November 11, 2022

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Tanzania Gears Up to Sign Host Government Deal with Shell and Equinor

Tanzania is gearing up to sign a host government agreement (HGA) with Shell and Equinor on the development of the $32 billion Tanzania LNG project.

The project would be built at Lindi on the Indian Ocean and help monetize the country’s proven deepwater gas reserves of around 57 trillion cubic feet.

In an interview with Bloomberg from the COP-27 summit in Sharm el-Sheikh, Tanzania’s energy minister January Makamba said a deal with the European duo would be signed in December.

“We are in the fiscal discussions now,” the minister said, stressing that the HGA would spell out the commercial terms of the project, including the division of future profits.

Neither company would comment on the planned timing for the agreement. Equinor says it “continues to engage with our partners and the Tanzanian government on the terms of agreements needed to progress the project,” while Shell is continuing discussions on various aspects of the proposed development, Energy Intelligence is told.

In June, Shell and Equinor signed a framework deal with the government in the capital, Dodoma, that sets out a target date of 2025 for a final investment decision (FID) on the project, and envisages start-up in 2029-2030. The agreement makes no mention of the planned size of the LNG terminal, which would be connected by pipeline to the deepwater fields

According to an independent study on the project carried out by South Africa’s Standard Bank for the Tanzanian government, the LNG terminal would have an export capacity of 15 million tons per year and would take up around 2.5 billion cubic feet per day of gas.

The study, a copy of which was seen by Energy Intelligence, proposes that Shell and Equinor each hold a 44% stake in the project, with state Tanzanian Petroleum Development Corp holding the remaining 12%. The gas would come from deepwater Blocks 1 and 4, operated by Shell in partnership with Pavilion Energy and Medco Energi, and from Block 2, operated by Equinor with ExxonMobil as the other partner. The study envisages around 36 development wells being drilled in total, with a 30-year production cycle and declines starting from 2053.

The project would be low-carbon with a major renewables component, the study says. This would help Tanzania and its partners raise external financing for the project, as both commercial and government lenders are reducing funding for fossil fuel projects
Paul Sampson, London

Freeport Restart Likely Delayed to January

Freeport LNG is not likely to return to service until at least January, two months later than the company's most recent target date. But given the dramatic changes in the LNG market since the 15 million tons per year (2.1 Bcf/d) export plant went offline, it's unclear how much market impact the delay will have.

"Early January is our guess," said Gary Kruse, managing director of research at DC-based consultancy Arbo, who closely follows US energy regulatory matters. A previous company forecast for a mid-November ramp-up no longer appears likely.

Freeport has not even been able to provide a restart plan that incorporates lessons learned from from the failures that caused the Jun. 8 explosion. "The ball is in Freeport's court to get that restart plan finished," Kruse told Energy Intelligence, basing his view on meeting readouts from recent Federal Energy Regulatory Commission (FERC) filings.

He said that after a completed restart plan, it would take about 30 days for regulators to decide whether it is adequate, then another 15-30 days for Freeport to implement the plan. "They would have to recommission the facility, essentially" to test a lot of the systems and prove that they weren't damaged, Kruse said.

According to a regulatory filing, FERC staff participated in a call Nov. 3 with the US Department of Transportation's Pipeline and Hazardous Materials Safety Administration (PHMSA), along with Freeport LNG representatives. The call was used to discuss current activities at the Texas Gulf Coast site, "including ongoing damage assessments, repair work plans and plans for restart." FERC and PHMSA are the primary agencies that must approve the restart.

Freeport "indicated that remedial work plans and proposals are currently being developed that will include information on how [Freeport] intends to address the recommendations resulting from the root cause investigation report," the filing said.

That investigation was completed in 90 days, which impressed Kruse, who suggested the conclusion was "user error" of some kind.

Cargoes Await

In its latest statement, Freeport said it "continues to progress our work toward achieving the safe restart of our liquefaction facility this month," adding that "work includes completing the final repair and restoration efforts, completing required work plans and obtaining the necessary regulatory approvals required before safely restarting the facility."

Meanwhile, Kpler forecasts that four LNG carriers arriving at Freeport toward the latter part of November, including one at press time. Yet Kruse said that seems highly unlikely — especially given that Refinitiv data shows zero feedgas supply for the plant since June except for a 21-day period in July-August in which a small amount of gas was brought in for power generation.

Good Timing?

Freeport is expected to re-enter US and world gas markets that have changed significantly since the Jun. 8 explosion.

Freeport's outage happened at the start of summer gas storage builds on both sides of the Atlantic, and it led to a collapse in US gas futures prices as more supply was suddenly on hand. It upended markets abroad, sending European gas prices skyrocketing to record levels as the continent was nearer the beginning of an already steep uphill battle to fill gas storage for winter to create a buffer to Russian supply cuts.

But since Freeport went offline, the market has loosened considerably, and the storage buildout on both sides of the Atlantic is largely ready for winter. As a result, European LNG imports now facing significant bottlenecks in the form of full storage tanks and ships being used as floating storage.

Freeport's absence appears to have been fortuitously timed to avoid the European bottlenecks. Similar luck seems to have also favored the Cove Point LNG export terminal in Maryland when it returned from planned maintenance at the end of October.

Going forward, Freeport will now likely reenter world gas markets at the height of the Northern Hemisphere winter, adding extra momentum to winter US domestic gas prices while potentially providing some price relief to European countries facing winter without Russian gas supplies.
Michael Sultan, Washington

Disunity on Gas Price Cap May Sink EU Energy Reforms

Disagreement about whether Europe should aggressively cap natural gas prices is threatening to derail EU energy reforms on which there is broader agreement, as supporters of a price cap dig in their heels ahead of talks later this month.

The European Commission had been due to present some kind of mechanism for managing gas prices to EU ambassadors on Friday, sources told Energy Intelligence.

Instead, EU President Ursula von der Leyen sent them a letter saying that a "detailed outline of a proposal for a market correction mechanism" would be available in time for the next meeting of EU energy ministers on Nov. 24.

Supporters of a price cap pointed out that an "outline" would fall short of the detailed plans that energy ministers had asked the European Commission to present.

Czech Industry and Trade Minister Jozef Sikela, who has led energy reform efforts as part of the Czech Republic's six-month presidency of the EU, has expressed disappointment with the lack of progress.

At least 15 of the 27 EU member states have expressed support for some kind of price cap for natural gas.

Those countries don't necessarily all agree on the appropriate mechanism, but they do share a view that without a price cap Russian President Vladimir Putin will be able to use high energy prices to stoke social unrest in Europe.

However, opponents worry that a cap on prices would curb the flow of expensive LNG that has filled EU gas storage caverns in recent months, before the winter cold sets in.

Difficult Negotiations Ahead

Whether or not EU members can find enough common ground for action on gas prices will depend on negotiations over the next two weeks, which will not be easy.

Von der Leyen acknowledged the disagreement in her letter, writing that discussions this week "confirmed Member States' varying assessment of expected impacts and risks of a market correction mechanism."

Diplomats who will participate in the negotiations were more blunt.

"The points of view are still far from each other," warned one diplomatic source whose country favors some kind of price cap.

One source said European countries were being lulled into complacency by the "mirage" of lower prices, with wholesale gas and power prices in the region currently at their lowest levels of the year in many countries.

Late last month, supporters of a price cap were hoping to get all 27 member states to back a single approach to managing natural gas prices, even though such a measure could theoretically be passed with a qualified majority of 17 countries representing 65% of the EU population.

But unanimous agreement on a price cap now looks increasingly unlikely, and that also poses a potential threat to broadly popular measures such as efforts to rein in demand, joint purchases of LNG, sharing of gas during shortages and development of a new price benchmark for LNG.

Asked if there was a real threat of price cap supporters blocking such initiatives, one EU diplomat told Energy Intelligence: "That's exactly what they are saying."

Another diplomatic source pointed to Hungary's recent move to block €18 billion in aid to Ukraine because of a dispute about the European Commission preventing the transfer of EU funds to Hungary, citing this as evidence that "it is getting increasingly difficult to find a compromise" on contentious issues.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Noah Brenner, London

Petrobras Delivers Spot LNG Cargo to Spain as Brazilian Demand Lags

Brazil’s state-owned Petrobras is set to deliver an LNG cargo to Spain in the coming days as subdued demand in the South American country allows the company to dip its feet into the European spot market.

Unusual LNG tanker journeys have become a feature of Europe's current gas crisis, demonstrating the flexibility of the global LNG market.

The Petrobras cargo in question is on board the 155,000 cubic meter Cool Rider, which is currently waiting near the Strait of Gibraltar. Although the vessel has not broadcasted a concrete destination terminal, a Spanish market source with knowledge of the matter told Energy Intelligence that the cargo will be unloaded at Spain's Huelva terminal.

The source said that the buyer of the cargo in Spain is German utility RWE, which would suggest that Petrobras sold the cargo on a spot basis to the utility.

This would mark a rare cargo delivery by the Brazilian energy company into the Spanish market. The last time that a Petrobras-chartered vessel delivered a cargo to Spain was in October 2020, according to data by Kpler.

Nonetheless, it is reasonable to think that the Brazilian firm may had been involved in other cargo sales into Europe.

Sluggish Brazilian Demand

The cargo to Europe is yet another indication of sluggish LNG demand in Brazil, which enabled Petrobras to sell the cargo on the spot market, instead of delivering it to Brazil.

Brazil’s LNG demand is not expected to rise anytime soon, primarily due to global LNG prices remaining above domestic and regional gas prices, an LNG analyst at a trading house told Energy Intelligence.

The country has imported 1.88 million tons of LNG so far this year, according to Kpler. In comparison, during the full-year of 2021 Brazil received 7.09 million tons of LNG, which was mostly the result of a historic drought that slashed hydropower reservoirs and forced Petrobras to ramp up LNG imports (see graph).

LNG accounts for less than 15% of Brazil’s gas consumption, with domestic production covering about 61% of the country’s demand, while pipeline imports from neighboring Bolivia provide the remaining 27%.

Created with Highcharts 9.0.0(million tons)BRAZIL'S LNG IMPORTSUnited StatesTrinidad and TobagoNigeriaQatarNorwaySpainEquatorial GuineaAngolaOthers2018201920202021202202468Source: Kpler

Bizarre Voyage

What makes this delivery even more unusual is the cargo’s origin and the vessel’s rather strange voyage that eventually led it to the Spanish coast.

The Cool Rider lifted the cargo from Nigeria’s Bonny plant on Sep. 24 and subsequently headed to Brazil’s Salvador de Bahia terminal. This suggests that initially the cargo was likely purchased by Petrobras for delivery to Brazil, probably via a spot deal with Nigeria LNG. However, ship-tracking data by Kpler shows that the vessel did not berth at the terminal and after waiting several weeks outside the terminal, it sailed north in the Atlantic Ocean.

The vessel then headed to Curacao in the Caribbean Sea, but after anchoring offshore the island for a day, it suddenly turned east and headed back toward the Atlantic Ocean. Then, on Nov. 1, while sailing offshore northern Brazil, it turned northeast toward Europe. As of Nov. 11, the vessel is stopped just outside the Strait of Gibraltar, waiting to discharge its cargo.
Daniel Stemler, Madrid


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India19.4320.2619.1120.3318.1217.9821.5616.5321.3219.2817.5116.7517.65
Sodegaura, Japan18.4221.8521.8722.2317.958.4020.7614.7120.4323.1116.1713.6518.62
Zeebrugge, Belgium17.5713.3712.1413.6916.2417.1215.4512.1715.1112.3016.4613.8416.71
Huelva, Spain19.9915.9014.7016.2118.6017.9317.9014.4817.5914.8518.6515.8318.67
Isle of Grain, UK10.616.475.276.779.3710.158.835.308.205.429.526.959.75
Everett, US1.04-3.22-2.34-2.900.22-0.350.01-0.80-1.45-4.311.63----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback6. Jun20. Jun4. Jul18. Jul1. Aug15. Aug29. Aug12. Sep26. Sep10. Oct24. Oct7. Nov10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia24.0024.090.350.09
SW Europe20.1020.750.970.65
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.365.886.246.40
NBP, UK (futures)-4.4927.0431.5433.51
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-5.8420.8626.7017.90
Zeebrugge (Belgium)0.4812.0711.5910.14
German NCG-3.5421.8725.4117.55
NBP (UK)0.8611.8410.9811.84
US Markets
US Spot Prices
Sabine Pass, Louisiana----4.594.00
Corpus Christi, Texas----4.133.80
Cove Point, Maryland----2.750.70
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.365.886.246.40
Second Mth-0.356.266.616.75
Third Mth-0.326.026.356.53
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaDec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '220255075100125Energy Intelligence