January 6, 2023

WWW.ENERGYINTEL.COM

Outages Squeeze Shell LNG Volumes

Shell’s quarterly LNG production fell to its lowest level in over six years in the fourth quarter as outages at LNG liquefaction plants in Australia cut the volume of natural gas it shipped to global markets.

UK-based Shell said in a trading statement that it expected LNG liquefaction volumes to drop to between 6.6 million and 7 million tons for the three-month period ending Dec. 31. That follows prolonged unplanned outages at its Prelude floating LNG and Queensland Curtis (QGC) liquefaction facilities in Australia.

The company had indicated previously that it expected volumes to fall to between 7 million and 7.6 million tons during the final quarter of 2022.

Shell’s quarterly liquefaction volumes have not fallen below 7 million tons since the fourth quarter of 2015, before the company closed its blockbuster acquisition of BG Group.

The low liquefaction volumes are the latest in what has been a string of patchy results for Shell’s Integrated Gas division — a unit many consider to be the bedrock of the company’s LNG-focused strategy – and an area that is sure to be a focus for new CEO Wael Sawan.

Sawan, who took over just days ago from long-time CEO Ben van Beurden, headed up the Integrated Gas unit for two years prior to taking the top job at Shell.

In one potential bright spot for Shell’s LNG business, the company said its trading and optimization results were “expected to be significantly higher” than in the third quarter when its hedging program dented LNG price realizations.

Shell's Integrated Gas and Renewables division posted net income of $5.7 billion in the third quarter, down about 30% from second-quarter levels.

Australia Impacts

Shell will not give granular details of the performance of its LNG liquefaction assets until the company’s quarterly results presentation on Feb. 2 but the company singled out its struggles at Prelude and QGC for driving the underperformance.

At QGC, Shell shut down one of the two production trains at the 8.5 million ton per year facility for maintenance on Dec. 7 after identifying problems with a pipe.

The train is due back online Jan. 16, according to an Australian regulatory statement, although Shell has already pushed back the restart twice.

At Prelude, Shell had difficulties last year keeping the 3.4 million ton/yr facility online after it was hit by technical problems and industrial strikes by Australian workers. The facility was shut down again in late December to allow for an investigation into a small blaze.

A Shell representative said the company continues “working methodically through the restart process with safety and stability foremost in mind.”

Created with Highcharts 9.0.0(million tons)SHELL'S LNG LIQUEFACTION VOLUMES Q1'15Q2'15Q3'15Q4'15Q1'16Q2'16Q3'16Q4'16Q1'17Q2'17Q3'17Q4'17Q1'18Q2'18Q3'18Q4'18Q1'19Q2'19Q3'19Q4'19Q1'20Q2'20Q3'20Q4'20Q1'21Q2'21Q3'21Q4'21Q1'22Q2'22Q3'22Q4'22*5678910*Data reflects midpoint. Source: Company filings

Windfall Taxes Blow In

Shell also revealed that is it facing a tax bill of over $2 billion from the UK’s increased windfall profits tax and the EU’s “solidarity” payment levy.

Both levies are aimed at giving governments additional revenue that can be funneled to consumers and businesses reeling under the weight of higher energy payments.

The $2 billion figure comes on top of a roughly $370 million tax charge that Shell took in the third quarter related to the original UK windfall tax put in place last spring, which was subsequently increased by 10% to 35% from Jan. 1, 2023.

Shell CFO Sinead Gorman had previously said Shell would not have to pay a cash tax for the period to the UK due to credits it received for spending on North Sea development activities.

“Because of the investments we are making … we don’t have profits that we can be taxed against,” Gorman told reporters at the time.
Noah Brenner, London

Second German Import Terminal Starts Up Next Week

Deutsche ReGas will officially launch its LNG terminal project at the Baltic Sea port of Lubmin on Jan. 14, meaning Germany should have two LNG terminals in operation next week.

A Deutsche ReGas spokesperson confirmed with Energy Intelligence that the company plans to start operations on Jan. 14, and said media and politicians have been invited for the official opening.

The 4.5 billion cubic meter capacity import project — amounting to about 3.3 million tons of LNG per year — was expected to start commercial operations by the end of last year, however the official launch has been held up by permitting issues.

The final permits required for the start of the project are expected to be granted by the local government of Mecklenburg–Western Pomerania next week. The local government said in a press release on Jan. 5 that the approval process is nearing completion.

Deutsche ReGas’s project has already received first LNG, with the 140,500 cubic meter Seapeak Hispania having arrived on Dec. 21 with a cargo from Egypt’s Idku LNG plant. The Seapeak will be utilized as a floating storage unit (FSU).

LNG will be supplied from the FSU to the Neptune floating storage regasification unit (FSRU) via small-scale LNG carriers. The Neptune arrived at Lubmin on Dec. 16 and received first LNG via the small-scale Coral Furcata LNG carrier on Dec. 30.

Start-up of the Lubmin terminal means Germany should have two LNG terminals — with a combined capacity of 9.5 Bcm/yr – in operation next week. Earlier this week Uniper confirmed it imported Germany's first full cargo of LNG at its Wilhelmshaven terminal on the country's North Sea Coast. The German utility expects to start commercial operations at its terminal in mid-January.

Uniper and Deutsche ReGas’s projects are two of six LNG terminals expected to come online in Germany this year, with three expected online this month. The six terminals have a combined annual regasification capacity of around 30 Bcm (about 21.8 million tons of LNG) and have been fast-tracked in a bid to help replace Russian gas pipeline flows which were throttled last year.

Norway Takes Top Spot

Russia lost its crown as Germany’s largest gas supplier last year, German energy regulator Bundesnetzagentur (BNetzA) confirmed on Friday. Pipeline flows from Russia gradually fell over the first half of last year before drying up completely in September after the Nord Stream blasts.

Russia accounted for 22% of Germany’s total imports of 1,449 terawatt hours (approximately 148 Bcm), down from 52% in 2021. Norway replaced Russia as Germany’s main gas supplier, accounting for 33% of total imports.

Germany’s imports were down around 12% on 2021, while consumption fell 14% compared to average consumption over the past four years amid warmer weather and the government rolling out energy saving measures.
Eric Thorp, London


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India23.2123.6523.2323.6422.8122.6624.1422.2624.0523.2822.4922.2022.56
Sodegaura, Japan23.8225.2525.2725.3623.7520.0924.8522.5824.7125.7322.9822.0423.94
Zeebrugge, Belgium17.2615.6215.2215.7016.7517.1116.3915.1916.2515.2416.8815.9316.97
Huelva, Spain18.5816.9716.5717.0518.0417.8417.7116.4617.5916.5918.1017.0818.11
Isle of Grain, UK18.0516.4015.9916.4717.5717.8917.2915.9717.0416.0117.6616.7117.75
Everett, US2.400.831.180.912.091.940.011.661.440.472.61----
Created with Highcharts 9.0.0($/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 Asia27.0026.47-0.02-0.53
SW Europe20.7019.232.08-1.47
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.013.713.724.48
NBP, UK (futures)-1.5220.2521.7622.16
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.2120.6920.9023.57
Zeebrugge (Belgium)----14.19--
German NCG0.4418.1217.6820.04
NBP (UK)2.0818.8816.7921.44
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.343.433.773.51
Corpus Christi, Texas3.053.050.00--
Cove Point, Maryland0.373.373.002.61
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.013.713.724.48
Second Mth-0.033.393.434.10
Third Mth-0.043.313.363.92
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaFeb '22Mar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '230255075100125Energy Intelligence