LNG

Japanese trading houses and energy companies Mitsui & Co. and Mitsubishi Corp. have formally joined the new operating company for the Sakhalin II LNG export plant in the Russian Far East.

A Russian statement said Mitsui and Mitsubishi have taken stakes of 12.5 percent and 10 percent respectively in the new operating company, Sakhalinskaya Energia.

The former operating company Sakhalin Energy had Gazprom as the majority shareholder with 50 percent plus one share while Shell had 27.5 percent of the shares and Mitsui and Mitsubishi 12.5 percent and 10 percent, which they now hold in the new company.

Shell decided to withdraw from operations in Russia after the invasion of Ukraine, though its exit path from Sakhalin LNG is not clear and the shareholding could eventually revert to Gazprom.

After the Shell pull-out, Russian President Vladimir Putin ordered in June 2022 that the Sakhalin LNG company’s assets be expropriated and passed on to a new entity.

In the latest statement, the Russians cited Shell Chief Executive Ben van Beurden as saying on July 28: “It's highly unlikely that we will become a member of a Russian legal entity to which our share in Sakhalin Energy may be transferred. It's not consistent with our intention to keep our assets in Russia. It creates a little bit more uncertainty about how exactly we will exit.”

The Sakhalin plant began LNG exports in 2009 and has annual capacity from its two Trains of around 10 million tonnes per annum with shipments going to Japan and South Korea.

Concerns

The Japanese government has backed Mitsui and Mitsubishi in retaining their Sakhalin LNG stakes and officials were cited as saying that potential Chinese shareholders could replace the Tokyo-based companies.

“In accordance with the notification of Mitsubishi Corp. on the consent to take ownership of a share in the authorized capital it will be transferred to a fully owned subsidiary of Mitsubishi,” said the Russian statement.

The previous Mitsubishi share in the Sakhalin plant was held by its subsidiary Diamond Gas Sakhalin and a 10 percent stake has been passed to it.

The Russian statement added that the 12.5 percent stake of Mitsui had been transferred to a company subsidiary registered in Dubai in the United Arab Emirates and called MIT SEL Investment.

The new Sakhalinskaya Energia company was incorporated in the capital of Sakhalin Island, Yuzhno-Sakhalinsk, in August 2022 and Gazprom was assigned its majority shareholding from the previous operating company.

Shell Chief Executive Ben van Beurden said there was no swift solution to Europe’s current energy crisis and the region would face significant challenges in meeting demand for several winters to come.

“I do not think this crisis is going to be limited to just one winter,” Ben van Beurden said at the Offshore Northern Seas (ONS) Foundation 2022 conference in Stavanger, Norway.

“It may well be that we have a number of winters where we have to somehow find solutions through efficiency savings, through rationing, and through a very quick build out of alternative gas imports or hopefully alternative energy sources,” said the Shell CEO.

His comments come after European natural gas and power futures contracts soared again to record highs and LNG cargoes are now priced at more than $300 million each.

Prices have surged since Russia’s invasion of Ukraine in February 2022, though they were already moving higher amid fears of gas shortages after the European Union’s halting of the start-up of the Gazprom-led Nord Stream II gas pipeline from Russia about four months before the Ukraine events.

About-turn

Analysts said that Van Beurden’s statement was a timely intervention though he has been among the majority group of energy CEOs, bankers and political leaders who have jumped on the net-zero bandwagon without making sure or emphasizing that sufficient oil and gas would have to be available in the years ahead before an energy transition is completed.

Even though the EU aims to reduce gas imports from Russia by two-thirds within a year and be virtually independent in five years, the 27-nation bloc is still reliant on Russian supplies in the near term.

“If there was no Russian gas supply at all life would be very hard,” stated Van Beurden whose company was shut Russian operations, including pulling out of the Sakhalin II LNG export plant in the Russian Far East.

Van Beurden said people should be mindful and responsible when it comes to the energy crisis and to understand that to believe that it could easily be solved was a “fantasy”.

The Shell CEO told the Norwegian conference that energy rationing may be needed for a number of years, underlining the scale of the challenge facing global economies.

Musk warning

Another speaker at the Norwegian conference was Elon Musk, the billionaire head of Tesla, the US multinational automotive and clean energy company headquartered in Austin, Texas.

Musk said “civilisation will crumble” without oil and gas as he warned the switch to green energy could take several decades.

He stated that the world needed to continue extracting oil and gas while it builds out renewable energy.

Musk declared that the current global energy crisis and the transition to sustainable energy was “one of the biggest challenges the world has ever faced”.

“Realistically I think we need to use oil and gas in the short term, because otherwise civilization will crumble. One of the biggest challenges the world has ever faced is the transition to sustainable energy and to a sustainable economy. That will take some decades to complete,” he explained.

The Port of Rotterdam, host to the Dutch Gate LNG import terminal in the Maasvlakte area, reported “significant changes” in the first half of 2022 because of Russia’s conflict with Ukraine with incoming LNG shipments increasing by over 55 percent and coal imports also surging.

The Port said in its first-half report that total cargoes increased by 0.8 percent to 233.5 million tonnes compared with 231.6MT in the first six months of 2021.

Revenues at the port, which is owned by the City of Rotterdam and the Government of the Netherlands, increased by 6.3 percent to €412 million ($420M) versus €387.6M in the first half of 2021.

The increase in port dues accounted for €16.1M of the revenues and this rise was primarily attributable to a higher number of vessels, resulting in a higher price per throughput tonne.

“In many segments, the war in Ukraine led to significant changes. For example, imports of both LNG and coal rose very sharply as an alternative to reduced European imports of Russian gas by pipeline,” said the report.

The Port said it handled 5.32 million tonnes of incoming LNG from January through June compared with 3.41MT in the first half of 2021, a rise of 55.9 percent.

Dutch LNG imports for all of 2021 amounted to 5.64MT, an increase of 5.8 percent over the previous year.

Coal imports

Rotterdam’s coal imports in the first half jumped 31.9 percent to 14.05MT from 10.65MT in the prior-year period.

“There is very strong demand for LNG as an alternative to the natural gas entering Europe by pipeline from Russia,” said the Port.

“The throughput of crude oil increased, with oil products falling off. Throughput of iron ore, agricultural bulk and containers was lower than in the same period last year,” it added.

LNG shipments come under the Port’s Liquid Bulk segment and first-half traffic of liquid bulk rose by 4.6 percent.

“The 4.3 percent increase in crude oil was mainly caused by the flow of Russian oil through Rotterdam to India in particular. Refineries in Northwest Europe are switching to non-Russian oil, with the result that Russian oil is finding its way to other markets,” the Port explained.

“It was possible to see a shift in the origin of imports of coal, crude oil, oil products and LNG in the second quarter. Companies are sourcing these energy carriers and raw materials less and less from Russia and purchasing them elsewhere in the world,” said the report.

CEO overview

Allard Castelein, Chief Executive of the Port of Rotterdam Authority, noted that Europe has relied heavily on Russian energy.

“The current geopolitical situation makes Europe very vulnerable. The availability of energy and raw materials at reasonable prices cannot be taken for granted,” said Castelein.

“A positive development is that concrete steps have been taken in recent months to make our energy supply more sustainable and to further our energy independence, particularly through investment decisions to build a large biorefinery,” he added.

“In addition to the vulnerability of the European energy system, nitrogen emissions continue to be a major bottleneck. Several major projects, including the carbon dioxide-capture and storage project Porthos, are being delayed or threatened with delays due to uncertainty and restrictions associated with nitrogen emission,” stated the CEO.

Rotterdam’s Gate LNG terminal started operations in 2011 and is a joint venture between Dutch utility Gasunie and global storage company Royal Dutch Vopak.

Gate Terminal BV, the operating company, said in early July 2022 that annual capacity was now 12 billion cubic metres on a firm basis and in addition 4 Bcm on an interruptible basis will be available in the future.

The terminal company said it had started working on a permit application, regulatory conditions and technical feasibility with the aim of launching an open season on 15th August 2022 to increase the firm annual capacity by 4 Bcm.

The US Department of Energy (DoE) has issued two long-term orders authorizing additional liquefied natural gas exports from two projects of the US Gulf Coast, the QatarEnergy-backed Golden Pass LNG plant in Texas and the Magnolia LNG venture in Louisiana owned by the Glenfarne Group.

Golden Pass, an existing import terminal currently being transformed into an export facility, is a joint venture between QatarEnergy and ExxonMobil Corp. and the first liquefaction Train is scheduled to come on stream by 2024.

The Federal Energy Regulatory Commission formally approved the transformation of Golden Pass, located on the Sabine-Neches Waterway in Texas, back in December 2016.

However, the Qatar-ExxonMobil project has advanced at a slow pace because of doubts several years ago over market demand issues that have now been resolved and work has gathered pace to construct three liquefaction Trains with around 16 million tonnes per annum of output.

US regulators had previously approved construction of the Magnolia LNG plant proposed for a 115-acre site near the Calcasieu Ship Channel with 8.8 MTPA of output from four Trains.

Investment buyer

The Magnolia development had previously been owned by an Australian-listed company LNG Ltd that ceased trading amid financial difficulties.

Glenfarne, a New York-based fund specialising in energy infrastructure investment, then took over the project.

The DoE orders have authorized additional 0.5 billion cubic feet per day (Bcf/d) of natural gas flows to the plants. “The orders allow Golden Pass LNG to export the equivalent of an additional 0.35 Bcf/d and Magnolia LNG to export an additional 0.15 Bcf/d of natural gas as LNG to any country not prohibited by US law or policy,” said the statement.

The DoE had previously issued long-term non-free trade agreement export orders for the majority of the projects’ capacities, with Magnolia LNG’s authorization for 1.08 billion cubic feet per day in 2016 and an authorization for 2.21 billion cubic feet per day issued to Golden Pass LNG in 2017.

The statement explained that the two orders align the respective export authorizations to additional capacity that the FERC had approved for the projects based on optimized project designs.

“The United States is the largest global producer of oil and natural gas and a net exporter of energy. US fuel supplies, including LNG, continue to play a key role in global energy security, particularly due to Putin’s invasion of Ukraine,” said the DoE.

It noted that US LNG exports had recently reached new highs of about 12 billion cubic feet per day and are expected to grow to more than 13 Bcf per day by the end of this year as additional export capacity comes online from seven large-scale plants now operating. 

Asian liquefied natural gas spot prices and European LNG cargo values remained at high levels as the European Union moved towards more regulation of natural gas and power markets and amid the likely failure of US and EU attempts to fully replace Russian pipeline gas supplies from other sources.