In this issue

 

Despite harsh rhetoric, both China and the United States can still avoid a damaging trade war, industry participants hope. Strikingly, China has not included US agricultural products and LNG on a list of possible traffic, signaling the importance of natural gas in the power sector as Beijing strives to reduce air pollution. 

Skepticism abounds if the LNG Canada projects will ever be built in British Columbia but Shell Canada’s President Michael Crothers is adamant that project partners want to start construction at the end of this year. Seeking to swiftly monetize Canada’s abundant natural gas reserves, JV partners are going through a process with two remaining EPC contractors who are bidding for the scope of work at the liquefaction plant in Kitimat. 

U.S. gas companies have been persistently waiting for new Appalachia takeaway capacity – notably the Rover Phase-2 pipeline – to come online this year so the region can provide the bulk of 2018’s dry production growth. Analysts at the consultancy Energy Aspects anticipate output gains in the Lower 48 will grow by 7.3 bcf/d year-on-year, of which 4.0 bcf/d is scheduled to come from Appalachia region. 

Developing Alaska’s Arctic National Wildlife Refuge (ANWR) would substantially increase U.S. crude oil and natural gas production after 2030. The state of Alaska holds an estimated 36 billion barrels of crude oil and 137 trillion cubic feet of natural gas, so after the Trump administration lifted an ANWR drilling moratorium in December 2017, wildcatters are rushing north to tap America’s Arctic resources. 

Woodside Petroleum is close to making a decision about whether to continue to invest in Sempra Energy’s Port Arthur LNG project in Texas. Speaking at the World Gas Conference in Washington, Woodside CEO Peter Coleman put into questions the adequacy of return from any financial involvement in the venture.

‎The TechnipFMC-Kiewit partnership has selected as EPC contractors for transforming Sempra Energy’s LNG import terminal at Costa Azul in northern Mexico into a medium-scale export plant. The project will be built under a lump-sum EPC contract.

Dry natural gas production in the United States is about to reach a fresh record of 81 Bcf per day, spurring LNG export growth and pushing down prices this year. According to the U.S. Energy Agency (EIA), Henry Hub prices are forecast to average $2.99/MMBtu for the full year 2018, but notch up to $3.08/MMBtu in 2019. 

Gaining access to shale assets in Argentina, Qatar Petroleum has acquired a 30% stake in ExxonMobil’s prolific Vaca Muerta oil and gas play in the onshore Neuquén basin in Argentina. The deal is hoped to bring fresh drive to shale drilling in Argentina which had been rather slow due to local price controls for natural gas. However, President Mauricio Macri's right-of centre government lately doubled wellhead gas prices for existing fields and introduced incentive prices for new developments. 

Canada, the largest energy trading partner of the United States, consistently exceeds the value of U.S. energy exports to Canada by a large margin. According to EIA figures, energy accounted for $73 billion, or about 24%, of the value of all U.S. imports from Canada in 2017, while Canada merely imported energy worth $18 billion from its southern neighbour.

Unplanned downtime can cost an LNG facility as much as $4 million per day. With potential costs so high, profitability is largely linked with unplanned downtime. According to GE Power estimates, unplanned shutdowns in the process industry globally cost 5% of total annual production — that’s as much as $30 billion a year.

Shifting tact, Uniper CEO Klaus Schäfer has announced plans to expand the utility’s business supplying LNG to power generators in South America, Middle East and Asia. Speaking to investors he was adamant about Uniper’s aim to “remain independent” even after Fortum of Finland will acquire a significant stake in the German utility.

Nearly two-thirds of oil and gas sector leaders, surveyed by the Norwegian classification society DNV GL, plant to boost spending on gas projects in 2018, with gas expected to overtake oil as the world’s primary energy source in the mid-2030s. Thereafter, the energy transition will enter its final phase-out of fossil fuels, with hydrogen and renewables set to gain momentum. 

Against the run of play, LNG buyers are prepared to pay a premium for supply from Australia and the United States – described by Standard & Poor’s as “the swing”, meaning states with the highest cost production. Forward prices, notably for shipments to Asia, imply “LNG buyers are willing to pay above the variable cost of U.S. LNG production (delivered ex-ship),” which, according to S&P analysts “is not what you would expect in an oversupplied market.” 

The U.S. decision to leave the Iran nuclear deal and force the Middle East nation to cut its oil exports again keeps pushing up Brent, WTI and oil-linked LNG export contracts – creating a large gap between longterm LNG prices and spot LNG prices in the Northern Hemisphere summer. 

News Nudges

Texas LNG to take FID in 2019

The Texas LNG Brownsville, a liquefaction and export venture on the Gulf of Mexico in South Texas, is making progress in its permitting process to produce an initial 4 mtpa. The project developers said full FERC approvals and a final investment decision (FID) are expected in 2019 and with first production scheduled for 2023. Detailed engineering and other pre-FID activities are continuing through the rest of 2018 upon closing of its current funding round.


First gas enters Corpus Christi LNG

Cheniere Energy is advancing the first two trains at the $13 billion Corpus Christi liquefaction and export project in Texas, with first gas having been fed to Train 1 as of mid-June. Commercial start-up of the plant, however, is still at least six months off. The first two Corpus Christi Trains are about 87% complete. According to Cheniere, trains one and two are set to enter service ahead of schedule in the first and second halves of 2019. The first two Trains are fully contracted and Train 3 is partially contracted. Customers include Australia’s Woodside Petroleum and Frances’s EDF, Spanish energy companies Endesa, Iberdrola and Gas Natural Fenosa as well as Pertamina of Indonesia. Any excess capacity not sold under long-term sales agreements will be available for Cheniere Marketing to sell.


Cove Point pricing

The Intercontinental Exchange (ICE), has launched a physical trading product to reflect the change at the Dominion Energy Cove Point LNG facility in Maryland from an import terminal to an export plant. The new product reflects the physical market for gas deliveries into the liquefaction plant. The previous Cove Point market, which had been set up for receiving natural gas from LNG imports, was delisted simultaneously by the ICE. The new Cove Point price was last at $3.110 per million British thermal units.


Alaska gas pipeline

Alaska Gasline Development Corp., the state body leading the Alaska LNG project, said the US Army Corps of Engineers has released a final environmental impact statement for Alaska’s stand-alone pipeline project. The Alaska pipeline will be 733 miles long and connect a conditioning facility at Prudhoe Bay in North Alaska to the city of Fairbanks. Design work began in 2010 to address potential gas shortages in Alaskan towns and cities.


US exports rise

US LNG exports increased to five cargoes with carriers carrying a combined 18.7 Bcf of natural gas having departed from the United States from June 14 through June 21. Three carriers left from the Sabine Pass plant in Louisiana and two from the Cove Point terminal in Maryland, according to the EIA. Spot prices rose at most locations, with the benchmark Henry Hub at $2.95/mmBtu. Total US natural gas consumption, led by electrical power generation needs, rose by 4%. “Net injections to working gas totaled 91 Bcf for the week. Working natural gas stocks are 2,004 Bcf, which is 27% lower than the year-ago level and 20% lower than the five-year average,” said the EIA.