January 11, 2023

WWW.ENERGYINTEL.COM

Oman Signs Yet Another Long-Term LNG Deal for Post-2024 Supply

Oman LNG has signed yet another long-term LNG deal, this time with trading giant Shell, that extends the country's contracting out past 2024, when several existing Omani contracts are due to expire.

The deal, for 800,000 tons per year for ten years starting from 2025, is Oman LNG's first long-term offtake deal with Shell and is expected to help maintain Oman's share of the global LNG market as well as add some destination and trading flexibility for a county that exported almost exclusively to Asia until Europe's war-related gas crisis started last year.

Oman last sold beyond Asia in 2015, but last year sent 690,000 tons to Europe and 130,000 tons to Puerto Rico in the Americas, according to Kpler. The sales beyond Asia took place amid record-high exports for the country. Oman exported a total of 11.58 million tons of LNG in 2022 at the country's nameplate 10.4 million ton per year Qalhat LNG, which is understood to now be at 11.6 million tons/yr of capacity through debottlenecking work.




Created with Highcharts 9.0.0(million tons)OMAN'S LNG EXPORTSAsiaEuropeAmericas201320142015201620172018201920202021202202468101214Source: Kpler2017 Asia: 8.47

New Deals, Expiring Deals

In addition to the latest Omani deal, with Shell International Trading Middle East FZE, Oman LNG last month signed binding sheet agreements with Japan’s Jera, Mitsui and Itochu with five to 10 year tenures for the supply of a combined 2.35 million tons/yr of LNG, also starting from 2025.

So these latest four deals, all starting in 2025, amount to 3.15 million tons, just over half of the 5.89 million ton contract volume expiring in 2024.

Oman has three contracts — with BP (1.13 million tons), Korea Gas (4.1 million tons), and Osaka Gas (660,000 tons) — expiring in 2024, according to the most recent annual report of the International Group of LNG Importers (GIIGNL). Oman has two contracts — with Japan's Itochu (700,000 tons) and Spain's Naturgy (1.65 million tons) — expiring in 2025. Oman then has one contract, another one with Osaka Gas for 800,000 tons, expiring in 2026.

Green Aspect

The latest LNG deal came as part of a series of agreements signed between Shell and Oman in Muscat this week for LNG, green hydrogen and liquified synthetic gas.

Shell joined Green Energy Oman (GEO), a consortium working on the conversion of around 25 gigawatts (GW) of solar and wind power generation into green hydrogen, in addition to the production, storage and export of green ammonia.

The GEO consortium includes Oman state energy holding OQ, Hong Kong’s InterContinental Energy, and Kuwait’s EnerTech.

Stakeholders Position

Shell has been a shareholder of Oman LNG since its inception in 1994 with a 30% stake.

The Sultanate’s ministry of energy and minerals hold a 51% majority stake. The remaining shareholders include TotalEnergies (5.54%), Korea LNG (5%), Japan’s Mitsubishi (2.77%), Mitsui (2.77%), Itochu (0.92%), and Thailand’s PTT (2%).

Oman LNG has traditionally been known to favor its existing shareholders for LNG contracts.
Yousra Samaha, Dubai

Australia Unveils Reforms to Hasten Decarbonization

Australia’s Labor government is set to make profound changes to two major emissions reduction schemes, putting Australia's world-class LNG production in the crosshairs of accelerating government decarbonization measures.

The federal government aims to accelerate the decarbonization of the country’s largest polluters with its reform of the "Safeguard Mechanism" (see below) slated to be implemented in July.

It also seeks to improve transparency and trust around the administration of Australian Carbon Credit Units (ACCUs).

Both reforms will impact the country’s large LNG industry, a substantial source of greenhouse gas. However, the industry is expected to benefit from support measures to decarbonize and remain competitive.

The proposed reforms are part of the government’s ambition to reduce emissions by 43% below 2005 levels by 2030.

This goal was a cornerstone of the federal election campaign last year of then aspiring Prime Minister Anthony Albanese.

Australia is one of the top three producers of LNG in the world with a combined production capacity of 87.6 million tons per year (see graph below), though it lacks the major expansion plans of its closest rivals Qatar and the US.

Created with Highcharts 9.0.0(million tons)WORLD'S TOP FIVE LNG EXPORTERSQatarAustraliaUnited StatesRussiaMalaysia2013201420152016201720182019202020212022020406080100Source: Kpler

Safeguard Mechanism

The Safeguard Mechanism was created in 2016 to limit emissions from Australia’s largest emitting facilities.

The federal government aims for emissions by facilities covered by the Safeguard Mechanism to drop by 28% by 2030, or 4.9% per year.

This means emissions will fall from 143 million tons per year to less than 100 million tons/yr by the end of the decade.

The Safeguard Mechanism currently covers around 215 oil, gas, mining and manufacturing facilities that emit more than 100,000 tons of CO2 equivalent per year.

Together they account for 28% of Australia’s carbon emissions.

The 10 LNG plants in operation across Australia are all covered by the Safeguard Mechanism.

Nuts and Bolts

Emissions intensity baselines will initially be set for each facility covered by the Safeguard Mechanism.

This means the emission baseline of each facility will fluctuate depending on production.

However, an emission intensity baseline will be set for each industry by 2030, making low emitters more competitive.

In one key reform, LNG producers asked for the industry baseline not to be introduced immediately as technologies envisaged to help them decarbonize, such as carbon capture and storage, are only expected to be available at scale later this decade.

Facilities that exceed their baseline will be able to purchase ACCUs issued by the government for carbon-abatement projects or earned by facilities that fell below their baseline.

The use of ACCUs is unlimited, a major issue for critics of the reform, such as Greenpeace and the Australian Conservation Foundation.

The price of ACCUs will be capped at A$75 per ton (US$51.7/ton) to provide stability and certainty.

Support

Recognizing the challenge decarbonization represents for certain companies and industries, the government will provide support for trade-intensive facilities, such as LNG plants and coal mines.

They will have access to $600 million out of the Powering the Regions Fund to help them decarbonize — another key reform.

The government will also consider a lower baseline for the most exposed facilities, those with more than 3% of their revenue spent on abatement.

Carbon tariffs could also be introduced to protect industry, although the measure will not be ready by July, Minister for Climate Change and Energy Chris Bowen said during a press conference.

The government is now waiting for feedback until the end of February.

Carbon Credit

The government has also accepted in principle all 16 recommendations made by an independent panel to strengthen the credibility of Australian Carbon Credit Units (ACCUs).

The panel concluded the scheme is sound but recommended a number of changes to improve governance and transparency.

The government initiated the review as several scientists denounced it as flawed, questioning the integrity of certain ACCUs, hence the level of abatement.
Marc Roussot, Singapore

Banks Flock to Gunvor's LNG Trading Credit Line

More than 20 banks have joined together to back Gunvor's renewed syndicated borrowing base facility that underpins its LNG trading operations — a telling sign that capital remains accessible for natural gas activities, even in Europe.

Gunvor, one of the world's largest independent LNG traders, said the facility received strong interest from lenders, with six new banks joining the syndication. The facility was also expanded from $1.135 billion to $1.565 billion.

The expansion and extension of Gunvor's LNG credit facility may seem unsurprising given Europe's heightened need for LNG supplies in the wake of Russia's February 2022 invasion of Ukraine, which has sharply curtailed pipeline flows of Russian gas into Europe and compelled the continent to seek alternate supplies. But the interest is noteworthy given competing pressures on financial institutions to curtail fossil fuel financing in support of rapid greenhouse gas emissions declines.

“LNG has secured a place as strategic commodity for both the energy transition and energy security,” Tawfik Sadfi, Gunvor's head of structured trade finance, said in a statement.

Gertjan Lagerwerf, director of energy trade and commodity finance at Dutch Rabobank, which acted as lead coordinator on the facility, added that the successful refinancing and oversubscribed interest highlights that “a growing number of banks recognize LNG as part of the mainstream commodities market.”

Backing bankers hail from Europe, the Middle East, Africa and Asia.

Gunvor LNG Trading Syndicated Loan Backers
Coöperatieve Rabobank
DBS Bank, London branch (Singapore branch to add)
Oversea-Chinese Banking
Natixis, Singapore branch
Societe Generale
Abu Dhabi Commercial Bank
Industrial and Commercial Bank of China, London branch
ING Bank, Amsterdam, Lancy/Geneva branch
Qatar National Bank, Paris branch
Mizuho Bank
Bank of China
CA Indosuez
Commercial Bank of Dubai
SMBC Bank International
Afrasia Bank
Erste Group Bank
First Abu Dhabi Bank
Mashreqbank
Sumitomo Mitsui Trust Bank, London branch
The National Bank of Ras Al Khaimah

The credit facility, launched last year, provides financing for Gunvor's LNG positions in both physical and derivative markets, according to a company statement. The renewal comes just a month after Gunvor secured a €570 million ($612 million) facility to increase its natural gas storage coverage across Europe.

LNG trading delivered bumper profits to Gunvor — as well as other commodity trading houses — in 2022, on the back of record high spot prices and surging volatility in European gas markets. With Europe expected to rely even more on LNG imports this year to replace the loss of Russian pipeline gas, Gunvor's LNG trading businesses is likely to enjoy another blockbuster year and further growth.

That said, Gunvor was quick to remind in its announcement of the credit facility that it remains committed to reducing its operational emissions, including by delivering a 40% reduction by 2025.

Such commitments have the attention of its financial partners.

"Gunvor’s clearly defined trading strategy and business model, hand-in-hand with its sustainability commitments, continue to attract market confidence while paving the way for new ESG commitments linked to LNG activity,” said Ludivine Labarre, global head of trade commodity finance at Societe Generale, which backed the facility.
Daniel Stemler, Madrid

Second German Import Terminal Feeds First Gas to Grid

Deutsche ReGas’ LNG terminal at the Baltic Sea port of Lubmin — slated to have about 3.3 million tons of LNG import capacity per year — has fed its first gas into the German grid, becoming the second project in the country to reach the milestone.

A total of six floating LNG import terminals — with combined LNG import capacity of about 22 million tons per year — are expected to be deployed on Germany's shoreline this year as the country races to undo its decades-long dependence on Russian piped gas in the wake of the latter's invasion of neighbor Ukraine.

A Deutsche ReGas spokesperson confirmed with Energy Intelligence that the first regasified volumes via Lubmin were fed into the grid on Jan. 9.

“We can confirm that the first very small quantities were fed into the gas grid on Monday as part of the permitted test operation before the official opening on January 14th. First relevant quantities have been since yesterday,” the spokesperson said.

Entsog data shows the terminal fed 411 kilowatts of gas into the grid on Jan. 9, and that a total of 10 kilowatts was delivered to the grid on Jan. 10.

First flows to the grid come three weeks after Deutsche ReGas received first LNG on Dec. 21, when the Seapeak Hispania LNG carrier arrived with a cargo sourced from the Idku LNG plant in Egypt.

Deutsche ReGas’ project is the second terminal to feed gas to Germany’s grid after Uniper’s Wilhelmshaven terminal, which delivered first flows on Dec. 21.

Uniper’s project imported Germany’s first full cargo of LNG on Jan. 3 and looks set to receive a cargo from Angola, onboard the Malanje LNG carrier, on Jan 30, according to Kpler data. Uniper has said it will start commercial operations at Wilhelmshaven in mid-January.
Eric Thorp, London


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India19.1519.5819.1819.5818.7718.6220.0618.2319.9719.2218.4618.1718.53
Sodegaura, Japan19.7921.1821.2021.2919.7216.1520.8018.5920.6721.6518.9718.0619.91
Zeebrugge, Belgium15.5313.9113.5213.9915.0315.3814.6713.4914.5413.5315.1514.2215.24
Huelva, Spain19.1617.5517.1517.6318.6318.4218.2917.0418.1717.1618.6817.6618.70
Isle of Grain, UK18.0116.3515.9416.4317.5217.8417.2415.9316.9915.9617.6116.6617.70
Everett, US1.820.260.600.331.511.360.011.080.86-0.112.03----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback8. Aug22. Aug5. Sep19. Sep3. Oct17. Oct31. Oct14. Nov28. Nov12. Dec26. Dec9. Jan10203040506070Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia22.0022.390.390.39
SW Europe20.3019.81-0.49-0.49
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.033.673.644.17
NBP, UK (futures)-1.3019.5320.8318.61
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-1.6119.7621.3819.81
Zeebrugge (Belgium)--------
German NCG-1.1617.7318.8817.30
NBP (UK)-0.4918.8519.3316.78
US Markets
US Spot Prices
Sabine Pass, Louisiana0.093.393.303.78
Corpus Christi, Texas0.062.952.89--
Cove Point, Maryland-0.322.783.103.23
Elba Island, Georgia----3.00--
Nymex Henry Hub Futures
Near Month0.033.673.644.17
Second Mth0.033.353.313.78
Third Mth0.043.293.253.68
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaMar '22May '22Jul '22Sep '22Nov '22Jan '230255075100125Energy Intelligence