March 3, 2023

WWW.ENERGYINTEL.COM

Industry Critical as EU Advances Joint Gas Buying Platform

A total of 22 member states have expressed an interest in aggregating demand under the EU’s joint gas purchasing platform, which remains on track to launch in April, European Commission Vice President Maros Sefcovic confirmed this week.

Those member states would like to aggregate demand of more than 17 billion cubic meters of gas for the next three years, Sefcovic said on Thursday following the conclusion of the second formal meeting of the steering board of the EU Energy Platform.

Sefcovic did not disclose which states have expressed an interest and said that he has “encouraged” the five states that have not shown an interest to tell the commission “as soon as possible” their demand.

Member states are legally required to aggregate demand for 15% of their gas storage obligation. As a collective bloc the 15% translates to around 13.5 Bcm of gas. The EU has set a target to have gas inventories 90% full by Nov. 1.

In addition to the 22 member states, Moldova, Ukraine and Serbia have signaled demand for nearly 4 Bcm of gas, Sefcovic confirmed.

Central Buyer

Sefcovic also shed light on how gas purchases through the platform are likely to be structured.

“We have also advanced in our discussions to identify the most efficient structure for organizing those companies who will pool their demand together. For this, we foresee, for instance, a so-called central buyer scheme, under which one gas company will negotiate, on behalf of smaller gas companies and gas consumers, a contract with suppliers for the aggregated demand,” Sefcovic said.

A call for expressions of interest for companies to act as a central buyer will be launched shortly, Sefcovic said, adding that the commission is aiming to have several central buyers which will represent different groups in order to encourage competition.

Buyer consortiums could benefit smaller players and landlocked countries which the commission says have “less global outreach” and negotiating power. However, buyer consortiums have raised competition concerns.

The commission says it will assist companies — through informal discussions — on the formation of consortiums to ensure joint purchasing is compliant with the EU competition rules.

The commission also said it “stands ready” to adopt decisions finding the inapplicability of Articles 101 and 102 of the Treaty on the Functioning of the European Union, which prohibit anti-competitive business practices. However, the commission said such a decision is unlikely to be issued within a short timeframe as it would require “an in-depth investigation of the planned consortium.”

Political Project

Some gas suppliers are critical of the platform and have questioned how it will work.

“All of this is such a political project, and I just don’t see how it will really work with big companies somehow buying on behalf of smaller companies because that is not how the market is,” a European gas trader told Energy Intelligence.

One senior Algerian official questioned whether European officials understand the platform.

“The joint procurement platform is a mess, frankly. We don’t understand how it works or is supposed to work, and I wonder if those who designed it really understand how it should work.”

Sefcovic chaired a roundtable meeting in Washington last month, which was attended by major European gas supply companies and US LNG producers. After the meeting Sefcovic hinted that joint purchases could be concluded under long-term contracts, which US LNG players have been calling for in order to underpin new liquefaction projects.

However, any purchase via the platform is unlikely to help underpin greenfield US LNG projects, as supply contracts will have a maximum duration of 12 months.

There has also been a lot of talk about how the platform will help secure gas for storage, however there is no obligation to direct gas purchased through the platform for storage. And while demand aggregation is compulsory, purchases are voluntary.
Eric Thorp, London and Tom Pepper, London

Gazprom Plans $3B LNG Plant in Siberia

Russia’s Gazprom plans to build a $3 billion medium-sized LNG plant in East Siberia to spur consumption of natural gas in the region.

The gas giant’s Gazprom Nedra exploration subsidiary on Thursday signed a cooperation agreement with the Krasnoyarsk region administration to develop several upstream blocks and build an LNG plant.

The plant is expected to produce 2 million tons per year of LNG, business daily Vedomosti reported, citing a Gazprom presentation from an economic forum held in Krasnoyarsk on Thursday.

The EU’s technology sanctions imposed against Russia last year in response to the invasion of Ukraine complicate Russia’s long-term plans to expand large-scale LNG production, but medium-sized projects look safe, as Russia has domestic technology for smaller liquefaction trains.

LNG Turns to Domestic Market

With that capacity, the proposed plant will be Russia’s largest LNG plant focused on domestic sales. Russian LNG is now almost entirely exported, while only mini plants sell part of their product at home, as well as Gazprom’s recently launched 1.5 million ton/yr Portovaya LNG facility in northwestern Russia, which also supplies small volumes to domestic consumers.

Economics of LNG supplies to domestic customers has traditionally been considered doubtful due to rather low regulated gas prices on the domestic market and a higher cost of LNG than that of other fuels. But Russia now seeks to develop more LNG projects as part of its nationwide program to expand the gas grid and increase natural gas penetration.

Gazprom, which is assigned to develop the program, is now more than ever interested in higher domestic consumption. The company's pipeline gas exports to Europe have dropped significantly since the start of Russia’s war in Ukraine one year ago, and its export diversification to the East will take years and large investments.

Power of Siberia 2 Neighbor

The proposed LNG plant will be located near the village of Taezhnyi, some 500 kilometers northeast of the city of Krasnoyarsk and the potential route of Gazprom’s planned Power of Siberia 2 gas export pipeline to China (see map).

Gazprom has yet to agree on a 50 billion cubic meter per year gas supply contract with China to proceed with Power of Siberia 2 construction. But if the pipeline is built, it will run just 50 km away from Krasnoyarsk and give access to pipeline gas for two thirds of the region’s population, the region’s Governor Alexander Uss told the Krasnoyarsk forum.

The LNG plant will be fed from the Abakansky, Ibinsky and Ilbokichsky upstream blocks of Gazprom, harboring a combined 130 Bcm of natural gas. Gazprom plans to reach the production plateau of 3.9 Bcm/yr at the three fields in 2025, according to the presentation cited by Vedomosti.

Instead of building a pipeline connecting the fields to Power of Siberia 2, Gazprom will liquefy the gas and supply LNG to off-grid consumers in the region, including 15 industrial consumers, one heat and power plant and 22 heating plants. LNG will be delivered by trucks, railroad and river tankers.

Gazprom plans to invest 222 billion rubles ($2.9 billion), including 98.7 billion rubles in the LNG facility construction, 82.9 billion rubles in upstream development and 40.4 billion rubles in transportation infrastructure.

Gazprom's Proposed LNG Plant in Krasnoyarsk Region

lng230303_Russia_Pipeline_map.svg


Staff Reports

Gunvor Still Receives Yamal LNG Cargoes From Novatek

Switzerland-based commodity trading house Gunvor has brought Russian cargoes to Spain, Energy Intelligence understands.

Gunvor follows fellow Swiss trading firms, DXT Commodities, Enet Energy and Met in importing Yamal LNG cargoes into Spain despite Russia’s invasion of Ukraine last year.

Russian LNG is understood to be less politically toxic than Russian piped gas. Perhaps Russian LNG into Spain is less politically toxic than Russian LNG delivered into one of the countries more directly affected by the energy-linked conflict.

DXT, Enet and Met combined were responsible for the purchase of at least 13 cargoes from the Russian plant into Spain last year and they have already received at least five cargoes into the Iberian country so far this year, according to a Spanish cargo arrival schedule obtained by Energy Intelligence.

Gunvor brought in an LNG cargo aboard the 172,410 cubic meter Nikolay Urvantsev to Spain’s Mugardos terminal on Feb. 24 and is expecting the 172,000 cubic meter Rudolf Samoylovich at Mugardos on Mar. 4, according to the schedule.

Term Deliveries

Gunvor's cargoes have likely arrived in Spain via the trading house’s long-term supply contract with Russian LNG export champion Novatek, the majority stakeholder in the Yamal LNG project.

This is in contrast to other companies that are understood to have been purchasing Yamal cargoes on a spot basis.

However, cargoes through the 500,000 ton per year term contract were likely delivered elsewhere last year. Energy Intelligence did not observe any Yamal cargo delivery for Gunvor into Spain throughout 2022.

LNG Versus Oil

Although Gunvor, like the other top commodity trading houses, suspended trading Russian crude oil in the aftermath of the invasion of Ukraine, it apparently maintains its LNG supply contract with the privately-owned Russian company.

Gunvor is not alone in sticking to its contract for Yamal volumes.

Spanish utility Naturgy, another term buyer of Yamal LNG, has openly said that unless sanctions are imposed on Russian LNG imports into Europe, it will continue to abide its contractual obligations.

French major TotalEnergies, which is also a shareholder in the Yamal project with a 20% stake, also remains committed to its LNG supply contract from the facility.
Daniel Stemler, Madrid

Perenco Relishes Challenges of Older, Smaller Fields

When a country's oil production is in steady long-term decline, Big Oil tends to pack up and leave. But privately owned Anglo-French independent Perenco is drawn to such places like a magnet.

"Our business is declining countries — that's where we are good," CEO Benoit de la Fouchardiere told Energy Intelligence in a recent interview.

Bypassing fading hotspots like Nigeria or deepwater provinces like Angola, Perenco is more at home in francophone Central Africa, where it has produced oil from onshore and shallow-water fields for 30 years.

It's is the only operator in Congo (Kinshasa), the main player in Cameroon and Gabon, and a newcomer in Chad where it bought the assets of commodities trader Glencore.

All told, the company operates some 500,000 barrels of oil equivalent a day of gross production and is active in 15 countries across four continents, including Colombia the UK and Vietnam.

No field seems too old or too small in the quest to recover the resources that are left behind after years of declining production.

"We consider [such] fields as young because the recovery factor is 20%, 30% or 40% — there is still a lot to produce," said de la Fouchardiere.

LNG Projects

The company has also applied the "small is beautiful" principle to gas, having recently taking a final investment decision on the 700,000 ton per year Cape Lopez LNG scheme in Gabon.

Production is set to start in 2026, with the fast turnaround reflecting the relatively small scale of the project. In addition to LNG, it will also produce 20,000 tons per year of butane for the local market.

Perenco has traditionally supplied gas to the countries where it operates, for use in gas-to-power and gas-to-industry projects.

But it made its first foray into LNG with a 2.4 million ton/yr project in neighboring Cameroon which started production in 2018, using an old LNG tanker that was converted into a floating liquefaction unit.

In a new departure, Perenco plans to sell the Gabonese LNG in the spot market in anticipation of being able to secure higher gas prices. The Cameroon Project has a single offtaker — Germany-based SEFE (Securing Energy for Europe), formerly known as Gazprom Germania.

De la Fouchardiere says Central African gas projects can be challenging for developers.

"In Gabon we have 51 fields with associated and non-associated gas, but they are all far from each other and spread over 700 kilometers."

"In Cameroon's Rio del Rey we have 100 gas reservoirs in the same place, but none is big," he adds.

Looking Ahead

If Cape Lopez in Gabon is a success, the next project, potentially in Congo (Kinshasa), could be even smaller.

While others require a minimum of two trillion cubic feet of gas or more, de la Fouchardiere says Perenco has shown in Cameroon that it can develop a successful project with a smaller resource base.

The resources available in Congo (Kinshasa) — also known as the Democratic Republic of Congo (DRC) — are estimated at around half a trillion cubic feet (500 billion cubic feet).

"But the solution we have developed for Gabon can work at 50% capacity. So if we put Gabon, which is already small, at 50% capacity it will work for DRC," he said.

De la Fouchardiere acknowledges that it is tricky to make such projects economic.

"You have to be very innovative … It's all based on our capacity to engineer a new solution," he says.

But Perenco is comfortable with such challenges because it takes a long-term view and does not face the same pressures experienced by companies that are publicly traded or backed by private equity firms.

Owned 100% by the Perrodo family, the company invests around $3 billion a year and all of its developments are funded from cash flow.

"Having no debt is key to our business. It's part of the strategy," says de la Fouchardiere.

Christina Katsouris, London

US LNG Path Forward Appears Clear

The US LNG export industry had another dynamic week, with key projects closing in on final investment decisions (FIDs) and signing new offtake agreements in hopes of meeting long-term global demand growth.

"We're starting to see the fruits of the labor from all of last year after the [Ukraine] invasion," Charlie Riedl, the Center for LNG's executive director and Natural Gas Supply Association's vice president, told Energy Intelligence. "It took some time and now we're starting to see that manifest in commercial activity."

The largest US LNG players — Cheniere, Venture Global and Sempra — have all seen a strong start to 2023, with Cheniere starting work on another 20 million tons per year of capacity at Sabine Pass in Louisiana as it pushes toward a 90 million ton per year portfolio.

Venture Global landed a fresh pair of offtake deals last week and another with Excelerate this week, while Sempra closed in on a Port Arthur Phase 1 FID as its other projects progressed.

After a couple of years of little activity in terms of FIDs and major supply deals, Riedl sees a generally smooth path forward for US LNG both in terms of gas availability and regulatory cooperation.

When it comes to the size of the US gas resource, "that number revises upwards every time," he said, referring to each Potential Gas Committee study. "There's plenty of gas here to satisfy 100 billion cubic feet per day of market demand, in addition to expanding LNG exports."

Riedl also told Energy Intelligence that he was satisfied with the speed, safety, and regulatory oversight of the Freeport recommissioning and that he doesn't expect a government backlash against the next wave of US LNG exports.

Will the US Department of Energy (DOE) need to do another study of the economic impact of US LNG exports?

"I wouldn't be surprised if DOE takes another look at this ... [but] I would suspect the outcome will be the same, finding that these [exports] are is in the public interest," he said.
Michael Sultan, Washington and Mark Davidson, Washington


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India12.0012.3812.0712.3611.7211.5812.7611.3012.6912.0911.4511.2211.51
Sodegaura, Japan12.8213.9814.0014.0612.809.8913.6811.9013.5714.3512.1711.4312.93
Zeebrugge, Belgium13.1111.7311.4111.7912.6812.9812.3711.3812.2511.4112.7912.0212.87
Huelva, Spain11.6110.299.9910.3411.1811.0210.899.8810.799.9911.2410.4211.25
Isle of Grain, UK13.3111.9311.6111.9812.9113.1812.6611.5812.4611.6213.0012.2213.07
Everett, US1.740.420.710.471.481.360.011.090.910.111.91----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback26. Sep10. Oct24. Oct7. Nov21. Nov5. Dec19. Dec2. Jan16. Jan30. Jan13. Feb27. Feb1020304050Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia14.7015.060.160.36
SW Europe12.7012.25-0.81-0.45
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)0.243.012.772.55
NBP, UK (futures)-0.5913.5214.1115.25
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.3614.5614.9216.42
Zeebrugge (Belgium)--------
German NCG-0.2212.9613.1715.03
NBP (UK)-0.8114.0914.9015.53
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.012.662.672.35
Corpus Christi, Texas-0.122.492.612.01
Cove Point, Maryland-0.162.462.622.35
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month0.243.012.772.55
Second Mth0.243.142.902.70
Third Mth0.233.323.092.90
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaMar '22Apr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '23Mar '230255075100125Energy Intelligence