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    Editorial: Gas markets in turnaround [NGW Magazine]

Summary

This year will test the resolve of private companies to go ahead with the raft of investments in liquefaction capacity, apparently needed post-2025.

Asian spot prices have gone below European hubs this winter: it was mild and China burned more coal and took less US LNG. But at sub $5/mn Btu, neither region can reward US LNG exporters. Oversupply, rather than low demand, is the reason, according to Marex Spectron analysts at a media briefing.

[NGW Magazine Volume 4, Issue 7]

by: NGW

Posted in:

NGW News Alert, Liquified Natural Gas (LNG), Featured Articles, Premium, Editorial, NGW Magazine Articles, Volume 4, Issue 7

Editorial: Gas markets in turnaround [NGW Magazine]

This year will test the resolve of private companies to go ahead with the raft of investments in liquefaction capacity, apparently needed post-2025.

Asian spot prices have gone below European hubs this winter: it was mild and China burned more coal and took less US LNG. But at sub $5/mn Btu, neither region can reward US LNG exporters. Oversupply, rather than low demand, is the reason, according to Marex Spectron analysts at a media briefing.

More LNG is coming to market and each train is relatively chunky. And renewables – back on again in this windy weather after last year’s lull – are pushing gas out. But European prices would have fallen even if demand had been constant, they said.

Last year’s cold, calm winter soaked up European gas supply at a time when Asia was the higher-priced market; European storage was almost empty and needed restocking in the second and third quarters. This year though the winter was unusually warm and windy, meaning not only limited demand in the first quarter but also very little restocking in the following two quarters.

Marex Spectron said that it had been expecting prices to reach $4.50/mn Btu in northwest Europe this year or early next; but not in Q1.

What differentiates this period of low prices, compared with five years ago, is the geopolitical landscape and the rise of resource nationalism. As the US appears close to recession, these are testing times.

Nobody took seriously president Donald Trump’s reported remarks that China would buy $18bn of LNG from Cheniere: a company source told NGW that Houston got on with things, regardless of Washington DC.

But in the real world, two major players, Qatar Petroleum and Gazprom, are talking up ambitious projects. Qatar has awarded some of the long-lead contracts for its 32mn mt/yr expansion project, even though it does not yet have a foreign partner for these – or said one is necessary. US McDermott will build the jackets for the offshore; and the contract for early site works for the four 8mn mt/yr LNG mega-trains has gone to a joint venture between Consolidated Contractors Company and Teyseer Trading and Contracting Company. First LNG is due in 2024, not so far off now.

And Gazprom, apparently binning the design work that Shell had done for a gas processing plant and a 13mn mt/yr gas liquefaction plant as separate entities at the Baltic Sea port of Ust-Luga, said in early April that it would build an integrated petrochemicals and a 13mn mt/yr LNG plant with another state entity, reaching full capacity also in 2024.

It will take 45bn m³/yr of ethane-rich gas from western Siberia to produce 20bn m³/yr of pipeline gas – well placed for the Nord Stream pipelines – and as much as 13mn mt/yr of LNG, so that is not far short of 40bn m³/yr of additional supply aimed at Europe and beyond, one way or another.

CEO Alexei Miller did not use the precise phrase ‘final investment decision’ but said the two companies have “launched the implementation of an ambitious project that is simply unparalleled in Russia.” Strategic concerns may outweigh the commercial opportunities: he said it would “grow into a large, modern industrial cluster,” as if that were an end in itself. Ethane and liquid petroleum gas exports will also grow.

Shell, its partner at Russia’s first LNG export plant Sakhalin Energy, which regularly produces above name-plate, did not get a mention. It told NGW the next day it was reviewing the implications of the decision. But in an interview with the Russian prime minister Dmitry Medvedev a few days after the April 1 announcement, Miller described the measures Gazprom had taken to free itself from dependence on outside expertise.

He claimed that major industrial projects in gas processing and LNG would be built from now on using home-grown but world-class technology and military-grade expertise, the supply contracts with local firms backed by blockchain. Its linepipe is already all of domestic manufacture, including the Power of Siberia line.

And Saudi Arabia is preparing to enter the fray, stressing in late March the importance of its friendship with China – although given that Saudi Aramco CEO Amin Nasser was addressing a conference in Beijing, diplomacy may have played a part in that.

He told his audience that gas supply and trade flows were shifting from industrialised nations to the developing nations impacted by China’s Belt and Road. “That is why we are building an energy bridge between Saudi Arabia and China that not only meets China’s growing needs for oil and gas but also chemicals, LNG, and lubes, and across the entire value chain,” he said.

A month earlier he had told the IP Week conference in London that the kingdom would be in the top three LNG players, but not by which metric this would be judged. However, one cannot rule out upstream alliances between Saudi Aramco and Russian Novatek, building 50mn mt/yr or more liquefaction capacity in Russia’s far north.

Private capital, facing headwinds like these, must be feeling a little depressed, especially if it is dependent on hub rather than equity gas for liquefaction.

It is sometimes difficult to separate aspiration from reality – after all, Gazprom never actually built its 15mn mt/yr LNG plant in Vladivostok as it said it would a few years ago – but what if LNG prices do stay lower for longer and coal proves a hard habit to kick? Some of those plants comprising the 230mn mt/yr of projected new capacity start looking shaky.