November 3, 2022

WWW.ENERGYINTEL.COM

Cheniere, Sempra Continue to Advance Liquefaction Buildouts

US LNG incumbents Cheniere and Sempra set out even more ambitious export expansions Thursday as both appear able to look past the current gas market volatility and plan for the future.

"We are largely insulated from these price swings, given the highly contracted nature of our business," said Jack Fusco, President and CEO of Cheniere. "We remain focused on long-term value creation as our priority with short-term market dislocations only serving to accelerate our long-term plans."

The company even has price escalators in all of its contracts to handle rising inflation.

Cheniere Expansions

Fusco sees his company's 55 million ton per year portfolio at two Gulf Coast export sites growing by another 30 million tons/yr.

He noted the "great start" at building Corpus Christi Stage 3, the seven-train, 10 million ton/yr expansion that saw a final investment decision (FID) back in June. He is already looking for "signs of potential acceleration" for the Texas project, which is 12% completed with first LNG expected in late 2025.

Fusco is looking for regulatory approval for Trains 8 and 9 in time to just keep right on building after completion of Trains 1-7.

The company also reported the completion of commissioning of a third marine berth at its operating Sabine Pass terminal in Louisiana, which does several things for Cheniere, including providing operational flexibility as well as support for future expansions.

Eyes on Europe

Cheniere is riding out the European gas emergency well — out of 156 cargoes the company exported in the third quarter, 70% went to Europe, in contrast to less than 30% in the third quarter of last year.

Anatol Feygin, Cheniere's chief commercial officer, pointed out that his company was responsible for about 25% of European LNG imports this year, including the first cargo at the new Eeemshaven import terminal in the Netherlands.

Going forward, "we think Europe is in no way out of the woods without that pipeline flow [from Russia]," said Feygin, adding that despite the ongoing buildout of US export capacity, "molecules for Europe will be very difficult to come by over the coming years."

That is partly because Europe will continue to play second-fiddle to Asia in the LNG market. "European-based buyers will be part of the portfolio," said Feygin, but "we do see the Asian market as the primary growth driver and the primary long-term contracting opportunity."

Sempra Expansions

After relegating the 13.5 million ton/yr Port Arthur LNG to the "back burner" as recently as last summer, Sempra said Thursday that the project is now expected to take FID on a 10 million ton/yr Phase 1 in the first quarter of 2023, with active marketing of Phase 2 under way.

"The strategic advantage of Port Arthur is the potential scale of the development opportunity" with up to eight liquefaction trains, said Sempra Chairman and CEO Jeff Martin. "If you ever got that far, and obviously, that's well into the future, it would be the largest export project in the Western Hemisphere. So it really has the ability to scale quite nicely."

Sempra has roughly 12 million tons/yr worth of offtake under heads of agreement for the 10 million ton/yr Port Arthur, Phase 1, the excess of which could be assigned to Phase 2, or the company's 6.75 million ton Cameron LNG Phase 2. Several Sempra executives cited "strong inbound interest" on Phase 2.

On Port Arthur Phase 1, the company is going about an engineering, procurement and construction (EPC) contract refresh, with "financing workstreams underway." Marketing is going at a "rapid pace" to the point where Sempra is confident that its heads of agreement can be converted to firm sales and purchase agreements.

Martin said he would like to build Phase 1, then directly move on into building Phase 2 without demobilizing the workforce. He said a lot more detail on Port Arthur Phase 2 would be available in February.

Meanwhile, Cameron Phase 2 is expected to see completion of a competitive front-end engineering and design process during the summer of 2023. The company expects "to take FID shortly thereafter."

Elsewhere, the 3.25 million ton/yr Energia Costa Azul Phase 1, on Mexico's Pacific Coast, is on budget but slightly behind schedule, and is now expected to start up in mid-2025.
Michael Sultan, Washington

Topped-Up Spanish LNG Terminals Force Another Cargo Diversion

Congested LNG terminal tanks in Spain have caused another cargo delivery cancellation to the country, on Nov. 3, this time involving the Cartagena terminal.

Spain has been struggling to receive cargoes in recent weeks as storage tanks at the country’s six operational terminals have been filled to their maximum capacity, while subdued demand limits send-out from the terminals.

The saturated storage tanks have been causing severe delays in cargo discharges, forcing vessels to wait longer before they are able to unload their cargoes.

Spain's struggle is part of a larger European backup involving LNG cargoes in the wake of reduced pipeline gas flows from Russia.

Previous Cancelled Cargo

Spain's situation already resulted in a cargo delivery cancellation on Oct. 21, Energy Intelligence reported last week.

Last week, the 150,000 cubic meter Ob River, laden with what was the first cargo from the United Arab Emirates to Europe in a decade, was initially nominated to unload at Spain’s Huelva terminal on Oct. 25. However, after waiting for around two weeks in the Alboran Sea, the delivery to the southern Spanish terminal was cancelled and instead the ship discharged its cargo at France’s Dunkirk terminal on Oct. 26, according to ship-tracking data by Kpler.

As terminals in Spain remained full, another cancellation is understood to have occurred on Thursday, Nov. 3.

Latest Cancelled Cargo

The November 3rd cargo in question is being transported by the 165,000 cubic meter Energy Glory, which lifted it from the US Cameron export plant on Oct. 20, according to Kpler.

A Spanish cargo arrival schedule obtained by Energy Intelligence showed that the cargo was sold by Japanese trading company Marubeni — who is supplied by French major TotalEnergies with volumes from Cameron via a long-term supply contract — to German utility RWE.

The cargo, which was likely sold on a spot basis by Marubeni to RWE, was originally expected to be delivered to the Cartagena terminal on Nov. 2, but this week the unloading date was moved to Nov. 10.

However, a source active on the Spanish market told Energy Intelligence that on Thursday afternoon, the ship was ordered to leave the Cartagena anchorage and proceed to the Gate terminal in the Netherlands.

Due to the topped-up terminal storage tanks, RWE was most likely unable to receive the cargo in Cartagena and instead it diverted it toward the Dutch terminal, where the utility also has regasification capacity.

And indeed, Kpler showed the vessel leaving the anchorage of Cartagena late Thursday afternoon, heading southwest in the Mediterranean Sea.

Rare Marubeni Cargo

The delivery by the Energy Glory would have marked a rare sale into Spain by Marubeni as the Japanese trading firm is understood to only occasionally sell cargoes into the Spanish market.

But it would not have been the first cargo delivered by a sogo shosha — the Japanese denomination for a trading company — to Spain this year, as Mitsui was already involved at least three cargo sales into the Iberian country between January and March, according to the cargo arrival schedule seen by Energy Intelligence.
Daniel Stemler, Madrid

Sakhalin-2 Seeks to Extend Resource Base Life Cycle

The Sakhalin-2 project in Russia’s Far East is shifting its upstream strategy. The object of the shift is to extend the life cycle of the resource base for its 11 million-plus ton per year LNG plant, the operator Sakhalin Energy said in a corporate bulletin.

Russia's Far East LNG operations are critical to reaching key Asian markets which have become all the more important after the loss of European markets.

The company plans to move away from a “maximum recovery” to a “rational development” approach. The latter is needed to ensure the stability of LNG production and extend the period of continuous production from the mature Lunskoye field, Sakhalin Energy Technical Director Timur Gafarov was quoted as saying.

The main feeder field for the Sakhalin-2 LNG plant, Lunskoye produced more than 16 billion cubic meters of gas last year, or an average 44.63 MMcm/d, according to Sakhalin Energy data. The project’s other operational offshore field, Piltun-Astokhskoye, mainly produces oil.

Natural Decline

Due to natural production declines, Lunskoye, launched in 2008, might not be able to supply enough gas to the LNG plant starting in 2028, which prompted Gazprom to accelerate exploration offshore Sakhalin Island, including at its separate Sakhalin-3 offshore upstream project which in theory can also feed the Sakhalin-2 LNG plant.

Sakhalin Energy is also exploring untapped deposits of the Lunskoye and Piltun-Astokhskoye fields, including reservoirs in their lower layers, to maintain production.

Sakhalin-2 produced 10.4 million tons of LNG in 2021, down 10% from 2020 due to a major summer maintenance that lasted more than a month. This year, LNG production is expected to be bigger, as the project’s 10-month gas production already increased 12.9% on the year to 15.2 Bcm, according to sources.

The project hit record LNG production in 2017, when it produced 11.49 million tons, well above its nameplate capacity of 9.6 million tons/yr.

Limited Resources

The developed gas resources offshore Sakhalin are quite limited, which is the main reason why Gazprom’s plans to expand the LNG plant by another 5.4 million tons/yr have been shelved. Gazprom might send part of the Sakhalin-3 resources via pipeline to China under the 10 Bcm/yr contract signed with China National Petroleum Corp. (CNPC) in February this year, although it also is considering using East Siberian resources for these supplies.

The nearby Sakhalin-1 consortium has planned to send its gas to the proposed 6.2 million ton/yr Russia Far East LNG (RFE LNG) plant, but the fate of the project is now unclear, following the withdrawal of Exxon Mobil and the recent Kremlin-requested transfer of operatorship from the US major to a subsidiary of Russian state-run oil major Rosneft.

Russia-registered Sakhalin Energy also became the operator of Sakhalin-2 after the Kremlin demanded a shift of operatorship from the Bermuda-registered Sakhalin Energy Investment Co. to a domestic legal entity.

As a result of the transfer, Shell has lost its 27.5% minus one share stake in Sakhalin-2, as it refused to be a shareholder of the new operator, while Japan’s Mitsui and Mitsubishi agreed to retain their respective 12.5% and 10% stakes. Gazprom holds a 50% plus one share stake and Russia is preparing to sell Shell’s stake to a new investor, most likely to privately owned Novatek.
Staff Reports


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India21.3322.1621.0122.2320.0219.8723.4618.4223.2221.1719.4118.6419.54
Sodegaura, Japan20.3123.7523.7724.1319.8410.2722.6616.5922.3225.0118.0515.5320.51
Zeebrugge, Belgium17.7313.5412.3113.8616.4117.2815.6212.3415.2812.4716.6314.0216.88
Huelva, Spain30.8726.6725.4426.9929.4428.7528.7225.2228.4125.5929.4926.6129.51
Isle of Grain, UK11.617.476.267.7710.3711.159.836.309.206.4210.527.9510.75
Everett, US0.13-4.12-3.24-3.79-0.69-1.260.01-1.70-2.35-5.210.71----
Created with Highcharts 9.0.0($/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 Asia30.0026.00-0.22-4.00
SW Europe27.5531.64-1.914.09
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.295.986.275.19
NBP, UK (futures)+0.6734.7834.1224.11
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF10.1422.2812.1410.65
Zeebrugge (Belgium)-2.0012.8314.83--
German NCG10.5123.8913.3812.48
NBP (UK)-1.6212.8414.467.26
US Markets
US Spot Prices
Sabine Pass, Louisiana0.114.654.545.30
Corpus Christi, Texas0.744.253.514.75
Cove Point, Maryland-1.941.143.084.47
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.295.986.275.19
Second Mth-0.266.336.595.88
Third Mth-0.246.146.376.14
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaNov '21Dec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '220255075100125Energy Intelligence