In this issue

 

Gravitating away from importing LNG on a take-or-pay contract basis, China’s exceptional gas demand growth in winter 2017/18 not only increased incremental supply from longterm contracts by nearly 40% but also propelled up imports of spot LNG cargoes. Indirectly, this puts China into a position of soaking up excess US gas exports shipped to AsiaPacific – if the price is right. 

Strong seasonal gas demand this winter for power generation and heating, along with high spot LNG prices in Asia and Europe, are forecast to push up US LNG export volumes. Utilization at Sabine Pass is projected to remain well above 90% in winter 2017–2018, the US Energy Information Administration (EIA) anticipates.

China’s new '2+26' cities policy – a pledge to cut emission in the country’s 28 northern cities by 15% year-on-year in the winter months – is limiting the use of coal for power generation and in industries. As an alternative to coal, gas demand could rise by 23 bcm in winter 2017/18 compared to previous winters, according to WoodMackenzie projections. In fact, Chinese LNG imports almost doubled last month, surging 95.7% compared to October 2016, to reach 3.57 million tonnes, according to data from the General Administration of Customs. 

Speedy approval of new mines in China has the potential to lower demand for seaborne coal imports by up to 50 million tons (Mt), sending down coal prices from levels above 80$/t towards to just 60$/t in 2018. EnergyAspects cautions, however, that such a dramatic fall in prices, caused by replacing higher-priced imported coal with cheap domestic production, is highly unlikely given that the government in Beijing had been content with higher prices as a driver for electric utilities to replace coal with cleaner-burning natural gas. 

Global petrochemical manufacturer INEOS has struck a long-term supply agreement with SP Chemicals which will see ethane, derived from US shale gas, being shipped to China for the first time. The deal also stipulates the construction of a 95,000cbm Very Large Ethane Carrier (VLEC) which is expected to be delivered in 2019.

Exports of natural gas from the United States to Mexico – both by pipeline and shipments of LNG cargoes – have reached an all-time high of just under 7.8 Bcf/d this week, following record high Lower 48 gas production at around 77 Bcf/d at the start of the week. Amid healthy fundamentals, it will now by weather patterns that determine winter gas trading patterns and volumes of US gas exports. 

Pemex, Mexico’s national oil company, has made the biggest onshore find of oil and associated natural gas in 15 years in the eastern state of Veracuz. The find near the Ixachi-1 well, believed to hold some 1.5 billion barrels of oil equivalent, will help reduce Mexico’s reliance on importing LNG and pipeline gas from the United States. 

Chart Industries’ latest compact LNG regasification station is now fully operational in Mexico, bringing natural gas to fuel an off-grid power station. The regas project is a first for the country, Chart pointed out, and mimics a familiar fuel model that is already in use for diesel or propane.

Iran’s deputy oil minister Ali Kardor, who also heads the National Iranian Oil Company (NIOC) has signed an energy roadmap with Gazprom chairman Alexey Miller that will see the Russian energy major conduct a proof-of-concept study on implementing integrated projects in Iran. Gazprom said it aims to work with NIOC along the entire gas value chain, from extracting gas in Iran to monetizing the product – ideally via the Iran LNG project. 

Attending the inauguration of Novatek’s landmark $27-billion Yamal LNG plant on December 8, the Saudi Arabian Energy Minister Khalid Al-Falih confirmed the Middle East oil nation is considering investing in future LNG projects in the Russian Arctic. Talks are being held about setting up a $1 billion energy fund, aimed at fostering future supply of Russian LNG as part of a Saudi government plan to use more gas for power generation. 

Shale gas production in the Appalachia region has been increasing rapidly for the past five years, growing by more than 14 billion cubic feet per day (Bcf/d) since 2012, according to EIA’s Drilling Productivity Report. Overall Appalachian natural gas production grew from 7.8 Bcf/d in 2012 to 22.1 Bcf/d in 2016 and was 23.8 Bcf/d in 2017, based on EIA data through October 2017.

Economically speaking, the North American shale industry had yet to turn a profit, Gazprom claims which added to the debt burden of shale producers. “Canada’s shale-gas sector continues to develop at a very slow rate due to limited possibilities for monetizing gas and the availability of other, cheaper gas resources,” the Russian gas exporter stated.

The gas-oil ratio in North Dakota’s Bakken region, one of the most prolific US shale plays comprising the Bakken and Three Forks formations, has been gradually shifting towards natural gas. While oil production slowed over the past three years, gas production continues to rise and reached a record high of 1.94 Bcf/d in August 2017, or the energy equivalent of about 334,000 b/d of crude oil. 

With world energy demand growing at 1.1% per year, the Gas Exporting Countries Forum (GECF) anticipates a 53% rise in global gas consumption between 2017 and 2040. Non-OECD Asia is seen as the main growth driver, followed by the Middle East and Africa. 

News Nudges

Dominion’s Cove Point LNG gets ready to export LNG

Dominion Resources’ Cove Point LNG terminal in Maryland has completed its conversion from a gas import facility to an export terminal to ship Marcellus Shale gas to Asia. On December 5, Cove Point began introducing feedgas to the facility and confirmed Shell will offtake the LNG produced during the commissioning process. Cove Point is the second LNG export terminal to come online in the U.S. in the past several years, and with five others planned, it will help the country move from being a net importer of energy to a net exporter. FERC approved the project in 2014, and construction began in October 2014. Cabot Oil and Gas contracted with Sumitomo Corporation and Tokyo Gas, a Japanese power company, to sell 350,000 million British thermal units of Marcellus Shale gas per day for 20 years. The completed plant will have a yearly capacity of 5.25 mtpa.


Stalled Canadian LNG projects changes name

Steelhead LNG, one of the few remaining Vancouver-based energy companies focused on liquefied natural gas project development in the province of British Columbia, has changed the name of its Sarita venture to reflect the participaton of its First Nation tribal partners. The only other BC project moving forward is the Woodfibre venture, though it recently delayed the start of construction to early 2018. The newly named Kispaa LNG project is planned for Sarita Bay, about 10 kilometres north of the town of Bamfield. The Sarita project is still in the preliminary engineering and conceptual design stage.