September 13, 2022

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Exclusive: Qatar Poised to Award Next LNG Prize

By the end of this month, state-owned Qatar Energy will name its first partner for the next phase of its 48 million tons per year LNG mega-expansion, Qatar’s energy minister Saad al-Kaabi tells Energy Intelligence.

“At least one [company] is beyond the finish line,” said the minister in an exclusive interview in his office in Doha, while declining to reveal the winner.

Selection for equity and LNG offtake volumes in the prized 16 million tons/yr North Field South (NFS) project follows hot on the heels of partner selection for Phase-1 dubbed, North Field East (NFE). The awards came in quick succession of signing ceremonies over the summer.

That race saw Total Energies, Exxon Mobil, Shell, Eni and ConocoPhillips win stakes in the biggest project in the history of the LNG industry.

Energy Intelligence understands most — if not all — of those same companies are in the running for the Phase 2 awards.

Efforts to secure a partnership in the project had touched off an intense multi-year race among western energy firms to woo al-Kaabi, who had made it clear Qatar Energy was willing to take on the project by itself if he didn’t get the value he wanted.

Qatar Energy was also in discussions with large Asian LNG buyers for potential equity stakes in the expansion but to date, none have been named as partners for either phase of the project.

Even before the steady increase in LNG prices in 2021 and this year’s Ukraine-fueled bull market, the Qatar expansion was one of the most eagerly anticipated investment openings in years, boasting low-cost gas, lucrative associated liquids, massive economies of scale and low-carbon production.

Now, with Europe desperately trying to wean itself off Russian gas, Doha has become one of the most important sources of additional global supply.

In addition to its two North Field expansions — due in 2026 and then 2027 — Qatar Energy has a 70% stake in the 18 million tons/yr Golden Pass LNG project in the US, which will start up at the end of 2024.

The impact of the North Field expansion goes far beyond its gas volumes. There are also the associated liquids to be produced, including over 370,000 b/d of condensate alone.

The LNG projects will include greenhouse gas mitigation measures, including carbon, capture and sequestration and methane leak reduction technology costing more than $250 million.

Al-Kaabi has often cited the expansion’s low-carbon intensity per volume of output as a great selling point for carbon-conscious global buyers.

In the energy current crisis, however, buyers are understood to be increasingly fixated on securing supplies at the best price rather than environmental considerations.

Both NFE and NFS will be the first Qatari LNG projects to remove ethane from the gas stream. And this will provide feedstock for what will be the Middle East’s largest ethane cracker. The 2.08 million ton/yr facility will anchor Qatar Energy’s planned Ras Laffan Petrochemical Project (RLPP) joint venture with Chevron Phillips, due on stream in 2026.

For more on the North Field expansion, Qatar Energy’s international strategy, his views on the energy crisis and the future of gas, read the full interview with Qatar’s Minister of State for Energy Affairs, President and CEO of Qatar Energy Saad al-Kaabi next week in Petroleum Intelligence Weekly.

Al-Kaabi has been named the Energy Executive of the Year 2022 and will receive his award during the Energy Intelligence Forum held in London on Oct.4-6.

Created with Highcharts 9.0.0(million tons/year)QATAR'S LNG EXPANSIONNorth FieldGolden PassNorth Field EastNorth Field South202220232024202520262027202820292030020406080100120140160Source: Qatar Energy

Rafiq Latta, Cyprus

Floating Storage Near Gibraltar Rises Again

Floating LNG storage around the Strait of Gibraltar has risen in recent weeks as saturated terminals in Northwest Europe struggle to receive more cargoes.

Market participants could also be looking to take advantage of possible contango plays.

Based on ship-tracking data by energy analytics firm Kpler, Energy Intelligence counted a total of nine laden vessels loitering around the strait that are likely acting as floating storage.

In the last couple of months, the amount of floating LNG storage in Europe, particularly around Gibraltar, has dropped, but in recent weeks it has been building up once again at the strait between Spain and Morocco.

The Strait of Gibraltar is widely used by vessels acting as floating storage due to its favorable geographical location. From Gibraltar, vessels can quickly reach Northwest Europe or the Mediterranean region. The Suez Canal is also just a few days voyage away from the strait, in case a cargo is redirected toward Asia.

Potential Contango Play

The rapid increase in floating storage could indicate that market participants are looking to take advantage of higher prices in the coming weeks and months, as Europe enters the high-demand winter season.

The nine vessels together are holding over 1.4 million cubic meters (about 650,000 tons) of LNG, Energy Intelligence calculated.

“That's a relevant number [and] I think the driver is mainly the contango,” a source active on the Spanish market told Energy Intelligence.

Looking at benchmark Dutch TTF hub prices, the November 2022 contract is currently holding around an €8.00/MWh ($2.34/MMBtu) premium over the October 2022 contract, ICE Exchange data showed.

In the Spanish Mibgas market, the November 2022 product was at a €13.38/MWh ($4.00/MMBtu) premium to the October 2022 contract.

Terminal Bottlenecks

On the other hand, saturated terminals in Northwest Europe could also force vessels to float for an extended period of time before they can unload their cargoes.

Various vessels that are currently waiting near Gibraltar are seemingly destined for Northwest European terminals, based on their AIS signals. However, operational bottlenecks at several import facilities in the region, due to the massive influx of LNG volumes, are preventing vessels from discharging on time.
Daniel Stemler, Madrid

India's LNG Term Suppliers Unwilling to Commit

India, the world’s fourth-largest LNG buyer, has not been able to secure fresh term supplies for 2023, which could impact the country's gas consumption next year if spot LNG prices stay at current levels.

“No one is willing to commit volumes for next year though supplies are available from 2024 onwards,” an oil ministry official, who declined to be named, told Energy Intelligence. "Next year consumption will all depend on prices."

Last month, India’s top LNG buyers, Petronet LNG and Gail India, said that their efforts to source additional term volumes for next year were not successful due to a high slope to Brent quoted by suppliers.

Analysts are expecting LNG markets to remain tight at least until 2025 as war-torn Europe competes with Asian buyers for cargoes, which means India's demand will remain under pressure.

Gazprom's Wake

India's term supplies have been hurt in another way.

Gail India is facing disruption to its long-term contract for 2.5 million tons a year with Gazprom’s former subsidiary Gazprom Marketing and Trading Singapore (GMTS). The parent company of GMTS, Gazprom Germania, that has been taken over by Germany.

GMTS is paying a delivery default penalty equal to 20% of the agreed price, the oil ministry official said. But the jump in LNG prices means it remains profitable for GMTS to pay the default charges and sell the volumes elsewhere, the official added.

India’s LNG purchases are down 7.8% on year, during the April-July period of the current financial year that began Apr 1. at 9.97 billion cubic meters as high spot LNG prices have dented demand but also due to lower-than-expected cargo deliveries by GMTS.

“We still remain in discussions with Gazprom for regular LNG supplies,” a Gail board member said.

Created with Highcharts 9.0.0(million tons)INDIA'S LNG IMPORTSQatarUnited Arab EmiratesNigeriaUnited StatesAngolaOmanAustraliaEquatorial GuineaRussian FederationEgyptCameroonOthers20182019202020212022051015202530Source: Kpler

Robust Demand Outlook?

Despite the challenges being faced by the industry on LNG, India’s Federal Petroleum Secretary Pankaj Jain Friday told investors that India’s natural gas consumption is set to expand five-fold by 2050.

In order to meet that demand, the nation is in the process of adding over 17 million tons of LNG regasification capacity that would take the total to 62 million tons per year, and is adding 14,285 kilometers of gas pipeline to take that figure to 36,000 kilometers by 2030.

India will also be expanding its household piped natural gas consumer base by five-fold to hit 50 million. India also anticipates four-fold growth in fuel stations to dispense compressed natural gas for automobiles to around 18,000 by 2030. India will also be building 1,000 stations to dispense LNG to long-haul trucks and buses across the national highways in the next three years, Jain added.

But analysts remain skeptical of India’s gas ambitions.

“Over the past decade, India’s overall gas consumption has been flat,” Anil Sharma, analyst with Mumbai’s Kotak Institutional Equities Research said in a recent note. “Indian gas demand is price sensitive, and in recent years even oil price-linked LNG (at 9%-12% slope) has found low demand. With Europe seeking more LNG, long-term contracts will be difficult to come by for India.” Sharma noted that at spot prices above $20/MMBtu, LNG demand in India will be low.
Rakesh Sharma, New Delhi

Cheniere Accelerates Capital Plan

Cheniere said it has reached a "new cash flow inflection point" and now expects to generate over $20 billion of available cash through 2026 while accelerating its capital spending plan.

"Cheniere is truly firing all cylinders," said Cheniere President and CEO Jack Fusco.

On an admittedly "short notice" conference call, Cheniere raised full-year 2022 earnings guidance from $9.8-$10.3 billion as of early last month, to $11-$11.5 billion, based on an increase in cargoes moving from its Gulf Coast export terminals as well as sustained higher margins on open cargoes through 2022.

"Our ability to design and then surpass the goals of the original capital allocation plan is the result of our operation's excellence and asset positioning within the unique market conditions that have developed since last year," said Zach Davis, the company's CFO, alluding to Europe's desperate search for gas supplies that has driven up spot LNG prices to historic levels.

"The bulk of our open cargoes continue to get redirected for delivery into Europe versus Asia, which shortens the voyage time," said Davis.

Capital Allocation

The company has repaid over $4 billion in long-term debt in two years — the 2021 capital plan targeted $1 billion per year over four years. The company intended to repurchase up to $1 billion in shares over three years, but has already accomplished over half of that goal.

The company said it is increasing its dividend by about 20%, and is funding Corpus Christi Stage 3, which saw a final investment decision in June.

Double Capacity

Corpus Christi Stage 3, a 10 million ton per year expansion project, is slated to bring Cheniere's capacity up to 55 million tons by around 2025.

Last month, Cheniere pre-filed with the US Federal Energy Regulatory Commission for Corpus Christi Midscale Trains 8 & 9, to add another 5 million tons of capacity.

To take the total capacity then from 60 million tons to 90 million tons, Cheniere sees a Sabine Pass expansion and a Corpus Christi Stage 4 — for the latter, the company already has three offtake agreements.

"This year, Cheniere signed long-term contracts that amount to over 180 million tons of LNG to be delivered through the year 2050. This volume is a combination of long-term f.o.b., d.e.s. and IPM [Integrated Production Marketing] agreements that were signed with all types of creditworthy counterparties from across the globe, including utility end users, portfolio players, super majors and natural gas producers from North America," noted Fusco.

CFO Davis said the company is 95% contracted for the next decade.

The company did not address the recent US Environmental Protection Agency rejection of an emissions exemption request, which the company previously said was unlikely to impact LNG production.
Michael Sultan, Washington


In Brief

Spot LNG Prices Sink

Northeast Asia’s spot LNG prices dropped by $23 week on week to $42 per million Btu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead.

Spot prices in Southwest Europe continued to decrease, falling by $10.65 to $37.75/MMBtu.

Global spot LNG prices followed a strong drop in European gas hub prices, allowing price-sensitive buyers in Asia to re-enter the market.

Traders are also keeping an eye on Typhoon Muifa which is heading to Shanghai and could impact LNG shipments. Papua New Guinea’s PNG LNG operations have not been impacted by a 7.6-magnitude earthquake that occurred on Sunday.

In Europe, a rise in LNG cargoes waiting around Gibraltar could be indicating a supply bottleneck at import terminals in northwest Europe, the continent’s main demand region.

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

Marc Roussot, Singapore and Daniel Stemler, Madrid

Russian Price Index Plan Advances

Prime Minister Mikhail Mishustin has asked the Bank of Russia and other government bodies to develop plans for the creation of a Russian system of financial and commodity indexes by Dec. 15.

The pricing of Russian oil and other commodities has become murkier after international price reporting agencies such as Platts cut their ties with Russia following its invasion of Ukraine earlier this year.

The proposed system of national indexes is intended to address that problem and create greater transparency around prices.

Russia has long sought to increase its influence over price formation for the sale of commodities that play a pivotal role in its economy.

Those efforts have included attempts to promote its Urals export blend of crude oil as a benchmark grade.

With some buyers backing away from Russian crude because of the war in Ukraine, Russian producers have been offering deep price discounts to buyers such as India and China to prop up their sales.
Staff Reports


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India38.6939.1538.7239.1438.3038.1339.6537.7339.5638.7737.9637.6638.03
Sodegaura, Japan39.2840.7540.7740.8739.2235.5540.3438.0540.2041.2438.4437.5139.42
Zeebrugge, Belgium60.9558.9658.4559.0760.3460.7659.8858.4859.7358.5060.4759.3260.58
Huelva, Spain37.0835.3934.9835.4836.5236.3036.1734.8836.0435.0036.5835.5236.59
Isle of Grain, UK43.9542.1441.6942.2243.4243.7743.1041.7042.8441.7243.5242.4843.61
Everett, US6.725.245.575.316.436.290.016.025.814.906.92----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback11. Apr25. Apr9. May23. May6. Jun20. Jun4. Jul18. Jul1. Aug15. Aug29. Aug12. Sep10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia42.0042.00-23.18--
SW Europe37.7537.75-30.18--
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.048.288.258.15
NBP, UK (futures)+2.0341.9939.9549.22
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF2.1956.8154.6164.25
Zeebrugge (Belgium)1.7148.0746.3625.09
German NCG2.7558.2355.4862.65
NBP (UK)7.4744.8337.3618.39
US Markets
US Spot Prices
Sabine Pass, Louisiana0.308.388.088.48
Corpus Christi, Texas0.127.877.75--
Cove Point, Maryland0.347.747.407.85
Elba Island, Georgia0.758.387.63--
Nymex Henry Hub Futures
Near Month0.048.288.258.15
Second Mth0.058.338.298.21
Third Mth0.068.488.428.37
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaOct '21Nov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '220255075100125Energy Intelligence