October 14, 2022

WWW.ENERGYINTEL.COM

Novatek: Gas Prices to Stay High for Long

Gas prices won’t return to pre-crisis levels before 2026-27 without decisive steps to support investments into new LNG projects worldwide, Russia’s LNG export champion Novatek boss Leonid Mikhelson said Thursday.

“If nothing changes, I can’t see prices going down to normal levels before 2026,” Mikhelson told the Russian Energy Week conference in Moscow.

Projects in development stage, with start-ups scheduled for 2023-25, are not even close to cover the deficit on the market, he said.

Some easing of the tight market might come from Qatar’s expansion plans, but that’s only expected to happen in late 2025 or in 2026, Mikhelson said.

Europe Faces Deficit

Europe might face an LNG deficit of 60 million to 70 million tons/yr in the next several years, if Russian pipeline gas exports fall by 100 billion cubic meters per year from the 2021 levels, compared with a 50 Bcm drop expected this year, according to Mikhelson.

Mikhelson echoed the Kremlin in attributing record-high gas prices to Europe’s overreliance on renewables and underinvestment in traditional energy sources. The Covid-19 pandemic was another factor which delayed investments in new LNG projects, he said.

To cover the deficit, instead of taking companies’ windfall profits, the governments should probably spur these companies to take investment decisions on LNG projects that could increase the supply, Mikhelson said.

He also criticized the EU’s proposed price cap for gas in response to the growth in prices.

Arctic LNG-Piped Gas Dilemma

Novatek is keeping its ambitious LNG expansion plans in the Russian Arctic, the strategic region where it has however been competing with state-run Gazprom for resource base.

Russia’s sole pipeline gas exporter and top supplier on the domestic market, Gazprom prioritizes pipeline gas supplies from the Arctic fields, even though it might lose the European market in several years, and petrochemical projects to monetize ethane-rich gas.

Novatek believes Arctic resources of the Yamal and Gydan peninsulas should primarily feed LNG export projects, as Russia seeks to export up to 140 million tons/yr by 2035, up from around 30 million tons in 2021.

Novatek plans to add some 20 million tons/yr of supply when its Arctic LNG 2 project is set to ramp up in 2026. It also wants to take a final investment decision on the 5 million ton/yr Obsky LNG in the first half of 2023 and continues exploration for the Arctic LNG 1 project that might also add up to 20 million tons/yr closer the end of the decade. Its flagship Yamal LNG plant in the Arctic is expected to produce a record 21 million tons this year, according to Novatek.

Touting LNG advantages, Mikhelson said that operational costs for LNG supplies from Yamal Peninsula to western Europe slightly exceed $40 per thousand cubic meters, while operational costs of pipeline gas supplies from Yamal to western Europe are at around $70/Mcm, just slightly lower than the cost of supply from Yamal LNG to China, or $75/Mcm.

Gazprom often criticizes Novatek for creating unnecessary competition to its pipeline gas exports in Europe and points to the fact that LNG, unlike pipeline gas, is not subject to export duty, so does not contribute to the state budget when it goes abroad.
Staff Reports

First UAE Cargo To Europe In A Decade Looks To Exploit Contango

The chance to capitalize on Europe’s price contango has attracted dozens of LNG vessels, laden with cargoes of different origins, to the continent’s shores. The vessels are now acting as floating storage, waiting for the right moment to unload in order to capture a lucrative time spread.

One of these vessels is the 150,000 cubic meter Ob River, which lifted a cargo from the United Arab Emirates’ Das Island plant on Sep. 13, according to ship-tracking data by commodity analytics firm Kpler. It is now waiting near the Strait of Gibraltar.

This could be the first UAE LNG cargo delivered to Europe since 2012, Kpler data shows, although its final destination remains unclear.

Sefe Vessel

The Ob River is under long-term charter to Sefe Marketing and Trading, the LNG trading arm of Secure Energy For Europe (Sefe). Sefe, formerly known as Gazprom Germania, was the main European subsidiary of Russia’s state-owned Gazprom, until Germany took over the company earlier this year.

With its parent company now in German hands and European demand on the rise, Sefe M&T has increased cargo deliveries to Europe in recent months, mostly at the expense of its contractual buyers in Asia.

Sefe M&T does not have offtake from the 5.8 million tons/yr Das Island facility, nor a supply contract with Abu Dhabi National Oil Co. (Adnoc), the owner of the plant.

The predecessor of Sefe M&T, Gazprom M&T, was reportedly the winner of a six-cargo sell tender by Adnoc for loading between April and September this year, which closed in November 2021, Kpler showed.

The cargo currently on board of the Ob River was most likely won through that tender.

Contango Play

The current price contango on the European market offers significant profits for those companies that can keep cargoes in their vessels and float them for weeks, potentially months.

Looking at the contract prices on Europe’s benchmark TTF hub, the December 2022 product was trading on Friday at close to a €20 per megawatt hour (€/MWh) premium over the November 2022 contract, while contracts for early next year delivery were trading at an even higher premium.

In Spain, the country with the largest LNG import capacity in Europe, the contango was also steep.

On the country’s PVB hub the front-month November 2022 contract closed Friday’s session at €83/MWh or $23 per million Btu, while the December 2022 settled at €116.5/MWh or $33.2/MMBtu.

As a result, the floating storage count has been building up around the Strait of Gibraltar and Malta for weeks.

However, capturing the time spread can be a difficult task. A Spanish market participant told Energy Intelligence that many companies are actively looking to float cargoes offshore Europe to obtain a larger profit upon discharging, but the limited vessel availability and high charter rates make such operations extremely complicated for many.

And vessel availability in the Atlantic Basin is likely to remain tight throughout the winter, according to a Europe-based LNG shipbroker.

“I still see the seasonality of every winter, but not that overwhelming [than this winter]. This winter will be tough and [vessel] availability will continue to be low, if nothing changes,” the shipbroker said.
Daniel Stemler, Madrid

Colombia's Pacific Coast LNG Import Terminal Still in the Mix

Colombia's government appears to remain set on a long-proposed LNG import terminal in the city of Buenaventura on the country's Pacific Coast.

In a recent interview with the local business newspaper Portafolio, the director of Colombia's Mining and Energy Planning Unit (UPME), Christian Jaramillo, said that the terminal was the way forward. He warned that Colombia was "already seeing a deficit in the gas balance in 2027... a small deficit and if there is an ‘El Nino’ phenomenon that would mean that we would have to turn on the thermals with diesel, which pollute more."

He went on to say that that the government remained committed to the terminal because though "it is more expensive to build, transporting the gas is cheaper and more reliable" on the Pacific coast than from La Guajira, one of Colombia's administrative departments that skirts the Caribbean, and which had also been mentioned as a potential terminal site.

The project is expected to consist of a storage unit with a 200,000 cubic meter capacity, a regasification plant and a 120 km pipeline from Buenaventura to Yumbo, a suburb of Colombia's third largest city, Cali.

The Buenaventura plant was slated to come online in 2026, but as of late that timeline appears more uncertain.

Last year, an initial public tender for the terminal was shelved due to lack of interest. This past June, UPME launched a new $700 million tender for the terminal.

UPME is seeking proposals for the development and operation of LNG storage as well as transport and regasification infrastructure for the plant. The timeframe for bidding was open-ended.

Complex Relationship

The long-delayed terminal highlights simmering questions about how deep the country wants to dive into LNG projects and who foots the bill.

Uniquely gifted in South America with both Caribbean and Pacific coasts, Colombia was motivated by concern about gas supply to inaugurate the country’s first LNG import terminal in Cartagena on the Caribbean coast in 2016. The facility at Buenaventura would be its second.

Colombia has an estimated 12.5 Tcf of conventional resources located off its Pacific Coast and another 14.6 Tcf residing in mature onshore basins.

The profits of Ecopetrol, Colombia’s state energy company, have meanwhile been surging thanks to high oil and gas prices, recording a record net profit in the second quarter of 2022 of $2.4 billion, with production up 6.6% to 704,600 boe/d.

Political Questions

Adding to the dynamic was the election and inauguration this year of Gustavo Petro as Colombia’s president, after running on an aggressive green energy platform that promised to wean the country off of fossil fuels. Last month, Ecopetrol announced that it was going to suspend two fracking operations, Kale and Platero in the department of Santander, for a period of 90 days, as Congress debated a bill to ban the practice.

“Gas supply in Colombia is going to be a significant issue under this administration.” says John Padilla, managing director of IPD Latin America, an energy consulting service, “The Buenaventura Pacific gas terminal has been years in development and people have grown weary of it, but there's compelling elements there that are only being exacerbated by the current situation."

However, speaking at the Naturgas Congress taking place in the Caribbean city of Cartagena, Felipe Bayon, Ecopetrol’s CEO told attendees that "natural gas is the backbone of the energy transition,” also noting “the enemy is not the source of the energy, it is the emissions, and that is what must be controlled.”
Michael Deibert, Washington


In Brief

Total Flags Surge in LNG Prices

TotalEnergies said on Friday its realized LNG prices in the third quarter of this year were more than 50% higher than in the second quarter, although its upstream production and refining margins fell.

The company's average realized LNG price for the July-September quarter was $21.51 per million Btu, up from $13.96/MMBtu in the previous three months.

"Performance of the gas, LNG and power trading activities is expected to remain high, our integrated portfolio enabling to capture opportunities in a volatile and dislocated environment," the French major said.

Most of Total's peers have also flagged strong gas price realizations in the third quarter, although Shell said last week its gas trading results for the quarter would be "significantly lower."

In a research note, Jefferies analysts said Total's statement was "reassuring following Shell's disappointing [trading update] last week."

Total said its third-quarter upstream production was set to come in 70,000 boe/d lower than in the second quarter, mainly due to unplanned outages at the Kashagan oil field in the Kazakh sector of the Caspian Sea.

In the company's downstream business, the European refining margin indicator slipped to $99.20 per ton ($13.53 per barrel) from $145.70 in the second quarter.

"Refining & Chemicals results are expected to remain high thanks to strong distillate margins, albeit lower than the previous quarter due to the decrease in gasoline margins in Europe and in the US," Total said.
Tom Daly, London

Qatar Eyes Lebanon Offshore Stake

Qatar is talking to the Lebanese government about a potential acquisition of the government's 20% stake in TotalEnergies' Qana prospect offshore Lebanon, a source familiar with the matter told Energy Intelligence.

The Qana prospect lies in Lebanon's offshore Block 9, in which operator Total and Eni each hold 40% stakes. Lebanon's government took over a 20% non-operated stake relinquished by Russia's Novatek earlier this year.

The source said Qatar had expressed interest in acquiring the government's stake and that the offer was attractive because the emirate is also willing to make long-term investments in Lebanon’s energy infrastructure.

That echoes recent comments by Energy Minister Walid Fayyad who told Lebanese television that he had recently received officials from government-owned companies in Qatar who were interested in energy investment in Lebanon.

Lebanon and Israel are close to finalizing a deal that would resolve a maritime border dispute, allowing Total to proceed with exploration drilling and potential development, if a commercial discovery is made.

Resolution of the dispute should provide greater clarity and certainty for companies engaged in or considering exploration off the coasts of Israel and Lebanon.

Large gas discoveries have previously been made in Israeli waters and elsewhere in the Eastern Mediterranean, which is viewed as a potentially important source of gas for Europe that could offset the loss of supplies from Russia.
Yousra Samaha, Dubai


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India23.5924.2423.4424.2722.7222.5625.1521.6224.9923.5522.2421.7022.35
Sodegaura, Japan23.3425.8325.8626.0923.0716.3225.0720.8224.8326.7221.7720.0023.52
Zeebrugge, Belgium4.962.121.352.324.074.663.521.333.281.424.242.514.41
Huelva, Spain15.1012.2511.4712.4414.1413.7013.6311.2913.4111.5314.1912.2814.21
Isle of Grain, UK9.576.675.886.868.719.258.305.887.865.968.837.078.99
Everett, US3.560.571.200.772.982.600.012.241.79-0.183.96----
Created with Highcharts 9.0.0($/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 Asia28.0027.60-0.44-0.40
SW Europe23.8515.81-4.14-8.04
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.296.456.746.75
NBP, UK (futures)-2.2729.6131.8832.30
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-5.1319.0824.2129.91
Zeebrugge (Belgium)-3.6012.8616.4619.76
German NCG-7.7321.1128.8435.51
NBP (UK)-4.1410.5914.7320.39
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.176.086.256.34
Corpus Christi, Texas-0.405.455.855.84
Cove Point, Maryland-0.185.105.285.35
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.296.456.746.75
Second Mth-0.236.837.057.05
Third Mth-0.207.047.247.20
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '220255075100125Energy Intelligence