March 15, 2023

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Adnoc Could Double Fujairah LNG Capacity

Abu Dhabi National Oil Co. (Adnoc) may double the size of its planned 9.6 million ton per year LNG export facility, in strategically located Fujairah, under a phase two development in the future.

Plans for the first phase development comprising two 4.8 million ton/yr liquefaction trains are well under way following the completion of front-end engineering design (Feed) works by McDermott International and the expected award of engineering, procurement and construction contracts this year.

A second phase would see the construction of two additional trains of the same size which could be accommodated on the same plot allocated to the project, a person familiar with the project told Energy Intelligence.

“The site can accommodate a second phase. The 9.6 million ton/yr LNG facility is phase one,” the person said.

Building Capacity

Phase one will lift Adnoc's overall LNG export capacity to around 15.4 million tons/yr, which would rise to as much as 25 million tons/yr should phase two be implemented.

The capacity to be installed under phase one alone would place the UAE ahead of neighboring Oman, which has around 11 million tons/yr of liquefaction capacity, currently the No. 2 LNG producer in the region.

Adnoc will still remain well below Qatar's liquefaction capacity of about 77 million tons/yr, which is in the process of being expanded to 126 million tons/yr in two phases by 2027.

Completion of the first phase of Fujairah LNG is targeted for as early as 2026.

Bunker Capacity

Output from the LNG plant is mainly expected to be exported but would also feed a planned LNG bunker facility which is presently under study and would involve construction of a dedicated berth, with marine services to be provided by the Port of Fujairah, Energy Intelligence understands.

Demand for LNG as a marine fuel is set to increase in coming years as more tankers using the super-cooled fuel come to market as the shipping industry moves towards decarbonization.

Other Mideast Gulf states, including Oman, are also working on plans to build LNG bunker facilities.

Partner Selection

Adnoc has yet to select potential partners interested in taking an equity stake in the planned Fujairah LNG export terminal.

The Abu Dhabi state giant is understood to be preparing to make a final investment decision on the project soon, and is in talks with new and existing partners, including international oil companies (IOCs), about coming on board the Fujairah development.

Adnoc wasn't immediately available to comment.

The project is moving ahead at a time when world energy markets are in upheaval and global demand for the super-chilled fuel is on the rise.

Interest in gas supplies from Abu Dhabi has come from countries including Germany and Austria as European states and companies adjust to the fallout from Russia's Ukraine invasion on energy markets.

Fujairah Advantage

One of the Fujairah scheme's main advantages is its position on the Gulf of Oman, outside the Iran-dominated Strait of Hormuz (see map).

It is also planned to be among the world's lowest-carbon LNG export facilities — a future hedge against the energy transition — by utilizing domestically generated solar and nuclear power.

Adnoc has existing liquefaction capacity of 5.8 million tons per year located on Das Island about 160 kilometers off the coast of Abu Dhabi.

The facility is operated by what is now known as Adnoc Gas, which was established earlier this year by consolidating Adnoc's LNG and gas processing operations. Adnoc Gas listed on the Abu Dhabi bourse earlier this week following its initial public offering.

Adnoc's LNG unit was originally established in 1973 as Adgas and is 70% owned by Adnoc, with Mitsui & Co. holding 15%, BP 10% and TotalEnergies 5%.

Mideast Gulf LNG Landscape

ef220621_Gulf_Oman_Qatar-UAE-Fujairah.svg


Oliver Klaus, Dubai

Lower Asian Spot LNG Prices Lure New Import Entrants

Lower Asian spot LNG prices are reviving import plans for new players in emerging markets which are heard scouting for commissioning cargoes.

One of them is Hong Kong’s power utility CLP Power, which is heard to have awarded a May-delivery cargo to Chinese state firm PetroChina following a tender. CLP and fellow utility Hongkong (HK) Electric are spearheading the deployment of a floating storage and regasification unit (FSRU), dubbed the Hong Kong Offshore LNG Terminal, to displace coal in power generation.

PetroChina is an existing long-term gas supplier to CLP from its second West-East pipeline.

FSRU Heads for Hong Kong

In a somewhat roundabout route to Hong Kong, the partially laden FSRU Bauhinia Spirit, which has been chartered by Singapore LNG for a year, has left Singapore and headed towards Incheon in South Korea. The estimated arrival date at Incheon is Mar. 24, according to shiptracker Kpler.

A spokesperson from HK Electric said the FSRU vessel would arrive in Hong Kong by the second quarter.

"The facility will further improve Hong Kong’s long-term natural gas supply stability by diversifying supply sources and enable procurement of LNG from the international market at competitive prices," the spokesperson said.

HK Electric earlier indicated it is targeting for the FSRU to start commercial operation in mid-2023. The imminent commissioning of the terminal signals Shell, the appointed LNG term supplier, would soon begin first deliveries to the terminal under a 10-year contract for at least 1 million tons per year.

The FSRU project was originally slated for start-up in 2021, but faced construction delays associated with the pandemic.

Bearish But Cautious

Since the beginning of this year, Asian spot LNG prices have been on a bearish downward trend due to healthy inventories and a mild winter. Energy Intelligence assessed Asian spot prices at $14.85 per million Btu this week, narrowing the price gap with or even cheaper than oil-linked term cargoes.

A trader said there is substantial demand for commissioning cargoes this summer as long as spot prices stay below $15/MMBtu. Besides Hong Kong, there is also buying interest in commissioning cargoes from upcoming new terminals in India, China, Philippines and Vietnam, the trader added.

But analysts warned new terminals may face underutilization in the short term as LNG prices remain higher than pre-war price levels and are subject to price volatility in the European gas market until new LNG projects come online in the mid 2020s.

South and Southeast Asia Gear Up

In India, Adani Total’s 5 million ton per year Dhamra LNG terminal on the east coast is scheduled to start next month.

State Petrovietnam Gas is heard to be holding talks with suppliers for a cargo to be sent to its planned Thi Vai terminal in the southern Ba Ria-Vung Tau province, slated to be Vietnam’s first LNG terminal, starting in the third quarter of 2023.

The Philippines is also expected to join the LNG importers’ club this year with terminal developers AG&P and First Gen racing to be the first importer. AG&P is targeting to start operations of its terminal in the second quarter while First Gen is looking at first imports after July.

Vietnam and the Philippines were originally supposed to begin LNG imports in 2022 to make up for falling domestic gas production and displace coal. But LNG prices skyrocketed following the war in Ukraine and stalled import plans.
Clara Tan, Singapore

British Columbia's Cedar LNG Takes Two Key Steps Forward

The proposed Cedar LNG project in British Columbia is two steps closer to a final investment decision (FID) following receipt of a key environmental permit and the signing of an initial commercial agreement.

The Western Canadian province announced Tuesday it had issued an environmental assessment certificate for the 3 million ton per year project being developed by the Haisla Nation and Pembina Pipeline at Kitimat. The BC government also said it would work with the developers to further reduce emissions related to the project, with a goal to get “near zero” by 2030.

The Haisla and Pembina are targeting an FID for the project in the third quarter of this year, with start-up anticipated for 2027, with the LNG very likely headed to growing Asian markets nearby.

Project Snapshot

Cedar LNG is the first indigenous-owned Canadian LNG export project to receive the provincial environmental assessment certificate. The scheme relies on a floating liquefaction vessel that would be built at an existing shipyard in Asia to reduce costs and impacts to the environment.

In addition, the developers plan to power the facility using hydroelectricity, which they claim will make it one of the lowest-emission LNG projects in the world.

“Today’s announcement marks a historic milestone for Cedar LNG and the Haisla Nation’s journey towards economic self-determination,” Haisla Nation Chief Councilor Crystal Smith said. “Together with our partner Pembina Pipeline, we are setting a new standard for responsible and sustainable energy development that protects the environment and our traditional way of life.”

The project would receive feed gas from the Coastal GasLink pipeline being built by TC Energy. Cedar LNG said Tuesday it has received its first permit from the BC Energy Regulator for the 8.5-kilometer pipeline that will connect the project to Coastal GasLink.

Commercial Agreement

Cedar LNG’s proponents also revealed on Tuesday they had signed a memorandum of understanding to hash out a liquefaction services agreement with Canadian producer ARC Resources. The agreement to be finalized would cover half of Cedar LNG’s capacity over a term of 20 years.

“ARC’s asset quality, leading ESG performance and financial strength are important attributes in an LNG partner and will help drive our project forward,” said Cedar LNG CEO Doug Arnell. “In the coming months, we will be focused on advancing work across four critical streams — engineering, regulatory, commercial discussions and financing, so that we are well positioned to deliver a project the Haisla Nation, Pembina, British Columbia, and the rest of Canada will be proud to showcase.”

The Cedar LNG partners also said they are continuing commercial discussions with other potential customers.

Turning Point for Canadian LNG?

Canadian developers are keen to capitalize on the West Coast’s proximity to Asia — a growing demand center for LNG — but also face challenges including high costs, green opposition and a lukewarm treatment from the government of Prime Minister Justin Trudeau. While a number of LNG export projects have been proposed over the years, many have stalled or fizzled out.

So far, the only project to reach FID is the massive LNG Canada development, currently under construction in Kitimat, in close proximity to Cedar LNG.

Market watchers, however, see the tide turning for West Coast projects in the wake of Russia’s invasion of Ukraine.

“There's been a mindset shift,” Invest Alberta CEO Rick Christiaanse told Energy Intelligence at the CERAWeek by S&P Global conference in Houston last week.

And, unlike earlier projects, many of the export developments currently in the works are supported or owned by First Nations.

“I think there's a lot of support for that,” Christiaanse said.

The 14 million ton/yr Shell-led LNG Canada project is slated to come online in 2025, with a second phase anticipated to double that capacity. If sanctioned, the Cedar LNG project could take capacity in the region above the 30 million ton/yr mark.
Caroline Evans, Houston

India Revises Gas Pipeline Tariff

India will begin a new natural gas pipeline tariff structure next month, which will reduce the transportation cost for industrial customers residing in far flung areas.

The new tariff structure could help bring Indian buyers back to the gas and LNG markets after a multi-year drop off in LNG imports.

The new structure will start Apr. 1, according to Petroleum & Natural Gas Regulatory Board (PNGRB) member AK Tiwari, confirming the date of implementation of the tariff. The plan for a uniform pipeline tariff has been under discussion for over three years.

Lowering transport costs for industrial users coupled with spot LNG rates moderating to a little over $13 per million Btu, from $35/MMBtu levels seen last winter, will bring Indian buyers back to the market, an industry official said.

The pipeline tariff change follows — by two days — action by India's Central Electricity Authority to temporarily facilitate spot LNG imports.

Free market gas pricing, however, still appears unlikely anytime soon for India.

New Tariff Regime

Currently gas users pay different rates to receive the fuel at their facilities with those close to the gas field or LNG import facility paying much less than those at a distance. The transportation tariff calculation is based on the distance, currently divided into two zones.

The new policy expands two zones to three. Customers within 300 kilometers of the LNG terminal or gas production area pay the least; those between 300-1200 km pay more; and those beyond 1200 km pay the most, Tiwari said. The tariff for the first zone will be 40% of the tariff for the second, according to PNGRB.

"The objective of these changes is to provide access to natural gas in the far-flung areas at competitive and affordable rates to achieve the long-cherished objective of one nation, one grid and one tariff,’’ according to the government.

Gas Pipeline Expansion

Meanwhile, India is understood to be adding another 12,000 km of gas transmission infrastructure to the existing 23,000 km as it seeks to ramp up the share of gas in India’s energy mix to 15% by 2030, from 6% now.

Pipelines operated by state gas distributor Gail India, including the Hazira-Vijaipur-Jagdishpur pipeline and Dahej-Uran-Dabhol-Panvel pipeline, and East-West Kakinada-Baruch pipeline, earlier owned by Reliance Industries, will be part of this scheme.
Dinakar Sethuraman, New Delhi

Chinese Domestic Gas Production Rises

Chinese leader Xi Jinping's focus on energy security, in part thru growth in domestic gas production, seems to be making progress.

China’s government said earlier this year that it would increase domestic oil and gas production in 2023 and Xi highlighted energy security during a visit to China National Petroleum Corp. (CNPC)'s Tarim oilfield in January.

Domestic Gas Apparently Displacing Imported Gas

China’s natural gas production in January-February this year was 39.8 billion cubic meters, an increase of 6.7% compared to the same period last year, with an average daily output of 670 million cubic meters, according to the latest data from the National Bureau of Statistics (NBS).

In contrast, during the same January-February period, China imported 17.93 million tons of natural gas, down 9.4% year on year, according to NBS. China imported 11 million tons of LNG in January-February 2023, down 8.8% year on year, according to Kpler.

China was replaced by Japan as the world's top LNG importer in 2022.

More Domestic Gas Production to Come?

More increases in domestic gas production could be in the works.

A report from the Oxford Institute for Energy Studies noted the commitment of China National Offshore Oil Corp. (CNOOC) to increase Capex spending on the domestic upstream this year.

CNPC and Sinopec may follow suit.

However, while CNPC’s think tank expects oil production in China to stabilize at 4 million barrels per day and remain at these levels through 2040, the Oxford report questions whether or not that is achievable while also maintaining gas output growth.

Chinese Gas Demand

Meanwhile, it seems that there will be plenty of gas demand for all sources to meet.

The country’s industrial companies resumed production at a faster pace after the Chinese New Year holiday, with the growth rate slightly faster than last December, said the chief statistician of the Department of Industry of NBS.

Also, some northern cities in China have experienced gas shortages during the recent winter.
Staff Reports


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustralia WestAustralia EastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUS GulfUS East Coast
Dahej, India11.2511.6211.3211.6110.9810.8411.9910.5811.9211.3510.7110.4910.78
Sodegaura, Japan12.1013.2313.2513.3012.079.2512.9311.2112.8213.5911.4610.7412.20
Zeebrugge, Belgium10.318.998.699.049.9010.199.608.659.488.6910.019.2710.08
Huelva, Spain11.019.729.439.7710.5810.4310.309.3210.209.4210.649.8510.65
Isle of Grain, UK12.0110.6710.3710.7211.6211.8911.3810.3411.1810.3711.7110.9611.78
Everett, US1.380.090.380.141.131.010.010.750.58-0.201.55----
Created with Highcharts 9.0.0($/MMBtu)QATAR TO NORTHEAST ASIANetbackNetback10. Oct24. Oct7. Nov21. Nov5. Dec19. Dec2. Jan16. Jan30. Jan13. Feb27. Feb13. Mar10203040Energy Intelligence

LNG Market Indicators

Spot LNG Pricing
Latest WGIDailyDaily Chg.Chg. From Latest WGI
NE Asia14.8514.29-0.56-0.56
SW Europe13.5011.64-1.86-1.86
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.132.442.572.55
NBP, UK (futures)-0.5112.8313.3412.90
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.6813.3614.0413.31
Zeebrugge (Belgium)-0.3810.6511.03--
German NCG-0.7412.1112.8512.54
NBP (UK)-1.7512.7914.5414.00
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.222.422.642.49
Corpus Christi, Texas-0.102.122.222.38
Cove Point, Maryland-0.332.262.592.43
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.132.442.572.55
Second Mth-0.142.552.692.71
Third Mth-0.162.762.922.95
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaApr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '23Mar '230255075100125Energy Intelligence