October 26, 2022

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QatarEnergy Trading Swallows Golden Pass

QatarEnergy and Exxon Mobil are restructuring the marketing arrangements for their 18.1 million ton per year Golden Pass liquefaction project in Texas, QatarEnergy announced on Wednesday

The partners had planned to jointly market Golden Pass output via a specially created joint venture, Ocean LNG, established back in 2016. But now they will independently sell Golden Pass LNG when it comes on stream in late 2024. Wholly owned subsidiary QatarEnergy Trading will market Qatar’s 70% stake, equivalent to 12.6 million tons per year.

The move is consistent with QatarEnergy’s avowed ambition to become a true portfolio player and turn QatarEnergy Trading, established only in 2020, into the world’s number 1 LNG trader.

"With the help of Golden Pass, I am confident that QatarEnergy Trading will accelerate its efforts to deliver on our aspiration of becoming a world leader in LNG trading in the near future,” Qatari Energy minister, Saad al-Kaabi, said in a statement.

Ocean LNG has stopped operations and will be wound down, QatarEnergy said.

Third NFS Award Looms

Golden Pass will mark the start of a historic capacity push, with the Qatari state gas behemoth targeting some 66 million tons per year of new LNG supply.

In 2026, the 32 million ton/yr, North Field East (NFE) project should start to come onstream, followed by the 16 million ton/yr North Field South (NFS) in 2027. NFE strategic partners were selected over the summer and TotalEnergies and Shell have won stakes of 9.375% each this month.

Also on Wednesday, QatarEnergy announced a signing ceremony on Sunday, Oct. 30, which in all likelihood will reveal the identity of the third NFS equity partner. This is expected to be Exxon Mobil, but theoretically ConocoPhillips and Eni are also in the running. In total, some 25% of NFS was available for strategic partners, al-Kaabi has said.

All three firms have proved themselves key partners for QatarEnergy, with projects outside LNG.

Total partners with QatarEnergy in the downstream, solar in Qatar, and upstream, both in Qatar and internationally, most notably on their recent promising Namibia finds. Shell too has linked up with QatarEnergy in Namibia, is lead partner in Qatar’s 140,000 b/d Pearl Gas-To-Liquids project and is working on identifying a potential future expansion of the North Field.

Exxon, which has stakes in nine of Qatar’s 14 trains is the dominant LNG investor, having pioneered Qatar’s mega-trains and Q-Max tankers. In addition to Golden Pass and other Qatari gas investments, Exxon is partnering with QatarEnergy offshore Cyprus and Egypt.
Rafiq Latta, Nicosia

High Prices Bring LNG Commoditization to a Halt

High LNG prices and extreme volatility have brought the commoditization of the spot LNG market to a halt.

“We were very happy to have a bit more commoditization of LNG, but I am not sure it is going to be the case now,” Sophie Ducoloner, managing director of Axpo Singapore said at the S&P Global Commodity Insights 8th Asia LNG & Hydrogen Gas Markets Conference in Singapore.

Increased risks and costs associated with high prices and volatility prompted a greater concentration in the market as only a limited number of players have a robust enough balance sheet to participate.

Hedging also became a big problem because it requires a lot of cash to cover the margin call, Ducoloner said, adding that companies are now focusing on their portfolio while clients have shown renewed interest for long-term contracts to ensure energy security.

“The spot market was increasingly becoming a commoditized market with volumes and liquidity going up,” said Varun Gujral, CEO Asia Pacific of Engie Global Energy Management & Sales.

“Things were moving in a direction where we could see the gas market in itself coming out to be like a big strong competitor with the oil market over the years, especially on the trading side,” he added.

Balancing Market

“We are in a tough period,” said Pavilion Energy group CEO, Alan Heng, as prices will remain high and the market volatile over the next two to three years.

Asia will be a balancing rather than a growth market over the same period, Ducoloner said.

Asia has been a balancing market since Russia’s invasion of Ukraine as high prices and volatility prompted major demand destruction with large Asian buyers pushed to the sideline.

This has partly offset the supply/demand imbalance with cargoes that would have usually gone to Asia, absorbed by European countries amid efforts to replace Russian pipe gas.

Demand Destruction

LNG bunkering is a good example of how high prices and extreme volatility have resulted in major demand destruction over recent months.

At $35-$40 per million Btu it is challenging for ship owners to continue to subscribe to LNG bunker, Heng said, adding that many dialed back on LNG bunkering and are now using a cheaper option like diesel.

“But we think this is the phase where once the supply/demand rebalances and LNG gets back to a more normal pricing, there will be uptake for LNG,” Heng said.

Viable prices for LNG bunkering are under 20% Brent equivalent, Heng said.

“The alternative to LNG is diesel and that's 23% Brent, so they [ship owners] not only have the environmental benefit, but they have a cheaper product so to speak [with LNG],” Heng said.
Marc Roussot, Singapore

US and European Gas Markets Growing 'Intertwined'

US execs see the North American gas market further intertwining with Europe's as the global gas market grows increasingly short from a lack of investment in production and infrastructure.

US and European gas prices “are becoming increasingly intertwined, especially as European buyers are looking toward the future and kind of remaining very focused on TTF or British NBP pricing,” Glenfarne Energy Transition head of legal and corporate affairs Adam Prestidge said Tuesday at the North American Gas Forum in Washington, DC. “There is a real desire on our part to put together [LNG] deals that can provide pricing on that basis.”

Buyers abroad, liquefaction developers and gas producers need “to be on the same page on what index its being sold on. We’re seeing that upstream producers ... are willing to have a conversation about diversifying a portion of their offtake by selling on a European index,” he said.

Glenfarne has two US LNG projects in development.

Created with Highcharts 9.0.0INTERTWINED US AND EUROPEAN GAS MARKETSEurope as a % of US LNG ExportsUS as a % of European LNG Imports20162017201820192020202120220%20%40%60%80%Source: Kpler

Chesapeake

The COO of US shale giant Chesapeake, Josh Viets, said at the Forum that “it’s hard to ignore how intertwined” the US and European markets have become.

“All you have to do is go back and look earlier in the year when Freeport went offline," said Viets, referencing Freeport's early June explosion. "Not only did it affect the US gas market. It affected international markets."

Viets sees US LNG export capacity expanding dramatically, perhaps doubling next decade, as other countries "try to replicate what we’ve done, which is switch from coal to natural gas."

As that happens, "I think these markets just get more and more interconnected."

Tellurian

European markets will be pulling LNG for some time, according to Tellurian CEO Octavio Simoes, and Russia’s invasion of Ukraine has only exacerbated the need.

“We have a regional pricing problem in Europe, with no Russian gas coming through pipelines and no access to LNG. Terminals are full, except the ones in southern Europe because of a lack of pipeline connectivity with the rest of the continent. So this notion that somehow we have a problem for [just this] winter … is erroneous. Europe is going to have a problem this winter, next winter and the winter after," said Simoes.

Meanwhile, “Russian oil and gas is still coming to the market. It’s going to the market whether it’s at a discount, to India for instance, or other places. It’s still there,” said Simoes. The Tellurian exec recently held talks with visiting executives from India in an effort to push forward his long-delayed US-based Driftwood LNG project.
Everett Wheeler, Washington

Russia Boosts Nine-Month LNG Production

Russia’s LNG production increased 11.9% on the year to 24.1 million tons in the first nine months of 2022, the federal state statistics service said Wednesday.

The growth is in contrast with a 12.1% decline in natural gas production, excluding associated gas, to 428 billion cubic meters, according to the statistics service.

Natural gas production was pulled down by a sharp drop in pipeline gas exports, but LNG doesn’t look as vulnerable to the geopolitical tensions that have intensified following Russia’s invasion of Ukraine in February.

This year’s LNG production is also higher because there were no massive shutdowns as at the Gazprom-controlled Sakhalin-2 plant last year where planned maintenance lasted for more than a month in the summer and affected Russia’s full-year production.

Growth in Europe, China

Russian LNG is coming in larger volumes to the tight European market, which takes the Europe-bound volumes under long-term contracts from Novatek’s Yamal LNG plant in the Arctic and also attracts Yamal’s spot cargoes with higher margins.

Created with Highcharts 9.0.0(million tons)RUSSIAN LNG, 2022 DESTINATIONS JapanSouth KoreaChinaFranceTaiwanSpainNetherlandsBelgiumOthersJanFebMarAprMayJunJulAugSepOct00.511.522.533.5Source: Kpler

China also increased offtake under lower-priced oil-linked long-term contracts with Yamal this year and took more spot cargoes from the Sakhalin-2 plant in Russia’s Far East, close to the key Asian market, while its overall LNG imports are going down this year due to high spot prices.

Russia’s LNG exports to China rose 30% to some 4.3 million tons in the first nine months of 2022, according to data from China’s General Administration of Customs.

September Production

In September, Russia produced 2.5 million tons of LNG, up 5.5% from the previous month but down a marginal 0.5% from September 2021 when Sakhalin-2 ramped up production after the major planned summer shutdown.

Gazprom has loaded the first cargo at its long-delayed 1.5 million ton/yr Portovaya LNG facility in northwestern Russia.

The state-run gas giant completed commissioning work and formally launched Portovaya in early October.
Staff Reports

Germany Weighs in on Energy Conundrum

European diplomats acknowledged that in the short-term, the continent will need to replace Russian gas with supplies from other countries, including the US. But they remain reluctant to commit to the sort of long-term contracts US companies say they need to underwrite new export infrastructure.

“What we hear from [US] companies is that 20 years is a good period,” German minister for economic affairs Hardy Boeckle told attendees of the North American Gas Forum in Washington DC Wednesday. “However, the Europeans, for environmental and energy security reasons, want to decrease the concentration of fossil fuels.”

“What I hear from German companies is they [seek] contracts of 15 years. And it is urgent to find a way that in case we do not burn a certain amount of LNG for 15 or 20 years, a certain amount can be diverted to [other] countries.”

Capacity Buildout

Even as Europeans express reluctance to commit to long-term agreements with US companies, they’re moving ahead with projects to bring gas onto their shores.

Germany will have 30 billion cubic meters (a little over 20 million tons) of regasification capacity operating by next year, Boeckle said. Meanwhile, Latvia is moving ahead with a project that has been in the works for the last five or six years, Latvian ambassador to the US Maris Selga said.

It’s all part of a race to build alternatives to Russian gas supplies as European buyers turn away from the country. When asked if they thought Russian gas supplies to Europe would ever resume, none of the Europeans on the panel — representing Germany, Lithuania and Latvia — raised their hands.

New Goals

Meanwhile, the effort to replace Russian gas supplies has upended Europe’s energy transition goals.

Germany, 30% of whose GDP comes from industrial activity, making its economy relatively more energy intensive, used to get about 53 billion cubic meters of its 100 Bcm of gas supply from Russia, Boeckle said. Now that the country is no longer importing any Russian gas, it has taken steps to offset that loss, including striving to reduce its energy consumption by 15% and substituting both coal and renewables for gas.

“At the moment, 70% of our energy production is from coal and renewables,” he said.
Everett Wheeler, Washington


In Brief

Coral South FLNG Suffers New Outage

The first cargo loading from Mozambique’s Coral South floating LNG plant has been once again postponed as the facility is understood to be experiencing yet another outage — news that an already tight world LNG market will not be happy to hear.

Last week Max Tonela, Mozambique’s minister of finance and economics said that the first shipment from the 3.4 million ton/yr facility is expected “before the end of October.” His statement came as the 173,400 cubic meter British Sponsor, chartered by UK major BP, arrived at the plant to supposedly lift its maiden cargo.

However, on Wednesday, Oct. 26, a source told Energy Intelligence that a subsea trip occurred at the plant, forcing it to shutdown, with November now looking much more likely for first loading.

Indeed, the British Sponsor has disconnected from the plant earlier this week and it is now waiting nearby, according to ship-tracking data by Kpler. Its latest draught level of 9.2 meters indicates that the vessel remains in ballast.

A subsea trip could be particularly problematic and time-consuming to fix due to difficult access, the source suggested. Nonetheless, the latest outage is expected to only delay the first loading into November, which would still be within the timeframe of operator Eni, who previously indicated first cargo lifting by the end of the year.

This is the second time in recent months that the Coral South plant was forced into a shutdown due to technical problems.

In August, the facility was shut after one of its critical distillation columns (demethanizer) was suspected of having internal damage, which required inspection and repair, Energy Intelligence reported.
Daniel Stemler, Madrid


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India25.6226.4625.2926.5324.2924.1327.7822.6627.5325.4623.6622.8923.80
Sodegaura, Japan24.5628.0428.0728.4324.0814.4026.9420.8026.6029.3322.2819.7324.77
Zeebrugge, Belgium8.464.363.164.677.168.026.403.186.063.317.384.827.63
Huelva, Spain29.6225.4224.2025.7428.2027.5127.4823.9827.1624.3528.2425.3628.27
Isle of Grain, UK5.060.98-0.201.283.844.613.31-0.172.69-0.053.991.464.22
Everett, US2.47-1.82-0.93-1.491.641.070.010.62-0.04-2.913.06----
Created with Highcharts 9.0.0($/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 Asia30.0030.330.330.33
SW Europe27.5530.392.842.84
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.015.615.615.46
NBP, UK (futures)+1.4222.9621.5421.25
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF1.2013.0211.8218.62
Zeebrugge (Belgium)----6.53--
German NCG-2.5610.4713.0218.65
NBP (UK)2.796.283.496.40
US Markets
US Spot Prices
Sabine Pass, Louisiana0.055.245.195.49
Corpus Christi, Texas-0.144.965.104.85
Cove Point, Maryland0.234.434.205.03
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.015.615.615.46
Second Mth-0.056.126.175.93
Third Mth-0.046.396.436.21
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '220255075100125Energy Intelligence