March 17, 2023

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Aussie Regulator Warns of East Coast Power Crisis

Australia’s eastern states could face another power crisis this winter as the Australian Energy Market Operator (AEMO) is warning of a potential gas shortage.

If that happens, it increases the probability that the government will take volumes from Queensland LNG exporters through the revised Australian Domestic Gas Security Mechanism.

Queensland has three liquefaction plants — Royal Dutch Shell's Queensland-Curtis LNG, Australian independent Santos' Gladstone LNG and Australia-Pacific LNG operated by Australian utility Origin Energy and US ConocoPhillips — with a total of about 25 million tons of LNG export capacity.

LNG as Scapegoat?

Some politicians have cast blame for last year's gas shortage on Australia's east coast LNG exporters, but many factors are at play.

Last year wholesale gas prices in Australia's east soared on the back of stronger demand following the loss of some coal-fired power generation, coal supply problems after mines were flooded, and lower solar energy output during a cold snap.

A potential future gas shortage could also be attributable to two well-identified structural factors : lower production from the Gippsland Basin as fields reach maturity and pipeline capacity constraints.

The risk of a gas shortage is further heightened if alternatives like coal and renewables are not available to meet demand when temperatures are lower than usual.

Mitigation Plans

To reduce the risk of a gas shortage, the AEMO said gas storage will be vital to meet peak day demand.

Last year, Australia's federal government authorized AEMO to buy and store gas as part of a package of measures to reduce the risk of a gas shortage on the east coast.

The AEMO also said LNG exporters have the ability to provide significant volumes of currently uncontracted gas to the domestic market.

However, high spot prices could incentivize the export of those volumes resulting in a domestic supply gap of up to 33 petajoules (31.2 billion cubic feet) in 2023.

AEMO expects gas supply to be adequate up till 2026 but urges that investments be made or face the risk of supply gaps from 2027 as a result of reduced production from southern Australia.

The state of Victoria is particularly at risk as it is slated to become a net importer of gas from winter 2027 unless new Victorian supply is developed.

Southeastern Imports

A potential gas shortage also increases the business case for LNG import terminal projects.

But AEMO said uncertainty around proposed LNG import terminals remains. Its latest gas report no longer considers Australian Industrial Energy’s (AIE) Port Kembla terminal project in New South Wales as an anticipated project due to insufficient contracted capacity from prospective buyers. It places the earliest start date of the terminal in 2026.

AIE is seen as a frontrunner among LNG import proponents but its project has faced several delays. It is expected to start a charter contract for a floating storage and regasification unit with Hoegh between 2023 and 2025.

Other southeastern projects are led by Viva Energy and Vopak which plan to import LNG starting from 2024 and 2026, respectively.

However, these projects may be delayed or even shelved after the federal government introduced a series of measures designed to rein in soaring energy costs.

Viva Energy said a decision to sanction its LNG import terminal will depend upon “clarity over new federal regulation of gas markets” as well as environmental approval.
Marc Roussot, Singapore and Clara Tan, Singapore

Poland's LNG Imports Overtake Russian Gas

Poland has been preparing for this moment — when its LNG imports would exceed its Russian gas imports — since it opened the 3.7 million ton per year Swinoujscie LNG import terminal in 2016.

Poland, along with Lithuania, has become independent of Russian gas while the rest of Europe struggles to catch up.

Share of LNG

The share of LNG in Poland’s gas imports rose to 43% last year, from 24% in 2021, while the share of Russian pipeline gas dropped to 20% from 61%, PKN Orlen said in a statement on Thursday.

The biggest oil and gas company in Poland, PKN Orlen said LNG imports increased by more than 50% to 6.04 billion cubic meters in 2022.

The US accounted for more than half of PKN Orlen’s total LNG imports last year, or 3.4 Bcm, the Polish importer said.

The strong growth was a response to the supply crisis in Europe caused by Russian gas exporter Gazprom’s actions and Russia’s aggression in Ukraine, PKN Orlen said.

Gazprom restricted its own supply to Europe amid the energy crisis before and after Russia’s invasion of Ukraine in February last year. Its daily exports to Europe have dropped by around 80% over the first year of the war.

Poland is one of the fiercest opponents of Russia in the EU and one of the key supporters of Ukraine.

Created with Highcharts 9.0.0(million tons)POLAND'S LNG IMPORTS20162017201820192020202120222023012345Source: Kpler

Diversification

Increased LNG imports were possible thanks to diversification of supply sources and expansion of receiving capacity at the Swinoujscie LNG terminal, PKN Orlen said.

PKN Orlen said it managed to increase LNG imports despite an increased competition from other countries. It also signed gas contracts for the supply of Norwegian gas, started importing gas from Lithuania and received first deliveries from Slovakia, the company said.

Diversification was accelerated by the complete halt in April 2022 of Russian gas supplies under the contract with PGNIG, which was merged into PKN Orlen in November 2022. Gazprom cut off supplies after PGNIG rejected Moscow’s new payment rules for buyers from what Russia deems “unfriendly” countries. Gazprom cut off a total of six European customers on those grounds, while most of its around 50 customers agreed to the new rule, which involved conversion into rubles but allowed them to continue to pay in euros.

This year, PKN Orlen has purchased no Russian gas and expects to replace it with deliveries via the Baltic Pipe from Norway and with LNG cargoes under long-term contracts with US suppliers.

As Poland hasn’t imported any gas from Russia since late April, PKN Orlen’s full-year 2022 imports of Russian pipeline gas dropped 71% to 2.9 Bcm from 9.9 Bcm imported in 2021.

The halted supplies from Russia only accelerated the diversification process, as PKN Orlen would have stopped importing Russian gas anyway with the expiry of PGNIG’s so-called “Yamal” supply contract with Gazprom for 10.2 billion cubic feet per year on Nov. 1, 2022, the Polish company said.

Interconnectivity Memo With Ukraine

Separately, Polish gas transmission system operator (TSO) Gaz-System on Thursday signed a memorandum of cooperation with the Ukrainian TSO, GTSOU, to improve interconnectivity between the Ukrainian and Polish markets.

The memorandum will potentially give Ukraine access to gas from the Baltic Pipe as well as interconnectors with Lithuania and Slovakia that Poland launched last year, Gaz-System President Marcin Chludzinski was quoted as saying. Gaz-System also sees opportunities to support the Ukrainian gas market via the Swinoujscie LNG terminal and a planned floating storage and regasification unit in Gdansk, he said.

For more coverage of the Ukraine crisis, visit Ukraine Crisis: Energy Impact
Staff Reports

British Columbia Ups Ante on Climate Regulations

British Columbia is tightening up environmental regulations for oil and gas development to ensure that the Canadian province can meet its climate goals.

This may make it more difficult for LNG projects to be greenlighted, but some operators expressed optimism that the framework will provide regulatory certainty going forward.

The most stringent of these rules requires that proposed LNG facilities in or entering the environmental assessment process pass an emissions test with a credible plan to be net zero by 2030.

An emissions cap for the oil and gas industry will also be established so that the province can meet its 2030 emissions-reduction target for the sector.

Other measures in turn establish a clean energy and major projects office and a BC hydroelectric task force to accelerate the economy’s electrification

BC Premier David Eby said in a release that he was hopeful that the new measures would have a meaningful impact.

“Our new energy action framework will help us meet our climate targets and build a better future for all British Columbians, especially our kids, and grandkids, in a clean-energy economy,” Eby said in a release.

LNG Limbo

BC's move comes as Canadian operators have expressed hope that their country can join in on the LNG export bonanza that has emerged in their southern neighbor.

So far, the only LNG project being built is the Shell-backed LNG Canada development in Kitimat, BC where the supermajor intends to have at least 14 million tons of export capacity online by the mid-2020s.

LNG Canada is grandfathered in under the new rules, but it is unclear if a planned expansion of the facility, which could push capacity there to as high as 40 million tons per year, would benefit.

Also grandfathered in is Cedar LNG, a smaller project aiming to produce up to 3 million tons per year that is being backed by the Haisla Nation and which recently won a key environmental permit.

Others aren’t so lucky, however, like the proposed Tilbury LNG facility, the Ksi Lisims LNG project in northern BC, or the Woodfibre LNG project at Squamish.

Leaders of the latter project were supportive of the new framework, though, as Woodfibre LNG has ambitions to be the world’s first net-zero LNG facility.

“We are proud to support this important announcement from the Government of BC which advances a portfolio of low-carbon solutions to support global energy security while accelerating the path to decarbonization and a net-zero future,” said Woodfibre LNG president Christine Kennedy.

Some were more cautious, like the CEO of the Explorers and Producers Association of Canada, Tristman Goodman. He told Reuters that the new rules were “constructive and positive,” but that industry had some reservations.

“The concern lies in the details,” said Goodman.

The Canadian Association of Petroleum Producers was similarly waiting to learn more about what BC’s new rules would entail.

“We are continuing to consult with our members and will need to learn more details about the Energy Action Framework as well as the government’s approach to consultation and further development of the framework before offering additional comment,” CAPP spokesperson Jay Averill told Energy Intelligence.
Jeffrey Cavanaugh, New Orleans

Novatek to Increase Dividends

Russia’s Novatek plans to pay 320.6 billion rubles ($4.2 billion) in full-year dividends for 2022, 48% more than it paid for 2021.

Higher dividends reflect Novatek’s strong financial gains from the high LNG prices at a time when exports from its key Yamal LNG project hit another record last year despite Russia’s war in Ukraine.

France’s TotalEnergies still keeps a 19.4% stake in Novatek, although it has taken it off its books, took a $3.7 billion write-down on the stake in the fourth quarter of last year and withdrew its directors from the Novatek board.

Dividend payments to foreign shareholders are restricted by Moscow in response to international financial sanctions imposed over Russia’s Feb. 24 invasion of Ukraine.

Other key shareholders are Novatek CEO Leonid Mikhelson and his family with nearly 25% and Russian-Finnish businessman Gennady Timchenko with some 23%. State-run gas giant Gazprom holds 9.99% in Novatek.

Timchenko is blacklisted by the US, EU and UK as an ally of Russian leader Vladimir Putin. Mikhelson is blacklisted by the UK and Canada.

Continued Dividend Growth

The company’s board on Friday recommended paying 60.58 rubles per share in dividends for the second half of last year, up 38% from the dividends paid for July-December 2021 and 35% from the interim payouts for the first half of this year, which reflects the continued improvement of Novatek’s financials throughout the year 2022 despite the war in Ukraine.

The board’s proposal will be considered by shareholders at annual general meeting scheduled for Apr. 21.

With the 45 rubles/share already paid for the first half of the year, full-year dividends will amount to 105.58 rubles/share, Novatek said.

Novatek’s dividend policy is to pay at least 50% of adjusted net profit to shareholders, meaning the company’s 2022 net profit could be estimated at least at 641 billion rubles, up from 433 billion rubles in 2021.

Like other Russian companies, Novatek stopped publishing financial results last year.

Crisis Helps Novatek

For 2021, Novatek paid 71.44 rubles/share, or a total of 216.9 billion rubles, which is twice as much as paid for 2020. The growth was also mainly due to a sharp increase in global energy prices in 2021.

The energy price crisis continued into 2022 and was aggravated by the war in Ukraine that Russia started in February 2022.

The war resulted in a major divorce between Moscow and the West and a series of international sanctions against Russia, including the EU technology sanctions targeting Russia’s LNG industry.

But immediate exports of Russian gas or LNG have not been targeted by European sanctions. Russia’s pipeline gas exports to Europe dropped significantly over the past year, partly on Russia’s tactic of restricted supply, while Russian LNG exports to Europe only increased last year, reflecting their lower geopolitical toxicity for Europe.

Created with Highcharts 9.0.0(rubles/share)NOVATEK'S DIVIDENDS201420152016201720182019202020212022*0255075100125Note: *Pending shareholder approval. Source: Novatek

Staff Reports

Taiwan Hikes Power Rates

Taiwan's Ministry of Economic Affairs (MOEA) announced Mar. 17 an average hike of 11% in electricity rates.

The hike should help state-owned Taiwan Power overcome the financial impact of the Russian-Ukrainian conflict on global LNG and coal fuel costs without sparking sharp increases in consumer prices.

The hike was mandated by an independent power rate review commission set up under the ministry and is the first since an average 8.4% boost last Jun. 27.

Deputy Economics Affairs Minister Lin Chuan-neng said the average hike to NT$3.1154 per kilowatt hour (kwh) would have a total 0.27 percentage point impact on the consumer price index, which was forecast in late February to rise 2.43% this year.

Impacts Vary

Lin said the biggest impact will be on high voltage industrial users, most of which are export-oriented, which face a hike of 17%. Low-voltage manufacturers, service and commercial firms, mostly small-to-medium enterprises oriented toward the domestic market, will have their rates boosted by 10%.

To both encourage household users to conserve power and avoid inflationary impact, 12.31 million, or 93% of all Taiwan households which use less than 700 kwh a month and 760,000 commercial users (84%) who use less than 1,500 kwh will not have their power rates hiked.

The rates for LNG supplied to Taipower and six independent power producers by state-owned CPC had soared from NT$11.5379 per cubic meter in February 2022 to NT$21.3818 per cubic meter in November 2022, but CPC reduced its rates to NT$19.6712/cm effective Mar. 1. As a result, Taipower lost NT$1.2 for each kilowatt hour it generated in 2022.

Taipower president Wang Yao-ting said the hike will boost the utility`s revenues by NT$60 billion through the end of 2023 based on an average forecast of US$250 per ton for coal and $18.70 per million Btu for LNG for 2023.

Still Competitive

In 2021, Taiwan's power rates for households of NT$2.64/kwh were the third lowest in the world and its average NT$2.58/kwh for industrial users was the fourth lowest globally, according to IEA data.

Even with the new hikes, Taiwan's relative position will remain about the same, with new industrial power rates of NT$3.38/kwh slightly lower than the NT$3.84/kwh average in its main regional competitor, South Korea, according to Taipower.
Dennis Engbarth, Taipei


Data Snapshot

LNG Netbacks at Key Receiving Terminals

LNG Exporter Netbacks Between Key Receiving Ports
($/MMBtu)AlgeriaAustraliaWestAustraliaEastMalaysiaNigeriaNorwayOmanPeruQatarRussiaTrinidadUSGulfUS EastCoast
Dahej, India11.1411.5111.2111.5010.8710.7211.8810.4611.8111.2410.6010.3710.67
Sodegaura, Japan11.9813.1213.1413.1911.969.1212.8211.0812.7113.4811.3510.6212.09
Zeebrugge, Belgium9.237.927.627.978.839.118.537.588.417.628.938.209.01
Huelva, Spain10.579.288.999.3310.1510.009.878.889.778.9810.219.4110.22
Isle of Grain, UK11.5810.249.9410.2911.1911.4610.959.9010.759.9411.2810.5311.35
Everett, US1.530.230.520.281.271.160.010.890.72-0.071.70----
Created with Highcharts 9.0.0($/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 Asia14.8514.18-0.26-0.67
SW Europe13.5011.20-0.12-2.30
Futures Pricing
($/MMBtu)Chg.LatestPreviousWeek Ago
Henry Hub, US (futures)-0.182.342.512.43
NBP, UK (futures)-0.6312.5913.2216.18
European Spot Pricing
Chg.LatestPreviousWeek Ago
Dutch TTF-0.0513.2213.2716.87
Zeebrugge (Belgium)-0.5910.0310.6112.19
German NCG-0.2612.0012.2612.97
NBP (UK)-0.1212.3612.4715.99
US Markets
US Spot Prices
Sabine Pass, Louisiana-0.042.412.452.37
Corpus Christi, Texas2.072.070.002.16
Cove Point, Maryland0.082.292.212.29
Elba Island, Georgia--------
Nymex Henry Hub Futures
Near Month-0.182.342.512.43
Second Mth-0.182.452.632.56
Third Mth-0.182.662.842.80
Created with Highcharts 9.0.0($/MMBtu)GLOBAL GAS PRICINGUS NymexDutch TTFNE AsiaApr '22May '22Jun '22Jul '22Aug '22Sep '22Oct '22Nov '22Dec '22Jan '23Feb '23Mar '230255075100125Energy Intelligence