October 24, 2022

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Qatar Adds Shell to Phase 2 of LNG Expansion

Shell has won the second international equity stake in North Field South (NFS) — Phase 2 of Qatar's 48 million ton per year LNG mega-expansion — Shell and QatarEnergy announced on Sunday.

The company was awarded a 9.375% interest in the two-train 16 million ton/yr NFS project out of a total 25% interest available to international partners. QatarEnergy will hold the remaining 75%.

TotalEnergies was also awarded a 9.375% stake in NFS last month.

QatarEnergy is also in the process of awarding engineering, procurement and construction (EPC) contracts for the LNG mega-expansion.

Last week, Italy's Saipem said it was awarded a $4.45 billion EPC contract for the giant North Field, which will provide the feed gas for the new liquefaction capacity.

NFS is known to have slightly higher production costs than Phase 1, "but it is still a world-class asset," Saad al-Kaabi, Qatar's energy minister and CEO of QatarEnergy told Energy Intelligence in an interview last month .

Completion of the 32 million ton/yr Phase 1 (North Field East) and Phase 2 expansions will raise Qatar's total LNG production capacity to 126 million tons by 2027.

Shell Offsets Sakhalin Loss

At the signing ceremony in Doha, Shell CEO Ben van Beurden underlined LNG's crucial role in ensuring reliability of the energy system and supporting energy security and the energy transition — "two of the most fundamental challenges the world faces today."

"The new LNG volumes, which Qatar will bring to the market, come at a time when natural gas assumes greater importance in light of recent geopolitical turmoil, and amidst the dire need for cleaner energy to meet global environmental objectives," al-Kaabi said.

Shell has the largest LNG portfolio of the Western energy majors and has focused on acquiring a diverse set of flexible supply sources for trading and optimization.

The 9.375% stake will give Shell another 1.5 million tons/yr of Qatari LNG when the NFS expansion comes on line, adding to the roughly 2 million tons/yr it will get from its 6.25% stake in North Field East.

Shell — the world’s top LNG portfolio player — had 31 million tons of liquefaction capacity around the world last year and sold a total of 64.2 million tons of LNG for the year.

The Qatari additions are a welcome boost after the company took 2.8 million tons of annual liquefaction capacity from Sakhalin-2 off its books after Russia's invasion of Ukraine.

Shell has since lost its 27.5% stake in the Sakhalin-2 project altogether after the Kremlin established a new operating company.

QatarEnergy is already the largest single LNG producer in the world and al-Kaabi has indicated that the company plans a major push into trading in addition to its array of long-term supply contracts.

The Usual Suspects

Shell and Total had already been selected for Phase 1 of the expansion earlier this year and al-Kaabi had said that the Phase 2 partners were likely to be selected from the pool of winners in the first phase. That group also included Exxon Mobil, ConocoPhillips and Eni.

Al-Kaabi had told the Energy Intelligence Forum earlier this month that QatarEnergy was close to selecting the remaining partners for Phase 2.

"We are done with almost everything. We are just defining the date of when my counterparts can come to Qatar to celebrate," he said.

QatarEnergy said on Sunday that "a third partnership will be announced in due course."

Created with Highcharts 9.0.0SHELL 2021 LIQUEFACTION VOLUMES BY COUNTRY(million tons)AustraliaAustraliaBruneiBruneiEgyptEgyptNigeriaNigeriaOmanOmanPeruPeruQatarQatarRussiaRussiaTrinidad and TobagoTrinidad and TobagoSource: Shell

Yousra Samaha, Dubai

Spain's Terminal Capacity Limits Tested

High LNG stocks at Spanish terminals resulted in a cargo delivery cancellation last Friday as the country struggles to receive more volumes.

Close to a dozen laden vessels continue to float around southern Spanish waters waiting to unload.

The apparent holdup in deliveries is a concern for the continent's LNG buyers. Those buyers are tasked with bringing in supply to counteract the loss of Russian gas due to the war in Ukraine.

Voyage of the Ob River

Energy Intelligence reported on Oct. 18 that the first LNG cargo in a decade from the United Arab Emirates to Europe was scheduled to be delivered to Spain’s Huelva terminal on Oct. 25 by the 150,000 cubic meter Ob River.

However, after waiting for around two weeks in the Alboran Sea, south of Spain, on Oct. 20 the vessel crossed the Strait of Gibraltar and headed north into the Atlantic Ocean, ship-tracking data from Kpler showed.

A source close to the matter told Energy Intelligence that the delivery of the cargo to Huelva was cancelled on Oct. 21.

The same source indicated that the Ob River was heading to France’s Dunkirk terminal to unload its cargo, However, on Oct. 23, the vessel made a U-turn in the English Channel and was seen sailing toward the Celtic Sea, due south of Ireland, on Monday morning, Kpler showed. The U-turn suggests that it may not discharge at the French terminal after all.

Enagas Restrictions

The cancellation of the cargo delivery to Spain comes just days after grid operator Enagas announced that due to the saturated LNG terminal tanks, it is postponing the discharge of cargoes that could take terminal stock levels above the established limit for safe operation.

Enagas added that it will also deny any request for flexibility that implies an increase in the amount of LNG to be discharged, as well as changes in the unloading dates that would worsen the situation.

These restrictions are likely to impact spot cargoes in particular and market participants’ strategies aimed at taking advantage of the European price contango.

Many companies are floating cargoes for weeks, possibly months, waiting for the right moment to unload the volumes to capture a lucrative time spread. The forced postponement of discharges and the zero-flexibility policy are likely to make such contango plays a highly risky proposition.

The topped-up LNG tanks, coupled with the restrictions, were likely behind the decision to cancel the delivery of the UAE cargo to Huelva as it is understood to be a spot cargo.

What Now?

Following the cancellation of delivery to Spain, the Ob River was seemingly trying its luck at France’s Dunkirk terminal, broadcasting the French facility as its destination on Oct. 24, with estimated arrival on Oct. 26.

Nonetheless, its sudden change of course on Oct. 23 indicates that the parties might not have been able to find an arrangement in time for the vessel to unload, although this could not be confirmed by press time.

Terminals in Northwest Europe, the continent’s key demand region, are also running at high capacity and are facing bottlenecks to receiving additional volumes.

Time is also tight as the Ob River is scheduled to lift a cargo for Indian Oil from the US Calcasieu Pass plant on Nov. 16.

Others Following

A couple of other vessels that have been acting as floating storage around Spain and the western Mediterranean Sea have also set sail north.

The 174,000 cubic meter Tenergy left the Gulf of Cadiz on Monday morning after it had been waiting there since the end of September.

Meanwhile, the 173,400 cubic meter BW Pavilion Aranda, which lifted its cargo from the US Cameron plant at the end of July, is now also heading north into the Atlantic Ocean after loitering around the Mediterranean Sea, mostly offshore Spain, for months.
Daniel Stemler, Madrid

Newfoundland LNG Firm Eyes CCS

The developer of an LNG project in Newfoundland and Labrador (NL) is preparing to launch a study on the potential to add carbon capture and storage (CCS) to an initial 2.5 million ton per year export scheme.

The study is a bid to drive down emissions even lower for what it claims would be one of the world’s lowest-carbon liquefaction facilities.

LNG NL CEO Leo Power said at an event in Houston on Thursday that the company and its partners will assess the financial and technical requirements of capturing CO2 from the natural gas stream pre-liquefaction, and then sending it through a pipeline hundreds of miles offshore for sequestration.

“Of course, the economics have to work but if we are able to achieve that we will have close to zero emissions from our LNG,” Power said.

Eastern Canada is emerging as a potentially highly strategic source of energy for Europe, which is desperate for supplies from allies amid the raging war between Russia and Ukraine.

LNG NL notes on its website that the province is located just over half the distance to Western Europe compared to the US Gulf Coast. The province is also rich in hydropower, which can provide emissions-free electricity for the liquefaction plant, bolstering the project’s low-carbon argument.

Targeting ‘Stranded’ Gas

LNG NL is proposing to build a 600 kilometer pipeline from the offshore oil and gas fields in the Jeanne d’Arc Basin to the Placentia Bay terminal in Grassy Point on the south coast of Newfoundland.

The targeted gas is “stranded” and not yet able to be monetized, Power says. Currently, associated gas produced alongside the light, sweet crude flowing from a handful of offshore platforms is stripped of its condensate and then used to either power the platforms or reinjected for oil lift, pressure maintenance, or for “future monetization.”

“So that’s why we’re going after the produced gas first because it’s already there ready for the taking, [it just] requires a pipeline to the shore,” Power said.

The company says there are more than 224 trillion cubic feet of discovered gas in the Jeanne d’Arc Basin.

It expects the first phase of the LNG project to cost at least US$5.5 billion, including $2.5 billion for the pipeline, according to a project description published in May this year.

CCS Feasibility

The cost estimate does not include any additional costs for CCS.

Power said the idea would be to simultaneously build a smaller “reverse” pipeline that is “strapped” to the main line and would carry CO2 from the onshore liquefaction facility to a storage site in the Jeanne d’Arc Basin.

It was not immediately clear the feasibility or capacity to store CO2 in the offshore basin, but Power told Energy Intelligence that it is “understood that the capacity to have sequestration [there] is very large.”

That is a question that the planned study would attempt to answer — “does it make sense for that great carbon sink … to have the opportunity to sequester CO2?” he says.

‘Cleanest’ LNG

LNG NL will work on the study with governments and other industry partners, including potentially industrial emitters that also might be looking to lower their carbon footprint.

Even without a CCS component, Power says, LNG NL is shaping up to be “among the cleanest LNG projects in the world.”

“Having no incremental emissions offshore, by using hydropower to liquefy, we think we will achieve 0.07 tons of emissions per ton of LNG produced,” Power said.

Checking the Boxes

The biggest hurdles the project has yet to clear are around permitting and financing. LNG NL has called for more clarity and certainty amid what he calls a “hodgepodge” of federal and provincial regulations.

“We think we meet all the recent tests the government has thrown: Can you produce among the world’s lowest-carbon LNG? Do you have a First Nations partner? Are you going to help shut our coal plants or prevent new ones from opening … all those tests we believe we meet,” he tells Energy Intelligence.

“I think once we have certainty, the financing will follow. But I don’t have the financing today.”
Luke Johnson, Houston

China's Gas Imports Fall Again

China’s natural gas imports, including pipeline gas imports and LNG imports, were at 10.2 million tons in September, down 3.7% compared with the same period last year, General Administration of Customs data showed this Monday.

The decrease for one of the world's top LNG importers continued a downward trend reported last month but with a shallower decline (see table).

The shallower decline in imports could be attributed in part to the fact that since October, northern Chinese cities have seen cooler weather. Some areas in Inner Mongolia, Gansu and other northern provinces have started with heating-driven gas demand, several days earlier than in previous years.

Nevertheless, the ninth consecutive month of decline brings the country’s year-to-date gas imports to 81.2 million tons, a drop of 9.5% compared with the same period last year, customs data showed.
China's Gas Consumption
Domestic Production (Bcm)Y-o-Y %Chg.Total Gas Imports (million tons)Y-o-Y %Chg.LNG Imports (million tons)Y-o-Y %Chg.Pipeline Gas Imports (million tons)Y-o-Y %Chg.
Jan-Feb37.26.7%19.9-3.8%12.7-8.7%7.26.3%
Mar19.76.38.0-8.54.6-17.03.48.8
Apr17.74.78.1-20.34.4-34.53.79.3
May17.74.99.1-10.64.9-28.14.226.0
Jun17.30.48.7-14.64.8-26.03.911.5
Jul17.18.28.7-6.94.7-15.44.08.0
Aug17.06.38.9-15.24.7-28.14.19.0
Sep16.44.610.2-3.75.9-11.64.39.8
Total160.15.4%81.2-9.5%46.5-20.2%34.710.5%

Displacing LNG Imports

In September, China imported 5.9 million tons of LNG, down 11.6% from a year ago. With total LNG imports of 46.5 millions tons in the first nine months, and despite a 20.2% year-over-year drop, China remains the world’s second-largest LNG importer for year-to-date 2022, after Japan, and continues to build new LNG terminals.

Yet China imported the equivalent of 4.3 million tons in pipeline gas in September, almost 10% higher compared with a year ago.

High international spot LNG prices have dampened demand from China’s LNG buyers. In the first nine months of this year, the total cost of China’s LNG imports increased 39.9%.

“Due to high spot prices, currently China is less dependent on the international gas spot market to compensate for domestic demand, which is now largely met by domestic production and long-term contracts signed by China’s gas companies," Professor Roc Shi at the University of Technology Sydney told Energy Intelligence, “If China allows a portion of its winter heating sources to be replaced with coal, there will be no supply problems basically," he added.

According to President Xi’s speech at the weekend, he said that China will continue to burn coal until other sources of energy can displace it.

Meanwhile, the country’s domestic gas production last month was 16.4 Bcm, up 4.6% compared to the same period last year, with an average output of 550 MMcm/d, the country’s National Bureau of Statistics said this Monday. In the first nine months, China’s domestic natural gas production has reached 160.1 Bcm, up 5.4% compared to the same period last year.
Staff Reports

Yatec Wins Two More Blocks for Yakutia LNG

Russia’s Yatec won two upstream blocks at an auction on Monday, as it builds up a resource base for its 18 million ton per year Yakutia LNG project.

Yatec won the Tingnary and Bappagai blocks in its legacy region of Sakha (Yakutia), both bordering Yatec’s existing blocks.

Both blocks harbor relatively modest resources. Tingnary has 3.9 billion cubic meters of gas (about 138 Bcf), 200,000 tons of gas condensate and 90,000 tons (650,700 bbl) of oil in D1 localized resources. Bappagai’s D1 resources include 7.4 Bcm of gas (261 Bcf), 400,000 tons of gas condensate and 180,000 tons (1.3 million bbl).

Yatec has recently insisted it was moving ahead with the Yakutia LNG project, despite the international sanctions targeting the supply of key liquefaction equipment for Russian LNG projects.

The company now has proved reserves of around 600 Bcm, which should be enough to feed Yakutia LNG’s Phase 1 with capacity of 9 million tons/yr. To add Phase 2 the company needs to expand the reserves to 1 Tcm, which it plans to do by 2026.

Yatec also bid for another two blocks in Yakutia at the same auction, but lost to Gazprom. The state-run gas giant wants a long-term increase in pipeline gas exports to China and domestic consumption in eastern regions in response to the expected loss of the European market amid the major standoff between Moscow and the West over Ukraine.

Gazprom won the smaller Choron-Yuryakh and Ozyorny blocks, also bordering Yatec’s Mastakhsky block. Ozyorny also borders Gazprom’s Sobolokh-Nedzhelinsky block. Gazprom’s new blocks harbor 1.5 Bcm and 1 Bcm in D1 gas resources and modest resources of oil and gas condensate.
Staff Reports


In Brief

Galp Sees Less Disruption Than Expected from Nigeria Outage

Portugal’s Galp is playing down the impact of the force majeure declared recently by key supplier Nigeria LNG (NLNG), following the worst floods in Nigeria in more than a decade.

Galp expects to lose only one of the three LNG cargoes it normally receives in October, the firm indicated during presentation of its third quarter results, Monday.

Galp also expects deliveries to be normalized from November.

NLNG declared force majeure mid-October, after floods disabled onshore fields and disrupted supplies of gas to the plant.

NLNG, which has capacity of 22 million tons of LNG per year, was running at 65% to 70% of capacity before the floods, then output reportedly fell to 50% of capacity or 11 million tons/yr, though it is unclear how long the drop lasted.

As Galp relies heavily on supplies from Nigeria, it was concerned to minimize disruptions.

Portugal had received 1.93 million tons of Nigerian LNG year to date as of October 24, according to Kpler — roughly in line with deliveries in 2021.

NLNG’s other customers in the Iberian peninsula, Naturgy, Endesa and Enagas are already well supplied — with regasification terminals full.
Christina Katsouris, London


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India25.7826.6225.4426.6824.4424.2927.9422.8227.6925.6223.8223.0523.96
Sodegaura, Japan24.7128.2028.2228.5924.2414.5627.0920.9526.7629.4922.4319.8824.93
Zeebrugge, Belgium6.192.110.922.424.895.754.140.933.801.075.122.575.36
Huelva, Spain31.7227.5026.2727.8330.2929.6029.5726.0529.2526.4230.3427.4430.36
Isle of Grain, UK3.41-0.65-1.83-0.362.202.961.67-1.801.05-1.682.35-0.182.58
Everett, US1.95-2.33-1.44-2.011.120.550.010.10-0.55-3.432.54----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback23. May6. Jun20. Jun4. Jul18. Jul1. Aug15. Aug29. Aug12. Sep26. Sep10. Oct24. Oct10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia30.0030.48-0.040.48
SW Europe32.4032.50-4.980.10
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.245.204.966.00
NBP, UK (futures)-2.3620.6623.0226.20
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-1.919.2611.1717.50
Zeebrugge (Belgium)--6.31--8.10
German NCG-5.6410.4816.1220.07
NBP (UK)-4.964.629.596.54
US Markets
US Spot Prices
Sabine Pass, Louisiana0.394.814.426.00
Corpus Christi, Texas0.664.764.10--
Cove Point, Maryland0.583.863.285.59
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.245.204.966.00
Second Mth0.285.755.476.48
Third Mth0.286.035.756.71
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '220255075100125Energy Intelligence