LNG

China National Offshore Oil Corp., the Chinese energy major and with international and domestic LNG interests, has claimed a “major exploration breakthrough” with a natural gas play in ultra-deep waters of the South China Sea.

The Lingshui 36-1 gas field is located in the western South China Sea with an average water depth of around 1,500 metres.

The main gas-bearing play is the Ledong formation with an average burial depth of 210 metres.

CNOOC said the field has been tested to produce over 10 million cubic metres per day of open flow natural gas.

“The exploration in ultra-deep water ultra-shallow gas plays in the South China Sea is faced with world-class engineering and technical challenges,” the company explained.

Success

CNOOC Chief Executive and President Zhou Xinhuai said the successful testing of Lingshui 36-1 was a breakthrough for the exploration in such plays.

“The company will continue to tackle the challenges on the exploration and development of the resources in such plays, to expedite the utilization of natural gas in deep waters,” he added.

“The successful testing of Lingshui 36-1 further expands the resource base for the development of a trillion-cubic-metres gas region in the South China Sea,” stated Zhou.

CNOOC said in May 2024 that production started at its largest natural gas field in the central Bohai Sea offshore China.

CNOOC said start-up was at the Bozhong 19-6 Gas Field in Block 5 .

The Bozhong 19-6 natural gas and condensate field phase I development project is the first 100 Bcm field in Bohai Bay to be put into production.

CNOOC said the field would provide the Beijing-Tianjin-Hebei and Bohai Rim regions with “a more stable and reliable” supply of clean energy.

The company is also using the development to promote the green and low-carbon aims of China.

The main production facilities include a wellhead platform with 10 development wells planned to be commissioned and full production reached by 2026.

CNOOC holds 100 percent interest in the Bozhong 19-6 project and acts as the operator. 

Moody’s Investors Service, the US ratings agency, said in a report into liquefied natural gas that Chinese demand in 2024 will be similar to last year and while European gas markets remained resilient the region’s reliance on LNG could increase price volatility.

European and Asian liquefied natural gas prices rebounded from three-year lows as cooler weather and the return of government energy policy uncertainties offset high global storage levels and concerns over trade route insecurity.

Moody's Investors Service, the US credit ratings agency, said that increasing global demand for natural gas is a growth opportunity for US LNG producers, though delivery depends more on the timely construction of natural gas pipeline infrastructure to support new US LNG supplies.

Moody’s said in a research note than Europe's energy crisis, led by the cut-off of Russian supplies to Germany, should keep the LNG market tight until 2025-2026, supporting cash flow generation for US LNG producers.

The report also noted the potential recovery in Chinese domestic demand in 2023 that will bring more competition to the market.

“European demand might accelerate LNG capacity expansion in the US, but that would require long-term offtake commitments from European buyers, even as they are working to reconcile new energy security needs,” said Moody’s.

Most of the announced US LNG growth projects through 2025-2026 have long-term commitments from Asian buyers, the original source of the US LNG boom since the mid-2010s, and international commodity traders stepped up their LNG purchases in 2022.

However, LNG producers require long-term offtake commitments to underpin financing of new LNG infrastructure projects.

Capital allocation

The report stated that LNG projects should in turn spur further capital allocation for constructing new pipeline capacity to connect the largest US gas producing regions and new export infrastructure.

These new pipeline projects will need to win permitting approvals from the US Federal Energy Regulatory Commission.

“Today's peak nameplate capacity of nearly 14 billion cubic feet per day reflects only about one-quarter of the capacity of all announced LNG projects, including several with partial or full FERC approval and 10 bcf per day under construction,” the report added.

The LNG projects include the Corpus Christi plant expansion in Texas and the Port Arthur project as well as others on the Mississippi River and the Brownsville Ship Channel.

Moody’s noted that the Marcellus and Utica shale basins together contributed roughly one-third of US dry gas production, though limited pipeline takeaway capacity has constrained growth for those regions.

In the fourth quarter of 2022, US dry natural gas production stood at 100 bcf, exceeding year-earlier production by 3 percent.

Moody’s said that this was largely due to increased drilling and pipeline expansions in the Haynesville Shale and rising volumes of associated natural gas delivered by oil producers in the Permian Basin.

Several large US LNG projects now under construction will add significant new capacity by the mid-2020s.

Several of the US pipeline giants have already announced projects that will supply gas to LNG infrastructure. They include Williams Company’s Louisiana Energy Gateway, Energy Transfer’s Gulf Run and Kinder Morgan’s Permian Highway Pipeline expansion.

North Asian spot cargo prices surged by over 14 percent, though failed to keep pace with the rising European Union benchmark as this week saw most leading EU LNG nations drawing on their gas storage as colder weather arrived and as shipping windows opened with falling charter rates.

The International Energy Agency (IEA) said it carried out new analysis and identified a challenging 30 billion cubic metres supply-demand gap in the 2023 Northern Hemisphere summer season.

The Paris-based IEA said that the gap would occur at a key time for refilling European Union storage as Russian volumes remained cut off and Chinese LNG imports began to rebound for the 2022 drops.

The IEA repeated its support for governments taking measures to reduce natural gas consumption amid the global energy crisis.

The new report is called “Never Too Early to Prepare for Next Winter: Europe’s gas balance for 2023-2024”.

It states that gas storage sites in the EU are now 95 full and putting them 5 percent above the five-year average fill level.

However, the report cautions that the cushion provided by current storage levels, as well as recent lower gas prices and unusually mild temperatures, should not lead to overly optimistic conclusions about the future.

Filling

“The process of filling EU gas storage sites this year benefitted from key factors that may well not be repeated in 2023,” explained the IEA.

“These include Russian pipeline gas deliveries that, although they were cut sharply during 2022, were close to ‘normal’ levels for much of the first half of the year,” added the report.

“Total pipeline supply from Russia to the EU in 2022 is likely to amount to around 60 Bcm, but it is highly unlikely that Russia will deliver another 60 Bcm of pipeline gas in 2023 and Russian deliveries to Europe could halt completely,” stated the IEA.

The agency noted that China’s lower LNG imports in the first 10 months of this year have been a key enabler of higher LNG availability for Europe to compensate for the drop in gas deliveries from Russia.

“If China’s LNG imports recover next year to their 2021 levels, this would capture over 85 percent of the expected increase in global LNG supply,” noted the IEA.

“And global LNG supply is expected to increase by only 20 Bcm in 2023, with about one-third of the growth coming from the United States,” said the report.

“The expected rise in global LNG supply next year is about half the average increase during the 2016-2019 period and much less than the likely decline in Russian pipeline deliveries to the EU next year,” it declared.

The IEA Executive Director Fatih Birol commented that with the recent mild weather and lower gas prices, there is a danger of complacency on Europe’s gas supplies,.

“When we look at the latest trends and likely developments in global and European gas markets, we see that Europe is set to face an even sterner challenge next winter,” he stated.

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.

China National Offshore Oil Corp. has received the first liquefied natural gas cargo, delivered from Qatar, to the giant Yancheng-Binhai Port import terminal with 10 storage tanks in eastern Jiangsu Province.

Asian LNG imports generally declined in the first half of 2022 with rising gas prices curbing demand in the Japanese and South Korean electricity sectors, while a combination of high spot prices and ongoing Covid-19 lockdowns reduced gas consumption in China.

China Gas Holdings, one of the leading non-state controlled companies in the Chinese city-gas and LNG sectors and state-backed Beijing Gas Group, have signed a strategic cooperation agreement to stabilise LNG flows to North China.