October 31, 2022

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Conoco Wins Final Stake in Qatar LNG Expansion

Qatar has surprised industry watchers by selecting ConocoPhillips over dominant LNG investor Exxon Mobil to take the final equity position — a 6.25% stake — in the second phase of its giant North Field LNG expansion.

Several weeks ago, QatarEnergy had stated that "three new partners will be entering" the 16 million ton per year North Field South (NFS) project in addition to TotalEnergies.

The assumption was that this would be Exxon Mobil, Shell and either Eni or ConocoPhillips, the other two short-listed firms. Exxon had won a stake in the North Field East (NFE) project, the 32 million ton/yr Phase 1 of the expansion, in June.

The first sign that Exxon might not play a leading role in Phase 2 of Qatar's expansion came with the award of a 9.375% stake in NFS to Shell on Oct. 23.

Given a previous announcement that 25% of the equity would be made available to strategic international investors, and the prior award of 9.375% to Total, that left just 6.25% — in effect a junior stake.

But Exxon is a heavyweight in Qatar. The US major pioneered the 7.8 million ton/yr megatrains and QatarMax tankers that helped revolutionize Qatar’s LNG industry.

The US major is an investor in nine of Qatar's existing 14 LNG trains and lead partner on two major Qatari pipeline projects.

And in addition to being one of the three biggest international investors in the Phase 1 NFE, Exxon is also partnered with QatarEnergy in the 18.1 million ton/yr Golden Pass LNG project in Texas.

The NFS news comes hard on the heels of a decision to separately market Golden Pass LNG volumes, doing away with a specially created joint marketing vehicle, Ocean LNG, that QatarEnergy and Exxon had created.

Tight Terms

It could be that the bar for entry was set too high. Qatar is understood to have leveraged the North Field project's natural advantages to squeeze exceptionally tight terms out of investors. In addition to economies of scale and low-cost gas, profitability is boosted by large volumes of valuable associated liquids (see table).

Speaking to Energy Intelligence in August, Exxon Head of Global LNG Peter Clarke described Qatar as "probably the world's most competitive LNG supplier."

Further, QatarEnergy has invested over $250 million in a range of decarbonization technologies, including carbon capture and storage and solarization of utilities, to deliver what it is touting as the lowest-emissions LNG on the market.

"This will enable our LNG to play an important role in supporting a pragmatic, equitable and realistic energy transition," Saad al-Kaabi, Qatari energy minister and QatarEnergy CEO, said at Sunday's signing ceremony with ConocoPhillips.

ConocoPhillips' Qatar Focus

ConocoPhillips has looked at investing in the Middle East a few times over the past 20 years. It considered participating in Saudi Arabia's strategic gas opening in the mid-2000s, and it performed due diligence on Iraq's 2009 upstream bid rounds.

It actually signed a $10 billion agreement in 2008 with Abu Dhabi to develop the Shah ultra-sour gas field, only to controversially pull out of the project two years later.

In short, ConocoPhillips has largely signaled that it does not view the region as a natural investment fit — with the exception of Qatar.

The company has always valued its historical investment in the Qatargas 3 project, and won a 3.125% stake in the Phase 1 NFE expansion in June. Furthermore, sources say, CEO Ryan Lance enjoys good personal relations with Qatar's emir.

Qatar's LNG Expansion by Product and Volume
Phase 1Phase 2
LNG (million tons/yr)3216
Condensate (b/d)254,000122,000
LPG (tons/d)11,0005,260
Ethane (tons/d)4,5002,000
Sulfur (tons/d)1,8251,130
Targeted Start-Up20262027
North Field Strategic Partners
TotalEnergies6.250%9.375%
Exxon Mobil6.2500.000
Shell6.2509.375
Eni3.1250.000
ConocoPhillips3.125%6.250%

Rafiq Latta, Istanbul

Arctic LNG 2 to Resume External Financing

Russia’s Novatek will resume taking loans under the €9.5 billion ($9.47 billlion) external financing for the Arctic LNG 2 project in the first quarter of 2023, CEO Leonid Mikhelson said last week.

Banks have already financed around €6 billion of the approved sum, Mikhelson told a briefing on the sidelines of the Eurasian Economic Forum in Baku on Oct. 28.

The 19.8 million ton per year Arctic LNG 2, scheduled to start the first of three trains at the end of 2023, is Novatek’s second project in the Arctic, a region where it seeks to produce up to 70 million tons/yr by 2030, up from around 21 million tons expected this year, although its plans are complicated by EU technology sanctions in response to Russia’s war in Ukraine.

Financing Suspended

Arctic LNG 2 external financing has been suspended, because Novatek had to make technological changes to the project following the EU sanctions banning the export of key liquefaction equipment for Russian LNG projects, according to Mikhelson.

“We made significant technical changes to the project. Now we must have them approved by the banks and continue financing,” Mikhelson said.

There will be no changes to the terms of the external financing, Mikhelson said, adding that he was confident banks will resume the financing.

He admitted however that some European partners and vendors do apply self-sanctions, even if something is not explicitly prohibited by their governments.

Mikhelson said Italian bank Intesa Sanpaolo together with Italy’s Sace export credit agency provides a “not very big” part of financing and has already sent €50 million of its agreed portion.

Kamchatka Hub

Arctic LNG 2 shareholders will receive their equity-offtake volumes at the new Murmansk and Kamchatka transshipment terminals on an f.o.b. basis, which are expected to start up around the same time as the liquefaction plant.

“Kamchatka will be a very good [hub],” Mikhelson said. Kamchatka might transship up to 15 million tons/yr of Arctic LNG 2 volumes, of which 7 million to 8 million could be sold on spot, making Kamchatka a good benchmark for long-term contract pricing, Mikhelson said.

Kamchatka will be a liquid hub with constant availability of LNG and to deliver a cargo to the key markets of South Korea, Japan or China, tankers will only need three to six days from Kamchatka, Mikhelson said.

The Murmansk transshipment terminal in northwestern Russia, designed for westward supplies from the Arctic will also be a hub with potential to be a price benchmark, he added.

Bigger Spot

Novatek is interested in having a big portion of spot sales because the prices are high and will likely remain so for long, according to Mikhelson, who however says that Novatek doesn’t like such high prices because they are destructive to global gas demand.

The buyers, which had previously preferred a bigger hub-indexation in supply contracts over the past several years, now tend to return to oil-indexation, as hubs, including the key European TTF hub in the Netherlands, are too volatile, according to Mikhelson.

Oil-linked contracts of Novatek’s flagship Yamal LNG plant, launched in 2017, are now priced lower than spot, which stimulates the offtakers to take all the agreed volumes.

Yamal sold almost all its nameplate capacity of 16.5 million tons/yr under oil-linked long-term contracts, but as it is expected to produce around 21 million tons this year, the extra spot cargoes significantly strengthen Yamal’s and Novatek’s financial positions, Mikhelson said.

No Gas Opec Needed

Although Novatek believes that high prices are not good for the industry, it doesn’t believe the prices could be regulated, as they are on the oil market, through the Opec-plus agreement, Mikhelson said.

The Doha-based Gas Exporting Countries Forum (GECF), uniting 19 member-states and observers, including Qatar and Russia, could potentially become an Opec-style gas market regulator, but the organization has repeatedly said it was not going to become a “gas Opec.”

No “gas Opec” is possible without Qatar, the largest LNG exporter, and Doha doesn’t seem to be interested, according to Mikhelson.

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

Adnoc to Explore LNG Supplies to India’s Gail

Abu Dhabi National Oil Co. (Adnoc) and India’s state-owned gas pipeline utility Gail India, Monday signed an initial pact to explore short and long term LNG sale agreements.

The companies also agreed to explore optimization of LNG trading activities and joint equity investments in renewables and the monitoring of greenhouse gases for LNG cargoes to support low carbon LNG supplies.

India's Struggles

India, the world's fourth-largest LNG importer, has been struggling to get term suppliers to commit to long-term deals.

India currently does not have a term deal with the UAE but the Middle Eastern nation accounted for 14% of India's imports for the January-August period of the current year, according to Indian federal commerce ministry data.

Gail, which has an LNG portfolio of 14 million tons a year from the US, Qatar, Australia, and Russia, is struggling as its term deal with Gazprom’s German subsidiary has been disrupted after it was taken over by Germany. It has been scouting for an immediate term deal for at least 1 million tons/yr.

Adnoc's Strategy

State-owned Adnoc currently has one 5.8 million ton per year liquefaction facility on Das Island in the Mideast Gulf, but is also also building a 9.6 million ton/yr scheme in the emirate of Fujairah, which is likely to start up around 2026.

Adnoc recently signed an LNG supply deal with Germany, also signed a deal with Austria's OMV, and sent its first cargo to Spain in a decade.
Rakesh Sharma, New Delhi


In Brief

New Fortress Finalizes Agreements With Mexico Utility

New Fortress Energy (NFE) has finalized agreements with Mexico’s state-owned electric utility, the Comision Federal de Electricidad (CFE), to deepen its involvement in a number of the latter’s projects around the country.

Under the agreements, NFE will create a new floating liquefied natural gas (FLNG) hub in the waters off the Gulf Coast state of Tamaulipas at Altamira.

The FLNG hub will include multiple FLNG units of 1.4 million tons per year each that utilize CFE’s existing firm pipeline transportation capacity on TC Energy’s Sur de Texas-Tuxpan Pipeline to deliver feedgas volumes to NFE.

NFE’s first FLNG unit, which is under construction at the Kiewit Offshore Services shipyard near Corpus Christi, Texas, is currently expected to achieve mechanical completion in March 2023, the company said. It will be delivered to Altamira for commencement of operations soon thereafter.

As part of the agreements, CFE is to share in the production and marketing of a portion of the LNG volumes from the new Altamira hub.

In the press release, New Fortress CEO said that the agreements would “expand [the company’s] strategic alliance with CFE.”

The agreements will be signed at a November 3 ceremony in Mexico City with Mexican president Andres Manuel Lopez Obrador, the press release said.

This has been a year of intense activity for NFE in Mexico. In addition to its collaborations with CFE, in July, NFE announced that the $1.5 billion Lakach deepwater gas field off the coast of Mexico's Veracruz would be fully operational by the end of 2023.
Michael Deibert, Washington

Taiwan's CPC Hikes LNG Rates Once Again

State-owned CPC Taiwan hiked its price to supply LNG to power generators by 5% effective Nov. 1, according to a corporate announcement.

A 5% hike is fast becoming a regular monthly occurrence.

As a result, LNG sold by CPC to the state-owned Taiwan Power and six independent power producers, which use LNG as fuel will rise to NT$21.38 (US$0.66) per cubic meter compared to NT$20.36 per cubic meter during September.

The new rate represents an 85.3% rise from February 2022 when CPC sold LNG to power producers at a rate of NT$11.54 per cubic meter. According to CPC data, in the wake of the Russian invasion of Ukraine Feb. 24, its costs for LNG have risen 84.8% from NT$9.92 per cubic meter in February to NT$18.32 per cubic meter in September.

Industrial users will continue to pay NT$12.78 per cubic meter while households and other "public use" LNG consumers will continue to pay NT$12.09 per cubic meter. Neither category has been adjusted since May 2021, according to the CPC website.

A CPC spokesperson said the hike would bring the state-owned firm an additional NT$4.6 billion in revenue through the end of 2022.

Taiwan`s imports of LNG rose 5.25% during the first eight months of 2022 compared to the first eight months of 2021 with the main sources of supply being Australia, Qatar and the United States, according to Bureau of Energy data.
Dennis Engbarth, Taipei

Cove Point LNG Returns After Maintenance

Cove Point LNG restarted operations Oct. 28 ending a month-long planned outage for routine maintenance.

The Maryland-based export project on Chesapeake Bay has taken in almost 3 billion cubic feet of gas, or about 744 million cubic feet per day, since resuming operations. Based on heavy utilization of Cove Point liquefaction capacity before the planned closure, the maintenance potentially sidelined more than 20 Bcf of US gas demand.

The US Energy Information Administration reported that US LNG feedstock demand averaged 11.5 Bcf/d last week, implying that feedgas demand could average close to 12.4 Bcf/d this week. Once the now idle 2.1 Bcf/d Freeport LNG terminal in Texas restarts operations, average LNG gas needs could easily top 14 Bcf/d.

Berkshire Hathaway Energy, which operates Cove Point and owns 25% of the facility, said that the maintenance had been completed in an Oct. 28 informational posting. The other Cove Point partners are Dominion Energy (50%) and Brookfield Asset Management (25%). India’s Gail and a joint venture of Japan’s Sumitomo and Tokyo Gas have rights to the output under 20-year contracts.

US natural gas prices surged above $6 per million Btu on Monday due partly to Cove Point’s return, but also on expectations that Freeport LNG will resume at least some LNG production in early to mid-November.

That possibility has been reinforced by Refinitiv data showing at least four vessels have been scheduled to pick up LNG at Freeport; two of them waiting offshore and two en route. Gas intake at Freeport remained at zero on Monday.
Tom Haywood, Houston


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India25.5026.3425.1726.4024.1724.0227.6522.5527.4125.3423.5522.7723.68
Sodegaura, Japan24.4427.9227.9428.3123.9714.3226.8220.6926.4829.2022.1719.6224.65
Zeebrugge, Belgium8.514.413.224.727.218.076.453.246.113.377.434.887.67
Huelva, Spain31.0126.8125.5827.1329.5928.9028.8725.3728.5525.7429.6426.7529.66
Isle of Grain, UK6.462.371.192.675.246.004.701.224.081.345.392.855.62
Everett, US1.12-3.14-2.26-2.820.30-0.280.01-0.72-1.37-4.231.70----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback30. May13. Jun27. Jun11. Jul25. Jul8. Aug22. Aug5. Sep19. Sep3. Oct17. Oct31. Oct10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia30.0030.20-0.140.20
SW Europe27.5531.78-1.504.23
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.676.365.685.20
NBP, UK (futures)+6.2334.5028.2721.02
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-1.558.249.799.27
Zeebrugge (Belgium)----8.606.31
German NCG-0.1810.8611.0410.47
NBP (UK)-1.487.589.064.70
US Markets
US Spot Prices
Sabine Pass, Louisiana0.125.044.924.81
Corpus Christi, Texas0.104.654.554.76
Cove Point, Maryland-0.183.053.233.86
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.676.365.685.20
Second Mth0.656.615.955.75
Third Mth0.596.385.796.03
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Nov …0255075100125Energy Intelligence