November 1, 2022


Jera Plunges into Losses on Costly LNG Purchases

Japan’s largest LNG buyer Jera has posted a net loss in the first half of its fiscal year from April to September due to a greater reliance on spot purchases. The major power utility forecasts it would remain in the red for the full fiscal year.

Jera reported a net loss of 131.5 billion yen ($892 million) during the six-month period, compared with a 43.8 billion yen net income in the previous year. The utility sold 9.5% more electricity during the period, but it had to grapple with higher crude prices which rose by 42% to average $111.90 per barrel and a weaker yen exchange rate with the US dollar at 134 yen compared with 109.8 yen last year.

A spike in fuel prices and yen depreciation drove down Jera’s cash flows from operating activities to minus 691.5 billion yen and its net cash and cash equivalents to minus 131.9 billion yen.

Jera has been impacted by force majeure declared on exports from the 15 million ton/yr Freeport LNG facility in Texas, the US, following a fire in June, which is now expected to resume partial operations in November. Jera holds 2.2 million tons/yr in tolling capacity with Freeport Train 1 in which it owns a 25% stake. The Japanese utility also owns a 25.7% stake in Freeport LNG Development, the operator of the facility.

Jera has been forced to seek replacement cargoes by turning to the spot market whose prices have whipsawed following Russia’s invasion of Ukraine in February. Asian spot LNG prices have been tracking European gas hub prices at unprecedented high levels. The Asian spot price reference Japan Korean Marker (JKM) was assessed within a wide range of $20/MMBtu-$60/MMBtu during June-August, before prices started easing in September and reached current levels in the mid $20s/MMBtu.

Jera reduced its LNG consumption by 1.1% to 6.27 million tons in July-Sept, while it increased coal consumption to meet the requirements of the new 1.07 GW coal-fired Taketoyo No. 5 unit which started operations in August.

Created with Highcharts 9.0.0(million tons of LNG)(Percentage of total)JERA'S IMPACT ON JAPANJapan ImportsJera ImportsJera2015201620172018201920202021202202550751000%12%24%36%48%Source: Kpler

Higher Spot Exposure

Apart from Freeport’s outage, Jera has also been forced to buy more costly spot cargoes to replace a significant volume of Qatari term cargoes whose contracts were not renewed at end-2021. Jera had opted not to renew a total of 5.2 million tons/yr in term volumes, shrinking its existing Qatari term portfolio to a smaller 700,000 ton/yr contract sourced from Qatargas-3.

Jera earlier signed a new contract with the new operator of the Sakhalin-2 project in Russia’s Far East, which ensured security of its 2 million ton/yr contract.

Looking ahead, Jera forecasts a 200 billion yen net loss for the full fiscal year, compared with a net profit of 24.6 billion yen a year ago, of which 110 billion yen is attributed to the impact of the fire at the Freeport LNG terminal.

Japan's New Measures to Ensure Security

State-backed Japan Bank for International Cooperation (JBIC) said this week it has signed an agreement totaling 100 billion yen, co-financed with private financial institutions, with Jera. The loan would provide Jera with funds to import LNG and ensure Japan’s security with LNG supplies. JBIC said fuel prices continue to rise and a stable supply of electricity is an urgent issue for the lives of Japanese citizens and economic activities.

This marks the second loan JBIC has extended to Jera following a 130 billion yen loan agreement signed in early October.

JBIC loans for LNG procurement is one of the new measures introduced by the Japanese government ahead of a peak winter heating season. Tokyo recently allowed state-owned Japan Oil, Gas and Metals National Corp. (Jogmec) to buy LNG during emergencies. The government is now also allowed to ask major city-gas users to conserve gas usage during emergencies or LNG supply disruptions.

Japan’s trade and industry minister Yasutoshi Nishimura said Tuesday the government would be asking the public to conserve power this winter. The minister said Japan would have more than the minimum 3% reserve power supply capacity ratio this winter.
Clara Tan, Singapore

Short and Long Terms Dovetail at Adipec

More immediate LNG supply concerns dovetailed with longer-term questions at the Abu Dhabi International Petroleum Exhibition Conference, or Adipec, this week.

Petronet LNG CEO Akshay Kumar Singh told conference attendees that he believes natural gas will remain a major transition fuel for India for “at least the coming five decades," likely referring to India's 2070 net-zero pledge. India is targeting a 15% share for gas in its primary energy basket by 2030, up from less than half that percentage today.

But Singh, representing India's largest LNG importer, expressed his concern over the impact of high LNG prices.

“LNG will be a major source of energy in our country. But if prices are unaffordable, then there is much concern,” he said, adding that price volatility has caused about 10% to 15% demand destruction as consumers turn to cheaper alternative fuel.

Singh called on stakeholders and producers to stabilize prices and invest in downstream and upstream to avoid losing a “wonderful fuel that will play a key role in the energy transition."

Brutal Reminder

Technip Energies CEO Arnaud Pieton said that the ongoing energy crisis in Europe is a “brutal reminder of how much gas in the pipeline is not as flexible as LNG,” he told an Adipec panel.

Pieton also underlined the sense of urgency for more infrastructure in Europe, which has accelerated investment and allowed shorter processes.

“We see a vast acceleration for more LNG infrastructure in Europe. I would say it’s finally happening – we could have avoided this crisis had we done it earlier,” he said.

“The production of LNG can be vastly decarbonized as well as the whole natural gas value chain. It can be a transition fuel and it’s about time European countries realize this,” he said.

Long Term

“Gas and LNG are long-term commitments,” said Adnoc LNG CEO Fatima Al Nuaimi, adding that LNG is capital intensive and requires investments across the value chain.

Al Nuaimi underlined the fact that the LNG supply/demand situation will remain difficult until new capacities start to kick in — but there is a need for long-term solutions.

“This situation needs long-term vision and continuation to enable producers and investors to make solutions available,” she said.

Echoing Al Nuaimi, Pieton highlighted the need for LNG capacity, but that it is a turning point, as this is also coupled with a need for low-carbon solutions for the LNG infrastructure. “It’s a wonderful way to future-proof investments,” Pieton said.

Tackling energy security, Al Nuaimi noted that it is not a “one dimensional problem” and varies from one country to the other. “It is complex and should not be driven by emotion,” she said, highlighting again the need for the right infrastructure to ensure availability, security and sustainability of supply.
Yousra Samaha, Dubai

Russia's Pipeline Gas Exports to Europe Fall Sharply

Russia's pipeline gas exports to Europe (including Turkey) and China fell 42.6% to 91.2 billion cubic meters in the first 10 months of 2022, compared with the same period of 2021, Russian gas giant Gazprom reported on Tuesday.

Gazprom does not break out separate figures for Europe alone, but those volumes will have fallen even more steeply due to several factors, including Europe's efforts to curtail imports from Russia and Moscow's decision to restrict supplies to the region.

Meanwhile, pipeline gas exports to China have been growing in line with a contractual schedule to ramp up volumes to 15 Bcm this year from 10.4 Bcm in 2021.

In October, Russian pipeline gas exports to Europe (including Turkey) and China totaled just 4.3 Bcm, down 9% from September and down 67% from October 2021, according to Energy Intelligence calculations.

Europe is understood to have taken less pipeline gas from Gazprom in October than in September because it has high levels of gas in storage, the weather has been mild and imports of LNG have been running at high levels.

These factors pulled day-ahead spot gas prices down to the lowest levels in several months in October, making Gazprom's hub-linked contracts less attractive.

Russia's pipeline gas exports to Europe have been falling since the start of this year, but they have moved sharply lower since June when Gazprom slashed gas flows via the Nord Stream subsea pipeline to Germany.

Gazprom cut off all supplies via Nord Stream in late August, and in late September the pipeline was badly damaged by an apparent act of sabotage — exacerbating strained relations between Russia and the West over Moscow's war in Ukraine.

Turkish Supply Option

President Vladimir Putin told reporters late on Monday that Gazprom was recently able to inspect the damaged Nord Stream 1 and Nord Stream 2 pipelines beneath the Baltic Sea and concluded "it was obviously a terrorist attack."

He noted that it is difficult for Gazprom to gain access to the damaged lines because they run through Danish, Swedish and German waters.

With the Nord Stream export route out of the picture for the foreseeable future, Russia has shifted its focus to the Turk Stream export corridor via Turkey where Moscow and Ankara have been talking about creating a hub for gas sales to Europe.

Moscow says it is easier to work with Turkey, which belongs to Nato but has not joined international sanctions against Russia over the war in Ukraine.

"It is very difficult to deal directly with our European partners," said Putin, who has served as Russia's president or prime minister for more than 20 years — the equivalent of more than five US presidential terms.

Moscow also says that it is easier to exercise control in the Black Sea and prevent attacks on Turk Stream.

Putin expressed confidence that European countries would sign contracts for gas supplies via the proposed Turkish hub, which he described as a "perfectly realistic project" that can be accomplished "relatively quickly."

However, it's debatable whether there would be sufficient demand in Europe to support a Turkish hub, given potential infrastructure limitations, higher transportation costs and the EU's plans to phase out Russian gas imports by 2027.

"We will see what happens this winter and next winter," Putin said, referring to the uncertainty around European gas supplies over the next few years.

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

In Brief

Spot LNG Pricing Wanes

Northeast Asian spot LNG prices fell by $4 to $26 per million Btu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead. Spot prices in Southwest Europe dropped by $3.70 week on week to $23.85/MMBtu.

Tepid demand in Asia due to high inventories, ongoing fuel switching, economic headwinds and milder seasonal temperatures have all put a dampener on spot LNG prices. The expectation that the Freeport LNG plant in the US will restart as planned this month has also helped to drag prices lower.

China’s National Meteorological Centre released an orange warning of drought for several central and southern Chinese regions due to high temperatures. The Japan Meteorological Agency also forecast a 40% chance of higher-than-usual temperatures in November across the country which continues to hold record inventories for the year at 2.56 million tons of LNG.

In Southwest Europe, saturated import LNG terminals continue to push prices lower.

Created with Highcharts 9.0.0($/MMBtu)REGIONAL SPOT PRICESNortheast AsiaSouthwest EuropeNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Nov '…020406080Energy Intelligence

Daniel Stemler, Madrid and Marc Roussot, Singapore

Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India21.3322.1621.0022.2320.0119.8723.4618.4123.2221.1719.4018.6419.54
Sodegaura, Japan20.3023.7523.7724.1319.8410.2722.6516.5922.3225.0118.0515.5320.51
Zeebrugge, Belgium1.54-2.48-3.64-
Huelva, Spain23.0918.9717.7719.2821.6921.0220.9917.5520.6817.9221.7418.9121.76
Isle of Grain, UK3.84-0.21-1.390.082.633.392.10-1.361.48-1.242.780.263.01
Everett, US1.13-3.13-2.24-2.800.31-0.260.01-0.70-1.35-4.221.72----
Created with Highcharts 9.0.0($/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 Asia30.0026.00-3.89-4.00
SW Europe27.5523.85-7.84-3.70
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.645.716.365.61
NBP, UK (futures)-2.4232.1334.5521.28
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-
Zeebrugge (Belgium)--4.86--6.66
German NCG-4.186.6810.8613.29
NBP (UK)-2.545.057.593.45
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.554.495.045.19
Corpus Christi, Texas-0.953.704.655.10
Cove Point, Maryland-0.062.993.054.20
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.645.716.365.61
Second Mth-0.536.086.616.17
Third Mth-0.485.906.386.43
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Nov '…0255075100125Energy Intelligence