October 21, 2022

WWW.ENERGYINTEL.COM

Germany Warms Up to Idea of Cap on EU Gas Prices

Germany has cautiously endorsed the idea of capping natural gas prices in the EU — dropping its previous opposition. However, it's still unclear which of two competing price cap proposals could be adopted in upcoming EU talks.

Speaking in the early hours of Friday morning after a marathon summit meeting of EU leaders in Brussels, German Chancellor Olaf Scholz told reporters that a cap "makes sense."

Germany had previously been among the most important holdouts against a price cap, which had already drawn support from around 15 countries, including major gas importers like Italy and Spain.

Germany's large population could be enough to secure the qualified majority needed to pass a price cap proposal, but proponents say that it would be better to line up the broadest possible base of support for a cap.

"We want more than just a qualified majority," said one EU diplomat, who added that it would be best to secure unanimous approval for a price cap from all 27 member states to prevent it from getting "shot down" in the coming weeks.

A statement issued after the summit referred to two options: a "dynamic price corridor" that would limit prices on the Dutch TTF hub if they became "excessive," or a cap on the price of gas used in electricity generation — the so-called Iberian option.

Scholz and the EU's other national leaders left the details of how a price cap would work to future talks, the first of which will be a gathering of European energy ministers in Luxembourg on Oct. 25.

Hungarian Exemption

Just like the EU's embargo on imports of Russian oil, the gas price cap may need to include carveouts for countries that are highly dependent on Russian gas and fear that Moscow could make good on threats to halt supplies if the EU caps gas prices.

Hungary, which depends on Russia for some 85% of its gas, won an exemption from the EU oil embargo and may have also secured one for its gas imports.

On Friday Prime Minister Viktor Orban wrote on Facebook that if the EU does introduce a gas price cap, it will not apply to Hungary’s long-term supply contract with Russian gas giant Gazprom.

He also said that if EU member states reach an agreement on joint gas procurement, it will not be mandatory for Hungary. Orban said he had secured these exemptions at Thursday's summit in Brussels.

Hungary has maintained relatively friendly relations with Russia and has often put its own economic interests ahead of support for Ukraine, with which it shares a border.

State-owned MVM signed a 15-year contract with Gazprom last year for 4.5 billion cubic meters of gas per year, of which 3.5 Bcm/yr is shipped via the Turk Stream pipeline.

And earlier this year, Budapest secured additional Russian volumes via Turk Stream.

Hungary also imports Russian gas under shorter-term contracts via other traders, but it's unclear whether Budapest secured a price cap exemption for those volumes.
Staff Reports

Novatek May Renew Fight for Arctic LNG Resource Base

LNG developer Novatek may get another chance to get its hands on lucrative upstream licenses in the Arctic, which Russia is considering withdrawing from state Gazprom, business daily Kommersant reported Friday.

Potential redistribution of Arctic licenses might open the way for Novatek to get at least one of Gazprom’s giant Tambei group of fields, which Russia’s LNG export champion has long sought for its ambitious LNG expansion plans in the Arctic.

New Resource Base?

Novatek now continues exploration to make sure it has enough resource base to increase LNG production to around 70 million tons per year in the Arctic by 2030 from some 21 million tons expected at its flagship Yamal LNG plant this year. Novatek CEO Leonid Mikhelson told a recent briefing that it saw no attractive blocks among those that haven’t yet been auctioned by the government.

That might change however, as the Russian government considers withdrawing licenses for fields which have long remained undeveloped, Kommersant reported, citing a protocol of a September meeting chaired by Deputy Prime Minister Alexander Novak who supervises the energy industry.

Novak also instructed the relevant ministries to accelerate work on a draft plan for the development and monetization of resources of the Yamal Peninsula in the Arctic which should include a list of fields destined for LNG production, and report to the government by Mar. 3, 2023.

One of Four?

Novatek is the clear beneficiary, a source familiar with the matter tells Energy Intelligence, adding that its tactic might be to get at least one of the four Tambei fields which is not a confirmed resource base for Gazprom’s petrochemical project to be fed from the Arctic.

Gazprom last year transferred its upstream licenses for three Tambei fields — North Tambei, West Tambei and Tasiyskoye — to the Gazprom Dobycha Tambei joint venture with compatriot RusGazDobycha, which plans to start gas production in 2026 and ship ethane-rich gas to Gazprom’s 45 billion cubic meter per year Ust-Luga gas-processing plant in northwestern Russia. The fourth field of the Tambei group, Malyginskoye, is not part of the project.

Kommersant sources also said Novatek is interested in Malyginskoye, which harbors around 2 trillion cubic meters of C1+C2 proved and probable reserves.

Gazprom received 20-year licenses for the Tambei group of fields without a tender in 2008. Several years ago, Gazprom said that exploration revealed that North Tambei, West Tambei and Tasiyskoye were in fact one giant field with C1+C2 reserves of more than 7 Tcm.

Mikhelson has also recently floated an idea to distribute upstream licenses for separate deposits rather than entire fields or blocks. He did not link it with Tambei, but in the case of Tambei, such an approach could allow Novatek to develop the upper Cenomanian deposits of Tambei fields and feed liquefaction projects, while Gazprom Dobycha Tambei produces ethane-rich gas from lower layers and feeds Ust-Luga.

Tambei Group of Fields

lngi221021_Tambei_Fields_map.png


Staff Reports

Europe Worries About Threats to Infrastructure

European countries are ramping up efforts to counter potential attacks on critical infrastructure — including oil, gas and LNG facilities — as the region's conflict with Russia intensifies.

"We must be prepared to face further attempts to create fear and uncertainty in new and unknown ways, here in Norway," Prime Minister Jonas Gahr Store said recently.

"We can see that the repercussions of the war in Ukraine are being felt more strongly in Norway and in our day-to-day lives," he added.

Norway is on high alert for potential espionage and cyber threats against critical infrastructure after arresting several Russian nationals they accuse of flying drones or taking photos in restricted areas.

Store said Norway's intelligence service had taken over the investigation of these incidents, saying they "may reflect a willingness by Russia to take greater chances in its intelligence activities."

The prime minister also said that Norwegian agencies would work more closely together to defend the country against cyber threats. "It is a real and serious threat, also to the oil and gas industry," he warned.

The government says the potential security threat from Russia poses risks to power plants, as well as the petroleum and defense sectors.

Russian Arrests

Russian citizens and Russian entities were banned from flying drones or aircraft over Norwegian territory after Moscow's invasion of Ukraine in February.

Those arrested have been charged with breaking those rules, but it's not known if police have found evidence that points directly to espionage.

One of the people arrested is Andrei Yakunin, the son of former Russian Railways chief Vladimir Yakunin, who was once a close ally of President Vladimir Putin.

Yakunin — a dual Russian-UK citizen — was arrested in Hammerfest in northern Norway, which is the location of Equinor's Hammerfest LNG liquefaction plant.

Authorities accused him of illegally flying a drone over the Svalbard archipelago, which lies north of the mainland.

Norway — a Nato member — shares a border with Russia in the far north of the country.

LNG Risks

Nato allies around the North Sea have recently stepped up security measures prompted by the apparent attacks on the Nord Stream gas pipelines in the Baltic Sea and drone sightings near oil and gas facilities offshore Norway and Denmark.

Interior Minister Nancy Faeser told Reuters this week that Germany had told police to guard LNG terminals that are being built and to escort LNG shipments.

Germany has stepped up aerial surveillance of its rail network after the suspected sabotage of fiber-optic cables that halted rail services in northern Germany.

"Police are patrolling at sea with all their available forces and ships to also protect maritime infrastructure," Faeser said.

Norway — which has displaced Russia as Europe's biggest supplier of pipeline gas — has also stepped up surveillance of its offshore oil and gas installations and infrastructure, with frequent patrols by F-35 fighter jets.

There were already concerns in Norway earlier this year about suspected sabotage of fiber-optic cable connections to a satellite station and an ocean observatory in remote locations.

In addition to scientific work, the observatory also helps to track submarines entering and leaving Norway's Arctic waters.

Deb Kelly, London

LNG Falls Out of Favor as Shipping Strives to Decarbonize

LNG will likely see its future role as a shipping fuel downgraded when the International Maritime Organization (IMO) publishes its medium-term greenhouse gas reduction strategy next summer.

Maritime transport has been considered a large potential market for LNG going forward.

Moving Goal Posts

The IMO’s new strategy, due July 2023, is expected to include much tougher carbon intensity standards on ships, that would force shipowners to switch to lower- and zero-carbon fuels. It will also look at full life-cycle emissions from well-to-wake rather than the tank-to-wake or engine emissions that currently favor LNG.

New figures presented by the International Energy Agency (IEA) at the IMO’s second-ever Symposium on Alternative Fuels on Friday saw LNG’s share of the bunker market peaking at less than 5% some time before 2040.

LNG’s market share would be negligible by 2050, according to the IEA, when ammonia made from green hydrogen could be powering almost half of the world’s shipping fleet. Biofuels could make up 20% and hydrogen 15% of what will be a highly fragmented bunker fuel market by midcentury. Fossil fuel oil and marine gasoil could still account for 15% of bunker sales in 2050.

The IMO is still searching for ways to at least halve global emissions from shipping from 2005 levels by 2050 even as other industries start to embrace net zero. That involves finding non-fossil alternatives for most of the 300 million metric tons per year (5.8 million barrels per day) of fuel oil and gasoil currently burned at sea.

Multifuel Solution

There is surprisingly little clamor for a single fuel solution from a shipping industry already used to handling multiple different bunker grades often on the same vessel. Hydrogen is likely to be used for shorter journeys close to shore but isn’t energy-dense enough to be practical on longer international shipping routes.

Liquid ammonia, itself made from green hydrogen, has emerged as the ideal compromise. Ammonia has about half the energy intensity of current bunker fuels but is relatively easy to handle compared to hydrogen. Speakers at the Symposium cautioned that ammonia engines are still at the development stage but that ships would be sailing commercially by 2030.

LNG’s biggest immediate rival methanol has already been dropped as a possible future fuel. Some 20 methanol-powered vessels are already on the water with at least another 70 on order. It is likely to be phased out much sooner than LNG, having barely made a mark.

Global methanol production currently stands at 98 million tons/yr but it’s all made from either coal or natural gas, neither of which would survive the IMO’s planned well-to-wake emissions analysis. The IEA has already excluded green methanol from its analysis on the grounds that it's too expensive.

North and South

Elsewhere, Symposium discussions focused on ensuring a just and inclusive transition to low-carbon shipping.

Less developed countries (LDCs), particularly the small island developing states that are a vocal part of IMO’s membership, are typically the most affected by climate change but often the least well placed to pay for the huge investments needed in the energy transition.

Delegates heard how LDCs could be at the forefront of renewable energy and green hydrogen and could play a much bigger part in fueling a greener shipping industry. Morocco and Chile have already emerged as centers for green hydrogen production.
Kerry Preston, London


In Brief

Qatar Awards Contract to Saipem

Italy's Saipem said it was awarded a $4.5 billion engineering, procurement and construction (EPC) contract for Qatar's North Field.

The EPC contract was awarded by Qatargas and is for the North Field Production Sustainability Offshore Compression Complexes Project.

The work will include engineering, procurement, fabrication and installation of two offshore natural gas compression complexes aimed at sustaining the production of the North Field, Saipem said.

Meanwhile, QatarEnergy has sent out media invitations for a signing ceremony at which it is expected to name another equity partner for Phase-2 of its 48 million tons/yr LNG expansion.

Earlier this month, QatarEnergy CEO Saad al-Kaabi told the Energy Intelligence Forum that the company was close to selecting the rest of the partners for the 16 million tons/yr Phase-2, which is also known as North Field South,

TotalEnergies was awarded a 9.375% stake in Phase-2 last month.

The remaining awards are likely to go to companies chosen to participate in the 32 million ton/yr Phase 1: Exxon Mobil, Total, Shell, ConocoPhillips and Eni.
Yousra Samaha, Dubai


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India25.8126.6525.4826.7224.4824.3327.9722.8627.7325.6523.8623.0823.99
Sodegaura, Japan24.7528.2428.2628.6324.2814.5927.1320.9926.7929.5222.4719.9224.96
Zeebrugge, Belgium10.886.755.557.079.5810.448.805.578.475.709.807.2210.04
Huelva, Spain36.6432.3731.1232.7035.1934.4934.4630.9134.1431.2835.2432.3135.26
Isle of Grain, UK8.324.213.014.507.107.876.563.055.933.177.244.697.48
Everett, US1.39-2.89-2.00-2.560.57-0.010.01-0.45-1.11-3.981.98----
Created with Highcharts 9.0.0($/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 Asia30.0030.520.170.52
SW Europe32.4037.420.115.02
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.404.965.366.45
NBP, UK (futures)-2.2523.0825.3329.55
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-7.0711.1518.2219.36
Zeebrugge (Belgium)----9.5312.68
German NCG-3.3316.1419.4720.81
NBP (UK)0.119.619.5010.57
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.684.425.106.08
Corpus Christi, Texas-0.674.104.775.45
Cove Point, Maryland-1.073.284.355.10
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.404.965.366.45
Second Mth-0.375.475.846.83
Third Mth-0.365.756.117.04
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '220255075100125Energy Intelligence