March 8, 2023

WWW.ENERGYINTEL.COM

Japan, Industry to Push for Gas Support at G7

Gas companies met with G7 government officials Tuesday to press their case for natural gas being included in energy transition and security plans.

“Our industry is committed to ensuring natural gas projects are aligned with international climate objectives,” the group of several industry associations based in the US, Europe and Asia wrote in a letter to Japanese PM Fumio Kishida following a meeting on the sidelines of the CERAWeek by S&P Global conference in Houston Tuesday.

Japan, the world's number one LNG importer in 2022, is chairing the G7 this year, and Tokyo has made energy security a top priority on the agenda.

The gas industry view dovetails with that of the Japanese government, which is keen to keep funding available for natural gas.

Last year the G7 leaders committed to aligning financial flows with the Paris Agreement goals. That’s not the prohibition on financing for fossil fuels that some environmentally focused groups would like to see, but it is part of a trend away from financing for oil and gas that some argue is premature.

View from Japan

Japanese officials are hoping for a statement at the G7 summit that would leave the door open for financing natural gas.

Japanese officials are concerned that the banks are increasingly using projections from net zero analyses to determine the future of gas demand worldwide.

Because there is less appetite for gas in future years under a net zero scenario, they believe that is leading to a reluctance to invest in upstream gas supplies. The concern is that this will lead to a shortfall in gas supplies in later years.

View from the US

In the US, natural gas policy has proven a sensitive point for the Biden administration. While there’s an acknowledgement that natural gas has a role to play given its lower emissions profile compared to coal, there is a deep concern over both locking in natural gas consumption for decades to come and methane leakage.

US climate envoy John Kerry underscored the point on Monday.

“Gas is part of the transition folks, absolutely,” he said at CERAWeek Monday. “But if you get to 2030, and you're not abating those emissions, you're then contributing to the problem.”

That sensitivity subsided after Russia invaded Ukraine, when energy security in Europe started to take precedence over transition concerns.

The same is true in Europe — at least in the short run.

Whereas European importers were once wary about signing on to import LNG from the US given concerns over a lack of methane regulations, that shifted.

“Not anymore,” US Energy Secretary Jennifer Granholm quipped at the CERAWeek conference.
Emily Meredith, Houston

Technical Issues Keep Hampering Freeport LNG Restart

The restart of the 15 million ton per year Freeport LNG plant is being slowed by continued technical issues at the Texas-based facility, although its liquefaction Train 1 on Wednesday received regulatory approval to restart operations.

The US Federal Energy Regulatory Commission (FERC), along with the US Pipeline and Hazardous Materials Safety Administration, approved the restart of Train 1, the last of Freeport LNG's three trains to receive such authorization.

"As previously stated, a conservative ramp-up profile to establish full three-train production is anticipated to occur over the next few weeks," Freeport LNG said in a statement released Wednesday, the day after an electrical trip occurred at the plant.

Electrical Trip

An electrical trip on Tuesday at 7:30 pm local time took both liquefaction Trains 2 and 3 down, a source with knowledge of the matter told Energy Intelligence.

Prior to the trip, Trains 2 and 3 were running at maximum capacity after FERC granted authorization for the full return to operational service for both trains in February, while Train 1 was undergoing defrosting.

The electrical trip also forced the operator to pause the defrosting operation on Train 1.

Feed gas to the plant plunged from a post-restart peak of 1.7 billion cubic feet per day on Mar. to just under 1 Bcf/d on Mar. 6, and then to a trickle on Mar. 7, according to Refinitiv data.

"As the recommissioning of Freeport's liquefaction facility continues, and trains are restarted, changes in feed gas flows and production rates are to be anticipated given the duration of the plant's outage," the company said in its Wednesday release.

The 180,000 cubic meter Prism Courage has been docked at the plant since Tuesday, around the same time when the electrical trip occurred, according to ship-tracking data by maritime intelligence firm Kpler.

The vessel’s draught level of nine meters suggests that it remains without a cargo.
Created with Highcharts 9.0.0(cubic meters)FREEPORT LNG EXPORTS RETURNFranceNetherlandsSouth KoreaUKChinaThailandGermanyFeb6'23Feb13'23Feb20'23Feb27'23Mar6'230100,000200,000300,000400,000500,000Source: Kpler

Train 1 Or Train 3?

Although Train 2 is now understood to be ready to restart operation, further issues were discovered at Train 3.

“The T3 main feed valve is damaged, and they want to remove [the] T1 valve and take it to T3, [and] in the meantime, FERC granted T1 restart,” the source said, adding that the plant operator’s dilemma now is whether to continue the defrosting procedure on Train 1 and then start up, or focus on restarting Train 3 instead.

The source suggested that no decision has been made yet, with various “other factors in play,” such as storage volumes and the increasing number of ballast vessels waiting outside the plant for loading.

“The operations manager is in the hot seat right now, with less qualified operators,” the source added.

Energy Intelligence reported last month that the lack of qualified staff was slowing the restart of facility.
Daniel Stemler, Madrid

China's Gas Imports Drop

China, having lost the position of world's top LNG importer in 2022, doesn't appear to be any closer to regaining that top spot.

China imported a total of 17.93 million tons of natural gas from January to February this year, a drop of 9.4% compared to the same period last year, according to the latest data released by China’s General Administration of Customs.

Similarly, China's LNG imports amounted to 11 million tons in January-February this year, an 8.8% drop compared to the same period last year, according to Kpler data.

The overall gas import drop has generally been attributed to a slowing Chinese economy, due in part to Covid-19 related lockdowns.

Price Sensitivity

For a price-sensitive gas buyer like China, the recent decline in global gas prices would — in theory — raise the country's gas imports, all else being equal.

But this hasn't been the case, recent lower prices failed to raise imports, instead contributing to a decline in China’s gas import costs, which fell by 9.2% in January to February from last year, according to customs data.

Long-Term Contracting

Last month, China’s National Development and Reform Commission (NDRC) issued a document asking local governments to organize the signing of medium and long-term gas contracts for 2023 by the end of February.

An official from the NDRC said at a press conference on Monday that this work is not going well.

The official also said that in 2023, the international energy supply and demand situation remains complex, while domestic economic recovery will drive the steady growth of energy demand. In 2023, China will increase domestic investment in oil and gas exploration.

According to local media reports, Sinopec expects to fully complete the signing of medium and long-term contracts by the end of March.
Staff Reports

Nord Stream Gas Pipelines Unlikely to Be Repaired

The Nord Stream gas pipelines damaged in mysterious blasts last September could in theory be repaired if political conditions improve over the next couple of years, but lower volumes of Russian gas imports mean they may no longer be needed, according to French gas giant Engie, a shareholder in one of the two pipelines.

Didier Holleaux, executive vice president at Engie and president of trade group Eurogas, said on Wednesday that the Nord Stream lines could be repaired within one or two years "provided that they are not full of salt water for too long." But, he added: "If it stays there for 10 years, you can probably forget about it."

European gas imports from Russia could recover in time to about 50 billion-60 billion cubic meters per year, Holleaux suggested, as a level at which any future disruption would be manageable. That compares with current levels around 25 Bcm/yr and prewar levels of 150 Bcm/yr or more.

"If the political conditions are met, there is some kind of peace in Ukraine, and we consider that Russia is again acceptable as a supplier from a political standpoint, then I don't see from a technical standpoint why we should not import Russian gas within these limits," he told reporters at the CERAWeek by S&P Global conference.

But Holleaux said the damaged pipelines — which run from Russia to Germany beneath the Baltic Sea — may not be needed to carry such volumes in the future, given that one out of a total of four lines remains undamaged and there are already alternative gas pipeline routes through Europe and Turkey.

The original Nord Stream pipeline and the later Nord Stream 2 pipeline each consist of twin lines. The overall combined capacity is 110 Bcm/yr, split evenly between the two projects.

"You probably don't really need Nord Stream," Holleaux said. "If you need Nord Stream, well there is one remaining pipe — you can use this one," he said, referring to one one of the Nord Stream 2 lines that was not damaged last fall.

Gasunie, another Nord Stream shareholder, said on Wednesday that it had fully written off the value of its stake, which it had estimated a year ago at €508 million ($536 million). The Dutch firm said it did not envisage a resumption of gas deliveries for the foreseeable future, "in the current geopolitical context."

Gasunie and Engie each hold 9% stakes in the first Nord Stream pipeline. The other shareholders are Russian gas giant Gazprom, with 51%, and Germany's Wintershall Dea and E.On, with 15.5% each.

Gazprom owns 100% of Nord Stream 2, while Shell, Engie, OMV, Wintershall Dea and Uniper have written off €5 billion of financing for that project.

Gazprom has said it would be technically possible to repair the three ruptured lines.

But Reuters quoted Russian sources familiar with the company’s plans last week as saying that they would be sealed instead, given that there was no prospect of them being repaired, with one source describing the project as "buried."

German Opposition

The undamaged pipe is part of the 55 Bcm/yr Nord Stream 2 line, which was never granted German government approval to start up.

And Berlin's approval looks highly unlikely for now, a senior German official indicated this week.

Germany has not imported any Russian oil, gas or coal since Jan. 1, and "as long as Russia is behaving like it's behaving, it's irreversible," Jorg Kukies, Germany’s state secretary for economic, financial and European affairs, told the annual energy conference in Houston.

"The infrastructure is destroyed," he told Energy Intelligence on the sidelines of the conference, when asked about the possibility of Germany importing Russian gas again in future. He added that "at the moment" he did not envisage it being rebuilt.

"If all of a sudden, democracy breaks out in Russia, they elect [opposition leader Alexei] Navalny and everything is peace and harmony, then of course [that’s possible]," Kukies told Energy Intelligence. "But that’s not a real scenario in any foreseeable future. So while we're dealing with the situation right now, we're not importing any gas, oil or coal from Russia, full stop."

Other senior European officials also cast doubt on the prospect of a resumption of Russian gas flows at scale, saying transformative changes would be needed in Moscow for that to happen.

Fresh Allegations

The comments from the various officials came as new media reports in the US and Germany claimed that a pro-Ukrainian group had carried out the attacks in the Baltic Sea.

German newspaper Die Zeit reported that German investigators believe a team of six people — five men and one woman, all carrying forged passports — used a vessel rented from a Ukrainian-owned company in Poland to carry out the operation.

The German public prosecutor's office said on Wednesday that a vessel had been searched on Jan. 18-20 that could have been used to transport explosive devices used in the Nord Stream attack.

A report by the New York Times cited US officials as saying that fresh intelligence suggested the saboteurs behind the blasts were most likely Ukrainian or Russian nationals, or some combination of the two, opposed to Russian President Vladimir Putin.

Investigative journalist Seymour Hersh published a report last month, based on an anonymous source close to the planning process, saying that US Navy divers had secretly planted explosives on the pipelines with the help of the Norwegian navy. The explosives, he reported, were later triggered by a sonar buoy dropped from a plane on Sep. 26.

Germany’s Defense Minister Boris Pistorius, speaking at an event in Stockholm on Wednesday, warned against jumping to any conclusions while the investigations were ongoing. He even suggested that the attack could have been a "false flag operation" staged to blame Ukraine.

A source familiar with the Nord Stream projects told Energy Intelligence that he remains surprised at the lack of official information about the event, more than five months later.

None of the reports or preliminary findings so far have suggested that Russia was involved.

Kremlin spokesman Dmitry Peskov said on Wednesday that those responsible for the attack "obviously … want to divert attention" by leaking the latest allegations to the Western media.

"This is not just strange. It smells like a monstrous crime," he said, while repeating Moscow's call for a transparent investigation “involving everyone who can shed light."

Mykhailo Podoliak, an adviser to the Ukrainian president’s office, said on Twitter that “Ukraine has nothing to do with the Baltic Sea mishap" and has no information about "pro-Ukrainian sabotage groups.”

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Simon Martelli, London and David Pike, Houston


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India10.0610.4310.1310.429.789.6410.819.3710.7410.159.519.289.58
Sodegaura, Japan10.8912.0412.0612.1110.867.9811.749.9811.6312.4110.259.5111.00
Zeebrugge, Belgium13.9512.5612.2412.6113.5213.8213.2012.2013.0812.2413.6312.8513.71
Huelva, Spain10.018.708.408.759.589.439.308.299.198.409.648.839.65
Isle of Grain, UK12.9611.5711.2511.6212.5512.8212.3111.2212.1011.2612.6411.8612.72
Everett, US1.540.210.510.261.281.160.010.890.71-0.091.72----
Created with Highcharts 9.0.0($/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 Asia13.2013.11-0.09-0.09
SW Europe11.1010.64-0.46-0.46
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.142.552.692.81
NBP, UK (futures)-0.2312.6612.8814.06
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.6013.2713.8815.00
Zeebrugge (Belgium)--------
German NCG0.3512.5812.2313.62
NBP (UK)-0.4713.7414.2115.01
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.032.492.522.59
Corpus Christi, Texas-0.022.382.402.51
Cove Point, Maryland-0.082.432.512.43
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.142.552.692.81
Second Mth-0.132.712.842.94
Third Mth-0.112.953.063.13
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaApr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '23Mar '230255075100125Energy Intelligence