October 20, 2022

WWW.ENERGYINTEL.COM

Spain, France Agree Gas Line as EU Weighs Price Cap

Spain and France have reached an agreement that could pave the way for construction of a pipeline that would move natural gas and hydrogen to Central Europe from the Iberian Peninsula with its abundant LNG import terminals.

The agreement came as European leaders met in Brussels to discuss a package of energy market reforms, including options for capping natural gas prices — a contentious issue that has divided the continent for the better part of two months.

The leaders of Spain, France and Portugal said they reached a broad agreement in Brussels to move ahead with a Green Energy Corridor that will link the three countries via a pipeline that will initially carry natural gas and later hydrogen.

One leg would connect Celourico da Beira, Portugal, to Zamora, Spain, while another leg would link Barcelona with Marseille.

The second leg would effectively link underutilized LNG import terminals in Spain and Portugal to demand centers in the rest of Europe, where countries have been struggling to replace natural gas imports from Russia.

In return, the leaders agreed to scrap the proposed MidCat pipeline project connecting the French and Spanish gas grids with a line across the Pyrenees.

The 7.5 billion cubic meter per year MidCat line had been opposed by successive French governments and also faced local opposition.

The trio did not provide details about the size of the planned pipeline connections and they still need to work out key details, such as who will bear the costs of the different portions of the project. Those matters will be discussed at a Dec. 9 meeting in Spain.

Tough Talks Kick Off

While the proposed new pipeline connections should help boost gas supplies to Europe, EU member states are still struggling to figure out how to lower gas and electricity prices.

"How are we able to tame the gas prices, mainly the spikes and the manipulation by Russia?" European Commission President Ursula von der Leyen asked.

After weeks of negotiations and numerous proposals, the commission has been tasked with further development of two options that would both introduce some form of price control in European gas markets.

"Here two models are on the table," von der Leyen said in a doorstep interview ahead of the first day of talks. "The one is at the TTF level — the wholesale level — and the other one is decoupling the gas partially from the electricity prices."

The first proposal envisages a "dynamic price corridor" that would place an upper limit on the price of gas at the Dutch TTF hub, which acts as a benchmark for the European market.

The second proposal — dubbed the "Iberian" option because it has already been implemented in Spain and Portugal — would limit the price of natural gas used for generating electricity.

Gas price caps remain controversial within the EU. At least 15 of the 27 member states have expressed support for some form of cap on gas prices, but there has not been enough agreement on any one method to push a policy forward.

EU diplomats will continue their meetings in Brussels over the coming days, with energy ministers meeting in Luxembourg next week for further discussions.

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

Noah Brenner, London

European Market Mulls Flood Impact on Nigerian LNG

Nigeria LNG raised alarm bells earlier this week when it declared force majeure on shipments, after flooding in the Niger Delta dented supplies of feedstock for the 22 million ton per year plant.

However, it remains unclear just how much will be lost to the market during the next month or so and what that will mean for gas consumers.

NLNG insiders said Wednesday that the plant is running at just 50% of capacity, or around 11 million tons per year. Before the floods it was running at 65% to 70% because crude theft and vandalization of oil and condensate pipelines had already forced suppliers to reduce feedstock flows.

Estimating Lost Volumes

The volumes lost because of the flood so far equate to around 1 cargo of LNG, and one cargo has been cancelled, sources said Thursday morning.

The flood damage could differ depending on field location. Water around most affected fields had not stopped rising as of Thursday morning, according to one source. If the water rose another meter, more fields would have to shut down with the loss of between 4 to 7 cargoes, a source added.

Water around the Obagi field, which is operated by Total, had started to retreat as of Wednesday morning, another source said.

In a note on Tuesday, Jefferies estimated NLNG would lose 1.4 million tons of exports during the final quarter of 2022.

So far this year, Europe is outdistancing Asian as a buyer of Nigerian LNG, according to Kpler (see graph below).

Created with Highcharts 9.0.0(million tons)NIGERIA'S LNG EXPORTSEuropeAsiaAmericasAfrica2008200920102011201220132014201520162017201820192020202120220510152025Source: Kpler

Offshore and Onshore Transmission Systems

The NLNG plant requires 3.5 Bcf/d to operate at full capacity. The gas is fed through six transmission systems: four of which are onshore — and therefore vulnerable to flooding — and two offshore.

All feedstock suppliers declared force majeure, but some are affected more than others. The firms are coy about how much they supply from each field.

Until recently, Eni, Shell and TotalEnergies’s all supplied gas to NLNG. However, Eni has been unable to supply for some time, and Shell and Total have tried to make up the shortfall between them.

Shell Gas is the largest IOC shareholder with 25.6%, TotalEnergies Gaz has 15% and Eni International 10.4%. NNPC holds 49%.

Total's Obagi field on OML 58 was unable to supply gas this week. However, Total supplies the bulk of its commitments from offshore fields, including Amenam and Akpo, which have not been affected by the floods.

Shell supplies associated gas from the deepwater Bonga and shallow water EA fields and a mix of non-associated and associated gas through the onshore Gbaran Ubie integrated oil and gas complex which processes gas from the Bonny system.

All three IOC shareholders are also offtakers, but it is not clear which offtakers would bear the brunt at press time.

Impact in Iberia

The force majeure is expected to affect other European contractual buyers, particularly in the Iberian Peninsula. Spanish utilities Naturgy and Endesa both have term supply contracts with NLNG for 2 million tons/yr and 0.75 million tons/yr of LNG, respectively, according to Kpler. Meanwhile, Portuguese energy firm Galp is another term buyer of NLNG volumes at 3 million tons/yr.

However, the Spanish utilities are expected to be the least impacted by the force majeure due to the current oversupply on the Spanish market. Storage tanks at the country’s regasification terminals are already full and are struggling to receive more cargoes. In fact, Spanish gas grid operator, Enagas announced on Oct. 17 that it is postponing cargo discharges due to the high LNG storage levels.

The saturated terminal tanks in Spain are also forcing several vessels to float for longer periods before they can discharge. That is the case of three Naturgy-chartered vessels that are currently waiting in the Gulf of Cadiz, off the Southern Spanish coast. Two of them have been there since the beginning of October, while the third one arrived last week, according to ship-tracking data by Kpler.

The potential supply disruption from Nigeria is likely to be a bigger concern for Galp, with NLNG being the main supplier of the company, followed by the US.

Portugal has received 1.86 million tons of Nigerian LNG so far this year, around the same amount as during the same period in 2021, according to Kpler. But facing the high-demand winter period with potentially limited or no supplies from Nigeria may force Galp to seek alternative supply options, possibly on the spot market.

“At this stage, no information was provided to support an assessment of potential impacts from this event, which may however result in additional sourcing disruptions to Galp,” the company said in a statement on Oct. 17.
Christina Katsouris, London and Daniel Stemler, Madrid

European Gas Prices Weaken as Storage Fills Up

European spot natural gas prices fell to their lowest levels in months this week, reflecting high storage levels, oversupplied LNG import terminals, forecasts of mild temperatures and demand destruction.

The day-ahead gas futures contract at the Dutch TTF hub was assessed by Energy Intelligence at €59/MWh ($17 per million Btu) on Oct. 17, its lowest weekly settlement since September 2021.

The contract subsequently firmed slightly to around €65/MWh on Thursday.

However, traders say the market remains cautious because of the potential for a cold snap and further disruptions of Russian gas supplies to Europe during the winter.

Those concerns are reflected in significant premiums for month-ahead contracts relative to day-ahead contracts at European gas trading hubs.

While the market looks oversupplied in the short-term, there is still plenty of supply risk in the longer term due to the sharp drop in Russian supplies over the past several months, said a source who is active in the Spanish market.

"There is still a lot of risk premium on December and January — and February too — if you look at the TTF," he notes.

The premium for the month-ahead contract over the day-ahead contract on the TTF averaged €60/MWh during the first 20 days of October, versus €8/MWh in September and closer to parity in the summer, according to data compiled by Energy Intelligence.

The month-ahead TTF contract on the ICE exchange closed at €112.50/MWh on Oct. 19, its lowest level since mid-June and 68% below a record high set on Aug. 26. It has since picked up to around €125/MWh on Thursday.

"Bearish fundamental effects seem to be present all at once in the European market," said the head of an oil and gas trading desk at a German utility. "Europe is running out of storage and the market is widening the spot spreads to make sure that the remaining storage capacity gets filled."

EU storage was almost 94% full as of Oct. 18, with France, Belgium, Poland, Portugal and Romania reporting levels at or close to 100%, according to Gas Infrastructure Europe. Storage capacity in Germany, Europe's largest gas market, was 96.5% full.

Created with Highcharts 9.0.0(€/MWh)DUTCH TTF DAY-AHEAD & MONTH-AHEAD PRICESTTF Day-aheadTTF Month-aheadOct 20'22Oct 12'22Oct 04'22Sep 26'22Sep 16'22Sep 08'22Aug 31'22Aug 23'22Aug 15'22Aug 05'22Jul 28'22Jul 20'22Jul 12'22Jul 04'22Jun 24'22Jun 16'22Jun 08'22May 30'22May 20'22May 12'22May 04'22Apr 25'22Apr 14'22Apr 06'22Mar 29'22Mar 21'22Mar 11'22Mar 03'22Feb 23'22Feb 15'22Feb 07'22Jan 28'22Jan 20'22Jan 12'22Jan 04'22050100150200250300350Source: Eikon

Demand Destruction

Prices have also been driven down by reduced demand, as industry balked at the high levels that prices reached this summer, governments encouraged households and businesses to use less gas and mild temperatures kept heating demand at bay.

German networks regulator Bundesnetzagentur said the country's gas consumption for the past week has come in below the four-year average for the time of year, while temperatures were 1°C above the mean for 2018-21.

The recent retreat by European gas prices has made coal-to-gas switching more profitable in power generation. But industrial gas consumption, which represents a larger share of European gas demand, has not joined the recovery yet.

Industrial gas demand is not expected to bounce back for the time being, because the sector is probably not as flexible as power generators when it comes to responding to lower spot prices, the German utility trader said.

And if industrial users' gas supply contracts are linked to month-ahead future contracts, then prices of €100/MWh or more are still too high for them to restart production, he added.

LNG Surplus

Prices have also come under pressure from the growing number of LNG cargoes that are waiting on the water near European LNG import terminals.

As many as 25 LNG vessels could be classified as floating storage, according to Energy Intelligence analysis of data from commodity analytics firm Kpler.

These vessels may have been held up by logistical bottlenecks at the import terminals or may be there because the owners of spot LNG cargoes are waiting for spot prices to rise so they can sell them at a profit.

Most of this LNG in floating storage has been concentrated in waters off Southern Spain, with 13 laden vessels currently waiting around the Strait of Gibraltar.

Spain has the largest LNG storage capacity in Europe, but most of its storage capacity is fully utilized at this point.

Grid operator Enagas said earlier this week that it is postponing the discharge of LNG cargoes to ensure that stocks held at terminals remain within safety limits.

Lower spot prices in Europe could divert some LNG cargoes to Asia where buyers may be willing to pay a higher price, and that would introduce an additional element of uncertainty around winter gas supplies, the German utility trader said.

The day-ahead PVB contract at Spain's Mibgas hub settled at €33.06/MWh on Oct. 19, up slightly from €27.78/MWh on Oct. 18, which was its lowest level since June 2021. The month-ahead contract at Mibgas settled at €64.60/MWh.

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

Singapore to Pick LNG Importers at Year-End

Singapore’s energy regulator Energy Market Authority (EMA) expects to pick new LNG importers at the end of this year after missing an end-September deadline.

Singapore is Southeast Asia's second largest importer — after Thailand — and a regional LNG hub.

Request-for-Proposals

The regulator issued a request-for-proposals in May to seek up to two additional term importers to increase competition amid high energy prices.

The new importers are required to supply LNG to Singapore no later than March 1, 2023 through December 31, 2027. The new license-holders will have the obligation to supply at least 1 million tons/yr of LNG to downstream gas buyers in Singapore, priced against dated Brent crude prices, although indexation to the US Henry Hub may be offered as an additional option.

The new license holders would join four companies, namely Exxon Mobil, Shell, Sembcorp Fuels, and Pavilion Energy. Exxon and Sembcorp were last selected in 2021.

Importers will be allowed to sell short-term — less than one year in duration — or spot regasified LNG to local gas users, sell LNG for marine bunkering or re-export.

Why the Delay?

The cause for the delay in EMA’s selection decision was not immediately clear.

Russia's war in Ukraine has triggered higher LNG demand in Europe, further tightening global LNG supply and creating challenges for buyers to secure near term volumes in 2023-25 before new LNG capacities come on line in the mid 2020s.

The EMA has specified that there will be no limit to the term LNG importer's liability for any willful misconduct, such as unilateral diversion of LNG cargoes which has hit other importers.

After peaking in 2020, Singapore's LNG imports have subsided, according to Kpler (see graph below).

Created with Highcharts 9.0.0(million tons)SINGAPORE LNG IMPORTS201320142015201620172018201920202021202200.511.522.533.544.5Source: Kpler

Structural Needs

Singapore has a structural need for more LNG as existing pipeline gas contracts with Indonesia, sourced from West Natuna and Corridor in South Sumatra, are slated to expire in 2023, with little clarity on whether they would be renewed. Singapore imported 3.66 million tons (558.5 MMscf/d) of pipeline natural gas from Indonesia and 1.3 million tons/yr of pipeline gas from Malaysia in the first nine months of this year, according to data from Enterprise Singapore.

Exxon and Shell are existing refining and petrochemical producers in Singapore, so it makes strategic sense for them to supply LNG for their own operations and local power utilities.

Singapore’s positioning as a regional LNG hub has attracted traders like Trafigura and Pavilion and majors like Exxon and Shell to lease storage and/or reload capacity at its sole import terminal, operated by Singapore LNG (SLNG). Industry observers reckon traders like BP and Chinese state firms would likely be keen to secure the next licenses to become Singapore’s new LNG importers.

SLNG operates an 11 million ton/yr terminal which has four storage tanks, able to accommodate Q-Max carriers and equipped with reload and bunkering capacities. SLNG is in the midst of studying the feasibility of importing, transporting and storing hydrogen with Japan’s Chiyoda and Mitsubishi.
Clara Tan, Singapore

Australian Duo Woodside, Santos See Revenues Surge

High commodity prices have lifted the revenues of Australian oil and gas independents Woodside and Santos to record levels.

Woodside increased its production guidance for the year after reporting record third-quarter revenues of $5.86 billion.

The company now expects to produce 153 million-157 million barrels of oil equivalent for all of 2022, up from previous guidance of 145 million-153 million boe.

In addition to high commodity prices, Woodside's results reflect a big boost to production volumes as a result of the acquisition of BHP's Petroleum assets.

Woodside achieved an average realized price of $32.7/MMBtu on LNG sold from its trading portfolio during the third quarter. That was more than three times the average price realized in the same period of 2021.

Santos, meanwhile, delivered record revenues of $2.15 billion, up 15% from the second quarter of 2022.

Santos updated its guidance narrowing its production target for the year to 103 million-106 million boe, from previous guidance of 102 million-107 million boe.

It also lowered its capital spending guidance for major projects following the suspension of drilling at Barossa and the decision to put the Dorado project on hold.

Trion

Woodside said it is advancing its Trion deepwater oil project in the Mexican portion of the Gulf of Mexico after pushing back its final investment decision (FID) to 2023 from the second half of 2022.

The company has issued key tenders for the project, such as the 100,000 b/d floating production unit (FPU).

Other bid packages will be issued in the final quarter of this year in order to provide predictability around cost and schedule to support an FID.

The field development plan has matured and engagements are planned with the regulator before the plan is submitted in 2023, the company said.

Trion was one of the key Americas assets in the BHP Petroleum portfolio that was recently sold to Woodside and could underpin the company's growth opportunities in its new core position in the Gulf of Mexico.

Production could start as soon as 2026, according to previous statements from BHP.

Pikka

Santos said contracting activities for its $2.6 billion Pikka Phase 1 project on Alaska's North Slope are "well underway" and drilling is due to start in the second quarter of next year.

The project — which was sanctioned in August — is expected to start producing in 2026, with gross output pegged at about 80,000 barrels of oil per day.

Santos operates Pikka with a 51% stake, with Spain's Repsol holding the remaining interest.

Woodside and Santos Q3'22 Earnings
Woodside
Q3'22Q2'22%Chg.Q3'21
Total revenue ($ million)5,8583,43870.4%1,574
Sales volume ('000 boe)57,09835,84359.326,000
LNG traded realized price ($/MMBtu)32.721.552.19.9
Production ('000 boe/d)55737150.1241
Santos
Total sales revenue ($ million)2,1501,86915.01,142
Sales volume (MMboe)29.927.49.124.4
LNG realized price ($/MMBtu)16.7614.6614.310.36
Production (MMboe)26.125.52.4%21.9

Marc Roussot, Singapore


In Brief

Port Arthur LNG Closes in on FID

Sempra unit Port Arthur LNG and Bechtel Energy have amended and restated the fixed-price engineering, procurement and construction (EPC) contract for the proposed Phase 1 liquefaction project under development in Jefferson County, Texas.

The amended contract includes an updated price of about $10.5 billion.

"The execution of the final contract is a critical step in advancing Phase 1 of Port Arthur LNG toward a final investment decision (FID)," said Justin Bird, CEO of Sempra Infrastructure. "Based on robust customer interest, we know that Port Arthur LNG is highly attractive to the global market." FID is currently forecast for early 2023.

Port Arthur LNG Phase 1 is permitted and expected to include two natural gas liquefaction trains and LNG storage tanks, and associated facilities capable of producing, under optimal conditions, up to 13.5 million tons per year of LNG.

Sempra has already lined up a series of non-binding offtake agreements with Poland's PGNiG, RWE Supply & Trading, INEOS Energy Trading, and ConocoPhillips.

"A similarly sized Port Arthur LNG Phase 2 project is also competitively positioned and under active marketing and development," said Sempra.
Michael Sultan, Washington

Qatar Set to Name Another LNG Partner

QatarEnergy has scheduled a signing ceremony on Sunday for what is likely to be the selection of another equity partner for Phase-2 of its 48 million tons/yr North Field LNG expansion.

Up to 25% of the equity in the 16 million tons/yr Phase-2 — also known as North Field South — is available to international oil company investors. TotalEnergy was awarded a 9.375% stake last month.

Shortlisted firms are likely to come from the pool of investors chosen to participate in the 32 million tons/yr Phase-1: Exxon Mobil, Total, Shell, ConocoPhillips and Eni.

Rafiq Latta, Nicosia


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India26.2126.8926.0226.9325.2525.0927.8824.0527.7026.1424.7424.1524.85
Sodegaura, Japan25.8028.4828.5128.7725.4918.1827.6623.0427.4029.4524.0922.1825.99
Zeebrugge, Belgium10.917.796.938.019.9210.589.326.929.077.0110.118.2010.29
Huelva, Spain36.5533.2732.3433.5035.4534.9334.8532.1734.6132.4435.5033.2835.52
Isle of Grain, UK8.365.274.415.477.448.027.014.416.544.507.575.687.74
Everett, US2.80-0.410.27-0.182.181.770.011.390.90-1.223.23----
Created with Highcharts 9.0.0($/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 Asia30.0030.350.000.35
SW Europe32.4037.293.254.89
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.105.365.466.74
NBP, UK (futures)+4.6325.1420.5131.58
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF0.0118.0818.0724.38
Zeebrugge (Belgium)--9.61--16.35
German NCG0.4019.6219.2128.65
NBP (UK)3.259.436.1714.59
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.395.105.496.25
Corpus Christi, Texas-0.084.774.855.85
Cove Point, Maryland-0.684.355.035.28
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.105.365.466.74
Second Mth-0.095.845.937.05
Third Mth-0.106.116.217.24
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '220255075100125Energy Intelligence