LNG-buyers alliance seeks to expand membership
(Bloomberg; Feb. 26) – Japan's Jera Co. said it's in talks with other LNG buyers to create an alliance accounting for over one-third of global trade. Jera, a joint venture between Tokyo Electric Power and Chubu Electric Power, is seeking to cooperate with Korea Gas and China National Offshore Oil Corp. on liquefied natural gas procurement and investment, said Hiroki Sato, vice president of Jera's fuel-buying department. “If the alliance allows flexibility between members to balance their LNG import volumes, that is very attractive for buyers,” said James Taverner, a Tokyo-based analyst at IHS Inc.
A deal between the companies may lead to the creation of a potentially dominant bargaining alliance as buyers band together to take advantage of new LNG supply from Australia and the U.S. that is tilting negotiating power in favor of consumers. "We can work hard to lower prices by using our large volumes," Sato said Feb. 25. "The bottom line is we should work together to reduce costs in Japan, as well as the rest of Asia."
The deal would benefit smaller companies outside the group as lower prices would be passed on to other buyers, Sato said. The alliance members would also be able to swap or trade cargoes among themselves to help balance supply between their operations. Meanwhile, the global oversupply is continuing to drive down prices. Asian spot LNG prices fell below $5 per million Btu for the first time last month, extending its tumble from a high of $19.70 in February 2014. Cargoes under long-term contracts, traditionally linked to oil, may fall to $4.10 per million Btu by June, Credit Suisse said Feb. 5.
Low prices mean longer payback for $54 billion Gorgon LNG
(Reuters; Feb. 25) – The timing couldn't be worse for the first production of liquefied natural gas from Australia's $54 billion Gorgon project — the world's most expensive. LNG prices have collapsed, global demand is faltering and the first of what is likely to be a wave of competing shipments has just set sail from the unlikeliest of exporters, the United States. But with tens of billions of dollars invested, the oil majors behind Gorgon and other Australian LNG projects have little choice but to plough on.
"Even though LNG prices are depressed, Gorgon and other projects will run," said Neil Beveridge, senior analyst at Bernstein Research in Hong Kong. "But in terms of paying down that $54 billion capital charge, that's going to take an awful long time, if ever."
However, expectations that new export investments will wither due to weak prices are providing some hope for the industry. Global oil and gas investments are expected to fall to their lowest in six years in 2016 to $522 billion, following a 22 percent fall in 2015.
Even so, more LNG plants are coming on stream in Australia. At full capacity, the plants will add 53 million metric tons of LNG per year, equal to one-fifth of global production last year. Asian spot LNG prices have already plummeted to around $5 per million Btu — down almost three-quarters since peaking in 2014 — as the supply glut deepens and demand falters. David Hewitt, co-head of global oil and gas equity research at Credit Suisse, expects prices to fall to an "eye-watering low" around $4 this year.
That's bad news for Australian LNG projects, whose all-in delivered costs, including amortization, are estimated by Leonardo Maugeri, a Harvard University associate and former oil executive, at $15 per million Btu or more. Most of Australia's new LNG projects were planned at a time when the United States was expected to be a major importer of the fuel. Now, with so much shale gas production, the U.S. is becoming an LNG exporter. That, plus weakened demand from China and Japan, is hurting prices.
Reuters compiles updated list of Australia LNG projects
(Reuters; Feb. 25) – Australia has billions of dollars of liquefied natural gas projects coming online, with developers planning to add about 53 million metric tons a year of production by 2017, an increase that would make the country the world's top exporter. Reuters has compiled a list of LNG projects in Australia: Those in operation; plants under construction; proposed expansions of existing plants; and projects in the proposal stage. The table includes the developers, the partners and their shares, construction costs, capacity, and dates of start-up or possible investment decision.
Developer stops $500 million LNG project in B.C.; cites lack of buyers
(Globe and Mail; Canada; Feb. 25) – Calgary-based AltaGas has halted plans to export liquefied natural gas from British Columbia’s north coast amid a worldwide glut of the fuel. AltaGas and its partners in Douglas Channel LNG fell short in signing sufficient long-term contracts with Asian buyers. The small-scale venture was looking to begin exports in 2018 from a floating facility near Kitimat, B.C. The partners included Japan’s Idemitsu, U.K.-based EDF Trading and Belgium-based shipping company EXMAR.
“Without a meaningful off-take agreement, the consortium can no longer continue the development,” AltaGas CEO David Cornhill said Feb. 24 in discussing the company’s fourth-quarter earnings. Douglas Channel LNG had been seen as one of the promising B.C. energy ventures when it received an export license in 2012. But the plan lost momentum when a key backer ran into financial trouble in 2013 and the project went under court protection from creditors. A new group led by AltaGas took control in 2015.
LNG prices in Asia have tumbled in the past year as a wave of exports has hit global markets amid weakening demand. The $500 million Douglas Channel plant would have liquefied gas from northeastern B.C. for delivery to Asia. The plant, built upon barges in the channel, would have had the potential to export about 500,000 metric tons of LNG per year — the smallest of more than two dozen LNG export projects proposed for Canada’s East and West coasts. None have yet committed to start construction.
Canada has no reason to cheer over U.S. LNG exports
(CBC News; Feb 25) – There was a buzz among natural gas producers in Houston this week as the first exports of shale gas left U.S. shores on a ship bound for Brazil. A flashy video of the Sabine Pass LNG plant in Louisiana was shown at IHS CERAweek, the largest energy conference in the world. There were cheers from the audience and Energy Secretary Ernest Moniz called it a historic moment for the industry.
Meanwhile, back in Calgary, Canada's largest natural gas producer, Encana, said it lost more than $600 million in the fourth quarter of the year and was going to cut another 20 percent of its staff in the coming year. It's hard not to note the difference. The U.S. gas industry is suffering from the same oversupply and price problems as Canada but now it has more customers for its gas, while Canadian producers struggle with the same market access problem as their oil colleagues.
Canadian producers have one international buyer, the U.S., which is taking less every year, and there is no clear timeline for when Canada might start its own LNG exports. There are almost 24 proposals to build LNG plants on Canada’s Atlantic and Pacific coasts, none of which have received a final investment decision. That's because they’re so expensive and the global market is in such poor shape. "We don't think the world needs new liquefaction capacity until the end of 2023 or 2024," said Bob Ineson, an analyst with IHS Energy. "Or even longer than that. It's a challenge for everyone."
IEA chief says Canadian LNG could come to market after 2020
(Business News Network; Canada; Feb. 25) – There may still be hope for Canada to become a global liquefied natural gas exporter, just not until after this decade ends.
In a report published Feb. 24, the International Energy Agency warned “securing investments for new export facilities in Canada remains a challenge, as global LNG markets are well supplied.” Fatih Birol, executive director of the Paris-based agency, said the industry still could get off the ground in British Columbia, just not now.
“Our numbers show that there is room for Canadian LNG after 2020,” he said. “I believe Canada can play a very important role in the Asian LNG markets, especially if they can continue to put pressure on the cost of production.” Recent delays involving the two projects widely seen as frontrunners have cast doubt on the industry’s prospects. The Shell-led LNG Canada project and Petronas-led Pacific NorthWest LNG have held off giving the green light for construction as prices in Asia have plummeted.
“In Asia, LNG prices only one and a half years ago were about $20
LNG-buyers alliance seeks to expand membership