LNG

Chinese liquefied natural gas imports for the two-month January-February 2024 period soared by more than 23 percent from a year earlier as prices declined and demand grew during a time that encompassed the Lunar New Year holidays in China.

Woodside Energy, the operator of the Northwest Shelf and Pluto LNG export plants in Western Australia, has signed a sales and purchase agreement with Mexico Pacific Limited (MPL) to purchase 1.3 million tonnes per annum from the venture in the northern Mexican state of Sonora.

European Union liquefied natural gas prices were still solid this week and stronger than those for Asia even as the weather turned mild and Germany’s gas storage was over 64 percent filled despite only very small volumes of LNG reaching the German floating import facilities as they continued commissioning and set-up activities.

The Australian Government’s quarterly energy review said that the nation’s 2023 liquefied natural gas production was expected to “stabilise” at around 80 million tonnes from about 83MT last year as output from the Pluto LNG Train II expansion offsets falling production from the Northwest Shelf facility.

Both of the liquefaction and export plants are operated in Western Australia by Woodside Energy.

Australia’s previous strong result was driven by record-high utilisation rates at Australia’s West coast plants amidst high international LNG prices.

For example, Wheatstone, Gorgon, and Pluto LNG (one-third of Australia’s total LNG capacity) are estimated to have operated at a combined utilisation rate of 110 percent in 2022.

“The impressive result was enough to offset lost production at Darwin LNG due to field depletion in the Bayu-Undan basin and at Prelude LNG, which experienced unplanned outages throughout the year,” explained the report from the Office of the Chief Economist in Australia

It added that Australian LNG export revenues were forecast to reach A$91 billion (US$60.67Bln) in 2022-2023, on higher global energy prices and a lower Australian dollar.

“As global energy markets reorganise, earnings are forecast to fall steadily (in real terms) - to A$45 billion by 2027-2028,” said the report.

The report noted that global LNG trade increased by 5.5 percent last year to an estimated 395MT.

Europe's role

“Europe has now emerged as the key driver of import growth and is forecast to maintain this position across the outlook period. Rising European demand will likely come at the expense of Asian consumption, which is typically more price sensitive,” said the report.

“Throughout 2022, many Asian buyers were priced out of the market by European importers. Other buyers, mainly in China, appear to have resold their contracted US cargoes to European markets to arbitrage the higher European prices,” it explained.

“Remarkably, record-warm winter temperatures and a steady flow of LNG imports from the US, has seen European storage reach its highest levels in recent history, alleviating the risk of an immediate gas shortfall and easing pressure on LNG prices,” said the report.

However, the view from Canberra is that global gas markets are forecast to remain “tight and volatile” until the end of 2024 as Europe continues using LNG to compensate for lost Russian pipeline gas.

The tight supply conditions are then forecast to ease in 2025 and 2026, as new US and Qatari liquefaction facilities come on stream.

East Europe

“The steady flow of US LNG and record-high winter temperatures reduced the drawdown of European storage inventories over the 2022-23 winter,” said the report.

“These two conditions eliminated the risk of an immediate shortage and have improved the likelihood of healthy storage injections over the 2023 refilling period,” it added.

Europe is now forecast to capture most of the world’s growing LNG supply over the outlook period.

European LNG imports are forecast to reach 142MT in 2023, double the figure in 2021 as Germany, Belgium, Italy and Greece commission new LNG import facilities to offset lost Russian pipeline gas.

Imports are also projected to rise to 178MT by 2028, as new pipeline interconnectors in the Czech Republic, Bulgaria and Slovakia allow LNG importing countries to export gas to Eastern and Central European markets.

Woodside Energy, the operator of the Northwest Shelf LNG plant and the Pluto LNG facility in Western Australia, posted soaring annual net profits because of higher prices and the benefits of the merger with commodities giant BHP’s petroleum business.

The Australian Government has concluded an agreement with the East Coast LNG exporters in Queensland to ensure that uncontracted gas held by the three export plants in the state would first be offered to the domestic market before being offered to international customers.

Australian ministers in the new Labor government are scheduled to meet in the coming week after the Australian Energy Market Operator triggered the Gas Supply Guarantee Mechanism for the first time since the measure was introduced in 2017 to secure domestic gas for power generators amid potential shortfalls in southern states.

New Prime Minister Anthony Albanese took office after his Labor Party defeated former PM Scott Morrison and his conservative Liberal-National coalition in the May 21 parliamentary elections.

Increased winter demand for energy, unscheduled outages at coal-fired power stations and gas shortages due to the war in Ukraine have led to soaring gas and electricity prices across Australia.

Energy Minister Chris Bowen said he would convene the meeting next week.

“After being sworn in I spent the morning being briefed by my department and by AEMO on the current situation on gas supply and the energy markets particularly in the East Coast,” said Bowen.

“I’ve also spoken his morning to the Treasurer and Energy Minister of New South Wales Matt Kean, to the Energy Minister of Victoria Lily D’Ambrosio, the Energy Minister of Queensland Mick de Brenni, the Energy Minister of Tasmania Guy Barnett, the Energy Minister of Western Australia Bill Johnston, and the Energy Minister of South Australia Tom Koutsantonis,” he explained.

“I’ve also briefed the Treasurer and the Resources Minister Madeleine King and the Industry Minister Ed Husic on the current situation,” he added.
There have been calls for the government to pull the gas trigger, known as the Australian Domestic Gas Reservation Mechanism, to divert exports and shore up domestic supply.

Gas price surge

Bowen said any use of the emergency mechanism wouldn’t impact gas prices in the short term.

“That’s a misunderstanding of how the mechanism works. It cannot come into force until January 1 next year,” he told reporters in the capital Canberra.

Bowen stated that he did not hold the former government accountable for any particular element of the crises Australia was facing.

“For the very serious situation we are facing. I do say this though: the former government’s nine years of denial and delay, their 23 energy policies, their ad hocery, their challenges in approaches have left Australia ill-prepared and our energy markets ill-prepared for the challenges we are facing today in relation to gas and energy supply,” he said.

“The previous government did not do the work necessary to increase renewables, to increase storage. If we had more storage and more renewables and better transmission, we would be much better placed to deal with the current challenges,” he added.

“And that’s, of course, exactly what our Powering Australia plan seeks to implement. But, of course, it will take some time to implement,” stated Bowen.

Opposition Leader Peter Dutton called the characterisation of the former conservative government’s policies as a “complete rewrite” of history.

“This government went to the election saying they had the answers and clearly they don’t. You look at Chris Bowen now, he is like the bunny in the headlights and he has no idea which way to go,” stated Dutton.

“This is nothing to do with renewables. I think the government has to take responsibility for what is a serious issue,” added Dutton.

“It seems to me that the inexperience of both Anthony Albanese (the new Prime Minister) and Chris Bowen is shining through. They have got the ability and the legislation there to deal with this and they don’t know what they should do,” stated Dutton.

Saipem, the Italian energy and LNG engineering company and an offshore specialist, has been awarded a contract by Aker BP for a drilling campaign offshore Norway as upstream activities are set to increase.

Australian LNG operator Santos was assigned and investment-grade credit rating from US agency Moody’s Investors Service after the final shareholder and court approvals for the US$6.25 billion merger of Papua New Guinea-based energy company Oil Search and Adelaide-based Santos to create a major Asia-Pacific energy player.

Inpex Corp., the Japanese oil and gas developer and operator of the Australian Ichthys LNG export plant near Darwin, has counter-sued South Korea's Samsung Heavy Industries over a payment dispute related to the delivery of the Central Processing Facility (CPF) for the Ichthys gas field offshore northwest Australia.

SHI confirmed that the law suit had been filed by Inpex after the South Korean company had sought arbitration in April 2021 over the unpaid full CPF contract settlement.

The commissioning at the CPF was completed at the end of May 2018 and that was the last major task to be carried out by the developers in the offshore section.

However, Inpex claimed at the time that late deliveries of the CPF and other offshore equipment were among several factors that caused the delayed commercial start of the Ichthys venture for Inpex and French major Total, now called TotalEnergies.

The Ichthys feed-gas is sent to Bladin Point in the Northern Territory through a 890 kilometres-long gas pipeline.

SHI said in its claim that after the installation of the CPF it asked the Japanese company to settle the balance of the contract amounting to $116M.

But Inpex refused, saying the delayed CPF arrival and installation had caused project hold-ups.

SHI finally lodged a complaint against Inpex on April 30, 2021, with the Singapore International Arbitration Centre, seeking payment for the rest of the contract amount.

This latest Inpex lawsuit is separate from another involving the joint venture Ichthys LNG engineering consortium JKC, consisting of KBR, Chiyoda and JGC Corp.

The Ichthys project's final cost was estimated at more than US$40 billion.

This far exceeded a 2012 cost estimate of US$34Bln for the venture, which was beset by delays of almost two years.

The first shipment of LNG from liquefaction plant was finally delivered on the 30th October 2018 to the Inpex-operated Naoetsu LNG Terminal in Niigata Prefecture.

A total of 8.4 MTPA of LNG out of the almost 9 MTPA from the two-Train plant was pre-sold to Japanese utility companies Tokyo Gas, Osaka Gas, Kansai Electric Power, Jera Co. Inc. and Toho Gas. CPC Corp. of Taiwan also receives shipments.