LNG

CAPEX intensity of oil & gas producers in Asia-Pacific stays high, driven by upstream spending and energy-transition initiatives which makes producers prioritize investment in natural gas and LNG. According to Fitch Ratings, oil prices will retreat to mid-cycle levels by 2026, while earnings are bolstered by up to 15% growth in production volumes.

Black & Veatch (B&V) will use Baker Hughes’ LM9000 gas turbine and compression technology as part of a standard module capable to produce up to 2 mtpa of LNG. The intention is to utilize PRICO technology to produce up to 2 mtpa of LNG per train.

LNG price spreads between the Japan Korea Market (JKM) and the Dutch Title Transfer Facility (TTF) for balance of winter 2024/25 contracts have fallen, but analysts find this drop is "overdone". London-based Energy Aspects forecasts the JKM-TTF spread will rise above US shipping differentials via the Panama Canal, openig the arbitrage for US spot cargoes to head to Asia.

Spreads narrowed to $0.53/MMBtu in recent days, down from around $1.13/MMBtu in mid-September – with little fundamental change. Though freight rates have fallen, key US shipping differentials via the Panama Canal have delinked only by an average $0.18/MMBtu month-on-month.

Energy Aspects hence upholds its bullish view on bal-winter outturn JKM prices, mainly due to their bullish views on TTF winter 2024–25 prices due to rising geopolitical tensions in the Middle East and systematic buying at the TTF near-curve.

The likely end of Russian gas transits through Ukraine starting from January 2025 and Europe’s rising gas demand in an average winter may lead to supply constraints in the EU, which in turn propel up fuel prices. “Our base case outturn JKM price forecasts average $14.55/MMBtu, $0.85/MMBtu above the latest CME settlements,” they explain.

LNG buyers worldwide have launched tenders for 22 cargoes so far this month, with eight of these confirmed, against 10 cargoes tendered and confirmed last October. Of the 80 cargoes tendered in September, 53 were confirmed and 40 were bought by Asian companies.

“Japan has bought three spot cargoes via tender issued month-to-date, with two December deliveries and one January delivery,” analysts disclosed. LNG stocks held by major Japanese power utilities, a subset of aggregate LNG stocks, reached 2.02 million tons, up from a multi-month low of 1.63 Mt two weeks ago.

Indian buyers continue to issue buy tenders, which analysts believe is “likely to stock up pre-emptively before power demand increases in late October due to Diwali.” Indian LNG inventories are understood to be quite high currently.

China’s Sinopec, meanwhile, secured a December delivery via tender, after about a year of not purchasing any cargoes through tenders. Chinese LNG stocks at ten selected LNG terminals have reached 1.93 Mt, up by 0.33 Mt year-on-year.

If tensions between Iran and Israel escalate into a regional war scenario, it could severely impact regional oil and gas exports as well as global shipping routes. Attacks on key facilities could wipe out nearly 1.4 million bpd of Iranian production and a full-blown war would choke the Strait of Hormuz, risking up to 12 million bpd of oil, analysts warn.

Upstream activity in Iran, so far, has stayed steadfast despite fighting following Hamas’ assault on Israel in October 2023. Iran's production rose by 227,000 bpd to 3.27 million bpd in August year-on-year, while Israel’s gas output grew 15% in 2023 and is expected to rise by 5% this year, supported by the Karish field.

Some $2 billion in greenfield investment had been planned for various upstream projects in the coming years. But production at the Karish and Katlan fields could be severely reduced if regional tensions escalate, hence future production and exports are at risk.

Anticipating the future is challenging, Rystad’s Middle East research director, Aditya Saraswat noted. So far – with no direct attacks between Iran and Israel, the conflict is largely a ‘proxy war’. As of today, there have not occurred major assaults on critical oil and gas infrastructure such as pipelines, storage facilities, or refineries.

All eyes on maritime borders

If things get worse, the maritime border agreement between Israel and Lebanon, signed in October 2022, could be torn to pieces. The agreement defines each country's rights over the Karish and Qana fields, with Israel retaining full rights to Karish and Lebanon to Qana.

“Escalating tensions could lead to the nullification of this agreement, affecting Israel's production from the Karish field, which is currently used for domestic supply,” Saraswat reckons, suggesting: “This disruption may also impact Israel's gas exports to Egypt and Jordan, which saw significant growth in 2023.

“Any decline in production and exports from Karish could be offset by increased output from other major fields like Tamar and Leviathan,” he noted.

The fields hold about 88 billion cubic meters (Bcm) of cumulative proven and probable (2P) reserves. Together, they form the independent’s core area of operation – following the divestment of its Croatian, Italian, and Egyptian assets. Production from the Katlan fields (Athena and Zeus) is expected to start by 2027.

All these fields are located near the Karish field near Lebanon’s maritime border, so analyst warn that any significant unrest could delay start-up.

Bickering between US Vice President Kamila Harris and former President Donald Trump in the run-up to the US election is not hampering the steady growth of the shale gas industry and LNG majors. Focus on profitability and shareholder returns – rather than production growth – means the industry is unlikely to be influenced by promises of support or potential regulations from either candidate.

German energy company Uniper has postponed its target to invest €8 billion in the green energy transformation by 2030, citing a lack of demand for green hydrogen, CEO Michael Lewis told business daily FAZ. “As things stand, there are hardly any major customers who buy green hydrogen,” he said, noting Uniper has to “step on the brakes a little.”

Uniper now wants to reach its targeted investment volume “by the early 2030s” and focus on project “that make the greatest contribution from a strategic and financial perspective.” The Germain utility reiterated its aim to exit coal by 2029, though reaching its target of 80% renewables would become “very difficult,” Lewis conceded.

The British boss of the energy group Uniper urged the German government to introduce a lasting system of incentive for a certain volume of green hydrogen – alike the renewable support system. “There is a large gap between the price of natural gas and that of blue or even green hydrogen,” Lewis said, suggesting; “The state would have to agree to close this gap.”

The German coalition government aspires for hydrogen, especially the one produced via electrolysis from wind and solar power, to play a vital role in decarbonising the steel-making sector or the chemical industry as well as the transport sector. But hurdles for implementing and scaling up the technology are manifold, both from a technological and cost perspective.

The cost for storage and distribution may well make green hydrogen a “prohibitively expensive abatement strategy across many major sectors,” researchers from Harvard University warned. Listening to such warnings, Uniper revised its hydrogen strategy and other energy companies eye similar steps to slow down their exposure to a still expensive new fuel type.

PV Gas, part of PetroVietnam, has agreed with state utility Vietnam Electricity (EVN) to deliver LNG from Vung Ang regas terminal to the Quang Trach II power project. Unit II had been a 1.2 GW coal-fired power plant repurposed into an LNG-fuelled unit – in line with Vietnam’s 8^th national power development plan.

Construction of an onshore LNG import terminal at Brunsbüttel is more expensive than expected, forcing Germany to support it with another €200 million in federal funding – on top of the €740 million initially committed. Broadcaster NDR reports total costs now surpass €1,5 billion, instead of €1.3 billion, with private investors having to shoulder most of the overrun.  

November gas future contract at Henry Hub soared to $2.932/MMBtu after hurricane Helene made landfall with a windspeed of 140mph in Florida’s Big Bend region. Though LNG infrastructure was not impacted, offshore gas production in the US Gulf of Mexico (GOM) fell by nearly 10 bcf as developers took precautions.

Asian buyers are returning to the market despite elevated regional LNG prices due to the partial outage of Inpex-operated Ichthys LNG in Australia and Malaysia’s Bintulu LNG. At least one Japanese utility secured a prompt delivery in end-September – at a premium to JKM prices – to fulfil power requirements created by a warm summer and autumn so far.