October 13, 2022

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Industry Wants a More Flexible Gas Price Policy in Indonesia

Regulated gas prices and the lack of gas infrastructure are major challenges for companies seeking to develop gas projects in Indonesia.

This is potentially casting a shadow over the country’s 2030 gas production target of 12 billion cubic feet per day.

“The capped domestic gas price is a particular challenge for deepwater, or remote fields,” Harbour Energy’s Indonesia country manager Gary Selbie told the Indonesian Petroleum Association (IPA) conference.

Harbour is operating the Andaman II production sharing contract, in deep waters offshore Aceh, far from the key demand centers of Sumatra and Java.

“The existing price policies impose a challenge because each field will have its own specific technical requirements to be commercially developed, therefore there is a need for different price levels to support the economics,” said Eni Indonesia’s managing director Diego Portoghese.

Flexibility

To be economically viable certain projects may need a higher gas price, incentives, or for some volumes to be allowed for export rather than being entirely reserved for the domestic market, stressed Portoghese, who is also a board member of the IPA.

“The key word is flexibility,” said Portoghese, especially when considering additional costs resulting from managing reservoir CO2.

More than 50% of gas fields contain high reservoir CO2, meaning that carbon capture and storage needs to be implemented for resources to be developed, the IPA says.

Regulations

Indonesia capped gas prices at $6 per million Btu for electricity and seven other sectors between 2016 and 2020.

The measure was designed to spur the development of industries like fertilizers and to reduce subsidies the government has to pay to state-owned utility company PLN.

But a price of $6/MMBtu for the end user, typically results in a price of around $5/MMBtu or less at the wellhead, analysts say.

Only approximately 30% of the planned gas development projects in Indonesia are considered economic at $5/MMBtu.

International oil and gas companies operate around 90% of potential gas development projects in Indonesia, hence project rates of return must be globally competitive, the IPA says.

“The regulated gas price policy needs to consider economic returns for each project to attract the investment required to realize the 12 Bcf/d targets,” the IPA says.

Created with Highcharts 9.0.0(million tons)INDONESIA'S LNG EXPORTS2008200920102011201220132014201520162017201820192020202120220510152025Source: Kpler

Sakakemang

Gas prices were a major point of contention between Repsol and the Indonesian government during negotiations for the development of the Kali Berau Dalam gas discovery.

Repsol was looking to secure a price above $7/MMBtu.

Indonesia’s upstream regulatory body SKK Migas did not mention the sales price when the project was approved last year.

Infrastructure

Oil and gas companies are also calling for infrastructure to be rapidly developed

“We cannot develop projects in the upstream if there is no demand that can be easily reached,” said Portoghese.

“Having them [infrastructure] timely developed is a key element of success for the projects to be developed timely,” he added.

Indonesia has been actively developing its gas infrastructure in recent years as part of its coal-to-gas switching strategy and to supply natural gas to households to reduce reliance on imported LPG.
Marc Roussot, Singapore

Cameroon Now Favors Europe Over Asia

Europe has been rapidly becoming the favored destination of Cameroonian LNG cargoes, displacing Asia in recent months, with the trend expected to continue in the foreseeable future.

Since its operational start in 2017, the bulk of the cargoes from Cameroon’s 2.4 million ton/yr floating LNG plant has been delivered to Asian countries and only a fraction of its output ended up in Europe.

So much so, that Europe did not receive a single cargo from the West African country last year, according to data by commodity analytics firm Kpler.

However, this year, particularly since June, Cameroonian LNG exports have switched direction, with most of the volumes heading to Europe. Around 0.55 million tons of LNG from Cameroon have been delivered to Europe so far this year, compared to 0.40 million tons that ended up in India, the sole receiver of Cameroonian volumes in Asia in 2022 (see graph).

Created with Highcharts 9.0.0(million tons)CAMEROON'S PIVOTLNG ExportsAsiaEuropeAmericas20172018201920202021202200.250.50.7511.251.5Source: Kpler

Offtaker Reshuffle

While the sky-rocketing LNG and gas prices in Europe are likely to be at least partly responsible for the sudden change in direction of Cameroonian LNG volumes, the ownership change in its only contractual offtaker has likely played a role as well.

Gazprom Marketing and Trading, the LNG trading subsidiary of Russia’s state-owned exporter Gazprom had been the sole offtaker from Cameroon’s FLNG plant through a term contract for 1.2 million tons per year of LNG.

Gazprom M&T primarily used the Cameroonian volumes to supply its customers in Asia, most notably in India.

However, following Russia’s invasion of Ukraine, in April the German federal government decided to temporarily take control of Gazprom Germania, the main European subsidiary of Gazprom and the parent company of Gazprom M&T.

Both Gazprom Germania and Gazprom M&T have been renamed to Securing Energy for Europe (Sefe) and Sefe Marketing and Trading, respectively, and Germany is now looking to fully take over Sefe and its subsidiaries.

With Germany controlling the company and demand in Europe expected to remain high, cargoes from Cameroon will likely keep coming to Europe and leaving buyers in Asia, particularly in India, without supplies.

Recent Loadings

The last cargo from Cameroon which was delivered to Asia was loaded on Jun. 9, according to Kpler, since then four cargoes have been loaded from the country’s liquefaction facility and all of them have been delivered to Europe.

Some of the vessels that lifted these recent cargoes were understood to be under charter to commodity trading house Trafigura, which previously purchased cargoes from Cameroon through a sell tender by Sefe M&T’s predecessor. This may indicate that the trading firm bought more cargoes from Cameroon, likely on a spot basis.

A part of another cargo has already been loaded into the 173,400 cubic meter Energy Integrity, under charter to Sefe M&T, although its destination is not yet known.

Meanwhile, another Sefe M&T vessel, the 150,000 cubic meter Amur River is currently heading toward the Cape of Good Hope in the Indian Ocean, broadcasting the Atlantic Ocean as its destination, ship-tracking data by Kpler showed. This could indicate that the vessel, which is presently ballast, is going to the Cameroon FLNG plant to lift a cargo.

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

France Starts Pipeline Gas Exports to Germany

France has started to ship natural gas to Germany by pipeline as a part of a "solidarity agreement" for the two countries to help each other out with energy supplies.

France was set to ship 31 gigawatt hours (2.8 million cubic meters) of gas to Germany on Thursday day, although the pipeline has a capacity of 100 GWh/d (equivalent to less than 2% of German gas demand), according to French grid operator GRTgaz.

The solidarity agreement signed in September stated that France would improve its gas interconnection with Germany in return for a commitment from the neighboring country to increase its electricity export capacity to France.

The gas interconnection point between the countries at Obergailbach had previously been operating in one direction only — from Germany to France.

After the solidarity agreement was signed, the grid operators in both countries made the necessary changes to allow bidirectional flows through the pipeline.

France has Europe's third-largest LNG import capacity after Spain and the UK, with four operational terminals and a total import capacity of 25.6 million tons per year.

TotalEnergies is expected to install a floating storage and regasification unit next year in the port of Le Havre in northern France with a capacity of 5 billion cubic meters per year, or around 3.6 million tons/yr.

Despite the improvements in crossborder connections with Germany, Paris has blocked plans for a new 7.5 Bcm/yr gas pipeline running through the Pyrenees from Spain to France despite calls from the EU, Germany and Spain to go ahead with it.

French President Emmanuel Macron said last month that the pipeline "will not solve the European gas problem" but added that France would be willing to change its position if presented with persuasive arguments in favor of construction.

France sees no reason to invest in the project, which they see costing the country around €3 billion ($2.9 billion).

There are already two cross-border pipelines between Spain and France with a combined capacity of 7 Bcm/yr, which have been underutilized. France has also noted that gas can be transferred between countries in the form of LNG.

EU Gas Market Reforms

Meanwhile, the European Commission is expected to present new proposals to tackle the energy crisis next week, including a new natural gas price benchmark and a joint EU procurement platform for gas and LNG.

The proposals are expected to be presented at a summit of EU leaders on Oct. 18 but they do not appear likely to include a price cap for natural gas — an issue which has divided EU member states.

Energy Commissioner Kadri Simson, speaking at an informal meeting of EU energy ministers in Prague on Wednesday, indicated that the Commission plans to develop an alternative gas price benchmark before April in "negotiation with our partners."

"We need a temporary mechanism to limit the prices. As part of the upcoming package, we will set out how this mechanism could work and how to mitigate the risks such a mechanism inevitably entails," Simson said.

The Commission — the EU's executive branch — argues that the current Dutch TTF benchmark does not reflect the realities of the contemporary European energy market and has artificially inflated prices.

Observers disagree with this, arguing that Dutch TTF prices are higher than prices for spot LNG cargoes elsewhere in Europe because of congestion at LNG import terminals in northwest Europe, rather than any inherent problems with the benchmark itself.

The TTF is Europe's most liquid natural gas trading hub because it is used to hedge global LNG volumes and as a pricing reference point for pipeline gas and LNG supply contracts.

It's also unclear how an EU joint procurement mechanism would work in practice, because energy procurement is typically conducted by private companies participating in a global marketplace.

There are concerns about potential breaches of EU competition regulations if sensitive commercial information is shared between companies.

Germany and the Netherlands reportedly presented a joint paper in Prague on Wednesday that makes the case for joint purchasing of gas and measures to reduce gas demand in EU member states.
Jaime Concha, Copenhagen

Novatek Expects New Yamal LNG Record

The Novatek-controlled Yamal LNG plant in the Russian Arctic will produce around 21 million tons this year, exceeding last year’s record of 19.64 million tons, Novatek CEO Leonid Mikhelson said Thursday.

The targeted production suggests that Yamal operates at an average 20% above its nameplate capacity of 17.4 million tons per year.

The plant comprises three large trains of 5.5 million tons/yr each and the medium-sized 900,000 ton per year Train 4, launched in mid-2021 using Novatek’s own Arctic Cascade technology.

Created with Highcharts 9.0.0(million tons)YAMAL ANNUAL EXPORTSBy Destination CountryFranceChinaSpainNetherlandsBelgiumUnited KingdomIndiaJapanSouth KoreaPortugalTaiwanOthers20172018201920202021202202468101214161820Source: Kpler

Not That Toxic

The strong growth in Yamal output contrasts with the dropping exports of Russian pipeline gas, solely handled by state-run giant Gazprom.

Although Yamal primarily focuses on supplies to Asia, shipments to Europe also look strong this year, where Yamal has long-term deals with Spanish and French buyers and where spot cargoes from the plant are attracted by high prices amid the energy crisis on the continent.

Russian LNG looks less toxic than pipeline gas which the EU is keen to gradually phase out, although not ready to refuse entirely.

Mikhelson said last month there were problems with bank payments for LNG in Europe due to international sanctions against the Russian financial system. But now the situation has improved, Mikhelson told a briefing on the sidelines of the Russian Energy Week conference in Moscow on Thursday.

Expansion Plans on Track

Novatek is keeping plans to produce up to 70 million tons/yr in the Arctic by 2030, Mikhelson reiterated.

The EU technology sanctions, as well as withdrawal of western investors and technology partners complicate the task, but Novatek is betting on the development of domestic equipment to move on with ambitious expansion plans.

In addition to some 21 million tons/yr at Yamal LNG, Novatek plans to produce at least around 20 million tons/yr at Arctic LNG 2, scheduled to launch its three trains in 2023-26, and at least 5 million tons/yr at Obsky LNG, where Novatek plans to take a final investment decision in the first half of 2023.

To reach the overall target, Novatek needs to build one more plant with capacity similar to Arctic LNG 2, but this might be a challenging task, as Novatek still has to scale up its Arctic Cascade technology further for large trains. For Obsky LNG, it plans to scale it up for 2.5 million ton/yr trains.

Arctic LNG 2 uses liquefaction technology from Germany’s Linde and the project looks safe, as all key equipment had been supplied before EU technology sanctions came into force, according to Novatek.

Arctic LNG 1 Exploration

Novatek’s fourth project should be Arctic LNG 1, for which Novatek now continues exploration.

The company plans to invest some 40 billion to 41 billion rubles, or some $630 million, in exploration this year, around the same as last year, Mikhelson said.

Exploration is mainly focused on the Gydanskoye and Geofizicheskoye fields, which are parts of the planned resource base of Arctic LNG 1, Mikhelson said.

Decarbonized With The Wind

Novatek plans to cover 10%-15% of electricity needs at the Arctic projects by wind power generation, Mikhelson said.

The company is now working with equipment producers to see if they can make wind turbines that could operate at ambient temperature of minus 60 degrees Celsius, Mikhelson said.

Novatek on Wednesday signed a memorandum with state nuclear corporation Rosatom on decarbonization, including cooperation in the development of wind power generation in harsh conditions of the Arctic.

No Sakhalin-2 Audit Yet

Novatek looks the key, if not only, candidate to join the Gazprom-controlled Sakhalin-2 upstream and LNG project in Russia’s Far East and take the 27.5% minus one share stake held by Shell.

But the company hasn’t yet started an audit of the project to assess the feasibility of joining, Mikhelson told the briefing without providing a potential timeline for the audit.

In September, Mikhelson said Novatek was “interested in considering” participation in Sakhalin-2 but needed to complete an audit before making a final decision.
Staff Reports


In Brief

EQT Proposes to Unleash US LNG

Shale player EQT has teamed up with infrastructure developer TC Energy in a coalition to advance North American gas and LNG.

The coalition is called the Partnership to Address Global Emissions (PAGE) and is targeting a quadrupling of US LNG capacity by 2030.

“We have the potential for 50 Bcf/day of US LNG exports," Toby Rice, CEO of EQT, told an Axios event earlier this week. The US currently exports around 12 Bcf/d.

However, “by the time I see the price signals, and the time I can add rigs…it’s about 18 months,” he said, citing this delay as the main obstacle to increasing LNG exports.

In a 56-page presentation on PAGE, EQT cited international coal-fired power as "The Elephant in the Room" and noted the difficulties in relying entirely on renewables to displace coal.

Engineering company Williams is also a founding member of PAGE with Baker Hughes and the United Association of Union Plumbers and Pipefitters as supporting members.

Paul Bledsoe of the left-leaning Progressive Policy Institute is a member of the PAGE advisory council, which suggests a bipartisan bent to the organization.
Michael Sultan, Washington

Total Secures Malaysia Block

TotalEnergies has secured a 34.9% operated stake in the ultra-deepwater Block 2K, off the coast of the Malaysian state of Sabah.

Petronas has a 40% stake while Shell has a 25.1% interest equally split between Shell Sabah Selatan and Sabah Shell Petroleum.

The block covers 1,952 sq km with water depth of up to 3,000 meters and is located in “a proven hydrocarbon basin with promising hydrocarbon potential,” Petronas said in a statement.

Block 2K is one of the five ultra-deepwater blocks located off the coast of Sabah that Petronas offered over recent years.

Block N, initially awarded to BHP Billiton in 2007, is now operated by Total which made the Tepat-1 oil discovery back in 2018.

Block 2W and X were awarded to Sabah Shell Petroleum, Shell Sabah Selatan and Petronas Carigali.

Petronas declined to share which company Block 2V was awarded to last year.

A total of four wells are expected to be drilled in these ultra-deepwater blocks in 2022 and 2023.
Marc Roussot, Singapore


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India24.0324.6823.8824.7123.1523.0025.5922.0525.4323.9822.6822.1422.79
Sodegaura, Japan23.7826.2726.2926.5323.5016.7425.5121.2525.2727.1722.2020.4323.96
Zeebrugge, Belgium12.169.258.459.4511.2411.8610.678.4410.438.5211.429.6411.59
Huelva, Spain18.9416.0515.2516.2417.9617.5217.4415.0717.2215.3218.0216.0718.04
Isle of Grain, UK13.3910.469.6510.6512.5213.0712.109.6511.669.7312.6410.8612.81
Everett, US3.820.831.461.033.242.870.012.502.050.084.23----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback9. May23. May6. Jun20. Jun4. Jul18. Jul1. Aug15. Aug29. Aug12. Sep26. Sep10. Oct10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia28.0028.040.320.04
SW Europe23.8519.65-5.02-4.20
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.316.746.446.97
NBP, UK (futures)-1.3730.8732.2435.66
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-4.8024.3629.1632.38
Zeebrugge (Belgium)-1.5316.3617.90--
German NCG-2.8028.6731.4837.47
NBP (UK)-4.9614.2619.2219.31
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.266.256.516.93
Corpus Christi, Texas-0.425.856.276.54
Cove Point, Maryland-0.085.285.365.97
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.316.746.446.97
Second Mth0.297.056.777.24
Third Mth0.297.246.957.38
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '220255075100125Energy Intelligence