LNG

The future expansion of natural gas is underpinned by the development of new resources in gas-rich producing countries, which will expand LNG export capabilities, according to a new French report.

The Kingdom of Jordan may be on track to become the third Middle East nation after Egypt and Israel to leave the liquefied natural gas market as more regional pipeline gas becomes available.

The only outcome that could stop Jordan no longer being an LNG importer at its facility at Aqaba is the withdrawal of Israeli pipeline gas supplies, which analysts believe is unlikely.

Jordan is an important market for Israel’s surplus gas and in fact an anchor for development of the first phase of the Leviathan gas project offshore Israel, according to an analysis from the consultancy, FACTS Global Energy.

“A short distance pipeline also provides Israel the highest netback for pipeline gas exports compared to other markets such as Egypt, and even Turkey,” said the report.

“The transportation cost for the Israel-Jordan section is estimated to be only US$0.12 per million British thermal units and the current netbacks are around US$5.90-US$6.40 per MMBtu,” added the report.

Jordan National Electric Power Corp. (NEPCO) is currently buying LNG from Shell based on a mid-term contract that expires in 2020.

However, the pipeline contract price agreed with Israel is lower than the LNG price per tonne for the country.

“NEPCO’s contract with Israel’s Leviathan consortium is linked to Brent prices and currently translates to a gas price of around US$6.00-6.50 per MMBtu (at US$70 per barrel Brent price), around US$2.20-2.70 per MMBtu lower than the MT LNG contract prices,” stated the FACTS report.

For Jordan, it makes economic sense to buy pipeline gas that is priced lower than LNG.

Jordan has already committed to import up to 350 million standard cubic feet per day of pipeline gas from Israel from December 2019, when the Leviathan gas project begins operating.

“The construction of a new 65-kilometres pipeline between Jordan and Israel is ahead of schedule and will be completed by the third quarter of 2019,” noted the report.

The Leviathan gas development project is also more than 80 percent completed and is set to start operation by the end of 2019. Jordan is already receiving small volumes of 10-12 mmscf/d of gas from Israel’s offshore Tamar gas field, owned by Noble Energy of the US and its main partners, subsidiaries of the Delek Group of Israel.

Jordan has also resumed gas imports by pipeline from Egypt on the back of new gas supply from the Egyptian Zohr gas field in the East Mediterranean.

The original contract was to import 250 mmscf/d of gas at a price of around US$2.50 per MMBtu.

However, following a gas supply shortage in Egypt, the pipeline flow to Jordan dropped substantially and was finally halted in late 2015.

During 2016 and 2017, NEPCO reversed the pipeline flow, and purchased 10 additional LNG cargoes per year to send to Egypt via the existing pipeline.

In August 2018, Jordanian and Egyptian Energy Ministers agreed to resume gas supply to Jordan and Egypt started sending interruptible volumes of gas to Jordan from September 2018.

“The current price of the Egyptian gas is estimated to be around US$5.00 per MMBtu, which is lower than Israel’s gas prices but the volumes are still negligible,” said the report.

Jordan’s pipeline gas imports from Egypt have been increasing in 2019 and are expected to reach 100 mmscf/d by the end of this year. Post-2020, gas imports from Egypt may reach 200 mmscf/d.

However, given the current supply/demand balance outlook for Egypt, it is difficult to see more gas supply to Jordan.

“Based on our estimates, Egypt will not have more than 200 mmscf/d of gas left for pipeline exports post 2020,” said the FACTS report.

“Interestingly, Egypt will also start importing Israeli pipeline gas from December 2019. Egypt has two contracts to import up to 640 mmscf/d of gas from Israel,” it added.

If everything goes as planned for pipeline deliveries, Jordan will reduce its LNG imports in the next couple of years and they can finally cease.

Jordan would still have flexibility to import occasional LNG cargoes post-2022 as the Golar floating storage and regasification unit contract with NEPCO is expiring in around 2025 and the Jordanians can keep the vessel until then.

“Jordan could decide to keep the FSRU for a longer period and import LNG or simply approach Israel for additional pipeline imports,” said the report.

Japanese liquefied natural gas imports dropped for the sixth months out of the past seven as the nation received fewer shipments from the Middle East and Asia leading to a drop in its energy spending bill on fuels such as LNG and coal.

Shipments of LNG to Japan fell 13.1 percent in May to 5.56 million tonnes compared with 6.40MT in May 2018, according to preliminary figures from the Ministry of Finance.

Imports of the fuel had edged 0.3 percent higher in April to 5.62MT from 5.60Mt in April 2018 after dropping for the previous five straight months.

Imports of thermal coal, a competitor to LNG, also declined by 9.40 percent in May to 7.95MT.

Seven of Japan's nuclear power plants, which numbered 54 on line before the Fukushima disaster in 2011, were operating in May versus nine in the previous month.

The April 2019 rise in LNG deliveries to Japan had been the first since October 2018 when 6.53MT was received, a 6.5 rise on the previous October.

Even during the peak winter months from November 2018 through February 2019, imports dropped as the Japanese followed fuel-saving measures and the government encouraged a drop in costly LNG imports, with coal-fired power often filling the gap.

The cost of the May 2019 cargoes came to 302.17 billion yen ($2.79Bln), a decrease of 13.7 percent from the 350.33Bln yen ($3.23Bln) the cargoes cost in the same month a year ago.

For balance of payments purposes, Japan has been trying for several years to bring LNG import costs under control.

The Ministry’s data for May showed a plunge in imports from the Middle East region for a second successive month to their lowest level since around 2005.

The May 2019 shipments from countries like Qatar, the United Arab Emirates and Oman totaled 793,000 tonnes, down 44.8 percent on May 2018 and less than the 945,000 tonnes received in April 2019.

Analysts said the fall suggests continued plant maintenance work in the region at a time when there was also an outage of the Qatar-UAE Dolphin Energy natural gas pipeline.

The last time monthly shipments from the Middle East dropped under the 1MT level was in 2005 when they regularly totaled between 950,000 to 970,000 tonnes in the second quarter of the year.

Asian LNG shipments cargo deliveries also edged lower by 3.2 percent to 1.37MT from nations such as Malaysia and Indonesia, Papua New Guinea and Brunei.

US volumes received also dropped to 130,000 tonnes versus 138,000 tonnes in April 2019, the equivalent of two large cargoes, while one delivery was received in the same month a year ago.

Monthly Russian shipments from the Sakhalin Island plant in the Far East amounted to 534,000 tonnes, a rise of 12.2 percent versus the same month in 2018.

The balance of imports from Australia, African nations and the spot market amounted to 2.73MT, higher than the 2.66MT imported in April 2019.

Japanese LNG imports had declined by 0.9 percent in 2018. The 2018 imports amounted to 82.85MT versus 83.63MT received in 2017.

Japan’s 2018 import bill was 20.8 percent higher than in 2017 at 4,730Bln yen ($43.14Bln). The Japanese had paid 19.3 percent more in 2017 compared with the previous year with an LNG bill of 3,915Bln yen ($35.58Bln).