December 13, 2022

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CNOOC LNG Tender Tips a More Competitive 2023

China National Offshore Oil Corp. (CNOOC) is plotting a fast return to the LNG spot market as Beijing eases its strict zero-Covid-19 policies — a development that is likely to raise concerns in Europe about the potential availability of affordable LNG next year.

CNOOC is seeking 23 LNG cargoes for the February-December 2023 period in a tender that closes at 17:00 PM Beijing time on Dec. 14, a source close to the matter told Energy Intelligence. The source noted that the state-owned firm may adjust the number of cargoes higher or lower depending on the prices the tender attracts.

"We are always price sensitive, as we have more ways of supply of gas and other fuels," the source explained. "When Japan and [South] Korea have to buy cargoes due to tight markets, we may still hold on and could wait."

Despite that flexibility, the source acknowledged that gas is China's preferred fuel during the winter season for residential heating due to its ability to respond to rapid demand shifts.

CNOOC issued a similar tender in December 2021 for deliveries between March and December of this year. The company awarded around 18-20 cargoes in that tender, according to data from commodity analytics firm Kpler, although this could not be confirmed.

So far this year, China has imported 59.89 million tons of LNG, according to Kpler, down from 79.51 million tons throughout the whole of 2021.

European Worries

Although it remains to be seen how many cargoes CNOOC will ultimately purchase, its swift return to the spot market after Beijing's easing of its strict Covid-19 policies will no doubt be a worry for European buyers.

Much of Europe’s success this year replacing Russian gas and filling storage with flexible spot LNG supplies was aided by subdued LNG demand in Asia — particularly in China, where zero-Covid-19 restrictions severely limited domestic gas consumption and subsequent appetite for spot LNG.

Although Europe had to pay record prices at times for those LNG volumes and has consistently been the world's premium priced destination market this year, prices could have shot even higher had Asian buyers required more supply. Absent that competition, European buyers have been able to attract the vast majority of global spot supplies so far this year, primarily from the US.

CNOOC's tender indicates that demand in China may rise following the reopening of the country, which could push European spot LNG and hub prices higher as competition for spot volumes intensifies.

This development would prove particularly challenging for the continent as it prepares for the 2023-24 winter with only limited access to the Russian pipeline supplies that still flowed earlier this year and aided storage refills.

"That's a game changer if they [CNOOC] start to be back in the market," a Spain-based market source told Energy Intelligence.
Daniel Stemler, Madrid

Yamal LNG Production to Drop from Record High

Novatek’s Yamal LNG plant in the Russian Arctic will produce slightly less LNG in 2023 than during a record-breaking 2022 due to scheduled maintenance, the project company’s Deputy Director for Production Vladislav Khlybov said this week.

“In 2023, [production] will be a little lower, because we will do an overhaul of the liquefaction trains. This year we had no overhauls,” Khlybov told journalists in Sabetta, the home port of Yamal LNG.

This year, Yamal will have record production, around 21 million tons of LNG, up from 19.6 million tons in 2020, Khlybov reiterated.

Supplying Europe

Yamal LNG has been an important source of supply for Europe this year, helping it replace the more politically toxic imports of pipeline gas from Russia.

Russia’s LNG exports to Europe, mostly coming from Yamal, increased 18.5% on the year to 14.5 million tons in the first 11 months of 2022, according to Kpler data.

With no further growth in production expected next year, Europe will probably have to compete harder for Yamal and other LNG volumes on the tight global market, especially if China increases its own gas consumption after this year’s first-ever annual decline.

More LNG could come from Gazprom’s recently launched and ramping up 1.5 million tons per year Portovaya facility in northwestern Russia, which recently supplied Greece.

The next significant capacity addition in Russia will come at the end of 2023, when Novatek plans to launch the first 6.6 million ton/yr train of the 19.8 million ton/yr Arctic LNG 2 project.

Yamal Above Capacity

Yamal operates well above its four-train design capacity of 17.4 million tons/yr.

The first three trains, using the US Air Products liquefaction technology, have recently reached a production level of 120% of their design capacity of 5.5 million tons/yr, Khlybov said. That production level per train equates to a 19.8 million ton/yr total capacity for the first three trains.

The medium-sized Train 4, built in 2021 using Novatek’s own Arctic Cascade liquefaction technology, operates at 106% of its 900,000 ton/yr capacity when the ambient temperature is below zero Celsius, according to Khlybov.
Staff Reports

EU Talks on Gas Price Cap to Continue Next Week

EU energy ministers failed to strike a deal to cap wholesale gas prices again on Tuesday, but they will make another attempt to bridge their differences on Dec. 19.

Member states remain divided on the central issue of the appropriate level of a price cap.

The deadlock is holding up agreement on a broader package of energy measures, including joint purchases of gas by EU member states and the fast-tracking of permits for renewable energy projects.

After a full day of discussions in Brussels, Czech Energy Minister Jozef Sikela said the meeting had been "long and difficult" and that his hopes of being able to open a bottle of champagne to celebrate a deal had been dashed.

Nevertheless, he insisted that progress had been made and expressed optimism that an agreement could be reached next week.

The Czech Republic is the current holder of the EU's rotating presidency, which means that Sikela presided over the talks.

He told reporters that under the latest proposal discussed by the ministers, a price cap would be triggered if Dutch Title Transfer Facility (TTF) gas futures prices exceeded €200/MWh for three days and also exceeded a reference price for LNG imports by €35 for three days.

At an earlier phase of the negotiations Sikela had proposed a trigger price of €220/MWh over five consecutive trading days, which was already well below a European Commission proposal that pegged the trigger price at €275/MWh.

Two Camps

Countries including Germany and the Netherlands have resisted the idea of a price cap, arguing that it could make it difficult for Europe to compete for LNG cargoes in the international market price.

But countries including Poland and Italy have argued that a price cap is essential to protect European consumers and businesses from extreme spikes in gas and power prices such as those caused earlier this year by a sharp drop in supplies from Russia.

Those countries have rejected proposals for a cap around €200/MWh or higher as far too high, and they have proposed that it should be set at €160/MWh.

Sikela confirmed on Tuesday that the price cap would not apply to over-the-counter gas transactions and said there was broad agreement it should apply to regional hubs, and not only to the Dutch TTF, Europe's main hub.

The front-month Dutch TTF gas futures contract was trading in the mid-to-high €130s late on Tuesday but briefly spiked above €300/MWh in August.

The latest proposal also includes an agreement to assess the positive and negative impacts of the EU's proposed "market correction mechanism" — as the price cap is formally known — by February of next year.

An EU diplomat told Energy Intelligence on Tuesday that the ministers had discussed applying the price cap to the month-ahead and three-month Dutch TTF gas futures contracts, which are traded on the ICE Endex exchange.

ICE warned that this would increase the additional margin requirements caused by the proposed EU measures from $33 billion to more than $47 billion — essentially doubling margin requirements from current levels.

Austrian Energy Minister Leonore Gewessler lamented that the lack of agreement on a price cap was blocking other EU energy initiatives.

"We need to advance on the things where we agree, where we already have a political agreement and that are currently being held hostage," she said.
Eric Thorp, Brussels and Tom Pepper, Brussels


In Brief

Spot LNG Prices Rise as Winter Approaches

Spot prices in Northeast Asia increased by $2 per million Btu to $32/MMBtu, according to Energy Intelligence assessments for deliveries four to eight weeks ahead. Spot prices in Southwest Europe also kept rising week on week by $2.75/MMBtu to $34.15/MMBtu.

The buoyant LNG truck market in China could signal the country's comeback in the spot market in which it has largely been a spectator since the beginning of the Covid-19 pandemic. In this context, China’s largest LNG importer China National Offshore Oil Corp. is seeking 23 cargoes at a Japan Korea Marker-linked price to be delivered between February and December 2023, a source close to the matter told Energy Intelligence

China is also understood to be receiving lower volumes from major pipeline gas exporters in Central Asia due to cold weather in the region.

In South Korea, heating needs look set to increase as a cold wave is sweeping through the country with meteorologists warning against heavy snow this week.

Spot LNG prices in Southwest Europe for January delivery have risen in line with an increase on both the Spanish PVB and Dutch TTF hubs over the last week. TTF prices rose on the back of a cold snap hitting Northwest Europe, pulling up prices on the PVB.

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

Marc Roussot, Singapore and Daniel Stemler, Madrid

India Parliament Approves Bill for Cutting Fossil Fuel Use

India’s upper house of Parliament has passed a bill to make it mandatory to use at least some clean energy instead of fossil fuels in industries like steel and coal. The bill also aims to develop carbon markets with an eye on cutting carbon footprints to achieve the country's net zero goal by 2070.

“This is a forward looking and futuristic step,” New and Renewable Energy Minister Raj Kumar Singh told the Rajya Sabha, another name for India's upper house of Parliament.

The Energy Conservation (Amendment) Bill 2022 will pave the way for use of non-fossil fuels like biomass, ethanol, green hydrogen and green ammonia. The bill will also help bring large residential buildings into the ambit of energy conservation.

Singh said that the government aims to make it mandatory to use green hydrogen in sectors like steel, cement and fertilizers through specific consumption obligation targets which will be set by a committee headed by the cabinet secretary.

India has the potential to set up 25 million tons of green hydrogen capacity which will help boost renewable generation capacity as 1 million tons of green hydrogen needs 25 GW of renewable power, he added.

The bill will also lead to the development of a domestic carbon trading market in which industries that overachieve their goals in green energy will be able to sell their certificates.

Singh did not give any targets on how much coal, oil or gas will be replaced by green energy sources.
Rakesh Sharma, New Delhi


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India28.6029.0828.5929.0828.1227.9729.6427.4729.5428.6527.7727.4427.85
Sodegaura, Japan29.0630.6830.7030.8228.9624.7830.2127.6130.0631.2328.1027.0229.19
Zeebrugge, Belgium44.8142.6942.1342.8144.1544.6043.6842.1543.5242.1944.2943.0544.40
Huelva, Spain33.4731.5431.0331.6432.8332.5632.4430.9232.2931.0732.8931.6432.90
Isle of Grain, UK41.5339.4438.8939.5640.9241.3240.5738.9240.2738.9541.0239.8041.13
Everett, US9.347.517.907.618.998.790.018.498.237.089.59----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback11. Jul25. Jul8. Aug22. Aug5. Sep19. Sep3. Oct17. Oct31. Oct14. Nov28. Nov12. Dec10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia32.0032.002.20--
SW Europe34.1534.152.66--
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.356.946.595.47
NBP, UK (futures)+0.2841.9041.6242.51
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF0.4743.1542.6843.62
Zeebrugge (Belgium)--------
German NCG0.3638.6838.3238.32
NBP (UK)0.6142.4741.8642.22
US Markets
US Spot Prices
Sabine Pass, Louisiana0.447.176.734.48
Corpus Christi, Texas----0.00--
Cove Point, Maryland2.3311.699.363.89
Elba Island, Georgia1.327.175.85--
Nymex Henry Hub Futures
Near Month0.356.946.595.47
Second Mth0.326.736.425.38
Third Mth0.296.075.794.94
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaJan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '220255075100125Energy Intelligence