To date, the Saudi Kingdom has been diverting millions of barrels of crude oil every year into the power generation sector, losing out on export revenue. Hence, state-owned Saudi Aramco has been urged to try double its own gas production in the next decade and is evaluation gas imports to complement domestic supply.
Kuwait Petroleum Corporation (KPC), on the same token, has recently called off its plans to tender an estimated US$3.6 billion field development work on the massive tight gas Jurassic field in the north. KPC has just signed a 15-year agreement to import LNG from Shell to meet its rising gas demand for power generation and from the petrochemical sector.
Shell agreed on a 4-year LNG supply deal, commencing after the expiry of an existing contract in 2020. The contract is priced at 11% below a Brent benchmark and will cover 2-3 mtpa, LNG Journal understands.
“Gulf States buyers now are keener to buy from the spot market rather than engaging themselves in long-term commitment,” said Priyank Srivastava, senior consultant, Energy & Utilities, at Protiviti’s Abu Dhabi office. “Supply tenders in the Arabian region are often given to portfolio players that have the off-take arrangement of LNG from multiples sources or trading houses. It means that supply could come from various sources until the contract is in place,” he explained.
The US exported 16.9 million of LNG starting from February 2016 through December 2017. Around 11% of exports were delivered to MENA region, with Jordan and Kuwait the two biggest importers of US LNG in the region.
“As the export volumes continue to build in 2018, a return to lower prices later this year is expected to pose new challenges both for the US and exporters around the world.
“And if lower global gas prices put stronger headwinds on the US export industry, more of that volume could be pushed back into the US market — potentially a factor that's keeping benchmark, Henry Hub forwards prices at just US$2.84/MMBtu for the 2018 calendar year,” Srivastava said.
It’s a buyers’ market
A large portion of US LNG is contracted out to big portfolio players, such as Shell which has an offtake agreement with Cheniere’s Sabine Pass terminal. As one of the major portfolio players, Shell has diverse off-take arrangements from all over the world, including Qatar, Russia. Responding to a query from Qatar, Shell in June 2017 agreed to offtake 1.1 mtpa of LNG from Qatargas Train-4 over a five-year period, starting from January 2019.
“Buyers can draw a very wide net as one can simply buy the LNG from a well-supplied and increasingly flexible global market,” he said. Traders, such as Trafigura, Uniper, Vitol or the trading arms of Shell, Total or BP, will commit to provide LNG from their global portfolios without reference to a particular country of origin.
Portfolio players had also been eagerly awaiting the startup of Cove Point, the second US facility to export LNG. Having commenced operation in early March, the first cargo from Cove Point is set arrived at the UK's Dragon terminal on March 21.
A dozen developers with pending proposals are closely evaluting the success of Cove Point LNG before deciding whether to move forward with their projects.
The Russian wild card
With the on-going crisis with Qatar and Iran, Saudi Arabia is looking for other suppliers to cover their gas needs. “This demand is likely to be met from increasing imports from the US and Russia," Srivastava suggested. Both countries offered to supply to the Arabian State, and Aramco forged closer ties with Novatek at the opening of Russia’s Arctic LNG facility in last year December.
Novatek is interested in building a regasification export terminal and to develop relations, to carry out joint projects in Saudi Arabia. On counterpart, Saudi investors are showing interest in Russian LNG projects. Russian Energy Minister Alexander Novak said last year that Novatek was holding negotiations with investors from Saudi Arabia on their participation in its Arctic LNG 2 project, which the company plans to build on the Gydan Peninsula.
Far from Russia, Saudi Aramco had an initial conversation with the US LNG developer, Tellurian, about taking a stake in its business and entering a firm gas offtake agreement. Saudis have also held several talks with other US companies about gas export deals to the Kingdom.