LNG market round-up for 2014

06 January 2015 | Source: ICIS


LNG spot prices started 2014 at almost double of where they were by the end of the year. The impetus switched to buyers on falling demand and additional supply. ICIS takes a look back at the key events.

Consistent production – with the exception of Angola – and a new export plant in Papua New Guinea met declining demand as the year progressed. A sharp fall in oil prices raised questions over future investments, with buyers pushing for changes to long-term pricing and contract flexibility. Australian exports loomed, Egypt was problematic, Russia suffered and Spain’s reload surge came to a halt.

January Tough start for BG

The year starts unfavourably for portfolio seller BG Group as force majeure is declared from the Idku export plant in Egypt. This follows the shut down of the country’s other liquefaction plant at Damietta as severe shortages of feedgas meet rising domestic demand. A handful of cargoes are lifted from Idku in 2014, one factor behind BG Group’s increased activity of purchasing in the spot market.

A variety of supply options are discussed for Egypt, including pipe connections to Israel’s Tamar and Leviathan fields or the reverse use of the Arab Gas pipe from Israel to Egypt. While a number of letters of intent are published, no final agreements are reported. 

In India, Petronet’s 5mtpa Kochi terminal is commissioned with Qatar’s RasGas delivering the first cargo. The terminal saw low utilisation and a lack of connection to the rest of the grid. Capacity is put up for sale later in the year as a result.

In South Africa, state-oil company PetroSA pushes back the development timeline for its planned floating storage regasification unit (FSRU) by six months before deciding against the Southern Cape as a possible location. Anglo-Dutch major Shell later says it is studying various locations to develop an import terminal while disagreements elsewhere prolong the conclusion of the country’s gas utilisation master plan.

In Brazil, the country’s third FSRU, the 138,000 cubic metre (cbm) Golar Winter, is moved into the port of Salvador and increases the country’s regasification capacity. The newbuild 173,000cbm Experience is delivered in mid-May into Guanabara Bay.

Spot price surge

Spot prices in key east Asian markets top $20.00/MMBtu for March delivery amid strong demand, which is further boosted by a buy tender announced by Argentina’s ENARSA. Brazil’s Petrobras continues to soak up spot cargoes as Atlantic demand becomes an ever more serious competitor to Japan and South Korea.

In Colombia, a consortium composed of power generators and distributor Promigas is chosen to develop the country’s first LNG import terminal, using an FSRU provided by Norway’s Hoegh.

US-based oil and gas explorer Anadarko moves further along in marketing volumes from the proposed Mozambique LNG export project on indices other than crude oil. Multiple non-binding heads of agreement (HoA) for long-term sales have been signed with buyers in premium Asian markets covering approximately two-thirds of the first 5mtpa train.

Japan’s Mitsui, which holds a 20% equity stake in offshore gas field Area 1, says it will not take ownership of any Mozambican offtake. Japanese buyers such as Kansai Electric and Tokyo Electric Power Co (TEPCO) are understood to be among several that have HoAs.

Italy’s Eni reveals plans for three floating liquefaction (FLNG) projects in Mozambique where it holds more than 85 trillion cubic feet (tcf) – 2.4 trillion cubic metres – of gas. Eni maintains it is still committed to host a shared onshore liquefaction facility with Anadarko, although it indicated the first sanctioned phase may be smaller than previously expected.

Anadarko reaffirms its focus on getting a 10mtpa project ready for financial investment decision (FID) by year end.

The first cargo from Mozambique is still targeted by the end of 2018.

March FSRUs in focus

Pakistani state officials endorse a plan to fast track an import project with a target state date of the first quarter, 2015. Karachi-based Engro teams up with US Excelerate, which will deliver an FSRU. A supply tender is later cancelled in December, citing regulatory constraints, with Qatargas considered the likely long-term supplier.

In Jordan, Shell is understood to be close to winning the 3.5mtpa supply tender for the country’s planned 160,000cbm Golar Eskimo FSRU, supplied by Norway’s Golar, at the port of Aqaba. However, the government subsequently says negotiations are continuing.

Supply is initially scheduled to start in December, but this looks increasingly unlikely as the year progresses with work on the jetty delayed and only likely to be completed by mid-2015. A drop in pipe gas supply from Egypt has left Jordan in need of alternate supply, with the country turning to diesel and heavy fuel oil.

April PNG starts up

Papua New Guinea became the world’s newest source of LNG supply when US-based major ExxonMobil starts production at the 6.9mtpa two-train PNG LNG export plant in April. PNG LNG ships its first cargo in late May to Japanese utility Tokyo Electric. By mid-December, 55 cargoes have loaded from the plant, according to ICIS data.

Start up of the plant comes as global demand cools off and spot prices start a period of decline. Mild summer weather in east Asia limits demand for electricity generation. Japanese nuclear plants remain off line, but there are increasing signs that restarts will come in early 2015. Japanese utilities say a drop in LNG demand over the next five years is possible.

In an otherwise steady year for production, the beleaguered 5.2mtpa Angola plant suffers failure at a pipe connection on 10 April with restart put back to 2015. Angola LNG had produced 10 cargoes after an 18-month delay in start up.

In India, the decision to hike domestic gas prices is put on hold ahead of national elections in May. The new Modi-led government takes charge in June and again defers the decision to hike domestic gas prices, with negative feedback over the lack of profitability in local production from British BP. The price is subsequently lifted to $5.60/MMBtu from $4.20/MMBtu with the government deciding to review every six months.

Spanish energy company Endesa and its parent company Enel sign a long-term, 20-year contract for 2.25mtpa from US-based export developer Cheniere’s 13.5mtpa Corpus Christi greenfield project.

Japanese utility Tohoku Electric Power reaches an agreement with trading company Mitsubishi for 300,000 tonnes per annum for a 16-year contract starting in 2022 from the Cameron LNG export project in Louisiana, where Mitsubishi has 4mtpa in equity offtake.

In Canada, Chinese state-owned companies Sinopec and Huadian agree to acquire a 15% stake in the western Canadian LNG export project led by Malaysia’s state-run PETRONAS. State-owned CNOOC also secures a deal with BP for the supply of up to 1.5mtpa for 20 years, starting in 2019.

In Europe, the first ship-to-ship transfer of the year is carried out at the Montoir terminal between two GDF SUEZ-controlled vessels, with the 177,000cbm Grace Dahlia transferring volumes to the 150,000cbm Grace Barleria over a period of two days.

May China-Russia deal

On 22 May, Russia’s Gazprom signs a $400bn pipeline gas deal with China’s state-owned CNPC to supply up to 38 billion cubic metres (bcm)/year to China by 2020. In November, a second deal is signed for up to an additional 30bcm/year starting in 2019. The deal would use the existing Altai pipeline and gas reserves in eastern Siberia for China’s growing gas market.

From China’s side, the agreements are one element of its move to diversify supply sources through pipelines and LNG with forecasts pointing to a rapid growth in gas demand out to 2020. This is given further credence following poor results from domestic shale gas drilling revealed later in the year. Several private Chinese companies enter the spot market for the first time in 2014.

Chile’s new government unveils a new energy strategy, endorsing proposals to construct the country’s third import terminal in the south of the country. Australian mining giant BHP Billiton announces an agreement with Spain’s Gas Natural Fenosa for long-term LNG supply into the Mejillones LNG terminal in Chile sourced from the US Sabine Pass project, beginning in 2016.

Further north, the US Department of Energy abolishes a queue of pending export applications through changes in policy to approve non-free trade agreement export licences.

Instead of having an order of precedence, applicants must now complete the Federal Energy Regulatory Commission (FERC) permitting process first and receive a final FERC approval before being able to receive a final non-FTA licence. 

June Charter rates fall

Shipping charter rates fall as more newbuilds add length without any proportionate rise in LNG volumes.
An abundance of modern diesel electric ships start creating a two-tier market with older steam turbine ships competing on different cost economics and forced to offer at discounts of more than $10,000-20,000/day.

The market bottoms out over the summer before rising in the third quarter. The rise comes in parallel with an uptick in east Asian demand. While the PNG LNG plant provides extra volumes, pricing dynamics still mean east Asia is supplied from distant liquefaction plants in the Atlantic basin.

The number of spot charter transactions in the third quarter almost triples year on year to 52, according to ship broker Poten & Partners.

Spanish energy companies Iberdrola and Gas Natural Fenosa join the offtakers at US Corpus Christi LNG, taking 0.8mtpa and 1.5mtpa respectively from the second train of the south Texas export project.

Australian producer Woodside opens its exposure to US LNG through another 0.85mtpa, soon to be followed by Indonesia’s Pertamina, which already secured 0.76mtpa from Corpus Christi’s Train 1.

Indonesia is one of the main sources of hope behind future growth in global LNG demand as the country’s domestic gas needs continue to rise. A previous export plant, Arun, will be converted into an import facility later in the year.   

In July, Indonesian gas company Pertamina doubles its Corpus Christi offtake capacity for another 0.76mtpa, while France-based EDF Trading secures 0.77mtpa in long-term contractual volumes.

Singapore’s Energy Market Authority (EMA) announces a request-for-proposals process to appoint up to two importers to supply its upcoming LNG requirements. A rise in interest in the process is reported as the year progresses. A final decision is expected by the end of 2015. 

Norwegian gas producer Statoil announces its latest offshore Tanzania gas discovery of 2-3 tcf with co-explorer ExxonMobil.

July Russian woes

The US Department of State issues sanctions that ban Russia’s Gazprom, Rosneft and NOVATEK from accessing credit markets for a period longer than 90 days, making project finance difficult. NOVATEK falls behind on raising capital for its Yamal LNG project with the potential Gazprom Vladivostok plant likely to face delays.

The Russian economy deteriorates further as the year progresses, with diving oil prices hitting income and the Russian rouble depreciating sharply. In December, President Vladimir Putin announces the cancellation of the South Stream pipeline project, which reinforces Russia’s orientation to the Asian gas markets. The project frees up about $50bn, but Gazprom has invested more than $5bn in infrastructure, most of which will no longer be needed.

Russia also stops delivery of gas to Ukraine over a payment dispute. Flows only resume in December after Ukraine makes a pre-payment in December.

In Canada, South Korea’s KOGAS widens its search to shed further equity from the planned 12mtpa LNG export project near Kitimat, British Columbia. KOGAS earlier sold 5% of its stake to project operator Shell, which now has 50% of the project, with KOGAS holding a 15% stake. Mitsubishi (15%) and PetroChina (20%) have the remaining stakes.

Other Kitimat project developer US’ Apache also announces its intent to leave its 50% of the 10mtpa LNG export venture with US major Chevron. In December, Australian Woodside agrees to buy Apache’s stake, alongside Apache’s 13% stake in the Australian Wheatstone project. In Indonesia, Hoegh completes work on the PGN FSRU Lampung which completes its first ship-to-ship transfer on 27 July. Some technical issues follow with two more deliveries by the end of November.

PGN has a contract with Tangguh LNG for five cargoes in 2014.

August Cameron steps forward

The 12mtpa Cameron plant becomes the second US plant to reach FID with first LNG due in 2018.

Project partners Sempra, France-headquartered GDF SUEZ and Japan’s Mitsui and Mitsubishi sign financing agreements for the venture on 6 August. The project is structured as a tolling facility, which means each offtaker will secure feedgas and pay Sempra a fixed liquefaction fee to lift the volumes on a FOB (free on board) basis. Tolling fees are understood to be at $2.00-3.00/MMBtu.

Down the road, Japan’s Chubu reaches a mid-term supply agreement with US Cheniere for less than 1mtpa between July 2016 and January 2018. Cheniere has 2mtpa allocated from the first four trains of Sabine Pass. The first phase includes the two trains and is expected to start up in 2015, with the second phase to commence in 2016. 

September More Egyptian delays

Uncertainty surrounds the status of Egypt’s import terminal for much of 2014 amid reports that state-owned EGAS has launched a supply tender for LNG imports for its planned FSRU. Hoegh’s FSRU Gallant is originally scheduled to arrive in August, but this slips back to the end of the first quarter, 2015. Algeria’s Sonatrach and Gazprom Marketing & Trading are frequently named as potential suppliers, with other portfolio sellers and traders listed by the local media.

The deadline for expressions of interest for 1mtpa of India’s GAIL volumes from Sabine Pass closes. The LNG is being marketed on a FOB basis for a five-year period. A number of companies are expected to receive the volume, although names are not revealed by December.

In Singapore, Pavilion Energy strengthens its foothold in the market by signing an agreement to purchase long-term supply from BP in September. Subsidiary Pavilion Gas will receive 0.4mtpa from BP for 20 years, starting in 2019. This follows Pavilion Energy’s move in June to boost supply from French major Total from 0.5mtpa to 0.7mtpa. Deliveries will start in 2018 over a period of 10 years. 

While Singapore is touted as a potential future hub of Asian trade, buyer and trader reaction to the launch of the LNG derivatives market in Japan is less than optimistic. The Japan OTC Exchange, a venture between the Tokyo Commodity Exchange and broker Ginga Energy, opens a platform for non-deliverable forwards contracts, but sources cast doubt over liquidity.

With oil prices starting to drop, Japanese and South Korean buyers become increasingly vocal on the justification for lower outright contract prices, a greater diversity of price indexation and the need for flexibility on delivery terms. Qatari seller RasGas acknowledges the buyers’ push for shorter-term long-term contracts. With demand starting to pick up in premium east Asian markets, the Dutch Gate LNG terminal in Rotterdam reloads two LNG carriers simultaneously for the first time.

October Lithuania joins in

Europe’s latest import infrastructure starts up as Lithuania takes delivery of Hoegh’s 170,000cbm Independence FSRU on 26 October. Norway’s Statoil delivers the first commissioning cargo to the vessel on the next day. The first commercial delivery is scheduled for December. LNG buyer LITGAS has an agreement with Statoil to supply a small volume each year into the terminal for five years.

Poland fares less well with delays to the start of its import terminal. PGNiG and Qatargas renegotiate their contract so that the Qatari company can sell gas previously intended for Poland into other markets in 2015.  

In Chile, Gas Natural Fenosa expands its presence through the acquisition of local energy company CGE. The $3.3bn deal gives the Barcelona-based company a majority stake in Metrogas, one of three offtakers at Chile’s Quintero LNG terminal, where plans to expand capacity to 5mtpa are also announced.

Mild weather and lower gas demand in Argentina causes a backlog of vessels to build outside country’s ports. Five LNG cargoes are delayed into 2015, while gas buyer ENARSA postpones tender plans.

Further north, the British Columbian provincial government releases its long-awaited LNG tax royalty structure during its second legislative session of the year, in a two-tiered structure that caps the tax at half of what was previously indicated. 

Tanzania’s Ministry of Energy and Minerals publishes an energy road map in which it proposes the staged unbundling of state-owned electricity utility, TANESCO. The road map takes the long-term view, focusing on an increase in installed power capacity to at least 10GW by 2025, at which point the phased unbundling of TANESCO would be complete.
BG Group, operator of offshore blocks 1, 3 and 4, holds 15tcf of total gross recoverable resources, while Statoil has 21tcf of gas in place in block 2.

November Oil drop hits LNG

The Japan Customs-cleared Crude price for November falls by 14% from October to a four-year low, in line with diving crude oil. The price is used in many long-term contracts agreed with major Japanese buyers. While buyers are expected to boost contract deliveries as a result, spot prices in east Asia fall below $10.00/MMBtu on a DES (delivered ex-ship) basis. This is half the price reported one year before, with mild weather and high LNG inventories stemming spot demand in the region.

China’s Sinopec receives a commissioning cargo into its Qingdao import terminal from BG Group on 13 November. Sinopec holds a 2mtpa long-term offtake contract from PNG LNG, with the next cargo expected in December.

In South America, Mexico’s state oil and gas company Pemex announces plans for the country’s first ever LNG export project, planned for the southwest coastline. The 4-5mtpa project will look to send domestically produced gas to premium markets in Asia. The push for privatisation within Mexico’s gas and energy sector is a big theme of the year, with plans to boost domestic production and pipe links bringing in gas from the US.

Argentine oil and gas company YPF reaches an agreement with companies in neighbouring Uruguay for the potential use of that country’s new regasification import terminal.

After a bumper year on reloads, Spain becomes awash with volumes which cannot be sold as global spot demand evaporates and prices become unworkable. 

Legislation in Spain is drafted to cut out loopholes that, although attractive to reloaders, left regulated infrastructure operators operating at a loss in many cases. It is not clear what effects, if any, these changes which recognise LNG storage as an asset in itself as a flexibility tool, will have on the LNG reload sector in Spain.

December Australia in focus

All eyes are on Australia as the 145,000cbm Methane Rita Andrea heads towards Gladstone as the initial vessel into BG Group’s 8.5mtpa Queensland Curtis (QCLNG) plant – the first of four Australian export projects due to ramp up in 2015. After four years of construction, the $20bn project will be the first to convert coal seam methane into LNG. The timely start up of – or possible delays to – Australian plants will be a central theme for 2015, set against concerns over the mid-term demand outlook. 

Looking further ahead, Malaysia’s state-run PETRONAS announces its intent to defer FID for its planned 12mtpa Pacific NorthWest LNG export project in Canada’s British Columbia. PETRONAS said earlier it would reach FID before 2014.

Brazil’s government awards power purchase agreements to gas-fired projects proposed by local conglomerate Grupo Bolognesi. Both projects will be linked to new LNG import facilities. Drought continues to leave Brazilian LNG demand at record levels over 2014 despite periods of limited spot interest from state-run buyer Petrobras. The marine fuel sector awaits stricter emission regulation from the start of 2015, although there are some concerns that falling oil prices will act as a disincentive to move away from oil-based fuels. The EU announces it will provide $4m for a pilot bunkering facility in the UK as well as LNG propulsion systems to two new ships.

Shell confirms plans to build an LNG bunker vessel that will supply LNG as a fuel in ship-to-ship transfers across northwest Europe.  

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