Japan Is Betting Big On Hydrogen

By Michael Kern - Apr 04, 2023

• Japan aims to boost its hydrogen supply to 12 million tonnes annually by 2040.
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• The country will invest $113 billion over 15 years in public and private sectors to develop hydrogen supply chains and lead global standards for cleaner fuels.
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• Hydrogen, especially green hydrogen, is receiving increasing attention as a clean alternative to fossil fuels and a crucial step towards carbon neutrality.

Japan announced plans to revise its hydrogen strategy on Tuesday, with an ambitious goal to increase its annual supply to 12 million tonnes by 2040. 

The move comes in response to growing competition in the global market for this fuel, with significant investments being made by the United States and Europe. 

Japanese Prime Minister Fumio Kishida aims to accelerate the development of hydrogen supply chains and increase domestic regulation and support to reach this target.

Plans are already in place to increase Japan's hydrogen supply to approximately 3 million tonnes by 2030, up from the current 2 million tonnes used mainly by oil refiners. 

By 2050, the country aims to expand this figure to 20 million tonnes, with hydrogen and ammonia as key contributors to Japan's goal of becoming carbon neutral.

Hydrogen has been recognized as a crucial alternative to fossil fuels in reducing carbon emissions. 

Hydrogen has been a popular choice with major industries such as energy, steel and chemicals looking at ways to reduce their carbon footprint. However, the carbon footprint of hydrogen depends on the energy source used to produce it, specifically through electrolysis to split water.

Green hydrogen, a type of hydrogen produced using renewable electricity, is making significant strides, with zero emissions and the ability to power homes and businesses without relying on fossil fuels, making it an attractive renewable energy source.

The electrolysis process uses electricity to split water into hydrogen and oxygen, with the resultant hydrogen being stored in fuel cells and transported.

The benefits of green hydrogen are numerous, with zero emissions meaning it doesn't contribute to global warming or air pollution. Furthermore, its ability to be stored for long periods means it can act as a backup energy source when traditional energy sources may not be available.

The Japanese government has committed to invest $113 billion over the next 15 years in public and private sectors, aiming to promote hydrogen use and development to lead the setting of global standards for cleaner fuel.

Hydrogen will become an increasingly important component in the ongoing fight against climate change. Green hydrogen, in particular, offers an essential and sustainable option to help us imagine a cleaner tomorrow. 

With countries like Japan committing to making the push for cleaner fuel, the future is looking brighter in our fight against global warming.

By Michael Kern for Oilprice.com

 

North American Wheat Production Problems Could Worsen Food Inflation

By ZeroHedge - Apr 04, 2023, 

• Drought in Midwest and Canadian Prairies impacting wheat and canola crops.
• Premium on hard-red winter wheat reaches record-high.
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• Global food inflation likely to remain elevated due to reduced crop yields in various countries.

The spread between hard-red winter wheat and soft-red winter wheat has blown out to a record high as drought threatens crop yields across the Midwest and other major farming regions. 

Hard-red winter wheat's premium over soft-red winter wheat is $1.72 a bushel in Chicago on Tuesday morning, surpassing the 2011 record. 

James Bolesworth, managing director at CRM AgriCommodities, told Bloomberg the widening spread is "a factor of the drought in the US Plains which is detrimentally impacting crop conditions." 

The latest report from the US Department of Agriculture found Kansas (top producer) had only 19% of the acreage in good or excellent condition. Agritel analysts pointed out droughts are hitting crops in other states:

"A deterioration of the crop ratings is also visible in Texas and Colorado."

Simultaneously, drought conditions plague the Canadian Prairies. Farmers in the region are planting in some of the driest conditions in half a century. They need adequate moisture to plant wheat and canola crops, or this might lead to poor crop yields later in the growing season, which could impact global supplies. 

"If there isn't good moisture, those tiny plants are quite susceptible to adverse conditions," said Bill Prybylski, a farmer and vice president at the Agricultural Producers Association of Saskatchewan. 

The possibility of lower US and Canadian wheat production because of persistent drought conditions could exacerbate global food supplies. Already, droughts in Argentina have reduced crop yields, and wartorn Ukraine has forced farmers to reduce plantings.

All of this means that global food inflation will likely remain elevated for the foreseeable future. How to hedge higher costs at the supermarket? Plant a garden. 

By Zerohedge.com 

Commodities Trader Louis Dreyfus Plans to Exit Russian Grain Exports

WFP file image

PUBLISHED APR 4, 2023 10:55 PM BY THE MARITIME EXECUTIVE

 

French commodities trader Louis Dreyfus Company (LDC) has decided to join its Western competitors in winding down its grain export operations in Russia. The 170-year-old firm had business ties in the country dating back to the 19th century, according to The Moscow Times. 

Dreyfus said that it is withdrawing from Russia "as grain export challenges continue to increase in the country," and it is evaluating its options for transferring its Russian business assets to "new owners." The company plans to continue to run its Russian operations until this process is complete, and expects that it should be out of the Russian market by July 1. 

Russia's agriculture ministry confirmed that it has received notice of cessation of activity from a subsidiary, Louis Dreyfus Vostok LLC. The ministry said that LDC's exit from the Russian market would not affect the volume of the country's food exports. 

According to industry outlet World Grain, LDC exports up to three million tonnes of grain from Russia per year, comprising up to four percent of global group sales. It runs a grain export terminal on the Don and a riverine terminal on the Volga, plus a variety of grain elevators at inland locations.

LDC's exit follows the departure of competitors Cargill and Viterra, both of which have announced similar plans. (Cargill is said to be planning to continue buying Russian grain at the pier, but it is exiting its Russian grain elevator and terminal business.)

The last Western grain trading firm with holdings in Russia, Archer Daniels Midland, is believed to be evaluating its options for its "very limited" Russian footprint as well, according to Bloomberg. The firm already scaled back its activities in Russia after the invasion of Ukraine in 2022.

G7 Plans To Back New Natural Gas Investments

By Charles Kennedy - Apr 06, 2023

With global energy markets upended, the G7 group of the world’s most industrialized nations is considering endorsing new upstream investment in natural gas despite climate concerns, a draft document seen by Reuters showed on Thursday.   

The energy and climate change ministers of the G7 members—Canada, France, Germany, Italy, Japan, the UK, and the U.S.—are holding a summit in Japan next week, at which they are expected to discuss ways to reduce emissions in the face of more pressing energy security issues.

According to the draft document, the ministers will say that new upstream investment in natural gas supply will be needed to address energy security after the Russian invasion of Ukraine.

“In this context, in this particular contingency, we recognize the need for necessary upstream investments in LNG (liquefied natural gas) and natural gas in line with our climate objectives and commitments,” reads the draft statement seen by Reuters.

The draft is not the final draft of the communique to be adopted and could still change until the summit, which Japan will host on April 15 and 16.

Major European economies, including the biggest, Germany, have seen first-hand the need for natural gas supply that’s not coming via pipelines from Russia. The U.S. has been sending record volumes of LNG to Europe over the past year as prices surged following the Russian invasion of Ukraine and as the U.S. pledged to help its European allies with gas deliveries.

Despite protests from environmentalists, many governments and policymakers have recognized the need to ensure a reliable and stable gas supply.

The World Bank could now be open to funding some gas projects, although it had pledged that it would stop funding upstream oil and gas projects after 2019.

The World Bank could be open to funding gas projects in Mozambique to ensure greater energy access if the costs are the cheapest among energy sources, Victoria Kwakwa, World Bank Vice President for Eastern and Southern Africa, told Bloomberg in an interview last month.

Back in 2017, the World Bank Group said it would no longer finance upstream oil and gas after 2019. But the group noted that “In exceptional circumstances, consideration will be given to financing upstream gas in the poorest countries where there is a clear benefit in terms of energy access for the poor and the project fits within the countries’ Paris Agreement commitments.”

How The U.S. Became A Natural Gas Giant

By Alex Kimani - Apr 04, 2023

• From a position of relative obscurity less than a decade ago, U.S. natural gas and liquefied natural gas (LNG) export capacity has expanded rapidly since the Lower 48 states first began exporting LNG in 2016.
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• The U.S. now exports LNG to 40 countries across the globe.
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• The United States has the world’s largest backlog of near-shovel-ready liquefied natural gas projects, and takeaway capacity remains a bottleneck.

How The U.S. Became A Natural Gas Giant

From a position of relative obscurity less than a decade ago, U.S. natural gas and liquefied natural gas (LNG) export capacity has expanded rapidly since the Lower 48 states first began exporting LNG in 2016. Last year, the United States achieved an important milestone after becoming the world's biggest LNG exporter, surpassing Qatar and Australia as Europe scrambled to replace Russian gas. This was made possible after LNG liquefaction units, called trains, at Sabine Pass and Calcasieu Pass in Louisiana came online last year.

Last year, U.S. exports of liquefied natural gas (LNG) averaged 10.6 billion cubic feet per day (Bcf/d) , increasing by 9% (0.8 Bcf/d) compared with 2021. LNG exports to Europe increased a torrid 141% clip, or 4.0 Bcf/d, compared with 2021.  Europe has become the primary destination for U.S. LNG exports, accounting for 64% (6.8 Bcf/d) of total exports in 2022. Just four countries— the U.K., France, Spain, and the Netherlands–accounted for nearly three quarters of LNG exports to Europe. Europe was able to avoid a gas shortage crisis this winter thanks to high LNG imports.

That’s a really strange turn of events considering that a decade and a half ago, before the shale revolution was a thing, the United States was widely expected to become a key LNG importer, likely dependent on the Middle East, Russia and North African. But then, the shale revolution happened, leading to a massive increase in gas output through the use of horizontal drilling and hydraulic fracturing to extract hydrocarbons trapped in shale rocks. After a decade of dramatic growth and rapid expansion of LNG export facilities, the country began exporting LNG from the Lower 48 states in February 2016.

The U.S. now exports LNG to 40 countries across the globe.

To secure supplies, customers have been signing long-term deals with U.S. producers at a record clip. Last year, the volume of long-term LNG contracts signed to end-user markets climbed to a 5-year high, and the momentum remains strong.

Last year, LNG giant Cheniere Energy Inc.(NYSE: LNG) revealed that it’s had the most active year for contracting since 2011.

Louisiana-based LNG company Sempra Infrastructure, a majority owned subsidiary of Sempra Energy (NYSE: SRE) (BMV: SRE), inked six long-term contracts in the space of just five months. The deal calls for Sempra Infrastructure’s Cameron LNG in Hackberry to supply 2 million metric tons of LNG annually to the Polish Oil & Gas Co. Sempra Infrastructure struck another 2 million-ton deal with Polish for its upcoming Port Arthur LNG facility in Port Arthur, Texas.

Most new contracts are from U.S. supply as operators move projects forward. All these contracts are linked to North American prices. Meanwhile, Chinese buyers continue to dominate the market, signing more than 8 million tpy of new LNG sale and purchase agreements this year. 

“The Russian invasion of Ukraine has had a dramatic impact on long-term LNG contracts. Many traditional LNG buyers will neither procure spot gas or LNG nor renew or sign additional LNG contracts with Russian sellers. Spot prices have also been high and volatile, pushing many buyers towards long-term contracts. Additionally, some buyers are returning to long-term contracting on behalf of governments to protect national energy security,” Wood Mackenzie principal analyst Daniel Toleman has said.

Pipeline Bottleneck

Unfortunately, whereas the United States has the world’s largest backlog of near-shovel-ready liquefied natural gas projects, takeaway constraints including limited pipeline capacity remain the biggest hurdle to expanding the sector.

In the Appalachian Basin, the country’s largest gas-producing region churning out more than 35 Bcf/d, environmental groups have repeatedly stopped or slowed down pipeline projects and limited further growth in the Northeast. This leaves the Permian Basin and Haynesville Shale to shoulder much of the growth forecast for LNG exports. Indeed, EQT Corp.(NYSE: EQT) CEO Toby Rice recently acknowledged that Appalachian pipeline capacity has “hit a wall.”

Related: Venezuelan Oil Exports Jumped In March

Analysts at East Daley Capital Inc. have projected that U.S. LNG exports will grow to 26.3 Bcf/d by 2030 from their current level of nearly 13 Bcf/d. For this to happen, the analysts say another 2-4 Bcf/d of takeaway capacity would need to come online between 2026 and 2030 in the Haynesville.

“This assumes significant gas growth from the Permian and other associated gas plays. Any view where oil prices take enough of a dip to slow that activity in the Permian and you’re going to have even more of a call for gas from gassier basins,” the analysts have said.

U.S. Pipeline Companies To Watch

According to FERC, four U.S. LNG projects are currently under construction, another 12 have been approved by federal regulators and four more have been proposed totaling 40 Bcf/d of potential LNG exports.

The pivotal Permian Basin is preparing to unleash a torrent of gas and gas projects to meet exploding LNG and nat. gas demand. Energy Transfer LP (NYSE: ET) is looking to build the next large pipeline to transport natural gas production from the Permian Basin. The company is also working on the Louisiana-based Gulf Run pipeline, which will transport 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 5 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.

The Matterhorn Express Pipeline will transport up to 2.5 billion cubic feet per day of natural gas through approximately 490 miles of 42-inch pipeline from Waha, Texas, to the Katy area near Houston, Texas. Supply will be sourced from multiple upstream connections in the Permian Basin. 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. 

WhiteWater revealed plans to expand the Whistler Pipeline’s capacity by about 0.5 Bcf/d, to 2.5 Bcf/d, with three new compressor stations.

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. 

Also in May, Kinder Morgan Inc. (NYSE: KMI) subsidiary launched an open season to gauge shipper interest in expanding the 2.0 Bcf/d Gulf Coast Express Pipeline (GCX).

Meanwhile, KMI has already completed a binding open season for the Permian Highway Pipeline (PHP), with a foundation shipper already in place for half of the planned 650 MMcf/d expansion capacity.

In an effort to increase LNG exports to the European Union to stave off an energy crisis amid Russia’s war on Ukraine, the U.S. Department of Energy has authorized additional LNG exports from the planned Golden Pass LNG Terminal in Texas and the Magnolia LNG Terminal in Louisiana. 

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.

Meanwhile, the DoE has 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.

By Alex Kimani for Oilprice.com