October 17, 2022

WWW.ENERGYINTEL.COM

EU Stops Short of Hard Price Cap for Natural Gas

European Union energy ministers will try to reach agreement over the next week or so on a new set of proposals to create a buffer against soaring gas and power costs without resorting to a hard cap on prices.

A document prepared for the ministers contains a wide variety of proposed interventions in EU energy markets, including creating a new price benchmark for LNG imports and the possibility of setting limits for movements in gas prices at the Dutch TTF hub, which currently serves as a regional gas pricing benchmark.

However, the maximum price would be allowed to move within a range and the limits would only apply during emergencies for a few months at a time, according to excerpts of a draft proposal circulating ahead of a formal announcement on Tuesday.

Front-month EU gas futures fell more than 10% on Monday to €123 per megawatt hour. That is less than half the highs reached a few weeks ago, but still well above historical norms.

"The current proposal provides certainty as to the price to be used in a contest of gas scarcity when an emergency situation is declared," the document states.

It also proposes the use of "circuit-breaker" pauses in trading during periods of extreme market volatility.

Other measures would seek to dampen the impact of large calls for collateral from energy traders (margin calls) and create a framework for EU countries to work together to purchase gas for storage injections.

However, the policy document stops short of any of the various proposals for a more rigid cap on natural gas prices that have been circulating for more than a month.

How Will Russia Respond?

Those ideas have ranged from plans to cap only the price paid for Russian pipeline gas to more wide-ranging measures that would cap prices for all gas imports into the EU.

It's unclear how Russia might respond to efforts that affect the pricing of its remaining natural gas exports to Europe, although it has generally expressed hostility toward the idea of a price cap and said it will cut off supplies to countries that impose one.

Whether Moscow would view the "dynamic" price interventions that are being considered as a de facto cap that would prompt it to cut off supplies was "a good question," said an EU diplomat from a country that is still receiving Russian gas.

But another EU diplomat familiar with the negotiations argued that Russia will eventually cut off all gas exports to Europe — calling it the inevitable outcome of the Kremlin's gradual reduction in gas flows that has been going on for months.

Diplomats on both sides of the price cap issue told Energy Intelligence that the EU is looking to expedite negotiations in the coming week.

Officials still hope to implement the most ambitious of the proposed reforms before the end of this year.

Energy ministers will meet informally in Prague later this week ahead of more formal discussions in Luxembourg on Oct. 25.

UK Walks Back Energy Bailout

The current negotiations coincide with equally contentious debates in individual European countries about how much to shield consumers and businesses from soaring energy prices and how to pay for the multi-billion bailouts being proposed.

Just weeks after the UK government announced a two-year plan to limit an average UK household's gas and electricity bills to roughly £2,500 per year, newly-appointed Chancellor Jeremy Hunt has controversially scrapped the two-year time frame and replaced it with a shorter six-month one instead.

The two-year deal would have cost the UK government up to £150 billion and was to be funded by government borrowing rather than a windfall tax on energy companies, which has been favored throughout the European Union.

The original plan had sent bond markets into a downward spiral, prompting intervention by the Bank of England as the UK pound slumped to its lowest-ever value against the US dollar.

Prime Minister Liz Truss sacked Kwasi Kwarteng as chancellor last week and replaced him with Hunt.

The UK Treasury said "looking beyond April, the prime minister and the chancellor have agreed that it would be irresponsible for the government to continue exposing the public finances to unlimited volatility in international gas prices."

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

Nigeria LNG Declares Force Majeure on Bonny Plant After Flooding

Nigeria LNG has declared force majeure on its 22.2 million ton/year Bonny LNG export facility as a result of heavy flooding in the region, a source told Energy Intelligence.

“Yes, it is correct, we have received [notification of the force majeure] in the afternoon,” a source with direct knowledge on the matter said.

A source added that it is not yet clear how long the force majeure will last and how many LNG cargoes will be affected. "It's all very generic now."

The last cargo loading from the plant was on Oct. 15, when the 157,720 cubic meters Seri Balhaf lifted from the facility, ship-tracking data by Kpler showed.

Vessel Arrival

Nonetheless, a vessel has apparently berthed at the facility’s jetty during the afternoon, according to Kpler.

The 180,000 cubic meter Prism Agility, understood to be chartered by commodity trading house Vitol, had been loitering around the terminal since the beginning of last week and on Monday afternoon it appeared to have docked into the plant.

The vessel’s draught level, at around 8PM CET, of 9.4 meters indicated that it remains ballast.

Impact on Europe

With the majority of Nigeria’s LNG exports landing in Europe so far this year, the force majeure is likely to cause concern mainly among European buyers as the already supply-constrained continent is entering the high-demand winter season.

Nigeria has exported around 7.3 million tons of LNG to Europe so far in 2022, according to data from Kpler, with Spain being the largest buyer of Nigerian volumes with 3.7 million tons. Spanish utilities Naturgy and Endesa both have long-term supply contracts with NLNG, for 2 million tons per year and 0.75 million tons per year, respectively, according to Kpler.

During the same period, countries in Asia have received around 4.5 million tons of Nigerian LNG.

The country has been struggling with reported upstream issues in recent years, which have limited its export capabilities and likely prevented it from taking full advantage of sky-rocketing prices in Europe this year.
Daniel Stemler, Madrid

Mozambique's Debut LNG Shipment Imminent, Minister Says

Mozambique’s first-ever cargo of LNG is due to be shipped later this month from the $7 billion, 3.4 million ton per year Eni-led Coral South floating LNG project, a senior government official was quoted as saying.

Max Tonela, minister of finance and economics, told Portuguese news agency Lusa during a visit to Washington that he expected the debut shipment to be made “before the end of October.” The offtaker of the LNG will be BP, which has a 20-year contract with Coral South to handle all of its future production.

An industry source familiar with the project says the British Sponsor, a BP-chartered LNG carrier, has arrived at Mozambique’s Rovuma basin and is due to start loading the first cargo on Oct. 21. It is not clear where BP will take the shipment.

Sole Survivor

Coral South, which will get all its gas from the deepwater Area 4 concession, is one of three LNG projects in various stages of development in Mozambique and the only one that is entirely offshore.

In March last year, TotalEnergies declared force majeure on the $20 billion, 13.12 million ton per year Mozambique LNG project after a series of insurgent attacks near its facilities in the northeastern region of Cabo Delgado. Total’s chief executive, Patrick Pouyanne, told the Energy Intelligence Forum in early October that he hoped a decision to resume operations would be made earlier next year. The project’s start-up, initially scheduled for 2024, has been pushed back to 2026 at the earliest.

The least advanced of the three projects is the $23 billion, 15.2 million ton per year Rovuma LNG, operated by Exxon Mobil, that is also linked to the Area 4 concession. A final investment decision remains on hold, though more than $150 million has been spent so far on preparatory work by Exxon and its partners.

Floating Focus

Tonela, who was previously energy minister, did not rule out the possibility of having another floating liquefaction plant that, like Coral South, would be insulated from the insurgency in Cabo Delgado.

“The government is ready to discuss other scenarios that don’t involve developing onshore projects,” he said.

What is not in question is the size of Mozambique’s deepwater gas reserves. Area 4 alone has proven reserves of over 80 Tcf, of which just 5 Tcf will be used for Coral South.
Paul Sampson, London and Daniel Stemler, Madrid

Busy Period Ahead for East Mediterranean Gas

Oil and gas development is about to enter a busy period in the East Mediterranean region, which is seeking to position itself as an alternative source of gas for Europe, which has seen a sharp fall in supplies from Russia.

"We are now accelerating all the development of the projects that we have currently in Egypt," Egyptian Energy Minister Tarek el-Molla told reporters at an industry conference in Nicosia last week.

El-Molla said Egypt was also talking to Israel and Cyprus, saying that gas discoveries in those countries could be developed more quickly by moving the gas by pipeline to LNG liquefaction plants in Egypt.

UK-listed independent Energean is expected to start flowing gas any day now from the Karish field offshore Israel, where the first phase of development is targeting production of 630 million cubic feet per day.

The recent maritime border deal between Israel and Lebanon has led to an easing of tensions that and could pave the way for further exploration and development activity on both sides of the border.

And results of appraisal drilling in Eni's offshore Block 6 offshore Cyprus should be announced within weeks, a source involved in the project told Energy Intelligence.

The Italian company and its French partner TotalEnergies have previously made two discoveries in the block.

Egypt Leads the Region

Egypt continues to see the most upstream activity within the region, however.

Shell is expected to start drilling in the North East Amriya (Block 3) offshore area around mid-2023, while Eni should also start drilling in the North East Hap'y block around the same time, according to two executives who attended the conference.

Both blocks are located in the offshore Nile Delta area. "This is big risk, big reward," one of the executives said.

Chevron and BP are also gearing up to drill offshore Egypt.

Germany's Wintershall, meanwhile, is drilling the second of a planned five to seven wells at its onshore Nile Delta East Damanhour block.

"We have high hopes," Wintershall's Egypt country chief Sameh Sabri told Energy Intelligence.

"Once we have a discovery, this is very close to our facilities in Disouq. So the development of any discoveries [in East Damanhour] will be quite quick."

Wintershall is also "very, very close" to finalizing a farm-in deal for "at least one" of the big West Mediterranean blocks, an area that has been only lightly explored, he said.

But decline rates at existing fields in Egypt are steep, with constant investment needed to maintain steady output.

Wintershall — a partner in BP's Raven offshore field in the West Nile Delta — said a decision on a second phase of development there is targeted for early next year to sustain plateau output of 830 MMcf/d.

“We will be drilling an additional two wells with an optimized development concept that will help maintain production at plateau," Sabri said.

Energean plans to bring its 90 MMcf/d Neani field online early next year to keep its offshore Egypt production stable.

Exxon Mobil, meanwhile, has been relatively inactive since entering Egypt's upstream sector in 2019 amid great fanfare.

"I don’t know why they joined the country, if they do not do anything," a source told Energy Intelligence.

Domestic Demand Rising

Stabilization of domestic gas production, imports from Israel and increased energy efficiency enabled Egypt to resume LNG exports in 2020, with around 6.6 million tons/yr — just over half of Egypt's liquefaction capacity — exported last year.

El-Molla hopes that LNG exports will rise. Theoretically, new trains could be built in the event of major discoveries either in Egypt itself, or in Israel or Cyprus.

The minister said that the capacity of Shell's Idku plant could be tripled from its current 7.2 million tons/yr, while the capacity of Eni's Damietta plant could be tripled from its current 5.2 million tons/yr.

However, Egypt's domestic demand is rising fast, with 13.5 million homes now connected to the natural gas network.

The minister said expansion of household gas connections had reduced the country's LPG consumption from 4.2 million t/yr to 3.6 million tons/yr, while compressed natural gas was now being used to power 600,000-700,000 vehicles.
Rafiq Latta, Nicosia

Russia Sees Gas Output Falling 10% This Year

Russia's natural gas production will fall by around 10% this year if exports remain at their current low levels, Deputy Prime Minister Alexander Novak told the recent Russian Energy Week conference.

Russia achieved a post-Soviet natural gas production record of 762.3 billion cubic meters last year, so a 10% reduction would equate to output of around 686 Bcm. That would be slightly lower than the 693 Bcm produced in 2020.

Russia's gas production for the first nine months of 2022 was already down 10% at 502.8 Bcm versus the same period of 2021, reflecting a sharp drop in Gazprom's pipeline gas exports to Europe

Gazprom's exports to Europe and China fell 41.4% year on year to 89.3 Bcm in the first nine and a half months of 2022, while its production fell 18% to 327.4 Bcm, the company reported on Monday.

Production and exports have both fallen much more sharply in recent months as Gazprom slashed exports to Europe in an apparent attempt to weaken EU support for Ukraine and keep prices high (see graph).

In September, Gazprom's exports to Europe and China totaled just 4.7 Bcm, down 32% from August and 68% lower than in September 2021.

Gazprom's domestic gas sales in Russia for the first nine and a half months of 2022 fell by 5.2% versus the corresponding period of 2021.

Russia's second-largest gas producer Novatek also saw a 2.6% decrease in domestic sales in January-September, according to the latest data, but its production increased 2.9% to 60.8 Bcm, thanks in part to 10% growth in output at the Yamal LNG project which exports LNG to other countries.

Exports at Risk

Gazprom is currently exporting just over 70 MMcm/d of gas to Europe via Ukraine and the Turk Stream pipeline.

Supplies to Europe are unlikely to increase during the final months of this year, after the two Nord Stream gas pipelines in the Baltic Sea were damaged in an apparent sabotage attack in late September.

Exports via Ukraine could stop at any time, however, because of damage caused by the war there or if Russia imposes sanctions against Ukrainian gas company Naftogaz in retaliation for a recent arbitration claim it filed against Gazprom.

Moscow has also warned that it won’t supply gas to any country that joins a price cap scheme that is being discussed within the EU.

Gazprom would regard introduction of a price cap as a violation of its supply contracts and would cut off supplies, CEO Alexei Miller told the Rossiya 1 television channel on Sunday.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Created with Highcharts 9.0.0(Bcm)GAZPROM'S NATURAL GAS PRODUCTION, PIPELINE GAS EXPORTSProductionExports*Jan' 21Feb' 21Mar' 21Apr' 21May' 21Jun' 21Jul' 21Aug' 21Sep' 21Oct' 21Nov' 21Dec' 21Jan' 22Feb' 22Mar' 22Apr' 22May' 22Jun' 22Jul' 22Aug' 22Sep' 2201020304050*Exports to Europe and China Source: Gazprom, Energy Intelligence

Staff Reports


In Brief

India’s September LNG Imports Lowest in Months

India’s LNG imports in September declined to their lowest since February, underlining the impact of high spot prices and delivery diversions by a term supplier.

Imports for the world’s fourth-largest LNG buyer were almost flat on month at 2.37 Bcm in September, government data showed. Imports were however down 16% compared with September last year (see table).

India's Gas Demand
(Bcm)Sep '22Aug '22%Chg.Sep '21
LNG Imports2.372.37-0.2%2.83
Domestic Production 2.792.83-1.32.84
Total Consumption 5.165.20-0.8%5.67

Domestic gas production too declined 1.3% on month in September to 2.79 Bcm, pushing the total gas consumption down 0.8% to 5.16 Bcm, the data showed.

Domestic gas production fell despite India's raising of domestic gas prices by 40% for the six-month period that began Oct. 1 to an all-time high of $8.57/MMBtu. This follows a more than doubling of the prices during the previous six months that ended Sep 30.

Comparatively, the Japan Korea Marker, Asia’s de facto benchmark, dropped from a peak of $71.25/MMBtu on Aug. 29 to $27.62/MMBtu earlier October, below the $35/MMBtu seen during the same period last year.

Despite the fall in prices, spot LNG rates remain unaffordable for price-sensitive Indian buyers.
Rakesh Sharma, New Delhi


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India23.5924.2423.4424.2722.7222.5625.1521.6124.9823.5522.2421.7022.35
Sodegaura, Japan23.3425.8325.8526.0923.0716.3125.0720.8124.8326.7221.7720.0023.52
Zeebrugge, Belgium6.403.552.773.755.506.114.952.754.712.845.683.945.85
Huelva, Spain10.998.187.428.3810.059.619.547.239.337.4810.108.2110.12
Isle of Grain, UK5.462.611.842.804.625.164.221.833.781.914.743.014.90
Everett, US4.051.061.691.273.473.100.012.732.280.314.46----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback16. May30. May13. Jun27. Jun11. Jul25. Jul8. Aug22. Aug5. Sep19. Sep3. Oct17. Oct10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia28.0027.600.00-0.40
SW Europe23.8511.69-3.97-12.16
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.456.006.456.44
NBP, UK (futures)-3.2525.9529.2031.66
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-1.8717.4519.3231.00
Zeebrugge (Belgium)-4.588.1312.7117.28
German NCG-0.7120.1320.8532.76
NBP (UK)-3.976.4810.4517.88
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.086.006.086.27
Corpus Christi, Texas----5.455.90
Cove Point, Maryland0.495.595.105.34
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.456.006.456.44
Second Mth-0.356.486.836.78
Third Mth-0.336.717.046.97
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '220255075100125Energy Intelligence