February 17, 2023

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Gail Seeks Minority Stake in US LNG Export Project

Indian natural gas distributor Gail is seeking a minority stake in a US LNG export project along with the supply of 1 million tons per year of LNG on a long term basis, the company said, without naming a US liquefaction project.

Several US LNG players were at the recent India Energy Week, and Energy Intelligence understands that talks between them and state-run Gail took place at that time and on previous occasions. A large cohort of US LNG developers is currently looking for equity investments.

Gail decided to finance a liquefaction project to ensure security of supply, a company official told Energy Intelligence, after Russia's Gazprom defaulted on a term supply contract last year.

Gail has already begun to turn toward US supplies, having decided to bring its entire US LNG portfolio to its home market this year.

Gail imported 6.7 million tons of LNG in 2022, more than double 2021 imports, according to Kpler, and was the second largest Indian LNG importer after Petronet (see graph below).

Created with Highcharts 9.0.0(million tons)INDIA'S LNG IMPORTS BY BUYERPetronetGAILGSPCIOCAM/NSOthers2013201420152016201720182019202020212022051015202530Source: Kpler

Equity Stake Proposal

Gail said that it is "exploring the opportunity to acquire up to 26% equity at par from an existing LNG liquefaction plant/project in [the] USA," or equity post-commissioning in a proposed US LNG export plant that is scheduled for commissioning by 2026-27 at the latest, the company said in a tender document.

In addition, Gail wants to source 1 million tons per year from the liquefaction plant on an f.o.b. basis for a period of 15 years. The contract period for LNG supply may be extended further by 5-10 years on a mutual basis.

The LNG supply is to start, tentatively, from the last quarter of calendar year 2026, according to the document.

The Cost of Lost Supplies

Gail, which has a 14 million ton/yr LNG portfolio, is having difficulty securing term supplies at prices that are acceptable to Indian consumers, said RK Jain, CFO, Gail, in a recent analyst call.

The company was forced to seek equity in a US liquefaction terminal after failing to find affordable term supplies, industry sources said.

Securing Energy for Europe, a Gazprom subsidiary taken over by Germany, failed to deliver last year on a 2.5 million ton/yr, 20-year LNG supply contract, depriving Gail of fuel to supply its core customers in India, the sources added.

Price is the main obstacle for India’s LNG importers, after the pandemic and the Russian invasion of Ukraine sent spot rates to a record.

India’s LNG demand dropped by 15% in April-December from a year earlier on account of higher fuel prices, according to the oil ministry.

Crude oil-based price slopes of around 13% are acceptable for LNG contracts, but the entry of European companies into the term LNG market has sent slopes over 16%, a Petronet LNG official said. Europe can afford high slopes but India cannot, the official added.

However, LNG may be more affordable if pegged to the US Henry Hub, currently at about $3 per million Btu, around $5.50/MMBtu lower than even domestic gas prices in India, a Gail official said.

Created with Highcharts 9.0.0(million tons)INDIA'S LNG IMPORTS BY SOURCEQatarUnited Arab EmiratesUnited StatesOmanNigeriaAngolaAustraliaCameroonRussiaOthers2013201420152016201720182019202020212022051015202530Source: Kpler

Searching for New Supplies

Gail has been in negotiations with several suppliers — including Abu Dhabi's state-owned Adnoc, Qatar and Novatek — for long-term LNG contracts.

Novatek head Leonid Mikhelson also met Gail officials at India Energy Week earlier this month and offered fuel on long term basis from Yamal LNG and the upcoming Arctic LNG 2 project. He even offered to accept payment in rupees or dirhams, but talks were inconclusive, industry officials said.

India’s Petronet LNG needs around 22 million tons/yr of term LNG by 2027 for existing and upcoming import projects. State-run refiner Indian Oil needs 5 million tons/yr for Ennore and Adani Total Gas needs another 5 million tons/yr to fill the upcoming Dhamra facility.

Gail has agreements for the supply of 3.5 million tons/yr from the US-based Sabine Pass terminal and for 2.3 million tons/yr from the US-based Cove Point terminal. The company has used destination swaps or outright sales overseas to manage US supplies because of a lack of ships. This time, Gail may charter carriers from the market to meet future needs, a company official said.
Dinakar Sethuraman, New Delhi

Gazprom Wins LNG Profit Tax Break

Russia’s leader Vladimir Putin on Friday signed a law to grant state-run Gazprom and its subsidiaries an exemption from a recent hike in profit tax for LNG exporters.

The exemption in particular prevents the worsening of the economics of Gazprom’s 1.5 million ton per year Portovaya LNG facility in northwestern Russia launched in September 2022.

Russia increased the profit tax on LNG for three years starting from Jan. 1, 2023, to 34% from 20%, as part of its plans to make energy exporters share their windfall profits from high export prices and help the sanctions-hit state budget amid the continuing war in Ukraine.

But the hike largely targeted private Novatek’s 17.4 million ton/yr Yamal LNG project, which enjoys significant tax breaks. The higher tax applies to companies that had exported at least one cargo before the end of 2022, which means that Novatek’s 19.8 million ton/yr Arctic LNG 2 plant, which is scheduled to start the first of its three trains at the end of this year, will not be subject to the higher profit tax.

Gazprom, whose core business is pipeline gas supplies, had already been obliged to pay a higher mineral extraction tax (MET) on natural gas. It already paid 1.248 trillion rubles ($16.7 billion) in extra MET for September-November 2022 and is subject to an extra MET of 50 billion rubles a month in 2023-25, which should bring another 1.8 trillion rubles to the budget in three years.

With the profit tax hike for LNG exporters, Moscow sought to get more than 200 billion rubles a year in extra budget revenues.

Gazprom exports LNG from the Portovaya LNG plant, which since September last year has already produced more than 500,000 tons, according to the company. It also exports LNG from third-party projects under agency agreements, including from Novatek’s medium-sized Cryogas Vysotsk plant and several miniplants of various developers.

The Gazprom-controlled 11 million-plus ton/yr Sakhalin-2 LNG plant in Russia’s Far East is not subject to the higher profit tax, because it operates under a production sharing agreement (PSA) which guarantees that the tax regime must not worsen for the project.
Staff Reports

Adnoc Plans March Listing for Gas Unit

Abu Dhabi National Oil Co. (Adnoc) said it plans to sell a 4% stake in its recently formed gas unit via an initial public offering (IPO) starting on Feb. 23, the latest in a series of moves by Adnoc to monetize assets and raise funds.

The company expects to list the unit's shares on the Abu Dhabi Securities Exchange (ADX) on Mar. 13.

The move follows ADX listings for Adnoc Distribution, Adnoc Drilling, Fertiglobe (a fertilizer joint venture (JV)), and Borouge (a petrochemicals JV).

Adnoc Gas was formed in January by consolidating the operations of Adnoc Gas Processing and Adnoc LNG.

The company has 10 billion cubic feet per day of gas processing capacity and 29 million tons per year of liquids processing capacity. It supplies the United Arab Emirates (UAE) with around 60% of its gas needs.

Adnoc Gas recorded net income of $4.2 billion for the 10 months ended last Oct. 31, with adjusted revenue for the period of $21.1 billion.

The market capitalization of Adnoc Gas is expected to be at least $50 billion.

Cornerstone Investors

The offering comprises just over 3 billion shares. Retail investors can subscribe from Feb. 23 to Mar. 1 and qualified institutional investors from Feb. 23 to Mar. 2.

At least two "cornerstone" investors are expected to be announced during the IPO process, Energy Intelligence understands.

Adnoc said that ahead of the IPO, almost 5% of Adnoc Gas' share capital was transferred to utility Abu Dhabi National Energy Co. — better known as Taqa.

As a result, Adnoc will retain an interest of around 91% in Adnoc Gas after the IPO.

Taqa confirmed on Friday that it had received the shares "in recognition of the long-standing strategic partnership between the two companies who are working closely to accelerate the energy transition in the UAE."

Adnoc said it will remain a counterparty to Adnoc Gas under several agreements, including a 25-year gas supply agreement that provides the unit with reliable access to gas from "one of the lowest-cost upstream resource bases in the world."

Adnoc Gas is also set to benefit from robust, long-term global demand over the next 25-30 years, Adnoc added.

Acting CEO Ahmed Mohamed Alebri said Adnoc Gas anticipates "substantial and consistent revenues and resilient margins" and is "well positioned to benefit from robust long-term demand trends" while also "playing a critical role in driving decarbonization in line with the UAE's net-zero strategy."

Adnoc Gas expects to pay $3.25 billion in dividends in 2023 and will target 5% annual growth in dividends per share in 2024-27.

Monetization Strategy

In recent years, Mideast Gulf national oil companies such as Adnoc and Saudi Aramco have begun to rethink their oil and gas policies.

To raise cash after a sharp fall in revenues during the pandemic and to hedge against a future decline in demand for fossil fuels, they have turned to IPOs, asset lease deals and other ways to monetize infrastructure and other assets.

Adnoc has also doubled down on gas development in recent years as it seeks to become self sufficient in gas by 2030 and then a net exporter of gas. Its plans include construction of a new LNG export terminal in the emirate of Fujairah.
Oliver Klaus, Dubai


In Brief

Notice to Subscribers

There will be no issue of LNG Intelligence published on February 20, 2023. The next issue will be dated February 21, 2023.


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India12.2712.6512.3512.6312.0111.8613.0111.6112.9512.3711.7411.5111.81
Sodegaura, Japan13.1214.2514.2714.3313.1110.2913.9612.2413.8514.6112.5011.7813.24
Zeebrugge, Belgium12.4511.1310.8411.1812.0412.3311.7410.7911.6210.8212.1511.4112.23
Huelva, Spain12.0210.7410.4510.7811.6011.4511.3210.3411.2210.4411.6610.8711.67
Isle of Grain, UK13.6412.3012.0012.3413.2513.5113.0111.9612.8011.9913.3412.5913.41
Everett, US1.25-0.020.270.031.000.890.010.630.46-0.311.42----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback12. Sep26. Sep10. Oct24. Oct7. Nov21. Nov5. Dec19. Dec2. Jan16. Jan30. Jan13. Feb020406080Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia15.7015.31-0.32-0.39
SW Europe14.3012.66-0.69-1.64
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.112.282.392.51
NBP, UK (futures)-1.0314.5215.5416.14
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.9715.2316.2016.90
Zeebrugge (Belgium)-0.6511.5012.16--
German NCG-0.6213.6814.3014.97
NBP (UK)-0.6914.4315.1216.74
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.212.272.482.37
Corpus Christi, Texas-0.401.902.302.13
Cove Point, Maryland-0.212.032.242.07
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.112.282.392.51
Second Mth-0.132.352.492.61
Third Mth-0.142.502.642.78
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaMar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '230255075100125Energy Intelligence