March 6, 2023


Japan Leads Asian Countries in 'Realistic' Decarbonization Approach

Japan convened a group of Asian ministers last Friday in Tokyo where they agreed to work together on realistic and practical pathways to carbon neutrality, with a focus on LNG, ammonia/hydrogen and carbon capture and storage (CCS).

It was the inaugural meeting of the 11-member Asia Zero Emission Community (AZEC), a new initiative proposed by Japan’s Prime Minister Fumio Kishida last year. The members are Japan, Australia and Southeast Asian countries Indonesia, Malaysia, Thailand, Singapore, Philippines, Vietnam, Cambodia, Brunei and Laos.

China and India are not members.

More than 20 memorandums of understanding (MOU) were signed which would allow the Japanese government and the private sector to provide financing, technologies and expertise to emerging economies in Southeast Asia.

In a joint statement, the AZEC members highlighted the need to shift away from fossil fuels while maintaining economic growth and energy security. The members "recognize that the energy transition should allow for various and practical pathways tailored to meet the circumstances of each country, including in the Asian region which is experiencing rapid increases in energy demand due to economic growth," the ministers said in a joint statement.

One Goal, Various Pathways

Japan's Minister of Economy, Trade and Industry Yasutoshi Nishimura said AZEC would have “one goal, various pathways” to achieve carbon neutrality, suggesting Asia would devise its own unique approach rather than follow western economies which are seeking to abolish fossil fuels.

As the chair of G7 this year, Japan is expected to promote its brand of realistic energy transition at the upcoming climate/energy/environment G7 meeting at Sapporo in April.

One of AZEC’s principles is having diverse energy fuel options, which means fossil fuels would continue to maintain a certain role in order to ensure affordability and spur the economic growth of regional economies. That includes coal, with the coal-fired power fleet in Asia still considered young.

Financing Pledges

Japan has pledged to provide financing for public-private projects in clean technologies, although no figures were mentioned.

Japan’s Nippon Export and Investment Insurance (Nexi) reaffirmed its commitment to insure a $200 million loan by Japanese banks to Indonesian state power utility PLN to speed up its transition from coal to renewables.

Nexi also signed an MOU with Cambodia for strengthening cooperation to improve its domestic power transmission network and support the country’s efforts to achieve a realistic energy transition.

LNG and Beyond

Japan’s Inpex and Kyushu Electric and Thailand’s PTT International Trading have signed an MOU to cooperate in optimizing their LNG operations to ensure LNG supplies during emergencies. Possible cooperation includes joint spot procurement, cargo swaps and reloading. As Japan and Thailand have different LNG demand profiles, PTT could send cargoes it does not need to Japan during peak winter demand season.

Meanwhile, one of the cleaner technologies advocated by Japan is co-firing ammonia in existing coal-fired plants which is being carried out by Jera at its Hekinan power plant in Japan with an aim of replicating this in coal-reliant economies like Indonesia, Philippines and Malaysia.

The Japanese government is also pitching to establish Japan’s first hydrogen supply chain with Australia under an initiative led by a Japanese consortium consisting of Kawasaki Heavy Industries, J-Power, Iwatani and Sumitomo. The consortium and its partners spearheaded the world’s first liquefied hydrogen cargo which was shipped last year from AGL’s Loy Yang site in the Latrobe Valley in Victoria state to Japan.

Japan Organization for Metals and Energy Security (Jogmec) signed an MOU with Petronas to promote projects related to hydrogen/ammonia, CCS and greenhouse gas emissions management in Malaysia, and another MOU with Petrovietnam for CCS projects in Vietnam.
Clara Tan, Singapore

Gunvor Inks Supply Deal With Chesapeake For US LNG

Swiss commodity trading house Gunvor and US upstream firm Chesapeake Energy have signed a heads of agreement on a 15-year LNG supply deal, though the liquefaction plant to be involved has not yet been selected.

Under the agreement, Chesapeake Energy Marketing, a subsidiary of Chesapeake Energy, will supply 2 million tons per year of LNG for Gunvor Singapore, with the contract price indexed to the Asian benchmark Japan Korea Marker (JKM).

Cargoes through the deal will be delivered on a f.o.b. basis, with expected start date in 2027.

“This agreement reflects the powerful combination of the premium rock, returns, and runway of our competitively positioned Haynesville Shale natural gas assets combined with the strength of our balance sheet and financial position to securely supply global LNG markets,” said Nick Dell’Osso, Chesapeake’s president and CEO.

He added that his company is looking to sign additional supply agreements as LNG export projects in the US continue to come online.

Entering the LNG Business

The deal with Gunvor reinforces Chesapeake's strategy to leave behind its oil business and move into the bullish US LNG market.

The Oklahoma City-based firm said last year that it plans to exit the oil market by selling its assets in Eagle Ford Shale, and focus on its rapidly growing Haynesville gas position.

"The world is short of natural gas," Dell'Osso told an audience at this week's CERAWeek by S&P Global, adding that "natural gas from the US is a great solution — arguably the very best solution — to that very large world problem."

He cited "decades of [gas] inventory inside of our company" with similar inventories in other companies. "There's significant more resources in the US yet to be developed, that will be developed over time, as over the next several decades we begin to mature our developments in the Marcellus and Haynesville, where Chesapeake has a very long runway," he said.

He also cited the verifiable low-carbon gas available in the US.

"As the US market becomes more connected with international markets, the economics that drive activity in the US will be impacted by the pricing structures of end markets around the globe," he said, touting his JKM-linked deal with Gunvor.

Dell'Osso expects at least 25% of US gas will be exported by the end of the decade, so "US producers need to have exposure to the end markets, or risk being disconnected from the economics that are really driving the activity levels."

He also dismissed fears of a US domestic political pushback.

"When you better connect markets, when you offer more diversification of end markets for product, you end up with a less volatile outcome for the price," due to steadier levels of investment and steadier supply, "which will be great for consumers at the end of the day."

"It doesn't mean there won't be rhetoric to navigate and politicians trying to make a name for themselves," he said, "but we believe that ultimately economics win."

Picking An Export Plant

As the US driller does not have a LNG export facility, the companies are now looking to select an optimal liquefaction plant in the US to liquefy the gas produced by Chesapeake, which will be subsequently lifted by Gunvor’s fleet.

“Our trading expertise together with our robust shipping fleet will not only contribute to the competitive shipping costs, but also ensure reliable offtake operations for Chesapeake and the liquefaction facility which we will jointly select,” said Kalpesh Patel, co-head of LNG trading at Gunvor.
Daniel Stemler, Madrid

BP Gets Certified for US Shale Methane Emissions

BP’s US onshore operations have received third-party verification of its methane intensity at its US onshore operations, making it the first supermajor to have methane emissions data related to its entire shale portfolio certified.

David Lawler, CEO of US subsidiary BPX, told reporters Monday that all of the company’s onshore assets have been certified at or below a methane intensity level of the 0.2%, the benchmark MiQ , which completed the certification, considers a “C” grade.

“What that means is that we feel like our product will be in demand,” Lawler said during a press briefing at the CERAWeek by S&P Global conference in Houston. “We’re able to kind of certify to consumers that we’re producing the gas in a responsible way.”

A growing number of US operators are seeking certification as part of bigger efforts to lower their emissions and appeal to global buyers via the LNG market. Some buyers are paying premiums for the certified gas in certain markets, Lawler said.

“I think there’s an expectation that you provide low methane intensity gas,” he said. “And so we’re kind of playing into that request.”

Another driver of certification is purely economic, he added: Operators can generate more income by keeping natural gas in the pipes instead of seeing it emitted into the air.

“Making a concerted effort to capture that and keep it in the pipes makes good sense,” he said.

Permian Differentiation

The announcement also marks a shift for MiQ, which has largely focused on verification in dry gas basins, because BPX’s assets include a large position in the oily Permian Basin.

“We decided to start with upstream dry gas as a standard, because that's where the bigger part of the problem sits,” MiQ CEO Georges Tijbosch said at the briefing. “And that's where people get their heads around methane leaks.”

However, the firm has since expanded its reach to include LNG and gas supply chain segments as well. The next phase of expansion lies in the oil-rich plays, Tijbosch said.

“For each segment, there will be slight tweaks in some of the standards, because there's lots of questions around how do you attribute methane emissions on the different streams,” he said.

“And that's before we start talking about NGLs as well, for example…And so there's a lot of designing that's happening in the background that's not necessarily visible.”

Looking Ahead

BPX has prioritized lowering the emissions profile of its shale portfolio since it acquired it from BHP in 2018. Lawler told reporters earlier this year the company had spent between $700 million and $800 million alone on electrifying its Permian operations, with a $1.3 billion total target. The company has also worked to replace gas-fired pneumatics with air-driven ones, and has achieved “near-zero” routine flaring in the Permian.

Lawler acknowledged that there is still more work to be done, but it would likely be incremental.

“I think for us, it's continuing to just evolve our design,” he said.

For MiQ, the focus is shifting to reconciling different data points to provide greater clarity.

“Because you get data from from different perspectives, you can't just add that, or maybe you can, but maybe it's incorrect,” he said. “So that's also the field that we're now concentrating on, where a lot of the development is taking place.”
Caroline Evans, Houston

Novatek Poised to Join Sakhalin-2

Russia’s Novatek is reportedly poised to join the 11 million-plus ton per year Sakhalin-2 upstream and LNG project.

Kommersant business daily reported Monday, citing sources, that the company has informed the Russian government of its readiness to buy Shell’s 27.5% minus one share stake in the project. But Novatek asks the government to accelerate the assessment of the damage that Shell might have caused to the project, the daily reported. Novatek did not comment.

Last year, Moscow forced an operatorship change at Sakhalin-2, replacing the Bermuda-registered Sakhalin Energy Investment Co. with Russia-registered Sakhalin Energy, as part of the sanctions war following Russia’s February 2022 invasion of Ukraine.

Other shareholders — Russia’s Gazprom and Japan’s Mitsui and Mitsubishi — retained their respective 50% plus one share, 12.5% and 10% stakes in the project, but Shell refused to take its stake in the new operator, which the Russian government now plans to sell to a new investor. Moscow planned to close the sale in January this year, but that deadline was canceled in the end of December 2022.

Moscow has set the stake’s value at 94.8 billion rubles ($1.3 billion) but Shell will get less, depending on Moscow’s assessment of the damages. Deputy Prime Minister Alexander Novak said in late February that the assessment may soon be completed, after which Moscow will collect bids from potential buyers.

Novatek is considered the key, if not only, candidate meeting the criteria set for potential buyers by Moscow. The company previously said it would decide whether to join the project based on its own audit.

It is not clear whether Novatek will get Shell’s 1 million ton.yr offtake contract at Sakhalin-2 as well. These volumes are now understood to be sold on spot.
Staff Reports

In Brief

Taiwan's CPC Cuts LNG Prices

State-owned CPC Taiwan (CPC) cut its domestic selling rates for LNG to power companies by 8% effective Mar. 1 in line with the left-of-center Democratic Progressive Party (DPP) government’s policy of stabilizing energy costs in the wake of the Russian-Ukraine war.

CPC's LNG supply rate to state-owned Taiwan Power and six independent power projects was reduced from NT$21.3818/cm to NT$19.6712/cm, or about US$0.6421 per cubic meter.

The rates for power companies soared from NT$11.5379/cm in February 2022 to NT$21.3818/cm in November 2022 in the wake of the Russian invasion of Ukraine.

The rates for industry and other users will remain at NT$12.78/cm and NT$12.09/cm for households, where they have been set since May 2021.

Russian LNG?

In related news, a CPC spokesperson responded to reports that Taiwan was continuing to import LNG from Russia despite international sanctions. The spokesperson affirmed that CPC had ended a five-year purchasing contract for LNG from Sakhalin with the Russian Federation in March 2022 and did not renew the contract.

However, a CPC spokesperson stated that other suppliers of LNG such as Total, Shell and BP provided mixed LNG shipments which included LNG from Russian sources in line with contract conditions on product calorific value, delivery date and other factors.

In 2022, LNG sourced from Russia accounted for 10.93 million tons, or 5.5% of total Taiwan imports, according to Bureau of Energy (BOE) data. However, the BOE reported no LNG imports from Russia in January 2023.
Dennis Engbarth, Taipei

Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India12.0512.4312.1212.4211.7711.6312.8111.3512.7412.1511.5011.2711.57
Sodegaura, Japan12.8814.0414.0514.1112.859.9413.7311.9513.6214.4112.2311.4812.98
Zeebrugge, Belgium14.2612.8712.5512.9313.8314.1313.5212.5213.4012.5613.9413.1614.02
Huelva, Spain11.3510.039.7310.0810.9110.7610.639.6210.529.7210.9710.1610.98
Isle of Grain, UK13.0511.6711.3611.7312.6512.9212.4011.3312.2011.3612.7411.9712.81
Everett, US1.880.550.850.601.611.500.
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback3. Oct17. Oct31. Oct14. Nov28. Nov12. Dec26. Dec9. Jan23. Jan6. Feb20. Feb6. Mar10203040Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia14.7015.110.050.41
SW Europe12.7011.98-0.38-0.72
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.442.573.012.73
NBP, UK (futures)-0.9012.7013.6114.05
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.9213.7114.6314.99
Zeebrugge (Belgium)------11.42
German NCG-0.6312.2712.9013.24
NBP (UK)-0.3613.8314.1914.43
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.202.462.662.55
Corpus Christi, Texas-0.092.402.492.32
Cove Point, Maryland0.172.632.462.46
Elba Island, Georgia--2.46----
Nymex Henry Hub Futures
Near Month-0.442.573.012.73
Second Mth-0.412.733.142.85
Third Mth-0.402.933.323.02
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaApr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '23Mar '230255075100125Energy Intelligence