January 5, 2023

WWW.ENERGYINTEL.COM

Energy a Key Focus for Israel's New Government

Energy looks set to play an important role in Israeli foreign policy under the new government led by Prime Minister Benjamin Netanyahu.

Foreign Ministry officials are already looking at way to promote exports of Israeli gas to Europe and other new markets, an Israeli industry source confirms.

"There seems to be a solid link forming between the energy and foreign ministries," the source says.

Some Israeli media reports have suggested that new Energy Minister Israel Katz will hold that position for one year, with Foreign Minister Eli Cohen taking it over from him for two years and then handing it back to Katz.

The industry source believes signs of closer ties between the two ministries are auspicious, adding that he expects the energy ministry to revive a proposal from the previous administration to increase gas exports.

The National Economic Council, which advises the prime minister, is already seeking input on energy issues ahead of possible policy changes.

East Med Potential

Russia's war against Ukraine has forced Europe to find alternative sources of supply to reduce its past dependence on Russian pipeline gas, and Israel and the broader East Mediterranean region could make an important contribution to that effort.

Chevron is eyeing a second phase of development at its 22 trillion cubic foot Leviathan gas field offshore Israel, which could be combined with development of its 4 Tcf Aphrodite field offshore Cyprus.

Gas discoveries by TotalEnergies, Eni and Exxon Mobil offshore Cyprus have further boosted the region's prospects for becoming a major source of supply.

London-listed Energean started gas production at its Karish field offshore Israel last year and also announced the Hermes and Zeus discoveries.

Exploration could expand Israel's gas resources going forward. The outgoing government launched the country's fourth offshore licensing round in December, with 20 blocks up for grabs.

The bid round follows a maritime border agreement between Lebanon and Israel in October, which could help attract more investment to the Eastern Mediterranean.

Building Ties With Europe

Netanyahu's government looks set to continue the work of its predecessor to build strategic gas ties with the European Union.

As Europe sought new sources of gas to replace imports from Russia, former Energy Minister Karine Elharrar made a U-turn on energy policy last year, having previously prioritized investment in renewables over gas development.

The European Commission signed a provisional LNG supply deal with Egypt and Israel in June of last year.

And in November Israel's NewMed Energy and German utility Uniper signed a provisional agreement to explore LNG supply from Israel to Europe and the development of blue and green hydrogen.

In 2021, the energy ministry had already proposed relaxing a policy requiring 60% of Israel's gas production to be allocated to the domestic market, recommending that the portion available for export should be raised from 40% to 60%.

The ministry said at the time that plans to increase renewables' share of Israel's power generation from 17% to 30% by 2030 could free up more gas for export.

It also warned that Israel could be left with gas that is no longer needed if it moves too slowly to develop its resources, citing a forecast from the International Energy Agency that Israel has 20-25 years before gas demand starts to decline.
Tom Pepper, London

Renewed Militant Attacks Could Further Delay Mozambique LNG

Renewed violence in Mozambique’s northeastern province of Cabo Delgado could further delay the start of the $20 billion, 13.12 million ton per year Mozambique LNG project, led by TotalEnergies, which has been under force majeure since April 2021.

Mozambique LNG, Africa’s single largest energy project, which is underpinned by $15 billion in funding from a group of international lenders, has the potential to become a critical source of LNG for Europe as it looks to find long-term alternatives to Russian gas.

In early December, Mozambique’s first-ever LNG cargo — from the 3.4 million ton per year Eni-led Coral South floating LNG project — arrived at the Spanish port of Bilbao, and exclusive offtaker BP delivered a second shipment to the Rovigo terminal in northeastern Italy at the end of the month.

But the situation around Mozambique LNG remains precarious and could derail Total’s plan to redeploy workers to the Afungi peninsula in Cabo Delgado in the first quarter of this year.

Fresh Violence

Reports have emerged of a spate of killings in late December in the Muidumbe district of Cabo Delgado by militants claiming affiliation with Islamic State and targeting the local Christian community.

Since the insurgency erupted in Cabo Delgado over five years ago, more than 4,000 people have been reported killed, with close to 1 million displaced. A Rwanda-led peacekeeping force deployed to the region in June 2021 has recaptured some territory from the militants, including the strategic port of Mocimboa da Praia, but the violence is far from over.

Total, which operates Mozambique LNG with a 26.5% interest that it acquired from Anadarko in 2019 for $3.9 billion, has not given a firm indication of when it will resume work and has stressed it will not put any of its employees in harm’s way.

“I cannot send people into a position where they may not be alive, that’s understandable,” Total’s chief executive, Patrick Pouyanne, told the Energy Intelligence Forum in October. He said he hoped to make a decision on lifting the force majeure early this year, following the completion of a security audit that Total is carrying out in collaboration with the Mozambican government.

Secure Foundation

Even under the most optimistic scenario, Mozambique LNG will not start up until 2026, two years behind the original schedule.

Despite this, the foundation remain secure, as all funding is committed and is underpinned by long-term offtake contracts with a group of buyers from Asia and Europe. The single largest funder is the US Eximbank, which has provided loan guarantees worth $4.7 billion, followed by the Japan Bank for International Co-operation with a $3 billion commitment.

Asian investors play a key role in Mozambique LNG. The Indian trio of Bharat, Oil India and ONGC each own 10%, while Japanese duo Jogmec and Mitsui hold 10% apiece, and Thailand’s PTT has 8.5%. Mozambique’s state oil company ENH has a 15% interest, which is fully financed.

Rovuma Status

The future of Mozambique’s third and largest LNG project, the $23 billion, 15.2 million ton/yr Rovuma LNG scheme, remains uncertain with operator ExxonMobil and its partners in no hurry to make a final investment decision. Much will depend on the security situation in Cabo Delgado, where the two parallel trains would be built, and also on the ability of the consortium to attract sufficient financing.

Rovuma LNG would get all its gas from the massive deepwater Area 4 concession that also covers Coral South and is represented by Eni and Exxon with a 25% stake each, China National Petroleum Corp. (20%), Mozambique’s state ENH, Korea Gas and Portugal’s Galp (10% each).
Paul Sampson, London

European Gas Prices Rebound From 15-Month Low

The front-month Dutch TTF gas futures contract bounced back from a 15-month low on Thursday. The rally was driven by lower pipeline flows from Russia and Algeria and fears that lower prices could erode Europe's LNG imports.

The February TTF contract was trading around €69.4 per megawatt hour ($21.4 per million Btu) at the end of Thursday's session, after closing at €65.02 per megawatt hour on Wednesday — its lowest close since October 2021.

A dip in Russian gas pipeline transit volumes via Ukraine contributed to the rise in prices.

Flows at the Sudzha entry point in Ukraine were 37.7 million cubic meters on Thursday, down from 38.4 million cubic meters per day on Wednesday, according to data from Ukraine's transmission system operator.

Prior to Wednesday, Russian flows into Ukraine had been stable at around 42 MMcm/d since June of last year.

A dip in pipeline flows from Algeria to Italy also helped to push TTF futures higher. Entsog data showed that those flows fell from around 72 MMcm/d on Dec. 31 to around 50 MMcm/d since Jan. 3.

Thursday's rally also reflected concerns that the decline in European gas prices since the summer — when the TTF front-month contract peaked above €300/MWh — could boost demand for gas in the region, while also diverting more LNG to Asia.

"There is a fear that if prices go too low, Europe could be pricing out too much LNG supply and pricing too much demand back in," an LNG analyst at a trading firm told Energy Intelligence.

Better Netbacks

The plunge in TTF prices in recent months could send more LNG to Asia. US LNG loadings for February and March are currently on track for better netbacks for delivery into Northeast Asia versus Northwest Europe, the analyst suggested.

"Asia's outlook is warm, but we should see less cargoes diverted to Europe and more going to end-users in Northeast Asia," the analyst said.

Asian LNG buyers with long-term contracts — priced against US Henry Hub gas or oil — now have less incentive to resell LNG cargoes in the spot market.

Furthermore, with the Japan Korea Marker (JKM) currently priced at around $20/MMBtu for the first half of 2023, Asian buyers could ramp up spot LNG purchases, leading to increased competition for cargoes.

Quest to Fill Storage

Higher levels of demand and reduced supply as a result of lower gas prices could hamper Europe's quest to fill storage sites ahead of next winter.

"Balances will tighten and we might be on track for the lowest storage build in years — Europe is much more dependent on LNG now than ever before," the analyst said.

Nevertheless, Europe's gas stocks could emerge from the winter around their five-year average, because the region's weather is expected to remain mild for much of January and storage levels are currently 14 percentage points above the five-year average.

The European Union's gas stocks stood at 933 terawatt hours (95.5 billion cubic meters) or 83.4% of storage capacity as of Jan. 3, according to GIE data.

"You've got Northwest Europe probably ending winter very high, similar probably — without another big cold blast — to 2020 highs. The EU will probably be below 2020 but above five-year average levels and the total in Europe, including Ukraine, closer to but still above five-year average levels," the LNG analyst said.

On Mar. 1, 2020 European gas storage inventories stood at 680 terawatt hours, or 60% of storage capacity, marking a record for that time of year, GIE data show.

While there is uncertainty about how much LNG Europe will be able to attract this year, Norway plans to export 122 Bcm to Europe and maintain flows at that level for the next four or five years, Energy Minister Terje Aasland said on Thursday.

The proposed volume is the same level that Norway supplied to Europe in 2022, which represented an increase of around 8% over 2021.

Eric Thorp, London

Norway, Germany Outline Hydrogen Ambitions

Norway and Germany are considering plans to build infrastructure, including a pipeline between the two countries, to ensure large-scale supply of hydrogen to Germany by 2030.

In a joint statement issued on Thursday, the two countries said they will explore the technical and economic feasibility of the proposal "based on a step-by-step approach."

Initially, the hydrogen pipeline would carry blue hydrogen made from Norwegian natural gas, with the resulting CO2 emissions captured and stored offshore Norway, in order to ramp up volumes quickly.

Later, it would transport green hydrogen made from water with electricity supplied by wind farms in Norway, Germany and other countries near the proposed pipeline.

A joint feasibility study will be undertaken by Norway's state-run gas pipeline operator Gassco and the German Energy Agency to assess large-scale transport of hydrogen from Norway to Germany, and transport of CO2 from Germany to Norway.

The results of the study will be presented in the spring of 2023.

The joint statement followed a meeting in Oslo between Norway's Prime Minister Jonas Gahr Store and German Climate Minister and Vice Chancellor Robert Habeck.

Strategic Partnership

Norwegian oil and gas producer Equinor and German utility RWE also announced an initial agreement on Thursday to explore development of an industrial-scale hydrogen supply chain to meet Europe's energy needs and help Germany to phase out coal.

Planned investments by the two companies would be contingent on construction of the proposed hydrogen pipeline and associated downstream infrastructure that would be needed in Germany.

Equinor has set a target of supplying an initial 2 gigawatts of blue hydrogen to Germany by 2030, and up to 10 GW by 2038, which RWE would purchase and use in hydrogen-ready power plants with combined cycle gas turbines (CCGTs).

As part of their strategic collaboration, the two companies would also look at joint investments to replace coal-fired power plants with newbuild CCGT plants in Germany with a total capacity of 3 GW by 2030 .

Initially the plants would run on natural gas, then blue hydrogen. As production of renewable or green hydrogen increased, it would eventually replace blue hydrogen.

"The collaboration has the potential to develop Norway into a key supplier of hydrogen to Germany and Europe," said Equinor CEO Anders Opedal.

"This is a unique opportunity to build a hydrogen industry in Norway where hydrogen also can be used as feedstock to domestic industries."

Germany increased its use of coal last year to compensate for a sharp fall in gas supplies from Russia. This offset reductions in CO2 emissions through lower overall energy consumption and record production of renewable electricity.

If that trend were to continue it could ultimately jeopardize the country's climate goals, according to climate think tank Agora Energiewende.

Ammonia as Hydrogen Carrier

Separately on Thursday, Norwegian ammonia maker Yara announced plans to modify its terminals in Germany, enabling them to handle up to 3 million tons per year of ammonia "if demand is there."

According to Yara, this equates to roughly 530,000 tons of hydrogen and would help speed up Germany's transition to a hydrogen economy.

Hydrogen boosters have touted ammonia as a way to facilitate transport of the gas over long distances. A molecule of ammonia consists of one nitrogen atom and three hydrogen atoms.

Yara currently imports 600,000 tons/yr of ammonia into Rostock on the Baltic Sea coast, which is home to Germany's largest ammonia storage facility.

By the summer of 2023, Yara's export terminal at Brunsbuttel on Germany's North Sea coast would be modified to import ammonia and Rostock would import higher volumes.

Yara said that with investment in additional tank capacity, imports could be expanded further in the future.

Deb Kelly, London


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India23.1623.6223.1623.6122.7122.5724.1522.1024.0523.2222.3822.0722.45
Sodegaura, Japan23.6825.2225.2325.3423.5919.6324.7822.3224.6425.7422.7821.7523.80
Zeebrugge, Belgium15.5913.8413.3913.9315.0415.4214.6613.3714.5213.4215.1714.1515.27
Huelva, Spain16.7014.9914.5515.0816.1315.9015.7914.4415.6614.5816.1915.0916.20
Isle of Grain, UK16.1614.4013.9514.4815.6415.9815.3513.9415.0913.9815.7414.7115.83
Everett, US2.140.440.800.531.801.630.011.341.100.042.37----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback1. Aug15. Aug29. Aug12. Sep26. Sep10. Oct24. Oct7. Nov21. Nov5. Dec19. Dec2. Jan10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia27.0026.490.13-0.51
SW Europe20.7017.350.36-3.35
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.453.724.174.56
NBP, UK (futures)+3.5722.0318.4523.41
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF1.2820.6619.3824.48
Zeebrugge (Belgium)--14.35----
German NCG0.2017.8917.6922.20
NBP (UK)0.3617.0016.6419.37
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.013.773.783.72
Corpus Christi, Texas----0.00--
Cove Point, Maryland-0.233.003.233.18
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.453.724.174.56
Second Mth-0.353.433.784.12
Third Mth-0.323.363.683.93
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaJan '22Feb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '230255075100125Energy Intelligence