LNG

Fitch Ratings, the New York-based credit ratings agency and financial services company, has just published a report analysing the European Union’s efforts to mitigate the worst effects on gas markets of a cut-off of Russian imports and for their replacement with LNG and other types of energy.

Tellurian Inc., the developer of the Driftwood LNG export project in Louisiana, has purchased more assets in the Haynesville Shale to boost feed gas resources when the plant comes on stream.

The Houston, Texas-based company entered into an agreement to purchase natural gas assets from the privately held companies EnSight IV Energy Partners LLC and EnSight Haynesville Partners LLC.

The purchase price was $125 million, subject to customary closing adjustments, and a contingent payment of $7.5M based on the price of natural gas and which may be payable in March 2023 under certain conditions.

Tellurian said it would fund the purchase with cash on hand and anticipates finalizing the acquisition of the EnSight assets in the third quarter of 2022.

Driftwood project owner Tellurian has existing gas field assets in the Haynesville Shale which extends through areas located in East Texas and Western Louisiana.

Tellurian produced 6.1 billion cubic feet of natural gas in the first quarter of 2022 compared with 4.9 Bcf for the previous quarter.

Its existing upstream assets in the Basin include 13,521 net acres and interests in 82 producing wells as of March 2022.

Export project

The Driftwood LNG export plant has permits to produce 27.6 million tonnes per annum of LNG and has 10-year offtake agreements with the likes of Shell North America and global commodities firms Vitol and Gunvor.

The Tellurian project involves constructing 20 mid-scale processing Trains, each with 1.38 MTPA of capacity, and built as five blocks of four Trains.

The Phase One development would include the first two of these blocks with 11 MTPA of output and two of three planned 235,000 cubic metres storage tanks and the first of three planned loading berths for LNG carriers.

On its new Haynesville assets, Tellurian said current net production was 45 million cubic feet of natural gas per day with the fields having 100 percent natural gas.

The purchase covers around 5,000 net acres in the core of the Haynesville Shale in DeSoto, Bossier, Caddo, and Webster Parishes and with 44 producing wells and five wells in progress.

With this deal Tellurian said that its Haynesville Shale acreage increased to 20,000 net acres, with 275 gross drilling locations and a net resource expected at 2 trillion cubic feet.

“We have been diligently growing our natural gas production and reserves in the Haynesville,” said John Howie, head of Tellurian’s natural gas fields.

“These assets provide Tellurian with both cash flow and a physical hedge for Driftwood LNG,” added Howie.

“The EnSight asset is a great fit with Tellurian’s existing position in the Haynesville Shale and allows us to step into an ongoing development program and bring on-line significant additional natural gas volumes in the fourth quarter of 2022,” he stated.

Gazprom said the booking for the transit of Russian natural gas via Ukraine remained at the same level of previous days on the third day of the Nord Stream 1 pipeline maintenance shutdown as more LNG cargoes head for the European Union to partially offset the lower gas volumes.

Commonwealth LNG, the export venture proposed for Cameron Parish in the US Gulf Coast state of Louisiana, has overhauled its management and named the former Chief Executive of Sempra’s Cameron LNG project, Farhad Ahrabi, to serve as Commonwealth’s new President and CEO.

Ahrabi joins Commonwealth following a seven-year tenure at Cameron during which he oversaw the development, construction and subsequent operations of a 14.5-million tonnes per annum liquefaction and export facility at Hackberry in Louisiana.

Commonwealth’s plan is for an export plant consisting of six liquefaction Trains, each with a nominal production capacity of 1.4 MTPA and totalling 8.4 MTPA.

The project is also proposing to construct six LNG storage tanks, each with capacity of 50,000 cubic metres and one marine berth capable of accommodating vessels of up to 216,000 cubic metres capacity.

The liquefaction plant requires about 182 acres to construct and would occupy about 107 acres during operations.

The Commonwealth project’s founder and Chairman, Paul Varello, said he was delighted to recruit Ahrabi to head the team.

Leadership

“The depth of Farhad’s leadership experience, both at Cameron and the preceding 28 years with BG Group, will be of immeasurable value to our team as we move through the final stages of development and into construction and operation,” said Varello.

“Projects of this magnitude involve a complex convergence of technical, financial, political and community support elements that require the kind of high-level thinking and pragmatic solutions that Farhad can bring,” Varello added.

Ahrabi said he was particularly attracted to the Commonwealth opportunity because of the company’s engineering-focused approach.

The new CEO said that Commonwealth’s advantage is that it will keep liquefaction costs low and ultra-competitive in the global market at a time when there is a growing demand for US-sourced gas.

“Commonwealth has staked its ground by securing an excellent location, developing a highly modularized approach to provide clean and affordable energy, and offering creative and flexible commercial terms,” said Farhad.

“I’m humbled and excited to have the opportunity to lead the organization in delivering its promise in a way that not only serves the interests of this company, its employees, the local communities and all other stakeholders, but is part of the overall advancement of the next generation US LNG facilities,” he stated.

BG veteran

In addition to his prior roles at Cameron LNG and BG Group of the UK, Ahrabi has also served over the past two years as an Independent Director at ARC Resources Ltd, a leading Canadian energy company with a diverse asset portfolio focused on responsible energy development.

Ahrabi holds a PhD in Reservoir Engineering from the University of Exeter (England) and a Bachelor of Science degree in Chemical Engineering from the University of Wales.

Commonwealth said its remaining pre-final investment decision activities were underway for a projected start of construction in 2023.

The project is expected to have an accelerated schedule that will allow building to be completed in three years using a predominantly modular approach for a projected start of commercial operations in 2026.

Natural gas wholesale futures prices in Europe broke records as they approached $60 per million British thermal units in the wholesale power market and reflected soaring spot LNG cargo values and pipeline gas prices caused by concerns over shortages and power cuts.

Commonwealth LNG, the export venture proposed for Cameron Parish in the US Gulf Coast state of Louisiana, has been informed by the Federal Energy Regulatory Commission of the launch of an environmental impact statement (EIS) process with firm deadlines.

The Russian-led Nord Stream II pipeline project to supply natural gas to the European Union via Germany in competition to LNG, said it was now starting the commissioning process and introducing first gas.

The Nord Stream II company, whose shareholders include Russian gas giant Gazprom and five European partners, said in a statement that it would begin filling the first of the two pipelines in the project with natural gas.

“The offshore sections of the first gas pipeline laid from the Russian side to Germany are now interconnected,” said the Nord Stream II project company

“The commissioning works to fill the first gas pipeline with gas will begin,” it said.

“Offshore pipe-laying works on the second pipeline are ongoing. All activities are in accordance with the respective permits,” stated the Nord Stream II company, registered in Switzerland.

Both pipelines run on the seabed of the Baltic Sea from Russia to Germany, by-passing Ukraine, which hosted the first land-based gas links to West Germany begun in the 1970s.

The Russian-led Nord Steam II project, supported by Germany in particular among EU nations, has faced criticism from the US for increasing European reliance on Russian gas

Nord Steam II is costing €9.5 billion ($11.6Bln) to complete and its shareholders in addition to Gazprom include Royal Dutch Shell as well as German utility Uniper, German oil and gas company Wintershall Dea, Austrian energy company OMV and French utility Engie.

The second pipeline of the Nord Stream II project is almost complete and the whole project would double the capacity of the existing Nord Stream I pipeline to 110 billion cubic metres of gas per annum of imports into the EU.

The 1,230-kilometres double-pipeline links under the Baltic made landfall at the northern German coastal town of Lubmin, near Greifswald after starting from the Russian port of Vyborg, near Ust-Luga.

The US had previously criticised the pipeline by-passing Ukraine and depriving that nation of transit fees while increasing EU energy reliance on the Russians.

Analysts note that LNG imports will be affected, especially shipments from the US which use Europe as a destination when demand in Asia passes the winter peak.

Pipeline gas is Germany's preferred option as it will enable the shutting of its large coal-fired power plants.

It is the only major economy in the EU not to import LNG, though two terminal projects are in the development stages.

The Nord Stream II pipeline will also strengthened the position of Russian pipeline gas against Norwegian supplies to the EU from the North Sea, Norwegian Sea and Barents Sea.

The first Nord Stream project under the Baltic to supply gas to the EU was inaugurated in November 2011 and also comprising two pipelines. 

US liquefied natural gas exports increased to an average 3.7 billion cubic feet per day in August, an improvement of 19 percent over the previous month of July amid rising spot and forward natural gas prices in Europe and Asia, according to the government’s Short-Term Energy Outlook.

The report noted that natural gas and LNG prices had fallen to record lows in late May and June as Covid-19 mitigation efforts reduced global consumption.

“Higher global forward prices indicate improving netbacks for buyers of US LNG in European and Asian markets for the upcoming fall and winter seasons,” said the latest report from the Energy Information Administration.

The EIA report cited forecasts of natural gas demand recovery and potential LNG supply reductions because of maintenance at some plants.

“EIA forecasts that US LNG exports will return to pre-COVID levels by November 2020 and will average more than 9 Bcf per day from December 2020 through February 2021,” added the report.

The Henry Hub natural gas spot price averaged $2.30 per million British thermal units in August, up from an average of $1.77 per MMBtu in July.

“Higher natural gas spot prices reflect rising demand for natural gas from the US electric power sector as a result of warmer-than-normal temperatures during August and rising demand for US LNG exports amid declining US natural gas production,” stated the report.

The EIA expects that rising domestic demand and demand for LNG exports heading into winter, combined with reduced production, will cause Henry Hub spot prices to rise to a monthly average of $3.40 per MMBtu in January 2021.

“Monthly average spot prices will remain higher than $3.00 per MMBtu for all of 2021, averaging $3.19 per MMBtu for the year, up from a forecast average of $2.16 per MMBtu in 2020,” it forecast.

The agency estimates that total US working natural gas in storage ended August at 3.5 trillion cubic feet, 13 percent more than the five-year (2015-2019) average.

The EIA expects inventories to reach almost 4.0 Tcf on October 31, which would be 6 percent more than the five-year average.

Total US consumption of natural gas is expected to fall in 2020 compared with the previous year.

“Consumption will average 82.7 billion cubic feet per day in 2020, down 2.7 percent from 2019,” said the report.

“The largest decline in consumption occurs in the industrial sector,” it added.

“EIA forecasts industrial consumption will average 21.9 Bcf per day in 2020, down 1.0 Bcf per day from 2019 as a result of reduced manufacturing activity,” according to the Outlook.

“The decline in total US consumption also reflects lower heating demand in early 2020, contributing to residential and commercial demand in 2020 averaging 12.9 Bcf per day (down 0.8 Bcf per day from 2019) and 8.8 Bcf per day (down 0.8 Bcf/d from 2019), respectively,” it explained.

The EIA expects US natural gas consumption will average 79.1 Bcf per day in 2021, a 4.3 percent decline from 2020.

“The expected decline is the result of rising natural gas prices that will reduce demand for natural gas in the electric power sector,” it stated.