December 22, 2022

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Aussie Gas Price Cap Prompts Senex to Suspend Investment

Australian independent Senex Energy has suspended a A$1 billion (US$680 million) investment to expand its gas production in Queensland after the Australian government passed last week controversial legislation to introduce a temporary price cap on domestic wholesale gas prices.

The cap is part of the Labor government's energy price relief plan designed to rein in soaring energy costs in the country’s populous East Coast states, but it has provoked the ire of gas producers, especially on the East Coast.

"New laws passed by the Albanese [name of the Labor Prime Minister] Government that could arbitrarily dictate investment returns for gas producers puts at risk Senex Energy’s A$1 billion investment plan to bring new gas to the east coast market," Senex Energy said in a statement on Thursday.

The investment was expected to help meet supply shortfalls and perhaps help prevent government-mandated LNG export cutbacks at the country's three East Coast export terminals.




Created with Highcharts 9.0.0(million tons)EASTERN AUSTRALIA'S LNG EXPORTSChinaSouth KoreaJapanMalaysiaSingapore RepublicOthers201820192020202120220510152025Source: Kpler2019 Malaysia: 1.55

Best Laid Plans

Under the investment plan announced in August, Senex was to more than double gas production at its Atlas and Roma North gas developments to 60 petajoules per year (56.6 billion cubic feet) with first gas to start within two years.

The new investment represented more than 10% of the annual domestic gas demand of the east coast market, and Senex subsequently received offers oversubscribing the available supply by more than five times in the early years of supply, and "with solid interest extending out to 2039," the company said.

Senex will hold off on the investment until the scope of future government actions under the yet-to-be-developed Code of Conduct, and the potential for retrospective application of measures, including the breaking of agreed contracts, are known.

“While Senex supports measures to provide relief to Australian households and businesses from rising energy prices, this legislation goes much further and now challenges the commercial rationale for investing in future gas supply projects because the company can now be required to accept an arbitrary return determined by others, and after the investment is made," the company said.

The price cap was set last week at A$12 per gigajoule (US$8.20 per million Btu). It will only apply to new domestic wholesale contracts, whether long-term or spot.

Senex is 50.1% owned by Posco International, an affiliate of South Korean steelmaker Posco.

Other Gas Producers Stall

Exxon Mobil has told Energy Intelligence that the Gippsland Basin joint venture decided this month to reduce its investment cycle from 12 months to six for the first time in five decades because of the prospect of market intervention. Exxon holds a 50% stake in the Gippsland Basin venture, while Woodside holds the other 50%.

Shell has put on pause an expression of interest from customers for 50 petajoules (47 billion cubic feet) of gas for delivery in 2023-24 while it assesses the impact of the measures on its gas marketing plans.

“This was not an option we wanted to take, however, given the proposed changes to the gas market, we could not continue running a process which may not have complied with new laws being passed imminently,” Shell said in a statement last week.
Maryelle Demongeot, Singapore

Second Congo FLNG Vessel Contracted

Congo-Brazzaville, also known as the Republic of Congo, is about to become the sixth country in Sub-Saharan Africa to export LNG.

Italy’s Eni has signed a contract with Wison Heavy Industry to build and install a floating LNG (FLNG) unit to be deployed at its Marine XII Block offshore Congo-Brazzaville.

The vessel, with the capacity to produce 2.4 million tons of LNG per year, will be the second FLNG unit to be installed on the block as part of Eni’s plans for a fast-track modular FLNG scheme.

Production from the first FLNG facility, Tango, with its capacity to produce 600,000 tons/yr, is due to start up in 2023.

The second vessel will push overall production capacity from the Marine XII Block to 3 million tons/yr in 2025.

Eni plans to commercialize flared gas at Marine XII, which should contribute to an improvement in emissions.

All of the LNG is said to be directed to a very bullish spot market, but earlier this year Eni indicated that the Congo-Brazzaville project was part of Italy's extraordinary effort to reduce its 40% dependence on Russian piped gas in the wake of the Ukraine invasion.

Busy Neighborhood

Congo-Brazzaville is surrounded by existing African LNG exporters with Nigeria, Cameroon and Equatorial Guinea toward the north, and Angola toward the south — with more distant Mozambique just joining the LNG supply side.

But the region has seen decreasing LNG exports over the last two years (see graph), even as LNG has been shipped from the region to over 30 different countries (see graph).

Created with Highcharts 9.0.0(million tons)SUB-SAHARAN AFRICA'S LNG EXPORTSNigeriaEquatorial GuineaAngolaCameroonMozambique2013201420152016201720182019202020212022010203040Source: Kpler

Created with Highcharts 9.0.0(million tons)SUB-SAHARAN AFRICA'S LNG BUYERSSpainTurkeyFranceIndiaPortugalItalyNetherlandsJapanUnited KingdomSouth KoreaKuwaitChinaOthers02468Source: Kpler

Wison Start

Congo-Brazzaville's Wison vessel will be anchored in water depths of around 40 meters and will be able to store over 180,000 cubic meters of LNG and 45,000 cubic meters of LPG.

Preliminary activities for the vessel have already started, with long lead items ordered.

The first cut of steel for the cryogenic LNG tanks took place on Dec. 20, Eni said.

Tango Arrival

The Tango FLNG recently arrived at the port of Ferrol, Spain, where it will go into Spanish ship-builder Navantia's shipyard.

The FLNG module was still on top of the semi-submersible Seaway Swan, which had transported it to the northern Spanish port as of Thursday, a local market source confirmed to Energy Intelligence.

A company source at Eni told Energy Intelligence that the targeted startup date for the Tango FLNG project remains 2023.

"The main challenge will be staying on track with the upstream development as well," the source noted.

Sister Ship at Coral South?

Eni is hoping to use the same technology being deployed in Congo-Brazzaville on a planned second FLNG at the Coral South project in Mozambique.

Last month, the Italian major launched the first LNG shipment from the $7 billion, 3.4 million ton per year project, which is underpinned by an exclusive long-term offtake contract with BP.

Discussions are now under way among the project partners — which also include ExxonMobil and China National Petroleum Corp — and the Mozambican government, on building another FLNG, which would have a similar capacity as the existing unit but cost considerably less to execute.
Deb Kelly, London and Paul Sampson, London and Daniel Stemler, Madrid

Prelude FLNG Fire Under Investigation

Shell on Thursday said it "temporarily" suspended production at its 3.6 million ton per year Prelude floating LNG unit offshore west Australia and launched an investigation into the cause of a fire at the facility.

The outage will likely cause more market uncertainty on the Asian LNG market as a cold wave in Northeast Asia may boost demand.

Small Fire

In a statement to Energy Intelligence, Shell confirmed that a "small fire" broke out Wednesday on board Prelude in a turbine enclosure. The fire was quickly contained using a hand-held extinguisher and the area made safe, Shell said, adding that there were no injuries.

Shell said that production was temporarily suspended, and an investigation into the cause of the fire was launched. Production will likely resume when safety is restored.

"We will work methodically through the stages in the process to recommence production with safety and stability foremost in mind," the major said.

Shell owns an operated 67.5% stake in Prelude, alongside Inpex, Korea Gas and Taiwan’s CPC, all of which are also buyers of Prelude volumes.

The facilities largest customer, this year and last, was South Korea, followed by Japan.

Checkered Past

Production at the facility was also interrupted for two months earlier this year due to a standoff between the operator and Australian unions.

Prelude also went offline for most of 2020 due to an electrical problem.

Prelude began shipping LNG in June 2019 after a long-delayed startup (see graph below).

Created with Highcharts 9.0.0('000 tons)ROUGH SEAS AT PRELUDE LNG2019-062019-082019-102019-122020-022020-042020-062020-082020-102020-122021-022021-042021-062021-082021-102021-122022-022022-042022-062022-082022-102022-120100200300400Source: Kpler

Yousra Samaha, Dubai

Spreads Tighten for Europe-Bound LNG

Cargoes headed for Europe are now facing less favorable pricing spreads despite the start of the Northern Hemisphere winter.

Shrinking gas and LNG pricing spreads have left a weaker incentive for moving LNG into Europe, and also a weaker incentive for reloads from Spain into other parts of Europe.

TTF-Spot LNG Spread

The spread between the European benchmark TTF hub price for February delivery and Southwestern Europe spot LNG prices has fallen to its lowest level of the year, primarily driven by strong price signals in the Asian LNG market and bearish sentiment on the TTF. The latter is due to a combination of mild weather, ample LNG supply and high underground gas storage levels.

TTF has been at a premium to spot LNG in Southwest Europe since the beginning of the year, but that spread has been falling for some weeks as TTF hub prices fell.

The premium has now dropped to $3.00, market sources told Energy Intelligence.

This is the lowest level for 2022 and represents a gradual drop from third quarter levels, when the spread was over $20.

Outright spot LNG prices for Southwest Europe have also been rising over the last couple of weeks from $20.10 per million Btu on Dec. 8 to $31.10/MMBtu on Dec. 20, according to Energy Intelligence spot LNG price assessments.

Earlier this week, Asian spot LNG price assessments jumped as Southwest Europe spot LNG price assessments tumbled, with the latter's needs covered by term supplies leaving limited demand for spot cargoes, according to market sources.

TTF-PVB Spread

The shrinkage of the TTF-Spot LNG spread comes along with a shrinking premium of the TTF hub price over its equivalent on the Spanish PVB hub, which could potentially inhibit reloads of LNG cargoes from Spain to other parts of Europe.

The premium of the TTF February 2023 contract to the PVB February 2023 contract has fallen from €23.03/MWh ($7.14/MMBtu) on Dec. 7 to €11.21/MWh ($3.47/MMBtu) on Dec. 21.

Although both contracts have been on a downward trajectory in the last two weeks, the bearish pressure on the TTF product has been more significant than on the PVB equivalent.

Although Spain remains well-supplied and with sluggish demand for spot cargoes, lower wind generation in recent weeks and a drop in temperatures have somewhat limited losses on the country's gas hub.

Asian Bulls

Additionally, stronger demand in Asia and the resulting higher spot gas prices have filtered through to European spot prices.

A Europe-based LNG trader said that Asian spot prices were driven by high bids from major Shell on the S&P Platts market-on-close window for cargoes for first quarter 2023 delivery.

However, the LNG trader suggested that demand in Asia is also limited, which will lead to “prices coming off soon."
Daniel Stemler, Madrid


In Brief

Kuwait Raises Gas Processing Capacity

Kuwait has increased its gas processing capacity by around 30% with the inauguration of its fifth gas processing train this week.

Covid-19-related delays resulted in the $1.4 billion project taking some six years to complete.

Kuwait has been paying greater attention to developing its own gas resources in response to the high cost of LNG imports.

"We are relying more and more on our associated and non-associated gas to provide the fuel for our future and to provide for a growing economy," Kuwait Petroleum (KPC) CEO, Sheikh Nawaf al-Sabah told Kuwait TV.

Among other things, Kuwait is working with Saudi Arabia on the joint development of its offshore Dorra gas field.

The new gas train will process around 800 million cubic feet per day of gas, and slightly more than 100,000 barrels per day of LPG and condensate.

Its completion raises Kuwait's total gas processing capacity to just over 3.1 Bcf/d and some 330,000 b/d of LPG and condensate.

Rafiq Latta, Nicosia


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India32.7533.2332.7433.2332.2732.1233.7931.6333.6932.8031.9331.5931.99
Sodegaura, Japan33.2134.8334.8434.9733.1128.9634.3631.7734.2135.3832.2631.1933.33
Zeebrugge, Belgium19.0417.2516.7917.3518.4818.8718.0916.7817.9516.8318.6117.5718.71
Huelva, Spain25.6623.8623.3923.9525.0624.8224.7023.2824.5623.4225.1223.9625.13
Isle of Grain, UK22.4820.6520.1820.7421.9422.3021.6420.1821.3720.2222.0420.9822.14
Everett, US26.8524.8825.2724.9926.4726.250.0125.9425.6524.4127.12----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback18. Jul1. Aug15. Aug29. Aug12. Sep26. Sep10. Oct24. Oct7. Nov21. Nov5. Dec19. Dec10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia36.0036.15-0.180.15
SW Europe31.1026.33-2.74-4.77
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.335.005.336.97
NBP, UK (futures)-1.8127.3329.1440.61
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-1.5827.7929.3842.08
Zeebrugge (Belgium)----20.86--
German NCG-1.0724.8025.8637.32
NBP (UK)-2.6523.3726.0241.32
US Markets
US Spot Prices
Sabine Pass, Louisiana1.117.136.026.72
Corpus Christi, Texas6.646.640.00--
Cove Point, Maryland25.4231.586.169.04
Elba Island, Georgia------6.42
Nymex Henry Hub Futures
Near Month-0.335.005.336.97
Second Mth-0.314.935.246.59
Third Mth-0.384.434.825.82
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaJan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '220255075100125Energy Intelligence