It’s possible that I shall make an ass of myself. But in that case one can always get out of it with a little dialectic. I have, of course, so worded my proposition as to be right either way (K.Marx, Letter to F.Engels on the Indian Mutiny)
TotalEnergies will supply LNG to Germany's newest LNG import terminal in Lubmin.
The project, whose inauguration will be attended by German Chancellor Olaf Scholz, will make TotalEnergies one of Germany’s main LNG suppliers.
Separately, Switzerland-based trader MET Group said today it had secured binding long-term LNG capacities at the Lubmin terminal.
TotalEnergies will supply LNG and is contributing a floating storage and regasification unit (FSRU) to the Deutsche Ostsee LNG import terminal in Lubmin on the German Baltic Sea coast, which will be inaugurated on Saturday, the French supermajor said on Friday.
The project, whose inauguration will be attended by German Chancellor Olaf Scholz, will make TotalEnergies one of Germany’s main LNG suppliers, the French company said.
Last month, TotalEnergies delivered the Neptune – one of its two FSRUs – to Deutsche ReGas, the operator of the Deutsche Ostsee LNG terminal. The vessel has an annual regasification capacity of 5 billion cubic meters of gas, enough to cover about 5% of German demand, TotalEnergies says.
Following Deutsche ReGas’s open season procedure, TotalEnergies has also contracted regasification capacity of 2.6 billion cubic meters of gas per year and began to deliver LNG from its global integrated portfolio to the Lubmin terminal.
Separately, Switzerland-based trader MET Group said today it had secured binding long-term LNG capacities at the Lubmin terminal.
Germany has been racing to build and start up LNG import terminals to secure natural gas supplies after Russia halted the Nord Stream pipeline deliveries last year.
Last week, Germany welcomed the first tanker carrying LNG at the newly opened LNG import terminal at Wilhelmshaven, with the cargo arriving from the Calcasieu Pass export facility in the United States.
Germany inaugurated its first floating LNG import terminal at Wilhelmshaven a week before Christmas as Europe’s biggest economy looks to cut reliance on Russian gas and as Moscow halted supply via the Nord Stream pipeline in early September.
Other LNG terminals are also planned in Germany, which was rather reluctant to commit to LNG import facilities before the Russian invasion of Ukraine. After the war started, Germany, the Netherlands, Finland, and countries in southern Europe hastened to bring forward or dust off plans to build floating LNG terminals to have enough regasification capacity to replace the lost volumes of Russian pipeline gas.
Climate activists focus on U.S. LNG, criticizing its health impacts on Gulf Coast communities and calling for a halt to new LNG facilities.
The U.S. LNG industry has grown rapidly, benefiting from the shale boom and bolstering the country's energy security, but now faces conflict between market demands and climate change goals.
Activists' pressure puts the Biden administration in a difficult position, balancing commitments to climate change agendas with geopolitical and economic realities of LNG exports.
At the COP28 conference last month, climate activists were perhaps the most numerous demographic.
Normally, this demographic focuses either on oil and coal or all three hydrocarbons, including gas. This time, a group of activists had a much more specific target: liquefied natural gas. Even more specifically, the target for 250 activist organizations was U.S. LNG.
Last year, the United States became the world's largest LNG exporter, dethroning Qatar and Australia. It took the U.S. a little over a decade to do that, thanks to the shale boom that led to a surge in domestic gas supply. It was this abundance of supply that made it possible to turn the country into the world's largest exporter.
The industry is not stopping, either. There are plans for more capacity in the coming years as demand for gas—and specifically LNG—remains robust despite pessimistic forecasts from the International Energy Agency.
In this context of fast capacity growth, it was really only a matter of time before activists set their sights on LNG. According to one group representing people from poor communities on the Gulf Coast, the LNG industry expansion adds insult to injury for those who already live in the shadow of the massive Gulf Coast petrochemical industry and pay for it with their health.
They call the Gulf Coast a "sacrifice zone," which until recently was dominated by the massive refineries that turn the crude oil into fuel and petrochemicals. Now, the LNG trains turning gas into liquid to be sent across the world have been added to the targets.
"Because of what happened in Ukraine [they say] that American gas is freedom gas — we're no longer being held hostage by Russia. Well we have a saying in the states: freedom ain't free . . . The price we pay for it is pollution," former refinery worker and community activist John Beard told the Financial Times last November.
At the COP28 event, activists were blunter: they directly called on the Biden administration to stop approving new LNG facilities.
"We urge the Biden administration to publicly commit during COP to no further regulatory, financial, or diplomatic support for LNG in the United States or anywhere in the world," the group said in a letter to the White House.
This new gas-focused pressure is a tricky one for the Biden admin. It came into office with an ambitious climate change agenda, and it has largely stuck to it—with some notable exceptions, including LNG capacity approvals and the Willow oil project in Alaska.
That's not all, either. The Biden admin has essentially celebrated LNG—as did Europe until it saw the bill—as a means to reducing geopolitical allies' dependence on the new arch-enemy, Russia. This was bound to cause a stir among activists who happen to constitute a significant portion of Biden's voting base.
On a more practical level, it is all just another instance of the battle between climate targets and market forces. Climate targets dictate a phaseout of all hydrocarbons, even gas, which is the smallest emitter. Market forces dictate energy security, which hydrocarbons provide. Reconciliation of these two is, to put it mildly, challenging.
"The big question is: should the government step in to limit construction of new LNG facilities, or should it let the market decide if there is sufficient gas demand and financing for these projects to be built?" Ben Cahill, senior fellow at the Center for Strategic and International Studies, told the FT back in November. "So far, the latter approach has worked well, but it's getting harder to sustain."
In other words, for now, market forces are winning, but they won't keep winning forever if governments—and specifically the U.S. government—are serious about the energy transition. It's election year. Biden is running for re-election. His approval ratings are already dismal. Now, activists who typically vote Democrat are pushing for action against the LNG buildout that politicians widely consider to be a big positive for the U.S. as a global economic power.
It's a tough spot to be in, torn between transition and energy security. The two appear irreconcilable, and indeed, they are at this point. If the transition away from hydrocarbons worked as intended, Germany, for instance, would not need so much gas with its massive wind and solar generation capacity.
Yet the transition has not worked as intended, and even the most active builders of wind and solar have found themselves still very much dependent on oil and gas. And thanks to the U.S. and its LNG buildout, they have been able to secure the gas they need from a jurisdiction with which they don't have a geopolitical beef—an important public image consideration in this day and age.
Global natural gas demand is set to continue growing for the foreseeable future. LNG is the most convenient form of gas transport-wise. Demand for it will also grow in the coming years and likely decades unless activists prevail. If they do, it will be a major win for non-U.S. LNG producers.
By Irina Slav for Oilprice.com
Sunday, January 28, 2024
Canadian energy producers dismayed by Biden's move to pause U.S. LNG approvals
Amanda Stephenson, The Canadian Press
Canada's energy industry is reacting with dismay to U.S. President Joe Biden's move to pause approvals of new liquefied natural gas export terminals in that country.
The Canadian Association of Petroleum Producers said it sees LNG as a lower-emission source of secure energy that can help countries get off coal.
"LNG facilities on the U.S. Gulf Coast are also offering Canadian producers an opportunity to export their natural gas globally," said CAPP president and CEO Lisa Baiton in an emailed statement on Friday.
"Given the highly integrated nature of the North American energy market, CAPP is disappointed in the White House decision."
Canadian pipeline giant Enbridge Inc. also expressed its displeasure with the decision. The company currently supplies natural gas to five operating LNG export facilities on the U.S. Gulf Coast and has previously said it is interested in expanding its export strategy through further acquisitions in the region.
"Our immediate view is any delay in the development of U.S. liquified natural gas is a loss for the U.S., our Allies, for U.S. jobs and for efforts to cut emissions around the world," said Enbridge spokeswoman Gina Sutherland in an email.
Biden's election-year decision comes as gas shipments from the U.S. to Europe and Asia have soared since Russia's invasion of Ukraine. From having zero LNG export facilities a decade ago, the U.S. has grown to become the world's largest LNG exporter, averaging 20.4 billion cubic feet per day in the first half of 2023.
But a White House statement on Friday cited climate risk as the reason for pausing new LNG approvals, adding the current process the Energy Department uses to evaluate LNG projects doesn't adequately account for the impact of greenhouse gas emissions.
Canada does not yet have its own LNG export capacity. This country's first LNG export facility, being built near Kitimat, B.C., is not expected to become operational until later this year.
But Heather Exner-Pirot, special advisor to the Business Council of Canada, said Friday's decision by the U.S. president is deeply concerning for the Canadian energy sector.
"Your first instinct might be, maybe this is good for Canadian LNG, you know, because our main competitor is having its wings clipped," she said.
"But Canadian natural gas companies are so integrated with the North American market that there isn't really a separation. If it's bad for American energy, it's bad for Canadian natural gas producers and mid-stream companies."
The pause is not expected to immediately affect U.S. supplies to Europe or Asia, since seven LNG terminals are currently in operation, with several more expected to come online in the next few years.
But Exner-Pirot said she believes Europe, in particular, is likely very concerned with Friday's announcement as it had come to depend on the U.S. as a replacement source for Russian energy.
She added Canadian natural gas companies should also be concerned about the way this decision effectively paints their product as an environmental "bogeyman."
"There's obviously a corner of the environmental activism world in the United States that doesn't like natural gas, doesn't like any fossil fuel, doesn't see it as a bridge to replace coal. And so those groups are very pleased today," she said.
LNG proponents have long said that replacing the use of coal globally with cleaner-burning natural gas will help the world in its battle against climate change.
On Friday, LNG Canada's vice-president of corporate relations Teresa Waddington said greenhouse gas emissions from the Kitimat operation are expected to be lower than any facility of a similar size operating in the world today.
"Canada’s lower-carbon LNG will provide security of supply for global markets that can rely on our country’s natural gas reserves to advance their economies and reduce global GHG emissions," Waddington said in an email.
But critics say LNG is problematic for the climate in many ways.
"If you only consider emissions at the burner tip, then yes, natural gas is about half the emissions of coal," said David Hughes, president of Global Sustainability Research Inc.
"But if you consider the full life-cycle emissions of LNG, you've got the emissions from transporting it from B.C. to Asia, you've got emissions from the liquefaction process, you've got emissions from drilling and flaring and methane leakage across the entire value chain."
Hughes said building additional LNG capacity now essentially "locks in" greenhouse gas emissions for the long-term and will make it impossible for countries to meet their climate commitments in future.
"It's already a horror show from an environmental point of view because all of these existing projects were built with 30- or 40-year lifespans," he said.
Julia Levin, associate director with Environmental Defence, said countries agreed at the recent U.N. climate summit in Dubai on the need to transition away from fossil fuels. She said increasing LNG capacity does not fit with that vision.
"At COP28, countries sent a clear message that we're at the end of the fossil fuel era," Levin said.
"President Biden's decision further drives the point home. Canada should follow."
This report by The Canadian Press was first published Jan. 26, 2024.
Thursday, June 09, 2022
U.S. natural gas prices slump after fire at Texas LNG terminal
Christine Buurma and Gerson Freitas Jr.,
Bloomberg News
Jun 8, 2022
U.S. natural gas prices tumbled after a fire broke out at a Texas export terminal, threatening to leave supplies of the fuel stranded in shale basins despite surging overseas demand.
The fire is under control at Freeport LNG’s terminal in Quintana, Texas, about 65 miles (105 kilometers) south of Houston, company spokeswoman Heather Browne said Wednesday. The incident happened at about 11:40 a.m. local time and an investigation is ongoing, she said, adding that there were no injuries or risks to the surrounding community.
Freeport is one of seven US liquefied natural gas export terminals, which receive gas via pipeline and liquefy it before loading the super-chilled LNG onto tankers. The terminals have helped the US emerge in the past few years to vie with Qatar and Australia for position as the No. 1 exporter of LNG. As Europe clamors for cargoes after Russia’s invasion of Ukraine, the blaze could have a significant impact on global supplies of the fuel.
US natural gas futures for July delivery slid as much as 9.3 per cent to US$8.427 per million British thermal units in New York after reports of the fire first emerged, halting a rally that sent prices to fresh 13-year highs earlier. The contract settled down 6.4 per cent at US$8.699. Prices have more than doubled this year, as US gas stockpiles remain well below normal levels.
The fire is “going to curtail exports and alleviate some of the strain on US supplies,” said John Kilduff, a partner at hedge fund Again Capital in New York. US consumers “should benefit from lower prices, but Europe and Asia will probably pay higher prices.”
Freeport receives about 2 billion cubic feet of gas per day, or roughly 16 per cent of total US LNG export capacity. The tanker Elisa Larus is currently at the terminal, though it’s under way using its engine, according to vessel tracking data compiled by Bloomberg. That suggests the tanker may be moving away from Freeport.
Natural Gas Prices Tank Again As Freeport LNG Remains Shut For Almost A Month
Natural gas prices fell another 7.5% percent on Thursday morning.
Freeport LNG outage to lead to drop in exports to Europe and Asia.
The cause of the explosion on Wednesday remains unclear.
Amid robust demand for U.S. LNG, one of the biggest liquefaction facilities on the Gulf Coast, Freeport LNG, will be out of commission for at least three weeks following an explosion yesterday.
An explosion rocked the Freeport LNG liquefaction plant yesterday morning, with its cause as of yet unclear. An investigation is ongoing, but according to the operator of the facility, Freeport LNG, the facility will remain shut down for weeks. It accounts for a fifth of total U.S. liquefaction capacity.
The Freeport facility has three liquefaction trains, and a fourth is being constructed. Its current gas processing capacity is 2.1 billion cu ft daily. With the outage, the situation with U.S. LNG exports will become problematic, as evidenced by the gas market’s reaction to the news of the explosion.
Initially, prices fell as traders worried that the outage would reduce American LNG’s market share, per a Financial Times report from earlier today. Bloomberg noted that the fire means a lot of gas will remain stranded at the fields amid surging demand for gas overseas.
Yet prices on international LNG markets might react differently because the Freeport LNG outage effectively means there will be less natural gas for export, especially to energy-thirty Europe and Asia.
In Europe, gas prices have been on the decline for the past few days as an early start of summer reduced immediate demand. An ample supply of LNG has also contributed to the price trend. With the outage, this trend might at some point reverse.
Asian demand, however, is on a strong rise as buyers seek to build inventory for the winter season, Bloomberg reported this week, which is lending further upward support to prices.
“LNG prices remain well above where they normally are, even adjusting for higher crude oil prices,” Sanford C. Bernstein analysts said in a note, as quoted by Bloomberg. “We expect this to be a lull before what looks like a tough winter ahead for consumers.”
Oilprice.com
European Gas Soars as Fire in US Compounds Russia Supply Concern
Elena Mazneva and Anna Shiryaevskaya, Bloomberg News
BC-European-Gas-Soars-as-Fire-in-US-Compounds-Russia-Supply-Concern , Elena Mazneva and Anna Shiryaevskaya
(Bloomberg) -- Europe’s natural gas prices surged after a fire at a large export terminal in the US promised to wipe out deliveries to a market that’s on high alert over tight Russian supplies.
Benchmark futures traded in Amsterdam snapped a six-day falling streak, while UK prices jumped more than 34%. The Freeport liquefied natural gas facility in Texas, which makes up about a fifth of all US exports of the fuel, will remain closed for at least three weeks. The US sent nearly 75% of all its LNG to Europe in the first four months of this year.
The closure comes as pipeline supplies from Europe’s top providers are also capped. Key facilities in Norway are undergoing annual maintenance this week, while Russia’s supplies are below capacity after several European buyers were cut off for refusing to meet Moscow’s demands to be ultimately paid in rubles for its pipeline fuel.
“An export halt during the high demand winter months would have triggered a much bigger reaction, but the event highlights Europe’s precarious situation and it would likely signal an end for now to the calm trading seen in recent weeks,” said Ole Hansen, head of commodity strategy at Saxo Bank A/S.
Europe has been particularly reliant on US LNG to help offset risk of disruption to Russian pipeline imports, and ample supplies of the fuel in the past weeks had calmed the market after wild swings earlier this year.
“The rising importance of US gas exports to a gas-hungry Europe has been clearly highlighted by price movements on either side of the pond these past few hours,” Saxo Bank’s Hansen said.
The extent of the damage to the Freeport facility is not yet clear, but the fire could potentially knock out abut 16% of total US LNG export capacity “for an unknown period if the fire damage proves difficult to repair,” analysts at Evercore ISI said in a note.
Dutch front-month gas, the European benchmark, traded 12% higher at 89.13 euros per megawatt-hour by 8:53 a.m. in Amsterdam. The contract dropped 16% over the previous six sessions.
UK next-month futures jumped to 174.14 pence a therm. Send-outs from Britain’s LNG terminals, a key European destination for US cargoes, fell about 30% Thursday to the lowest since mid-March.
Even with tepid consumption in most of Europe amid mild weather that means that energy companies may have to turn to gas inventories just as storage levels have improved recently, getting closer to historic averages.
LNG buyers will probably start hunting for replacement shipments from the spot market, but there is a dwindling amount of supplies available, according to traders in Asia. The move is likely to boost already intense competition between Asia and Europe for the fuel.
Gas flows from Norway rebounded after a one-day halt of the giant Troll field for annual tests on Wednesday, but are still below normal as seasonal works at a number of facilities continue. Shipments of Russian gas via the Nord Stream pipeline to Germany will continue to edge down on Thursday, grid data show.
US LNG project approvals on track for record new volumes
Fri, June 23, 2023 By Scott DiSavino
NEW YORK, June 23 (Reuters) - U.S. liquefied natural gas (LNG) developers are on track to approve three export projects capable of processing 5.1 billion cubic feet per day (bcfd) of gas in the first half of the year, a record volume for new LNG projects in any year.
The U.S. became the world's largest LNG producer by installed capacity in 2022 driven by the boom in LNG plant construction and a decade of surging shale gas discoveries. U.S. LNG exports are poised to reach 12.1 bcfd this year and 12.7 bcfd next year.
The latest approvals are chipping away at a backlog of projects pursuing financial support and customers willing to sign long-term contracts. Analysts say demand for the fuel will keep the flow of approvals coming this year.
"We expect global LNG demand to grow from 399 million tonnes in 2022 to 627 million tonnes by 2035, more than a 50% increase," said Michael Stoppard, global gas strategy lead at data provider S&P Global Commodity Insights.
U.S. LNG developers this year have already approved the construction of two projects: the second 1.2-bcfd phase of Venture Global LNG's Plaquemines in Louisiana and Sempra Energy's 1.8-bcfd Port Arthur in Texas.
NextDecade Corp said it expects to greenlight the first 2.1-bcfd phase of its Rio Grande LNG project in Brownsville, Texas by month's end. First production could take place in 2027, it said. MOST VOLUMES
The final investment decisions (FID) allow the companies to start major construction after signing construction and financing agreements. New plants generally take from three to five years to produce their first LNG.
The combined 5.1 bcfd of gas is the most U.S. approved volumes in one year since 2014, when three projects capable of processing 4.9 bcfd won financial go-aheads. The seven U.S. export plants now operating can turn about 13.8 bcfd of gas into LNG.
Several other LNG export projects hope to land enough customers to secure go-aheads this year - some have been in development for years.
Analysts have said two of the front-runners are the first 0.4-bcfd phase of Delfin Midstream's offshore Louisiana project and the first 1.3-bcfd phase of Venture Global's Calcasieu Pass 2 (CP2) project in Louisiana.
There are four U.S. LNG plants under construction: the QatarEnergy and Exxon Mobil Corp 2.4-bcfd Golden Pass joint venture in Texas, Venture Global's 2.9-bcfd Plaquemines, Cheniere Energy Inc's 1.5-bcfd Corpus Christi LNG expansion and Sempra's Port Arthur.
As those four enter service from 2024-2028, U.S. LNG export capacity will rise to 15.3 bcfd next year to 22.3 bcfd in 2028.
Current LNG capacity is 10.1 bcfd in Qatar and 11.5 bcfd in Australia. That is on track to rise to about 14.3 bcfd in Qatar with the North Field expansion around 2025 and about 12.2 bcfd in Australia with the Pluto expansion around 2026.
(Reporting by Scott DiSavino in New York and Marwa Rashad in London; Editing by Conor Humphries)
Monday, October 04, 2021
Explainer: What's behind the wild surges in global LNG prices and the risks ahead
By Jessica Jaganathan A liquified natural gas (LNG) tanker leaves the dock after discharge at PetroChina's receiving terminal in Dalian, Liaoning province, China July 16, 2018. REUTERS/Chen Aizhu/File Photo
Summary
Asian LNG prices surge from below $2/mmBtu to above $34/mmBtu
European gas storage at low levels, fuelling restocking efforts
Maintenance at LNG plants prolonged and delayed due to COVID
SINGAPORE, Oct 1 (Reuters) - In less than a year and a half, liquefied natural gas (LNG) prices have lurched from record lows to record highs, with the market first reeling from the impact of the pandemic and now unable to keep up with a global recovery in demand.
Demand jumped on economic growth plus a cold northern hemisphere winter followed by a hot summer, while supplies have been stymied by production problems. Recent power curbs and outages across China due to coal shortages have only exacerbated competition between Asia and Europe in securing sources of energy.
That's led to LNG prices hitting $34 per million British thermal units this week compared with just under $2 mmBtu in May 2020, while European gas prices have catapulted 300% higher this year.
Key LNG prices
HOW BAD IS THE SUPPLY-DEMAND MISMATCH?
Gas inventories remain critically tight in Europe and Asia which together account for 94% of global LNG imports and over a third of global gas consumption.
Most major LNG producers are operating at or close to full capacity and have allocated the vast majority of their shipments to specific customers, leaving little prospect of a short-term fix.
According to the International Gas Union, only 8.9 million tonnes per annum (mtpa) of a total 139.1 mtpa of planned new liquefaction capacity is expected to come online in 2021.
Some of that additional capacity has been delayed by COVID-19 movement restrictions that have stopped or dragged out construction and maintenance work at several key sites including in Indonesia and Russia over the past year.
So far this year, 288.1 million tonnes of LNG has loaded for exports globally, just 7% growth over the same period last year, Refinitiv data shows. WHAT ARE THE RISKS AHEAD?
Buyers may struggle to buy enough gas for restocking and use. Less wind in Europe lately has boosted gas usage by power stations there, while in China power is being rationed to industry and some residential users, triggering a jump in LNG imports.
Current long-range forecasts call for a mild winter in much of Asia this year, but the market fears a repeat of the 2020/21 cold snap could lead to a buying binge similar to the one in January that fired up prices.
"At the extreme, it would not be a surprise if some gas or LNG cargoes could even change hands in the $100/MMBtu range, or ~$580/bbl in oil-equivalent terms, based on observing how prices have spiked in the U.S. gas market, for example, over the past ten years," Citi said in a note to clients last week.
HOW DID WE GET HERE?
Spot LNG fell to a record low of $1.85/mmBtu in May 2020, when coronavirus containment measures snuffed out power demand just as new supplies from major producers including Qatar, Australia and the United States flowed onto the market.
Global LNG exports
LNG producers slashed production, reducing shipments through the 2020 summer which have had a lasting impact on global gas inventories. The 2020/21 winter freeze then caught many power providers short, sparking a surge in spot demand and tightening gas stockpiles further just as logistics constraints slowed delivery times.
Those factors and high shipping rates sent LNG spot prices rocketing to a record $32.50 per mmBtu in mid-January, though prices returned below $10 by the end of the month.
Prices have since bounced back. European buyers struggled to rebuild stocks, with a hot summer boosting air conditioner use just as high carbon prices forced power generators to cut coal use and burn more gas. Gas field maintenance in Norway and lower volumes from Russia also cut supplies.
Higher purchases by Asia on growth in Chinese demand and stock rebuilding exacerbated Europe's shortfall, resulting in Europe-bound shipments through August sliding 18% from the same period in 2020, Refinitiv data shows.
Europe LNG imports
That left Europe's gas inventories at 50-60% full by late summer, compared to 80% in the same period last year. The current re-stocking wave is now fuelling Europe's surge in gas prices. WILL SUPPLIES BE FORTHCOMING?
Apart from COVID-19-related project delays, the global energy sector pivot away from fossil fuels towards greener energy supplies has slowed investment in LNG infrastructure. That has hindered the ability of producers to quickly deliver more supply to market, said Charif Souki, co-founder of U.S natural gas company Tellurian (TELL.O).
"The world was kind of lulled to complacency because prices were low for five years so no one felt an urge to plan and everyone got very religious on environmental protection and it is wonderful – we should be – but we should look at what things actually work rather than simply what we hope for," he added.
Friday, September 01, 2023
Russia’s Answer To The U.S. Shale Boom Takes A Huge Step Forward
Russia's flagship Arctic LNG 2 will begin operations before the end of this year.
Russia's Arctic sector comprises over 35,700 billion cubic metres (bcm) of natural gas and over 2,300 million metric tons of oil and condensate.
The key market into which much of this Arctic gas and oil output will flow will be China.
Despite multi-layered international sanctions on Russia following its 24 February 2022 invasion of Ukraine, President Vladimir Putin’s ‘special energy project’ – developing the country’s massive gas and oil resources in the Arctic – took a major step forward last week as it was confirmed that the flagship Arctic LNG 2 will begin operations before the end of this year. Over and above the significance of Russia being able to complete such a financially and technologically challenging project despite swingeing sanctions in place against it, Arctic LNG 2 is of vital importance to Russia for several wider reasons. Given the scale and scope of Russia’s broader plans for the Arctic, it is also vitally important to the U.S. and its allies how Russia proceeds there.
One reason why the Arctic is so important to Putin is the sheer size of its gas and oil reserves, much of them in Russian territory. According to various Russian authorities, the country’s Arctic sector comprises over 35,700 billion cubic metres (bcm) of natural gas and over 2,300 million metric tons of oil and condensate, the majority of which are in the Yamal and Gydan peninsulas, lying on the south side of the Kara Sea. These may well be underestimates, according to a senior source in the European Union energy security complex exclusively spoken to by OilPrice.com recently. Within this, Putin has long believed that Russia’s presence in the global liquefied natural gas (LNG) market does not reflect its enormous presence in the broader world gas and oil markets, and that the perfect foundation stone for this to be addressed is the Arctic LNG projects, as analysed in full in my new book on the new global oil market order. According to comments from Putin, the next 10 years or so will witness a dramatic expansion in the extraction of these Arctic resources, and a corollary build-out of the Northern Sea Route (NSR) as the primary transport route to monetise these resources in the global oil and gas markets.
The key market into which much of this Arctic gas and oil output will flow will be China - the second reason why the region is so important to Putin. Over the past 30 years, there has been a complete switch in the power relationship between the two former great Communist powers, with China now being the more dominant partner. Crucially, though, for Russia, it still holds some power with China in the matter of its gas and oil flows to the country. These flows mean that Moscow can continue to count on the military and political force-multiplier effect of Beijing as a major presence in the Asia Pacific theatre of potential conflict, if not directly in the European one. Given Russia’s poor performance in the Ukraine war to date, this force multiplier effect of its relationship with China has never been more important to it. In precisely this vein, around the same time as the invasion of Ukraine, Russian state gas giant Gazprom signed a deal to supply 10 bcm per year (bcm/y) of gas to the China National Petroleum Corporation (CNPC). This built on another 30-year deal between the two companies signed in 2014 for 38 bcm/y and this in turn was a part of, but significantly bolstered, the ‘Power of Siberia’ pipeline project – managed on the Russian side by Gazprom and on the China side by CNPC – that was launched in December 2019.
The third reason why the Arctic LNG projects are so important to Putin is that LNG is the world’s emergency gas form, as was dramatically highlighted again most recently in the aftermath of Russia’s invasion of Ukraine, as also analysed in full in my new book on the new global oil market order. Unlike gas supplies delivered through pipelines, LNG does not require years of laying pipelines and building out corollary supportive infrastructure. It also does not require extensive, time-consuming negotiations over complex contracts. Instead, it can be picked up quickly in the spot market and shipped expeditiously to wherever it is required. With the world increasingly needing LNG supplies, given the spike in demand for them in Europe after flows from Russia’s gas pipelines stalled, Putin knows that increasing Russia’s own LNG supply capabilities has never been more geopolitically important to it. The importance that Russia is placing on being able to move LNG quickly to its key target markets of China, and in Asia more broadly, is underlined by the fact that it has pushed hard with the build-out of its trans-shipment LNG facility on the Russian Far East coast in Kamchatka and its Northern Sea Route as well.
A final key reason at play in Russia’s Arctic gas and oil drive is its capacity to subvert the U.S. dollar-based hegemony in the energy market, as also analysed in my new book, particularly as it features one of the world’s biggest oil and gas producers and one of its biggest buyers. Very early in the Arctic LNG projects’ history, Novatek’s chief executive officer, Leonid Mikhleson, said that future sales to China denominated in renminbi were under consideration. This was in line with his comments on the prospect of further U.S. sanctions - following Russia’s annexation of Crimea in 2014 - that they would only accelerate the process of Russia trying to switch away from U.S. dollar-centric oil and gas trading. “This has been discussed for a while with Russia’s largest trading partners such as India and China, and even Arab countries are starting to think about it... If they do create difficulties for our Russian banks then all we have to do is replace dollars,” he said. Such a strategy was tested in 2014, when the state-run Gazprom Neft tried trading of cargoes of crude oil in Chinese yuan and roubles with China and Europe, to reduce Russia’s dependence on crude trading in dollars, in response to the initial Western sanctions against Russia’s energy sector.
Putin’s determination to push ahead with the Arctic LNG projects was truly seen after Russia’s 2014 annexation of Ukraine’s Crimea region. Moscow not only initially bankrolled the US$27 billion flagship Arctic LNG project in the Yamal Peninsula from the beginning with money directly from the state budget but also later in 2014 – after the U.S. had imposed sanctions on Russia over Crimea - supported it again by selling bonds in Yamal LNG (the program began on 24 November 2015, with a RUB75 billion 15-year issue). It further provided RUB150 billion of additional backstop funding from the National Welfare Fund. After that, April 2016 saw two Chinese state banks agree to provide US$12 billion to the Yamal LNG project in euros and roubles. The project was further helped by a tumble in the rouble in late 2014 that effectively cut the cost of Russian-sourced equipment and labour at a key moment in the construction.
As it now stands, according to comments from China National Offshore Oil Corporation (CNOOC) – which holds a 10 percent stake in the three-train 19.8 million metric tonnes per year (mt/y) Arctic LNG 2 project - the first 6.6 million mt/y train will start up before the end of this year. This follows its recent installation on the foundation in the seabed at the Utrenniy terminal on the Gydan Peninsula. Additionally, according to CNOOC, all the other stakeholders – Novatek 60 percent, and 10 percent each for CNPC, France’s TotalEnergies, and a consortium of Japan's Mitsui and Jogmec – have continued to pay the funding required on schedule. The start-up of the first train of Arctic 2 LNG is in line with Novatek’s plans to build out its LNG export capacity up to 70 million mt/y by 2030, including the 19.8 million mt/y Arctic LNG 2. In turn, this dovetails into Russia’s plans for LNG production of 80-140 million mtpa by 2035, which would be greater than that of LNG powerhouses Qatar and Australia.
By Simon Watkins for Oilprice.com
Tuesday, July 26, 2022
The Companies Taking Advantage Of America’s LNG Boom
While oil pipeline capacity in the U.S. currently exceeds production, the country’s booming LNG and natural gas markets mean demand for infrastructure is soaring.
The United States is projected to become the world’s largest exporter of LNG this year, and new LNG terminals and natural gas pipelines will be needed to continue this growth.
Nearly all midstream companies in the U.S. are racing to take advantage of this opportunity, with new projects coming online and final investment decisions being made.
Over the past few years, dozens of U.S. midstream companies have set their sights on natural gas pipelines and export terminals as the U.S. natural gas and LNG markets explode while crude oil pipeline capacity continues to exceed production.
Natural gas projects are expected to be the fastest growing pipeline sector as production rises and shippers find new customers in Europe and Asia. Now, as analysts tell Reuters, it's all about boosting U.S. capacity and adding new pipelines to transport natural gas to LNG export terminals.
"Everybody has pretty much given up on ever doing another long-haul pipeline anywhere outside of Texas and, maybe, Louisiana," Bradley Olsen, lead portfolio manager for Recurrent Investment Advisors' midstream infrastructure strategy, has told Reuters.
Europe's natural gas demand has skyrocketed as the EU tries to lower its reliance on Russian natural gas following its invasion of Ukraine. Europe has displaced Asia as the top destination for U.S. LNG, and now receives 65% of total exports. The EU has pledged to reduce its consumption of Russian natural gas by nearly two-thirds before the year's end, while Lithuania, Latvia, and Estonia have vowed to eliminate Russian gas imports outright.
The European gas crisis has only deepened after Russia cut off the gas supply to Poland and Bulgaria, ostensibly for failing to pay for gas in roubles, sending European gas prices soaring. The move marks a ratcheting up of tensions and could reduce supplies to Europe, as many pipelines pass through Poland en route to the rest of the continent. Adding to supply woes, Russia's Nord Stream 1 pipeline that supplies Germany has gone offline for scheduled maintenance. While it partially resumed operations on July 21st, Europe feared that it could be delayed for political leverage.
The U.S. Energy Information Administration (EIA) has forecast that the United States will surpass Australia and Qatar to become the world's top LNG exporter this year, with LNG exports continuing to lead the growth in U.S. natural gas exports and average 12.2 billion cubic feet per day (Bcf/d) in 2022. The United States currentlyranks second in the world in natural gas exports, behind only Russia.
According to the EIA, annual U.S. LNG exports are set to increase by 2.4 Bcf/d in 2022 and 0.5 Bcf/d in 2023. The energy watchdog has forecast that natural gas exports by pipeline to Mexico and Canada will increase slightly, by 0.3 Bcf/d in 2022 and by 0.4 Bcf/d in 2023, thanks to more exports to Mexico.
In contrast to natural gas, crude oil pipeline capacity continues to far exceed production. Currently, there are ~8 million barrels per day of Permian crude pipeline capacity, significantly more than the 5.5 million bpd of production, according to EIA and Morningstar figures.
Natural Gas and LNG Projects
The pivotal Permian Basin is preparing to unleash a torrent of gas and gas projects to meet exploding LNG and natural gas demand - coming just in time, given that limited takeaway capacity is expected to start being keenly felt in 2023, which could lead to negative pricing in the basin.
Energy Transfer LP (NYSE: ET) is looking to build the next large pipeline to transport natural gas production from the Permian Basin. Energy Transfer has also started building the Gulf Run pipeline in Louisiana to move gas from the Haynesville Shale in Texas, Arkansas, and Louisiana to the Gulf Coast.
Energy Transfer is expected to report Q2 earnings on 3rd August 2022. The consensus EPS forecast for the quarter, based on five analysts as per Zacks Investment Research, is $0.28 compared to $0.20 for last year's corresponding period.
Back in May, a consortium of oil and natural gas firms, namely WhiteWater Midstream LLC, EnLink Midstream (NYSE:ENLC), Devon Energy Corp. (NYSE: DVN), and MPLX LP (NYSE: MPlX) announced that they had reached a final investment decision (FID) to move forward with the construction of the Matterhorn Express Pipeline after having secured sufficient firm transportation agreements with shippers.
According to the press release, "The Matterhorn Express Pipeline has been designed to transport up to 2.5 billion cubic feet per day (Bcf/d) of natural gas through approximately 490 miles of 42-inch pipeline from Waha, Texas, to the Katy area near Houston, Texas. Supply for the Matterhorn Express Pipeline will be sourced from multiple upstream connections in the Permian Basin, including direct connections to processing facilities in the Midland Basin through an approximately 75-mile lateral, as well as a direct connection to the 3.2 Bcf/d Agua Blanca Pipeline, a joint venture between WhiteWater and MPLX."
Matterhorn is expected to be in service in the second half of 2024, pending regulatory approvals.
WhiteWater CEO Christer Rundlof touted the company's partnership with the three pipeline companies in developing "incremental gas transportation out of the Permian Basin as production continues to grow in West Texas." Rundlof says Matterhorn will provide "premium market access with superior flexibility for Permian Basin shippers while playing a critical role in minimizing flared volumes."
Matterhorn joins a growing list of pipeline projects designed to capture growing volumes of Permian supply to send to downstream markets.
Early this month, WhiteWater revealed plans to expand theWhistler Pipeline's capacity by about 0.5 Bcf/d, to 2.5 Bcf/d, with three new compressor stations.
Source: Natural Gas Intelligence
Although the companies have not divulged the cost and revenue estimates of the Matterhorn, a project of that magnitude is likely to provide years of predictable cash flows to these producers--which, incidentally, are all high-dividend payers.
Oklahoma-based Devon, one of the Permian's top producers, recently said it expects Permian production to reach nearly 600,000 boe/d in the second quarter. The new pipeline will help support the company as it increases its production in the Permian in the coming years. DVN stock currently yields (Fwd) 7.3% and has returned 54.3% year-to-date.
MPLX has several other expansion projects under construction. The company says it expects to finish construction on two processing plants this year, and recently reached a final investment decision to expand its Whistler Pipeline. MPLX stock yields a juicy 9.2% (Fwd), but the stock has only managed a 2.1% YTD return.
Devon Energy is expected to report Q2 2022 earnings on 1st August 2022. The company is expected to report EPS of $2.29, good for 281.67% Y/Y growth. Enlink will report on 3rd August 2022 with consensus EPS being $0.06 vs. $-0.04 for last year's comparable quarter, while MPLX LP is expected to do so on 2nd August, 2022, whereby it has a consensus EPS of $0.82 compared to $0.66 a year ago.
Meanwhile, EnLink's cash flow has been rising thanks to higher commodity prices. The company has increased its capex range from $230 million-$$260 million up to $280 million-$310 million, which should drive growth in the near-term.
Meanwhile, KMI has already completed a binding open season for thePermian Highway Pipeline (PHP), with a foundation shipper already in place for half of the planned 650 MMcf/d expansion capacity.
On Wednesday, KMI reported Q2 Non-GAAP EPS of $0.27, beating by $0.01; GAAP EPS of $0.28 was in-line while revenue of $5.15B (+63.5% Y/Y) beat by $1.34B.
For the full FY 2022, KMI expects to generate net income of $2.5B and declare dividends of $1.11 per share, a 3% increase from the 2021 declared dividends.
In the LNG space, in May, the U.S. Department of Energyauthorized additional LNG exports from the planned Golden Pass LNG Terminal in Texas and Magnolia LNG Terminal in Louisiana as the U.S. seeks to boost LNG exports to Europe.
Jointly owned by Exxon Mobil (NYSE: XOM) and Qatar Petroleum, the $10B Golden Pass LNG export project is expected to become operational in 2024, while Magnolia LNG, owned by Glenfarne Group, will come online by 2026. The two terminals are expected to produce more than 3B cf/day of natural gas, although Magnolia is yet to sign contracts with customers.
Previously, American LNG developers were unwilling to construct self-financed liquefaction facilities that are not secured by long-term contracts from European countries. However, the Ukraine war has exposed Europe's soft underbelly and the harsh reality is forcing a rethink of their energy systems. To wit, Germany, Finland, Latvia, and Estonia recently expressed the desire to move forward with new LNG import terminals.
Exxon is slated to report Q2 earnings on 29th July whereby the United States' largest independent oil company is expected to post EPS of $3.41 per share, reflecting a year-over-year increase of 210%.
In May, the DoE approved expanded permits for Cheniere Energy's (NYSE: LNG) Sabine Pass terminal in Louisiana and its Corpus Christi plant in Texas. The approvals allow the terminals to export the equivalent of 0.72 billion cubic feet of LNG per day to any country with which the United States does not have a free trade agreement, including all of Europe. Cheniere says the facilities already are making more gas than is covered by previous export permits.
Cheniere is expected to report Q2 earnings on 4th August, with EPS expected to clock in at $2.76, good for a 411.11% Y/Y increase.
