Oil and gas news briefs for Sept. 3, 2015
Analysts predict further price drop for LNG in Asia
(Reuters; Aug. 31) - Asian liquefied natural gas prices could drop 25 percent in coming months as new supply, falling demand and weaker oil prices put it on par with iron ore and coal as the worst performing commodity of recent years. Asia's LNG market has already fared worse than slumping oil markets, with spot prices down 60 percent since 2014 to $8 per million Btu, ending half a decade of high prices. Analysts and traders said Asia LNG prices could fall to $6, representing a 70 percent drop since 2014’s peak.
Research group Energy Aspects estimates Asian LNG imports fell 8.5 percent in the first half of 2015 from the same time last year, as the region's economies slow. Add to the mix El Nino, which usually means milder winters in northern Asia, and a unique cocktail for falling prices may appear. "The traditional power houses in north Asia are all showing signs of (demand) weakness at a point when there is lots of supply coming on to the market," said Neil Beveridge of Bernstein Research.
China's LNG imports have slumped from double-digit growth in recent years to a 3 percent slip in the first half of 2015 from a year earlier. For Japan, the world's top LNG importer, the restart of its nuclear power plants is eating away at LNG's market share. Imports into South Korea have also fallen due to a slowing economy and rising nuclear power output. The slowing demand comes just as output soars, particularly with new plants coming online in Australia and the U.S. next.
Legal challenges, local opposition slow nuclear restarts in Japan
(Reuters; Aug. 31) - The number of Japanese nuclear reactors likely to restart in the next few years has halved, hit by legal challenges and worries about meeting tougher safety standards imposed in the wake of the Fukushima disaster, a Reuters analysis shows. The country has been inching back to nuclear energy, turning on its first reactor in mid-August after a two-year blackout, with Prime Minister Shinzo Abe and many in industry looking to cut fuel bills despite widespread public opposition to atomic power.
But the analysis shows that of the other 42 operable reactors remaining in the country, just seven are likely to be turned on in the next few years, down from the 14 predicted in a similar survey last year. The findings are based on reactor inspection data from Japan’s industry watchdog, the Nuclear Regulation Authority, court rulings and interviews with local authorities, utilities and energy experts. They also show that nine reactors are unlikely to ever restart and that the fate of the other 26 looks uncertain.
Legal challenges from local residents have hit all atomic plants, with the country's most nuclear-reliant utility Kansai Electric Power handed court rulings preventing the restart of four reactors despite two of them already receiving regulatory approval to switch on. Kansai has appealed the judgments but the court cases may take years to resolve if the rulings are not overturned on the first appeal. Tougher safety standards and stricter implementation of rules since Fukushima have also hit the restart effort.
Citibank report warns new supply could add to global LNG glut
(Bloomberg; Sept. 2) - A potential boost in natural gas supply from Iran and Egypt may exacerbate a worldwide glut, reshape the global market and threaten U.S. export ambitions, according to Citigroup. Liquefied natural gas export projects from North America to East Africa and Australia may be impacted as Iran progresses with its supergiant South Pars gas field and after Eni’s discovery of 30 trillion cubic feet of gas offshore Egypt, Citigroup analysts including Anthony Yuen said in a report Sept. 2.
The two developments may displace demand for LNG in the Middle East and beyond, possibly deterring future U.S. export projects, according to the bank. "Iran and East Mediterranean, key regions in the next wave of global gas supply beyond the U.S., made major strides in late August," the bank said. "These developments set the stage for a major boost in gas production and could help remake the global gas landscape."
Developing an LNG export option for South Pars, as well as the possible boost to Egyptian shipments from Eni’s new field, will add to the excess supply from rising production from the U.S., East Africa and the East Mediterranean, the analysts wrote. The oversupply of LNG and drop in prices have also called into question the viability of traditional supply contracts between buyers and sellers, spurring new types of long-term deals with more flexibility on volume, destination and oil-linked pricing, the bank said.
Slower demand in Asia is pushing more LNG to Europe
(Politico; Aug. 31) - Top European Union officials have been on the road from Morocco to Turkmenistan, hoping to tie up new natural gas deals to wean the bloc off dependence on Russia, but now Asia’s economic slowdown is making the European Commission’s work easier by freeing up gas that would otherwise be heading to China and Japan. The EU’s liquefied natural gas imports rose by 24 percent year-on-year in the first three months of 2015, accounting for 15 percent of the bloc’s total gas supply.
They also went up by 10 percent in 2014, marking the first rebound following three straight years of declines. But European demand had little to do with this pick-up. It was mostly due to economic forces further afield in Asia, where a previously insatiable appetite for foreign gas has hit a sudden slowdown. “I see Europe as a sort of dumping ground for the world’s LNG, a matter of last resort. If you can’t get your cargo anywhere else, you send it to Europe,” said Andy Flower, an independent LNG market consultant.
Deliveries to Europe had tapered off in recent years, as the economic recession slowed demand for gas and high oil prices pushed up LNG prices. Cargoes were often sent to Asia, where demand was stronger and prices higher. But all that’s changing. As China’s economy slows, its gas consumption growth has fallen, as it has in Japan, too, as that nation grapples with an economic recession and a slow return to nuclear power. This all fits nicely in the EU’s political strategy. Diversification is a key piece of its energy plan, and LNG is touted as one of the prime alternatives to Russian pipeline gas imports.
Oman may start LNG imports to meet rising local demand
(Bloomberg; Aug. 30) - Oman may start importing liquefied natural gas to meet surging domestic energy demand, according to two people with knowledge of the matter, a shift in trade that would make it the fourth Arab country in the oil-rich Persian Gulf to buy LNG. Oman currently exports liquefied natural gas under long-term contracts to Spain and several Asian countries including Japan and South Korea.
It’s now studying options to import LNG as well, to help generate power and for other uses, said the two people, who asked not to be identified because the plan isn’t public. LNG trade is expanding in the Middle East due to the growing regional use of electricity and the lack of cross-border pipelines for transporting natural gas. Combined imports of LNG by Kuwait and the United Arab Emirates increased 47 percent in 2014 from the previous year, according to the International Group of Liquefied Natural Gas Importers.
Bahrain is building a receiving terminal for the fuel, while Jordan, Egypt, Morocco and Pakistan also plan to buy LNG. Oman’s possible shift to importing the fuel follows years of rising local gas consumption and shrinking LNG exports. Unused production capacity at the Oman LNG plant last year reached its highest level since 2006, according to the company’s annual reports. Gas consumption in Oman jumped to 774 billion cubic feet in 2013 from 520 bcf in 2009, according to the U.S. Energy Information Administration.
Oregon LNG project loses another round in court
(The Daily Astorian; OR; Sept. 1) - A federal judge in Portland has accepted a magistrate’s findings that Oregon LNG waited too long to contest an Army Corps of Engineers easement on land in Warrenton where the energy company hopes to build a liquefied natural gas export terminal. U.S. District Judge Anna Brown on Aug. 31 adopted the magistrate’s findings and granted the Army Corps’ motion to dismiss Oregon LNG’s legal challenge. Oregon LNG could choose to appeal.
Opponents of the proposed $6 billion terminal and pipeline will use the federal court ruling to strengthen their arguments against development permits for the project. With the legal defeat, Oregon LNG does not have full access to the site on the Skipanon Peninsula, near the mouth of the Columbia River on the Pacific coast. The Corps has held the easement since 1957, and the courts said Oregon LNG knew or should have known and challenged the easement before the statute of limitations expired.
“The Corps holds a significant property right — a dredge disposal easement — on the east Skipanon Peninsula, and a federal judge threw out Oregon LNG’s attempt to void the Corps’ valid property right,” said Dan Serres, the conservation director of Columbia Riverkeeper, a Hood River-based environmental group.
Hikers continue protest against gas pipeline in Oregon
(Mail Tribune; Medford, OR; Sept. 1) - Some 50 people hiked a section of the Pacific Crest Trail east of Ashland, Ore., on Aug. 30, where a proposed natural gas pipeline would cross, meeting up with a group that is trekking the entire 232-mile route across southwestern Oregon to protest the project. Calgary-based Veresen wants to build a 36-inch pipeline from near the California-Oregon border to a liquefied natural gas export terminal proposed for Coos Bay on Oregon's south coast.
Known as the Pacific Connector project, the pipeline would allow Veresen to produce LNG for export to Asia. The gas would come from Colorado and Canada. “The Pacific Connector Pipeline will disrupt a beautiful ecosystem of outstanding old-growth and will definitely pollute the environment," said Carol Worthington of the Green Springs inn and cabins. "If it leaks, there will be fire, homes will burn. It’s a crime and offers no benefit to people in America.”
Veresen representatives have said the pipeline would not only supply export markets, but could provide gas to Southern Oregon. Building the pipeline along with its compressor and metering stations would cost about $1.74 billion, according to a draft environmental impact statement released by the Federal Energy Regulatory Commission, which is analyzing the pipeline and LNG facility proposal.
New pipeline would deliver gas to LNG plant on Vancouver Island
(Globe and Mail; Canada; Sept. 1) - An LNG project proposed for Vancouver Island would get its natural gas via an underwater pipeline that would weave from Washington state through the Gulf Islands, according to a proposal released Sept. 1. The liquefied natural gas project, which has the backing of the Malahat First Nation, was announced last month. The proponent, Steelhead LNG, has retained Williams Cos. to build the 80-mile pipeline — starting in Washington state and then extending 46 miles underwater.
The goal of the Island Gas Connector pipeline is to move gas to the proposed LNG project south of Mill Bay on Vancouver Island. Last month, Steelhead disclosed plans for Malahat LNG, becoming the 20th proposal in British Columbia for exporting gas to overseas markets. The export site is on property that includes a former cement plant and is now owned by the Malahat First Nation. Leaders of the aboriginal group say they welcome the opportunity to explore the economic benefits of LNG exports.
The pipeline route would travel west across the Georgia Strait en route to Saanich Inlet. The export site, near Bamberton Provincial Park, would feature a floating LNG facility. Williams will be seeking approval from the U.S. Federal Energy Regulatory Commission and Canada’s National Energy Board. Some of the supplies of natural gas could originate from Western Canada. The B.C. Green Party criticized the concept of piping natural gas to Saanich Inlet, saying the proposed site is ill-suited for an LNG plant.
Unions reach deal to avert strike at Gorgon LNG project
(Australian Broadcasting Corp.; Sept. 3) - Unions have reached an agreement with employers at the $54 billion Gorgon liquefied natural gas project on Australia’s Barrow Island, averting a proposed strike.The deal provides for a work schedule of 23 days on and 10 days off, as well as a 5 percent pay raise. The main contractor on the Chevron-led LNG project had been negotiating work rules and schedules. The current schedule is 26 days on and nine days off.
The Australian Manufacturing Workers' Union, the Electrical Trades Union and the Construction, Forestry, Mining and Energy Union have endorsed the agreement and have called on their members to vote in its favor. Mick Buchan, the construction union state secretary, said the project would now provide some of the best roster and wage conditions on a construction job in Australia. The unions had given notice of a 24-hour stoppage to start Sept. 4, unless a settlement was reached.
Chevron is already more than a year behind schedule and $17 billion over budget at the Gorgon project, one of five major onshore LNG projects under construction around Australia. The first cargo was due to be shipped under the revised schedule by the year-end, but Chevron advised in early August that the risk of industrial action combined with other factors meant it could slip into early 2016.
Marcellus production continues to grow, hits record 20.4 bcf Aug. 24
(Pittsburgh Post-Gazette; Sept. 1) – U.S. natural gas production is expected to slow this month for the first time across the country as drillers struggle against low commodity prices and oversupply. Even so, states in the Marcellus and Utica shale plays spanning Pennsylvania, West Virginia and Ohio are expected to still produce more gas than they can use and export the fuel out of the region.
“We are anticipating that the Northeast will be a net exporter for the average of 2015,” said Anne Swedberg, senior energy analyst for Denver-based Bentek Energy. “We are already seeing volumes leave the region this summer.” The rest of the country is expected to catch up later, becoming a net exporter by 2017. Now, most Marcellus gas is going to the Midwest, the Southeast and Canada. Eventually it will have access to Mexico through pipelines and globally through liquefied natural gas exports.
The Marcellus reached a record high production of 20.4 billion cubic feet per day Aug. 24, according to Bentek estimates, “which puts it in line with Texas,” Swedberg said. In 2010, the region produced about 2 bcf per day. The Marcellus and the deeper Utica formation drive much of U.S. production. The Marcellus alone accounted for 21 percent of the country’s gas production in the first five months of 2015. Meanwhile, a shortage of pipelines continues to plague the area. The spot price in southwestern Pennsylvania was less than half the U.S. Henry Hub benchmark price on Aug. 28.
Hawaiian Electric unsure of its plans after governor rejects LNG
(Platts; Aug. 31) - Comments by Hawaii Gov. David Ige last week has left Hawaiian Electric in a quandary regarding its plan to burn regasified LNG shipped from Canada in its oil-fired power plants, a source at the utility said Aug. 28. "We're in a bit of a stew at the moment," said the source, who asked not to be identified. Ige previously supported using liquefied natural gas as a transitional fuel as the state moves to 100 percent renewable generation by 2045.
"It is time to focus all of our efforts on renewable energy and my administration will actively oppose the building of LNG facilities in Hawaii," Ige said last week. Darren Pai, a spokesman for Hawaiian Electric, said the utility's "power supply improvement plan" called for using LNG to transition into renewable energy. "Existing oil-fired generating units would be converted to run on cleaner and lower and even more stably priced LNG before eventually being … replaced” by renewable power such as solar and wind.
The governor's opposition is something to be concerned about, the utility source said. "We can't go directly to intermittent renewables without firm generation to back it up," he said. Hawaiian Electric has been negotiating for an LNG supply from a small plant near Vancouver, B.C.
Eni says it has found 30 tcf gas field offshore Egypt
(Jerusalem Post; Aug. 30) – Italian energy group Eni said Aug. 30 it had discovered the largest known gas field in the Mediterranean off the Egyptian coast, predicting the find could help meet Egypt's gas needs for decades to come. The offshore Zohr field could hold 30 trillion cubic feet of gas, covering an area of about 38 square miles, according to a statement from the company. If the estimates are correct, the Zohr gas field would be significantly larger than Israel’s biggest field, Leviathan, which is approximately 22 tcf.
The find follows other significant gas discoveries in the Mediterranean in recent years, including offshore Israel. This is expected to have a major impact on the region's economy and potentially offer Europe new supply options, allowing it to lessen its dependence on Russian gas. In response to Eni's announcement, Israel’s National Infrastructure, Energy and Water Minister Yuval Steinitz stressed the need to urgently approve Israel's natural gas compromise to end the country’s freeze on exports.
Although the Israeli Cabinet approved the document two weeks ago, numerous bureaucratic and regulatory hurdles are preventing the outline from receiving final authorization. As a result, development has not started at Israel’s Leviathan field. "Following the reports, the discovery of the huge gas field in Egypt is a painful reminder that while the State of Israel is standing still and taking its time with the final approval of the gas outline … the world is changing before our eyes,” Steinitz said.
Alberta will delay any changes in oil and gas royalties to 2017
(Wall Street Journal; Aug. 28) - The government of Alberta said Aug. 28 it would move ahead with a review of oil and gas royalty rates but that any changes would be delayed until 2017, a move geared to ease the impact on the energy industry. Alberta’s new left-leaning government has promised to review royalty rates to make sure they don’t favor industry over public interests, but that decision has faced strong opposition from the business community, which has warned about the potential impact on economic growth.
Alberta Energy Minister Marg McCuaig-Boyd said a government panel of outside experts will complete its recommendations on royalty rates in December and would take into consideration input from the public through a series of meetings and “Web-based discussions.” She also promised the current royalty system will remain in place through the end of next year and that any proceeds from a hike in rates would be earmarked for the province’s trust fund.
“There is a lot of concern. It’s tough times right now [for energy producers] and we’re hoping this will give them some ability to plan and make some decisions while this important work is being done,” McCuaig-Boyd said. Alberta’s New Democratic Party swept into power in May on a platform vowing to prioritize environmental policies, increase corporate taxes and consider raising energy royalties. Energy producers have warned added costs could slow job growth and investment in the province’s oil patch.
Cheniere boss took an unusual path to build LNG export facility
(Bloomberg; Sept. 2) - From a mile away, at the distant end of a flat, two-lane road, the Sabine Pass, La., liquefied natural gas terminal materializes like an alien city from the haze of the bayou. Five white storage tanks with domed tops, each 140 feet tall and 225 feet in diameter, rise from the empty horizon. Set on the Texas border 4 miles from the mouth of the Sabine River on the Gulf Coast, the terminal is one of the largest industrial energy facilities under construction in North America.
Cheniere Energy, based in Houston, has spent more than a decade, and upwards of $20 billion, turning 1,000 acres of swamp into the first LNG export terminal in the continental U.S. When the terminal goes live later this year, it will change the dynamics of the energy market in North America. The U.S. will be on its way to becoming a net exporter of gas. Gas will begin arriving from all over the country — from Texas, Pennsylvania, Ohio, and as far away as North Dakota — for shipment worldwide.
Sabine Pass isn’t a project sponsored by an energy magnate such as Bill Koch or a megacorporation like Chevron. It is, for the most part, the slightly inadvertent creation of Charif Souki, 62, who’s been the best paid, yet least known, executive in the business. He rarely speaks to trade publications and almost never does interviews with the national press. Twenty years ago, he ran a Los Angeles restaurant. Souki’s story is about a turnaround from a failing LNG import terminal to an export trailblazer.
