepresentative of Indian market conditions.

The committee will submit its report in a month.

India, the world's fourth largest LNG importer, meets half of its gas demand through domestic sources while the rest comes through spot and term LNG imports.

While LNG term supplies are around $14/MMBtu, Northeast Asia’s spot LNG prices have reached a record of $65 per million Btu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead.

Government-Set Prices Rise

The South Asian nation currently revises prices every six months, in April and October, based on weighted averaged prices at hubs in the US (Henry Hub), Canada (Aeco) and the UK (National Balancing Point) as well as Russian domestic tariffs.

The formula, which is based on average international gas prices in the preceding 12 months and calculated with a lag of one quarter, led to a more than doubling of gas prices for the six-month period that began Apr. 1, to $6.10/MMBtu. The ceiling price for gas produced from difficult deepwater acreage was raised to $9.92/MMBtu from $6.13/MMBtu.

The sharp jump in global LNG prices, as Europe competes with Asia for cargoes, means that India's domestic gas prices will likely see strong growth in the six month period beginning Oct 1.

Upsetting Consumers

Prime Minister Narendra Modi’s government has shielded consumers from the sharp jump in oil prices by keeping diesel and gasoline rates in check. The government does not want high natural gas prices upsetting motorists and household consumers.

India allocates cheap domestic gas to subsidized sectors like fertilizer, and for city gas projects that supply gas to households, automobiles and industrial consumers.

Modi has set a goal for raising the share of gas in the domestic energy mix to 15% by 2030 from 6.3% currently.
Rakesh Sharma, New Delhi

Devon Splashes Into FLNG Market With Delfin Deal

US E&P Devon Energy is splashing into the floating LNG space through a partnership with Delfin Midstream that would see it invest in the modular specialist and receive up to 2 million tons per year of liquefaction capacity from its projects.

The duo said Monday the deal includes pre-sanction investment by Devon and a heads of agreement to finalize a 1 million ton/year tolling agreement for capacity in Delfin’s first FLNG project. The transaction also includes options for additional future equity investments by Devon and up to 1 million tons/year more in capacity at Delfin’ first vessel or a future floater.

Strategic Partnership

Delfin’s project consists of up to six liquefaction vessels offshore Louisiana, each with a nameplate production capacity of 3.5 million tons/yr and intended to serve the export market.

“We are delighted to execute this agreement with Devon, representing a truly strategic partnership between a US producer and a liquefaction provider,” said Dudley Poston, Delfin CEO. “We believe our unique liquefaction solution provides significant structural flexibility that allows producers to maximize the value of their natural gas, while providing a much-needed source of additional supply to the world LNG marketplace.”

The deal inches Dallas-based Delfin’s project closer toward a final investment decision, which is targeted for the end of this year. Delfin only requires 2 million to 2.5 million tons/yr of long-term contracts to begin construction. Including the Devon HOA and two other recent deals with traders Centrica and Vitol, Delfin has reached the 2.5 million mark.

Delfin said it is also in “numerous advanced discussions” for deals similar to those previously announced.

E&Ps Keen on LNG

US independents have been increasingly interested in exposure to the international LNG market after Russia’s invasion of Ukraine pushed commodity prices higher and made North American supply more attractive to global buyers. Earlier this summer, ConocoPhillips said it would partner with Sempra to develop the Port Arthur LNG project in Louisiana, while Chesapeake Energy has recently inked a deal to supply the Golden Pass LNG project with “responsibly sourced” gas.

Devon CEO Rick Muncrief said the company’s investment in Delfin was based on a “thorough process” to diversify pricing for Devon’s natural gas portfolio and deliver returns to shareholders. The deal is not expected to change Devon’s 2022 guidance.

A Devon spokesperson told Energy Intelligence that the Permian Basin is likely to be the source of the feed gas, but given the long time frame, it could come from anywhere in Devon's portfolio.

The spokesperson added that Devon may opt to certify gas at some point, and has already set "meaningful" targets to lower emissions.

"Devon is making good progress if that's what we want to do in the future," the spokesperson said.
Caroline Evans, Houston

Gazprom: Portovaya Produces First LNG

Russia’s state-run Gazprom says its long-delayed 1.5 million ton per year Portovaya facility has produced first LNG and is preparing to load the first cargo.

Portovaya has already produced 30,000 tons of LNG, Gazprom Deputy CEO Vitaly Markelov told the Eastern Economic Forum in Vladivostok on Tuesday.

The facility is starting operations at a time when spot LNG prices are at unprecedented levels, but its sales markets might be limited as Europe, the nearest market, strives to reduce its reliance on Gazprom because of Russia’s invasion of Ukraine.

LNG from the nearby 660,000 ton/yr Vysotsk plant of privately owned Novatek, as well as from its large Yamal plant in the Arctic, appears to be less toxic in Europe than Gazprom’s pipeline gas, however.

Markelov said “our LNG will be in demand.”

Portovaya LNG is located near the Baltic port of Vyborg in northwestern Russia.

Preparing for Launch

On Monday, the crucial 72-hour tests were completed, Markelov said. Such tests usually mark the end of the commissioning stage and are aimed to make sure the facility is ready for commercial operations.

An LNG tanker is on its way to Portovaya to take the first cargo from the plant, according to Markelov.

Some LNG tankers have already arrived in Portovaya earlier this year, presumably for some shipping tests.

Portovaya has been in commissioning stage since late last year. It was scheduled for launch at the end of last year, but the commissioning stage lasted longer than expected. The project was initially supposed to come on stream in 2018 but faced several delays.

Gazprom might have faced some technological issues during the commissioning stage, as there were reports about an unusually big gas flare at Portovaya, which is close to the Portovaya compressor station, the starting point of the 55 billion cubic meter per year Nord Stream gas export pipeline from Russia to Germany.

Arctic LNG 2 Next in Line

Russia’s next LNG capacity addition should be at the end of 2023 or in the beginning of 2024, when the first of three 6.6 million ton/yr trains of Novatek’s Arctic LNG 2 project come online.

The first train is almost completed at the Novatek Murmansk yard in northwestern Russia and the company plans to move it to the Arctic LNG 2 location at the Utrenny terminal on Gydan Peninsula in the Arctic in August 2023, Deputy CEO Yevgeny Ambrosov told the same forum.

A source close to the project said the train can be installed at the Utrenny terminal in the Ob Bay in September and produce first LNG in December 2023.

Gazprom Sticks to Ust-Luga Plans

Prospects for the other two Arctic LNG 2 trains, as well as other large Russian LNG projects, are dimmed by the technology sanctions imposed by the EU in April, closing access to key western liquefaction equipment.

Gazprom’s 13 million ton/yr Ust-Luga facility, planned as part of the 45 Bcm/yr Ust-Luga gas processing plant in northwestern Russia, also faces risks after the key technology partner, Germany’s Linde, decided to withdraw from Russia, following the war in Ukraine.

But Markelov said in his presentation that the plant is still scheduled to start operation of its two 6.5 million ton/yr trains in 2024 and 2025.

There is an option to expand the plant to 19.5 million tons/yr, he said, adding that a decision on the possible third train will be made based on the profitability of Ust-Luga’s two-train operations.

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

Global LNG Trading Faces New Market Reality As Prices Soar

Global LNG trading has entered a new reality with staggering spot prices hampering trading activity and significantly increasing financial risk, LNG trading executives said during a panel discussion at the Gastech 2022 conference in Milan on Sep. 6.

As global gas and LNG prices skyrocket on the back of the invasion of Ukraine and Russian supply cuts, LNG cargo prices have, in some cases, tripled in price with some cargo purchases heard in the $150-200 million range.

“Just simply participating, let alone successfully trading the market, has completely changed. There is a completely different price set,” said Alejandro Sanchez Gestido, global head of LNG at commodity trading house Glencore.

New Priorities, New Timing

The high prices have shifted the priorities of market participants, with the focus now on making sure that companies can actually pay for cargoes, with the number of market players requiring external support to maintain operations constantly growing.

“Transactions that used to take a matter of hours, now take days,” the Glencore executive said.

High cargo prices are also creating problems for companies hedging their positions, according to Pablo Galante Escobar, global head of LNG and European gas and power at independent trader Vitol.

He referred to the announcement of the Swiss Federal Council on Sep. 6 to provide liquidity support of 4 billion Swiss francs to energy company Axpo, as the most recent example of how margin calls are putting companies under intense financial pressure.

Galante said that one solution to ease the high prices is through selling future production.

“This would allow the market to cool down a bit. We have a problem now which is that there is no futures selling into the market,” Galante said and added that producers and governments need to have a discussion in order for the producers to receive liquidity, which is good enough to sell the future market.

LNG Market Works

Executives agreed that the LNG market has been functioning properly during this crisis and responded well to the higher European demand.

“It is nice to see that the LNG market works,” said Andree Stracke, CEO of RWE’s supply and trading division. “LNG cargoes flow to the point with the highest prices. That is good for the market.”

The high prices also mean that several consuming countries with developing economies have been priced out from the market, particularly in Southeast Asia.

Galante stressed that it is also important to help the likes of Pakistan, India or Bangladesh as they struggle to compete with European buyers for spot LNG supplies, which in turn leads to power cuts in these countries and forces them to use heavy fuel oil or diesel for power generation.

FSRUs

Several European countries have also moved to secure floating storage and regasification units (FSRUs) as a flexible and cheaper way to wean themselves off Russian gas supplies.

However, executives warned that FSRUs are just a short-term fix for Europe’s supply headaches rather than a long-term solution.

“FSRU is a short-term solution, [but] sometimes a short-term solution can stay forever,” said Stracke.

The RWE executive said that the main question mark is around the 2030-2035 timeframe, for which the European governments do not have a solution yet.
Daniel Stemler, Milan

Pressure Builds to Develop East Med Gas Resources

Pressure is building for Chevron to develop and export East Mediterranean gas as Europe grapples with a sharp reduction in imports of gas from Russia.

"There is greater pressure than before to move forward on developing East Med gas," Osama Mobarez, chairman of the East Mediterranean Gas Forum told Energy Intelligence at the Gastech conference in Milan.

Mobarez said the issue would be discussed at the upcoming meeting of the intergovernmental group in December.

Egyptian Petroleum Minister Tarek el-Molla, said all of the pieces are in place, and that the only thing still needed is a decision to move forward.

"Discoveries are there, the market is there — we just need to take the decision and tick this project off," he told the conference.

Europe has made clear that it would like to see fast-track development of the gas discoveries made in the Eastern Mediterranean in recent years.

The European Commission signed a provisional agreement with Israel and Egypt in June to supply Europe with LNG sourced from gas fields in the region.

El-Molla told reporters at Gastech that those agreements are still at a very preliminary stage. But he also said that Europe's interest in replacing Russian gas should help to accelerate development of the resources.

Chevron Weighs Options

Europe is looking in particular to Chevron, which is still weighing options for its Aphrodite gas discovery offshore Cyprus — estimated to hold 4 trillion cubic feet of gas — and a second phase of development at its giant Leviathan field off Israel.

However, Chevron does not seem to share the same sense of urgency about developing those resources and delivering them to buyers.

Nigel Hearne, who will become the US major's executive vice president for oil, products and gas on Oct. 1, told Gastech that Chevron was still "working through the technical issues" and that there was "no line of sight yet [on the best option]."

Mobarez said that moving East Med gas via a subsea pipeline for liquefaction in Egypt appeared to be the favored solution, rather than a floating LNG vessel.

Egypt has two onshore LNG liquefaction plants: Idku (operated by Shell) and Damietta (operated by Eni).

A government-to-government deal between Cyprus and Egypt envisaged shipping gas via a pipeline to the Idku LNG plant.

However, Chevron upstream chief Jay Johnson, who is set to retire on Jan. 31, said in a late-July earnings call that floating LNG is also a "viable option" for the company's East Mediterranean gas.

A dispute about the maritime boundary between Aphrodite and Israel's smaller Ishai field is a potential obstacle to fast-track development.

String of Discoveries

Direct EU involvement and funding for Eastern Mediterranean gas development would probably allow Europe to lock in supplies for a fixed period of time and give it an advantage over Asian buyers.

Cypriot Energy Minister Natasa Pilides told Gastech that Cyprus would probably become part of the arrangement agreed by the EU, Israel and Egypt.

Eni recently announced another gas discovery in Block 6 offshore Cyprus called Cronos that it estimated to hold up to 2.5 Tcf of gas in place and pledged to fast-track its development.

The Italian company previously discovered the Calypso field in the same block.

Eni's chief operating officer for natural resources Guido Brusco told the conference that "new things are coming over the next few months."

Exxon also has the Glaucus gas discovery in Block 10 offshore Cyprus, while a Cypriot official said the US major plans to drill a well soon in offshore Block 5, which it acquired in December.
Tom Pepper, Milan


In Brief

Spot LNG Prices Diverge

Northeast Asia’s spot LNG prices held steady week on week at $65 per million Btu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead. Spot LNG prices in Southwest Europe fell by $12.50 to $48.40/MMBtu.

High global spot LNG prices have prompted China’s ENN and Xinjiang Guanghui Industry Investment Group to divert cargoes to Europe recently amid healthy stocks in China and weak demand due to the country’s strict Covid-19 lockdown policies.

In Southwest Europe, traders say the spot LNG discount to the benchmark TTF hub price has dropped to around $23/MMBtu after a volatile trading week.

Created with Highcharts 9.0.0($/MMBtu)REGIONAL SPOT PRICESNortheast AsiaSouthwest EuropeSep '21Oct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22020406080Energy Intelligence

Marc Roussot, Singapore and Daniel Stemler, Madrid


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India61.6362.1261.6862.1161.2561.0762.6360.6962.5361.7360.9060.6060.97
Sodegaura, Japan62.2263.7263.7363.8462.1758.5263.3061.0163.1664.2261.3760.4762.36
Zeebrugge, Belgium18.8417.5217.2417.5718.4318.7218.1317.2018.0117.2218.5417.8118.62
Huelva, Spain47.7246.1345.7546.2047.2047.0046.8545.6746.7345.7647.2646.2747.27
Isle of Grain, UK17.6516.3316.0616.3817.2717.5217.0316.0216.8316.0417.3516.6317.43
Everett, US6.905.645.935.686.656.540.016.286.105.367.06----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback4. Apr18. Apr2. May16. May30. May13. Jun27. Jun11. Jul25. Jul8. Aug22. Aug5. Sep10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia0.0065.000.5465.00
SW Europe0.0048.4010.4748.40
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)--8.15--9.04
NBP, UK (futures)-3.9649.3153.2851.81
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF0.7063.8563.1573.86
Zeebrugge (Belgium)-5.0525.2530.3052.01
German NCG-9.1863.0472.2274.97
NBP (UK)-11.0618.4329.4851.83
US Markets
US Spot Prices
Sabine Pass, Louisiana--8.48--8.98
Corpus Christi, Texas------8.51
Cove Point, Maryland--7.85--8.50
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month--8.15--9.04
Second Mth--8.21--9.10
Third Mth--8.37--9.24
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaOct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '220255075100125Energy Intelligence