November 15, 2022

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Traders Cautiously Upbeat on New European LNG Benchmark

The prospect of a new European LNG benchmark has global traders feeling generally optimistic, although some market participants polled by Energy Intelligence raised questions about how much liquidity the pricing reference will attract.

The European Commission in October tasked the EU’s Agency for the Cooperation of Energy Regulator to develop a complementary pricing benchmark for the bloc’s LNG imports by Mar. 31, 2023.

Given Europe’s growing reliance on LNG over pipeline gas, the new benchmark – whoever wins the race to fill that role -- will serve as an alternative hedging option.

It would replace the current gas benchmark, the Dutch TTF, which has been assessed as not accurately reflecting the real market price for LNG transactions.

A Spain-based market source says that there will be a sufficient number of market players trading these LNG futures contracts, but it would take time for them to generate enough market liquidity to be potentially considered as benchmarks.

An LNG trading analyst at a Middle Eastern LNG exporter says that much will depend on how the major commodity trading houses such as Trafigura and Vitol view these contracts.

An LNG trader at a European utility believes that LNG future contracts are indeed viable options to fill the gap left by a complete lack of an LNG reference price in the region.

“The Atlantic LNG market right now does not have any good reference [price], so I think it makes sense,” he adds.

ICE, CME In Contention

Different exchanges and pricing agencies are racing to fill the role opened up by the need of a new LNG benchmark. The Intercontinental Exchange (ICE) will launch two cash settled LNG futures contracts for Northwest and Southwest Europe on Dec. 5 based on price assessments by Singapore-based pricing company Spark Commodities.

Similarly, rival commodities exchange CME launched in October its LNG North West Europe Marker futures contract based on Platts’ d.e.s. Northwest Europe physical price assessment.

Asia’s Interest

Establishing a European LNG benchmark price is also being watched closely by Asian LNG traders, as many currently use the TTF for hedging purposes due to the lack of liquid gas and LNG hubs in Asia.

To mitigate this year’s extreme pricing volatility, some market participants have been trying to hedge physical LNG cargoes through the price spread between the TTF and other European hubs such as the UK’s NBP or Italy’s PSV, but these didn’t fully reflect the price of LNG cargoes, a Chinese trader says.

“If the EU relies more on LNG cargoes, there should be some LNG indices,” he adds.


Daniel Stemler, Madrid

Germany Finishes First LNG Jetty In Wilhelmshaven

Germany has concluded construction of the country’s first LNG jetty in Wilhelmshaven, where one of the several floating storage and regasification units (FSRU) will be located, as Europe’s largest economy steps up efforts to reduce its heavy dependence on Russian gas supplies.

Work at the project site was completed in “just 194 days,” the ministry for economic affairs of Germany’s Lower Saxony region said Tuesday, with the site now ready for the arrival of the FSRU expected by the end of the year. The statement did not specify which of the various FSRUs obtained by the German government will be stationed in Wilhelmshaven.

“The new LNG terminal is a big step toward a secure energy supply,” said Olaf Lies, Lower Saxony's minister for economic affairs, adding that the “existing port infrastructure and the excellent general conditions have contributed to the project becoming a success story.”

Meanwhile, the region’s energy minister, Christian Meyer, stressed that the project’s long-term goal is to replace fossil fuel imports with climate-neutral green gases and “to make Wilhelmshaven a hub for green hydrogen and the import of renewable energies from the North Sea.”

Germany, Europe’s largest importer of Russian gas, is expected to install up to five FSRUs by end-2023, equivalent to around 16.2 million tons/yr, or 22 Bcm/yr, of new import capacity, Energy Intelligence calculated.

Besides Wilhelmshaven, other German LNG import projects are expected to begin operation during this winter. The 3.7 million ton/yr Brunsbuttel FSRU, operated by German utility RWE, and the 3.3 million ton/yr Lubmin FSRU project, developed by Deutsche Regas, are set to come online in December.

Another FSRU-based import project set to become operational in 2023 is being developed by Belgium-based Tree Energy Solutions (TES), utility E.On and France’s Engie, with the FSRU Excelsior being deployed by Excelerate to support those projects.

Daniel Stemler, Madrid

Slovenian Importer Geoplin Inks Gas Supply Deal With Sonatrach

Top Slovenian gas importer Geoplin has signed a mid-term supply agreement with Algerian state-owned oil and gas exporter Sonatrach, the companies announced Tuesday.

Although the companies did not disclose the agreed-upon volumes, this contract is likely to replace at least part of Geoplin’s gas supplies from Russia. The Slovenian importer’s five-year supply contract with Gazprom for 600 million cubic meters per year expires Dec. 31.

The contract covers a three year-period beginning Jan. 1 2023. Sonatrach will deliver the gas via pipeline through Tunisia and Italy, which then will enter the Slovenian gas grid at the Gorizia-Sempeter interconnector.

“The agreement on the supply of natural gas from Algeria is of strategic importance for Geoplin, which supplies natural gas to Slovenian industrial consumers and natural gas traders, as it represents a further diversification of Geoplin's already diverse portfolio of natural gas procurement sources and routes,” said Matija Bitenc, general manager of Geoplin, at the signing ceremony.

With this agreement, Sonatrach will regain a market share in the West Balkanian country, which it had supplied via the Enrico Mattei (or Trans-Mediterranean) gas pipeline between 1992 and 2012, the Algerian company said.

Looking Into LNG

Slovenia is also keen to diversify its supply portfolio through LNG purchases.

At an official state visit to Qatar in March, Jernej Vrtovec, Slovenia’s minister of infrastructure held bilateral talks with Energy Minister and QatarEnergy CEO Saad al-Kaabi over the potential shipment of LNG cargoes for the country.

According to the Slovenian infrastructure ministry’s statement at the time, the parties were discussing the possibility of a supply deal for up to two cargoes per year.

Slovenia does not have an LNG terminal of its own, but both the Rovigo and Krk terminals in Italy and Croatia, respectively, are located nearby in the Adriatic Sea.

There has been no official confirmation on whether any Slovenian energy companies, such as Geoplin, have been able to secure regasification capacity at any of these terminals.

Nonetheless, the fact that Croatia announced its intention to double the capacity of the Krk terminal suggests that there is likely robust market interest from companies to import LNG into the region.

Daniel Stemler, Madrid


In Brief

Sempra, Williams Eye Multi-Pronged Joint Venture

US pipeline giant Williams and LNG developer Sempra Infrastructure are teaming up to deliver additional Haynesville Shale gas to planned LNG export terminals along the US Gulf Coast.

Under a non-binding heads of agreement (HOA), the companies plan to form a joint venture to own, expand and operate the Cameron Interstate Pipeline that is expected to ship gas to the proposed Cameron LNG Phase 2 in Hackberry, Louisiana.

Additional pipelines are also expected to be owned by the joint venture, including the Louisiana Connector Pipeline that would deliver gas to Sempra’s proposed Port Arthur LNG export terminal in Texas.

The HOA also contemplates a separate gas sales agreement for about 0.5 billion cubic feet per day (Bcf/d) to be delivered as feed gas for the two LNG projects.

Williams said the transactions complement its recently sanctioned Louisiana Energy Gateway (LEG) gathering project, which will gather 1.8 Bcf/d of gas produced in the Haynesville starting in late 2024.

The HOA also contemplates two 20-year sale and purchase agreements for 3 million tons per annum (Mtpa) of LNG from the two terminals, although no offtaker was disclosed.

Mark Davidson, Washington

China's Domestic Gas Output Up, Imports Down

China’s domestic natural gas production in October was 18.5 Bcm, an increase of 12.3% compared to the same period last year, with an average output of 600 MMcm/d, continuing this year’s production growth trend.

According to the latest data from the National Bureau of Statistics of China, the country produced a total of 178.5 Bcm of gas in the first 10 months, up 6% compared from the same period last year. China’s domestic production is expected to grow to 220 Bcm in 2022, from 207.6 Bcm last year, a government report said.

The National Energy Administration of China mentioned in a press conference Monday that with the arrival of the heating season, it will “make every effort to promote the increase of oil and gas storage and production” and urge gas companies to sign supply contracts with local governments.

At the same time, China’s natural gas imports continues to decline. By the end of October, China imported 88.74 million tons of natural gas this year, a drop of 10.4% year on year. An official from CNPC told a gas conference that China is expected to have a first-ever decline in gas consumption this year.
Staff Reports


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India17.8618.6817.5418.7516.5616.4219.9714.9819.7317.7115.9615.2016.09
Sodegaura, Japan16.8620.2720.2920.6516.406.9319.1913.1918.8621.5214.6412.1317.07
Zeebrugge, Belgium14.5410.399.1710.7013.2214.0912.459.2012.119.3313.4510.8613.69
Huelva, Spain23.8419.7218.5220.0422.4421.7721.7418.3021.4318.6722.4919.6622.51
Isle of Grain, UK11.237.105.907.4010.0010.779.455.948.836.0610.157.5910.38
Everett, US4.06-0.220.670.113.242.660.012.221.56-1.314.65----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback13. Jun27. Jun11. Jul25. Jul8. Aug22. Aug5. Sep19. Sep3. Oct17. Oct31. Oct14. Nov10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia24.0022.50-1.17-1.50
SW Europe20.1024.603.944.50
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.106.035.936.14
NBP, UK (futures)+3.0635.1532.0833.37
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF1.8235.1833.3627.90
Zeebrugge (Belgium)------10.63
German NCG1.8333.1331.3024.36
NBP (UK)0.7112.4611.7611.40
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.255.906.153.93
Corpus Christi, Texas0.145.335.193.64
Cove Point, Maryland0.166.476.313.08
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.106.035.936.14
Second Mth0.106.406.306.52
Third Mth0.096.146.056.27
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaJan '22Mar '22May '22Jul '22Sep '22Nov '220255075100125Energy Intelligence