November 22, 2022


Gazprom Blames Europe for Destabilizing LNG Market

European countries have destabilized the global LNG market and undermined energy security, Russian state-run pipeline gas exporter Gazprom said in a statement on Tuesday.

Gazprom is widely accused in Europe of contributing to the energy crisis by restricting its own supply in 2021 and most notably in 2022, after Russia’s invasion of Ukraine in February.

But Moscow insists the crisis is a result of Europe’s overreliance on spot LNG and renewables, reluctance to sign more long-term deals with Gazprom and opposition to Gazprom’s new pipeline projects such as Nord Stream 2.

While Gazprom restricted its own supply, either for commercial or political reasons, Europe has also been seeking to gradually reduce its reliance on Gazprom, with a goal to phase out Russian pipeline gas imports by 2027.

European Premium

Europe’s lower imports of Russian pipeline gas led to higher demand for LNG on the continent, which resulted in a significant European price premium, compared to Asian prices, Gazprom said in the statement, following a board meeting to discuss prospects in the LNG market.

The premium prompted some suppliers to violate their contractual obligations and redirect LNG cargoes to Europe, provoking a gas deficit in several Asian countries, including India, Gazprom argued.

Record-high prices did not however result in more final investment decisions on new LNG production capacity this year, as the buyers, mainly European, remain reluctant to sign long-term supply contracts and most buyers and investors are not ready to take a risk amid the uncertainty of the volatile gas market, the Russian gas giant added.

Gazprom Keeps Eye on LNG

LNG remains one of the key areas of supply diversification for Gazprom, the company said.

The board instructed the management to continue work to implement LNG projects, it said.

The company now controls the 11 million-plus ton per year Sakhalin-2 liquefaction plant in Russia’s Far East, launched in 2009. In September this year, Gazprom also started production at the 1.5 million ton/yr Portovaya LNG facility in northwestern Russia.

The company is keeping plans to launch a 13 million ton/yr LNG facility as part of the 45 billion cubic meter gas processing plant in Ust-Luga, also in northwestern Russia, where construction started last year but may be complicated by the EU’s technology sanctions and withdrawal of key engineering partner, Germany’s Linde, due to the war in Ukraine.

Gazprom also seeks to expand its small-scale LNG business in Russia, with an eye on supply to off-grid consumers and the use of LNG as motor fuel, it said.

The Portovaya launch also favors Gazprom’s LNG bunkering ambitions. Russia’s first ever LNG bunkering vessel Dmitry Mendeleev, managed by a bunkering subsidiary of Gazprom Neft, Gazprom’s oil arm, in September started to provide bunkering services to LNG-fueled ships, Gazprom said.

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

New Fortress Rolls Out LNG Scheme Tailored for Mexico

Mexico’s fledgling LNG export sector advanced this week as New Fortress Energy (NFE) announced it has finalized agreements with Mexico’s state-owned oil company to create an integrated LNG export project off Mexico’s southeastern Gulf coast near Veracruz.

NFE’s agreement with Petroleos Mexicanos (Pemex) — coming as many industry leaders are skeptical of Mexico's planned LNG buildout — gets the blessing of President Andres Manuel Lopez Obrador as it checks a number of boxes for the populist leader. It also avoids the major pitfall most LNG export proposals face in Mexico, including NFE’s FLNG Hub proposal offshore Altamira: access to available gas supply.

Rather than sourcing gas from Mexico’s pipeline grid, NFE will secure supply by developing the Lakach deepwater gas field, which Pemex discovered in 2007 but ceased developing in 2014.

Now considered a stranded asset, Lakach and two nearby gas fields contain an estimated 3.3 trillion cubic feet of reserves. NFE and Pemex estimate that Lakach will produce the needed gas for about a decade — longer if the other gas fields are tied in.

NFE has agreed to drill seven offshore wells at Lakach over the next two years and will deploy its 1.4 million ton per year capacity Sevan Driller FLNG unit to liquefy more than 125 million cubic feet per day of produced gas, which it will buy from Pemex at a contracted rate. Pemex will sell the remaining gas volumes and natural gas liquids to its customers onshore.

Altamira's Woes

NFE’s project at Altamira isn’t as likely to succeed. The problem: it proposes to source gas from the currently underused Sur de Texas marine pipeline. But this requires securing capacity on the pipeline from the Comision Federal de Electricidad (CFE), which has long-term plans for the capacity.

There are some elements in NFE's favor. In return for access to CFE supply at Altamira, NFE would sell its 135 megawatt La Pax power plant in Baha California Sur and bolster gas supply to the state utility's power plants on the peninsula.

That trade-off could entice the Lopez Obrador administration to allow NFE to deploy two or more FLNG units of 1.4 million tons/yr each offshore Altamira. The FLNGs could also sail away once CFE needs to reclaim capacity.

"I hope they're going for a short-term contract," a Mexico City-based natural gas marketer told Energy Intelligence on the sidelines of last week’s US-Mexico Natural Gas Forum in San Antonio. "They still have a lot of things to figure out before actually closing long-term deals [for LNG]."
Tom Haywood, Houston

EU Proposes Gas Price Cap of €275 Per Megawatt-Hour

The EU has bitten the bullet and proposed a cap on European wholesale gas prices of €275 per megawatt hour (about $83/MMBtu), but it's far from certain that EU energy ministers will approve it when they meet to consider the divisive issue on Thursday.

The proposed price cap is perhaps the most controversial of the EU's various policy responses to a surge in gas and electricity prices this year, triggered by a sharp fall in Russian gas supplies against the backdrop of the war in Ukraine.

The EU's 27 member nations have been deeply divided over the idea of a price cap and businesses that are active in the gas market have been more or less unanimous in resisting regulatory intervention in the market.

Nations such as France, Italy and Spain view a price cap as an essential measure to offer much-needed relief to European industry and to households who have been struggling to pay their energy bills.

But others such as Germany and the Netherlands have warned that placing an upper limit on prices could drive up consumption of gas and prevent Europe from competing in the global marketplace for LNG imports.

In the end, by setting the proposed price cap at such a high level, the European Commission may have opted for a compromise that will leave both camps dissatisfied.

To be adopted a price cap would require the support of a qualified majority of 17 countries representing 65% of the EU's population.

"Mechanism of Last Resort"

EU Energy Commissioner Kadri Simson, presenting the proposal on Tuesday, described it as "a mechanism of last resort to prevent and, if necessary, address episodes of excessively high prices, which are not in line with global price trends."

She emphasized that it is "not a regulatory intervention to set the price on the gas market at an artificially low level."

The mechanism would initially be put in place for one year from Jan. 1, 2023 and it would be triggered if the settlement price of the front-month Dutch TTF gas futures contract — Europe's de facto benchmark gas price — hit €275/MWh.

But two additional conditions would also have to be met: the front-month TTF price would have to remain above that level for two weeks; and it would also have to remain €58 higher than an international LNG reference price for 10 consecutive trading days.

Those conditions would not have been satisfied at the height of the surge in European gas prices in August of this year, when the front-month TTF contract peaked at around €350/MWh but only exceeded €275/MWh for half a dozen days.

Importantly, the measure would apply only to the front-month TTF futures contract and would not include spot and over-the-counter (OTC) transactions. Some commentators have argued that this would limit its impact on European gas prices.

Despite the sharp drop in gas supplies from Russia this year, Europe stepped up its imports of LNG and has done a good job of filling up its gas storage facilities ahead of the winter heating season. Mild autumn weather also lent a helping hand.

As a result, the region's gas prices have fallen considerably from their summer peak, with the front-month TTF contract closing at €124.5/MWh on Tuesday.

Nevertheless, prices remain well above historical levels and there are concerns that Europe could find itself short of gas again heading into the winter of 2023-24 and may find it more difficult then to fill up its storage facilities again.

Tom Pepper, Brussels

Jera Inks MOUs for Ammonia Transportation

Japan’s largest power utility and major LNG buyer Jera has inked memorandums of understanding with Japanese shipowners NYK and Mitsui OSK Lines for cooperation in transportation of ammonia to Japan.

Jera is looking to set up an ammonia supply chain for co-firing 20% ammonia at its existing Hekinan Unit 4 coal-fired power plant which has a power capacity of 1 GW.

Cleaner coal-fired power plants could undermine future demand for gas-fired power, which in Japan is fueled by LNG imports. LNG importer Taiwan is also exploring ammonia co-firing.

Jera said larger vessels are needed to enable low-cost procurement of ammonia in the volumes necessary for power generation. The MOUs cover joint examination of ways to develop large ammonia-fuel carriers, build a transportation and receiving system for ammonia, and install and operate propulsion engines that use ammonia as fuel.

Jera earlier announced plans to advance co-firing ammonia by one year to fiscal 2023 starting April 2023 due to good progress at a demonstration plant. It expects to buy 30,000-40,000 tons of ammonia in the following year starting April 2024.

Jera targets to achieve commercialization in the late 2020s at the Hekinan Unit 4 unit which is expected to be the world’s first demonstration project for a large amount of ammonia to be co-burned at a large-scale commercial coal-fired power plant.

Earlier this year, Jera issued a tender seeking 500,000 tons/yr of commercial ammonia supply starting 2027 until the 2040s.

The Japanese player is also working with ConocoPhillips and Uniper to produce 2 million tons/yr of ammonia on the US Gulf Coast for export to Europe.
Clara Tan, Singapore

In Brief

Spot LNG Pricing Jumps

Spot LNG prices in Northeast Asia jumped by $4.50 to $27 per million Btu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead. Spot prices in Southwest Europe also rose by $2.20 to $26.80/MMBtu.

Asian spot LNG prices largely strengthened on high-priced bilateral deals closed in recent days on the S&P Platts market-on-close window.

Buyers are also weighing the possibility of temperatures dropping later in the season.

“If the weather turns colder for Northeast Asia, it is safe to assume potentially higher consumption. It really depends on the severity of the weather. Too early to say,” a trader said.

The market is also digesting the news that the 15 million ton per year Freeport LNG plant in the US will restart production in mid-December.

Spot LNG prices in Southwest Europe moved up week on week in line with the slight increase on the January futures contract on Europe’s benchmark TTF gas hub.

Meanwhile, the 170,032 cubic meter Hoegh Esperanza is scheduled to undergo cool-down and gassing-up operations at Spain’s Mugardos terminal on Nov. 22, according to a source with
knowledge on the matter. The vessel will be employed as a floating storage and regasification unit at Germany’s Wilhelmshaven LNG import terminal

Created with Highcharts 9.0.0($/MMBtu)REGIONAL SPOT PRICESNortheast AsiaSouthwest EuropeDec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22020406080Energy Intelligence

Marc Roussot, Singapore and Daniel Stemler, Madrid

Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India22.3423.1722.0123.2321.0320.8824.4619.4324.2222.1820.4219.6520.55
Sodegaura, Japan21.3224.7524.7725.1320.8511.3223.6617.6223.3326.0119.0816.5621.52
Zeebrugge, Belgium29.4325.1323.8625.4628.0728.9727.2523.9126.9124.0428.3025.6228.54
Huelva, Spain26.0421.9120.7022.2324.6423.9623.9320.4923.6220.8624.6921.8524.71
Isle of Grain, UK11.817.696.497.9910.5811.3510.046.539.416.6510.738.1710.96
Everett, US4.440.171.050.493.613.040.012.591.94-0.935.03----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback20. Jun4. Jul18. Jul1. Aug15. Aug29. Aug12. Sep26. Sep10. Oct24. Oct7. Nov21. Nov10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia27.0027.005.46--
SW Europe26.8026.801.59--
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.006.786.786.03
NBP, UK (futures)+0.6332.4431.8135.35
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF2.3536.5334.1735.02
Zeebrugge (Belgium)--------
German NCG1.2633.4232.1533.28
NBP (UK)-0.1513.0413.1912.54
US Markets
US Spot Prices
Sabine Pass, Louisiana-
Corpus Christi, Texas-0.705.406.105.33
Cove Point, Maryland-0.595.966.556.47
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.006.786.786.03
Second Mth0.187.417.226.40
Third Mth0.217.176.966.14
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaDec '21Jan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '220255075100125Energy Intelligence