Potential for Yamal LNG supply increase is limited

Source: Heren

2019/03/11

LONDON (ICIS)--Russia’s Yamal LNG facility has been the biggest supplier of volumes to Europe during the current gas winter, but there is little potential for further increases.

As LNG moves closer to becoming Europe’s third-largest source of supply after piped flows from Norway and Russia, a key driver has been additional exports from the Yamal LNG project.

The Russian facility has been Europe’s biggest supplier over the winter so far, providing around four million tonnes (mt) between October-February.

Some cargoes from the facility have been delayed by heavy winds which created a backlog at Norway’s Honningsvaag trans-shipment point, but the tide of Russian LNG to Europe looks set to continue in the coming sessions despite this.

LNG Edge data indicates that France’s Montoir will receive two Yamal LNG vessels in the coming week, while one will also arrive at Belgium’s Zeebrugge on Monday. A further six vessels were on their way to offload volumes at Honningsvaag on Friday afternoon, most of which were expected to arrive over the weekend.

Yamal has been able to provide more LNG to Europe due to two new 5.5 million tonnes per annum (mtpa) trains coming online in the third and fourth quarters of 2018, trebling the plant’s potential output.

However, LNG Edge data shows that Yamal has been producing at around 96% of maximum capacity over the past year, providing little scope for improvement with the current infrastructure.

A fourth train is due to come online at the end of this year, but this will only provide an additional 0.9mtpa of capacity.

As a result, supply forecasts from LNG Edge do not show any significant increase in Yamal production. The facility is expected to produce 1.53mt in March 2019, and the highest current monthly forecast is 1.63mt for January 2021.

By contrast, additional capacity coming online is set to increase monthly US LNG production from 1.9m tonnes (2.7 billion cubic meters) in February 2019 to 4.5m tonnes by January 2020, according to LNG Edge data.

Therefore, while Yamal has been a key driver behind the current tide of LNG to Europe, it is the US which will add to this in the coming months.

ICIS VIEW

Producers in both the US Gulf and Russia’s Yamal peninsula are marketing more LNG than ever - including spot cargoes – and both in the Atlantic basin. This means Europe will become an even more important destination. But while the US is set to overtake Russia on volume, Yamal pricing will remain competitive.

Novatek says it can deliver to Europe for $2.10/MMBtu ($0.10/MMBtu for feedstock, $0.50/MMBtu for liquefaction and $1.50/MMBtu for shipping).

In the US, long-term buyers from Cheniere may consider feedgas costs and tolling fees as a sunk cost given they are part of their take-or-pay obligations.

But Henry Hub pricing remains a substantial long-term cost for offtakers, with scope for volatility. This is in addition to separate tolling costs for buyers lifting from the soon-to-start projects.

Shipping costs for a round trip from Sabine Pass to Gate in the Netherlands would cost an additional $0.68/MMBtu, according to LNG Edge, if a vessel is chartered on a prompt basis. Additional reporting by Patrick Sykes