LNG

European LNG and wholesale natural gas prices dropped by almost 5 percent over the past week while North Asian spot LNG cargo prices were firmer even as cargo volumes pointing at Japan began to decline amid high storage levels as is normal at this time of year in the East and West of the Northern Hemisphere.

First Gen Corp., the leading power company in the Philippines and a new liquefied natural gas importer, has awarded a cargo tender to Chinese major China National Offshore Oil.

European liquefied natural gas prices surged by more than 12 percent this week even as gas storage builds gathered pace at the same time as worsening geopolitical problems from the Russia-Ukraine conflict to the growing tensions in the Middle East region.

European prices for LNG tumbled in the past week and Asian cargo prices fell as the winter season wound down with mild weather and a global gas glut that also sent the US Henry Hub spot and futures prices crashing to under $1.60 per million British thermal units.

The International Energy Agency said the structure of global natural gas markets has been altered by issues raised by the Ukraine conflict and will require still more  closer dialogue between producer and consumer nations to ensure the availability of short-term and long-term pipeline gas and LNG cargo volumes.

The IEA’s annual “Global Gas Security Review” also noted that tensions in the gas markets had eased “significantly” since the beginning of 2023.

The report coincided with the 12th LNG Producer and Consumer Conference in Tokyo involving the leading importers and exporters.

That Tokyo event was co-organised by the IEA and Japan’s Ministry of Economy, Trade and Industry (METI) and has always provided a forum for discussions between natural gas and LNG producer and consumer countries.

The new IEA analysis noted that deeper coordination among market participants remained essential, given momentous shifts in how gas markets function.

The IEA’s latest assessment of market dynamics showed gas markets had moved towards a gradual rebalancing since the start of the year.

High inventories

The report stated that high inventory levels at storage sites in key Asian and European markets provide grounds for “cautious optimism” ahead of the 2023-24 winter heating season in the Northern Hemisphere.

“If injections continue at the average rate observed since mid-April, EU storage sites will reach 90 percent of their working capacity by early August and could be filled close to 100 percent by mid-September,” said the report.

“However, full storage sites are no guarantee against market volatility during the (coming) winter,” the report warned.

The Paris-based body said that there remained “major uncertainties” ahead of the upcoming heating season.

“A cold winter, together with a full halt in Russia piped gas supplies to Europe early in the heating season, could easily renew market tensions,” said the report.

“Fierce competition for gas supplies could also emerge if Northeast Asia experiences colder-than-usual weather and economic growth is stronger than expected in China,” the IEA added.

The security of global gas supplies remains at the forefront of energy policy making, with growing complexity for both the short and long term.

LNG surge

“LNG has become a baseload source of supply for Europe, with its share in total EU demand rising from an average of 12 percent over the 2010s to close to 35 percent in 2022 - similar to the contribution from Russia’s piped gas before the invasion of Ukraine,” said the report.

“Meanwhile, China’s balancing role in global gas markets is set to increase,” stated the IEA.

The report also explained that the “flexibility of gas supply” needed to be reassessed in light of the phase-out of Russian piped gas exports to the European Union.

As producers and consumers engage in closer dialogue to address these dynamics, the new IEA report recommended that they should explore the development of innovative commercial offerings, new procurement mechanisms and cooperative frameworks favouring a more flexible supply of LNG.

The new IEA report also includes a special focus on integrating low-emissions gases into energy systems.

“A new global gas market is taking shape after last year’s crisis. Given this, responsible producers and consumers must reconsider their approaches to supply security and flexibility, cooperating even more closely,” said Keisuke Sadamori, the IEA’s Director of Energy Markets and Security.

“Meaningful efforts are also needed to reduce the carbon footprint of gas supply chains, including through greater use of low-emissions gases,” added Sadamori.

Japanese demand

The report also focused on some individual nations and on the main regions.

In the case of Japan, the leading LNG importer's gas consumption decreased by 12 percent, or 4 billion cubic metres, in the first three months of 2023.

“Gas-fired power generation in the first three months declined by 16 percent (or 15 terawatt hours) according to data from the METI. This was primarily driven by lower electricity consumption, down by 6 percent year-over-year with improving nuclear availability,” said the IEA.

“Japan’s nuclear power output rose by 47 percent (or 12 TWh) in the first half of 2023. In addition, city-gas sales for commercial and industrial use decreased by 3 percent and 12 percent respectively,” added the report.

“For 2023 Japan’s gas demand is forecast to decrease by about 5 percent compared with the previous year,” the IEA stated.

Deliveries of liquefied natural gas cargoes increased to Europe this week while the differential between the benchmark European Union LNG price and spot cargoes for Asia narrowed because of seasonally milder weather and high storage across the EU.

The Japanese Government’s key Minister of the Economy, Trade and Industry (METI), Yasutoshi Nishimura, said he had approved a proposal to help improve the nation’s emergency access to liquefied natural gas for power generation.

Minister Nishimura said in a statement that he would allow the government agency, the Japan Oil, Gas and Metals National Corporation (JOGMEC), to fund the purchase of spot LNG if required.

“Japan also plans to revise another law to allow the government to order large users to limit use of city gas in case of an emergency,” added the Nishimura statement.

Japanese LNG buyers who are the biggest utilities have been mindful of avoiding high-cost LNG purchases, though during August 2022 monthly LNG costs rose to over the US$6 billion ( 874.47 billion yen) level for the first time.

Rising energy costs are affecting the balance of payments of countries worldwide, though Japan is particuarly affected as it has no sizeable reserves of domestic energy resources and must buy in most of its oil, gas and coal.

However, the move on LNG supplies signals that there are limits to cutting off energy shipments as the Northern Hemisphere winter approaches.

Deliveries of LNG to Japan’s network of 37 terminals have amounted over the past few months to around 6.25 million tonnes, or amount 93 cargoes, according to trade figures from the Japanese Ministry of Finance.

Cargo competition

Even in the past week deliveries of LNG will slip as it lags North Asian LNG users China and South Korea in cargo numbers.

Shipping data shows that Chinese terminals are set to receive about 23 shipments in the week through October 16 compared with 18 bound for delivery to Korea and 14 shipments going to Japan.

Among JOGMEC’s traditional role is to help Japanese companies make equity investment in overseas energy projects as part of Japan’s focus on securing long-term oil and gas and other fuels and to make investments itself in important projects.

JOGMEC has also revised its statutes to investment in new and cleaner fuel ventures rather than just hydrocarbons and to raise its profile in sectors such as carbon-capture and storage.

Just last week, on October 8, JOGMEC agreed to collaborate with the Saudi Arabian Oil Company on upstream fuel ventures.

Hosono Tetsuhiro, Chairman and Chief Executive of JOGMEC, and Mohammed Al-Qahtani, Senior Vice President of Downstream at Saudi Aramco, signed the accord.

“JOGMEC intends to proactively support the implementation and/or provision of risk money, equity capital and liability guarantees, for a specific project in the Kingdom of Saudi Arabia related to the production and/or storage of hydrogen and ammonia, which are our new support areas under the revised JOGMEC law promulgated on May 20,” the agency explained.

QatarEnergy has placed the first batch of LNG shipbuilding orders with South Korean shipyards consisting of four vessels from Daewoo Shipbuilding & Marine Engineering (DSME) and two vessels from Samsung Heavy Industries (SHI), as part of QatarEnergy’s shipbuilding program to serve future expansion plans.

PTT Group, the national energy company of Thailand, has started a joint venture with Tokyo Gas to help with fuel switching in the southeast Asian nation, including small-scale truck deliveries of liquefied natural gas.

BASF Group, the German oil and gas and chemicals company, said the latest Malaysian floating LNG production hull owned by Petronas had selected BASF’s “OASE purple” process for its Acid Gas Removal Unit.

BASF, headquartered in the Rhine River city of Ludwigshafen, said the Petronas-owned vessel, the “PFLNG Dua”, is the first global user of the process.

The German company noted that Petronas successfully started up “FLNG Dua” in February 2021 and completed its performance test run in May 2021.

Petronas, the world leader in FLNG output, said in January 2021 that the “PFLNG Dua” had entered production in a joint venture with Thailand’s energy company PTTEP over the Rotan gas field offshore Sabah.

The vessel is deployed over the gas located 140 kilometres off Kota Kinabalu in Sabah state on the northern part of the island of Borneo.

The “PFLNG Dua” was constructed at the South Korean shipyard, Samsung Heavy Industries.

The first Petronas LNG hull, “PFLNG Satu”, became the world’s first FLNG vessel to start commercial operations in 2017 over the Kanowit gas field offshore Sarawak, another Malaysian state on Borneo.

Output

The “PFLNG Dua” has production capacity of 1.5 million tonnes of LNG per annum.

BASF said its “OASE purple” process is an amine-based solution that is utilized for the removal of acid gases such as carbon-dioxide (CO2) and hydrogen-sulfide (H2S) from natural gas.

The removal of acid gases is necessary to prepare the gas for the liquefaction and subsequent pipeline transportation.

“The highly efficient and environmentally friendly BASF technology provides flexibility and low capital expenditure for its customers,” said BASF.

“Additionally, the low energy demand of the process combined with the non-corrosive nature of the solvent keeps operating and maintenance costs (OPEX) low,” the German company added.

BASF explained that the process also provided a high level of gas purity and gas recovery while keeping solvent losses to a minimum.

“We are proud to now have our first FLNG reference in operation and running at 100 percent capacity, which is the fruit of many years of research,” said Andreas Northemann, Head of BASF’s Gas Treatment business.

“We applied our onshore LNG expertise and conducted motion studies and Computational Fluid Dynamics (CFD) to ensure a high reliability, low maintenance design which meets our customer’s stringent offshore specifications and challenges,” added Northemann.