UAE’s ADNOC awards onshore exploration block to Indian consortium
Abu Dhabi National Oil Company (ADNO) said on Monday it had signed an agreement with an Indian consortium awarding the latter the exploration rights for an onshore block. Two Indian companies – Bharat Petroleum Corp Ltd and Indian Oil Corp – will together hold a 100 percent stake in the exploration phase for Onshore Block 1, ADNOC said in a statement. The Indian firms will invest up to 626 million dirhams ($170 million), including a participation fee, to explore and appraise oil and gas in the block. If successful, the consortium will be able to develop and produce any discoveries with an option for ADNOC to hold a 60 percent stake in the production phase. The agreements, which have a term of 35 years, conclude Abu Dhabi’s first-ever competitive block bid round, ADNOC said. “The onshore exploration block awarded to the Indian consortium will target, specifically, the conventional oil and gas opportunities in the area,” ADNOC said. The Onshore Block 1 area also covers the separate Ruwais Diyab Unconventional Gas Concession, where France’s Total has the exploration rights for tight gas in the Diyab formation. ADNOC has awarded Offshore Blocks 1 and 2 to Italy’s ENI and Thailand’s PTT Exploration and Production Pcl ; Onshore Block 3 to U.S.-based Occidental Petroleum; and Onshore Block 4 to Japan’s Inpex Corp.
US Emerging as a LNG Powerhouse
Last month month, ExxonMobil and Qatar Petroleum announced that they will proceed with construction of the >$10 billion Golden Pass liquefied natural gas (LNG) export facility on the Texas Gulf Coast. This project would export up to 2.2 billion cubic feet per day (Bcf/d) of LNG, and is just one of more than 50 LNG export projects to be approved by the U.S. Department of Energy (DOE). According to the DOE, since the startup of Cheniere Energy’s Sabine Pass LNG export terminal in February 2016, about 2 trillion cubic feet (Tcf) of domestically-produced LNG have been exported to 34 different countries. Cheniere Energy was the first major LNG exporter, but they were joined last year by Dominion Energy, which opened its Cove Point LNG export terminal. This is just the tip of the iceberg, however, as the LNG export market is projected to surge over the next three decades. You can thank the shale boom for that. The Shale Boom Upended Energy Markets LNG export growth is the latest example of how the U.S. shale boom has disrupted global oil and gas markets. Advances in hydraulic fracturing and horizontal drilling turned an expected natural gas deficit into a huge surplus. Following years of stagnant production, U.S. natural gas grew 50% from 2005 to 2015 to reach 72 Bcf/d. In the process, the U.S. became the world’s largest natural gas producer, with 20 percent of the global production share. This surge of production kept U.S. natural gas prices in check. Natural gas spot prices that had regularly spiked above $10/MMBtu fell below that level in 2008, and since 2010 have only been above $5/MMBtu during brief cold weather events. Natural gas demand has kept pace. Natural gas exports to Mexico have now exceeded 5 Bcf/d, equal to about 7 percent of U.S. daily production. Consumption by the electric power sector increased by nearly 50 percent from 2005 to 2016, reaching 27 Bcf/d. Industrial demand has also increased by 30 percent as some manufacturing relocated to the U.S. to take advantage of low gas prices. The Coming LNG Export Flood But the Energy Information Administration (EIA) is betting that the next big surge of demand is going to come from LNG exports. In its Annual Energy Outlook (AEO) 2019 with projections to 2050, the EIA projects that U.S. LNG exports will quintuple from an average of 2.8 Bcf/d in 2018 to 14 Bcf/d by 2050. The EIA projects a 5.1 percent annual growth rate in LNG exports from 2018 to 2050. If that outlook is correct, in 2050 LNG exports would consume an estimated 12 percent of U.S. natural gas production, which itself is forecast to rise by nearly another 50 percent between now and 2050. The global LNG trade is currently dominated by Qatar and Australia. In recent years, Qatar has been comfortably in first place, exporting about 10 Bcf/d. But the EIA projections would put U.S. exports about 40 percent ahead of Qatar’s current export level. Can Production Keep Pace? To date, most of the U.S. natural gas production growth has been in the Appalachia Region. Appalachia production has exploded from below 2 Bcf/d in 2009 to more than 30 Bcf/d in 2018. The EIA forecasts that the Appalachia will continue to produce 52 percent of cumulative production of U.S. shale gas through 2050. But the associated natural gas (co-produced with oil) in the Permian Basin is also soaring. Natural gas production in the Permian Basin has reached 13 Bcf/d, the same level as the Appalachia Region in 2013. Permian gas production has doubled in just over two years and is now second only to the Appalachia Region. Further, Permian Basin gas production should continue to grow along with the region’s oil. A new assessment by the U.S. Geological Survey (USGS) estimated that there are 281 trillion cubic feet of undiscovered, technically recoverable natural gas in the Permian. That’s enough gas for 58 years of Permian production at 2018 rates, which should help feed the monster LNG demand growth that is forecast in coming decades. Conclusions The implication of this surge in LNG trade will be to make natural gas a more globally traded commodity, which should decrease some of the natural gas price disparity seen around the world. U.S. natural gas prices should increase, while those in Asia and Europe should decline. The beneficiaries will be U.S. natural gas producers and LNG exporters, global natural gas consumers, and the environment — as natural gas displaces coal in many Asian markets.
LNG supply glut, price slump should raise questions over future projects
The slump in the spot price of liquefied natural gas (LNG) in Asia to its lowest in three years should give pause for thought to the slew of companies planning new ventures to produce the super-chilled fuel. But it probably won’t. The spot price for LNG delivered to Northeast Asia dropped to $4.65 per million British thermal units (mmBtu) in the week to March 21, the lowest since May 2016. It’s been an unusual northern winter for LNG, with the price peaking at $10.90 per mmBtu in November and steadily sliding since then. The more normal seasonal pattern is for spot LNG prices to peak around January before slipping in the shoulder season of spring, with the seasonal winter climb starting sometime in the third quarter. The fact that LNG prices have performed poorly over winter is more a reflection of excess supply, rather than weak demand, with Refinitiv vessel-tracking and port data confirming that consumption has been quite robust. LNG deliveries in Northeast Asia, which includes top three importers Japan, China and South Korea, were about 73.3 million tonnes for the four months from November to February. The previous winter, imports for those months totalled 70.3 million tonnes, meaning that LNG demand in the top-consuming region was actually 4.3 percent higher in the winter period of 2018-19 than the same period in 2017-18. The issue for LNG is supply, with the last of the eight major Australian projects built over the past decade coming on stream, and more volume becoming available from the United States. It’s a problem that is likely to get worse rather than better for the rest of 2019, with capacity additions likely to swamp demand growth, at least in Asia. About 70 million tonnes of new LNG capacity will reach the market this year and next, Wood Mackenzie analyst Nicholas Browne told the LNGgc Asia conference in Singapore last month. While estimates of the likely increase in demand vary, none are as high as 70 million tonnes over the next two years, with a figure around half that viewed as more likely. This means that either LNG producers will have to cut back on output, or the price will have to be low enough for the fuel to replace pipeline natural gas in markets such as Europe. ARE NEW PROJECTS STILL VIABLE? The current supply glut and price weakness may also cast a shadow over the next wave of LNG projects, with the frontrunners expected to start taking final investment decisions (FIDs) this year. It’s easy to dismiss the price slump as merely seasonal, and point to expectations of strong demand growth in China and other parts of Asia in coming years. The more optimistic versions of these forecasts see world LNG demand at least doubling in the next decade from the 321 million tonnes shipped in 2018. Much of this demand growth is focused on Asia, with India, Pakistan and various Southeast Asian countries playing the major role alongside China. LNG Canada, a 10 million tonne per annum project led by Royal Dutch Shell, has already taken its FID, becoming the first cab off the rank in the new wave, with first output expected in 2024. There are 14 more U.S. and Canadian ventures slated to take FID this year or next, and they will be joined by projects in Mozambique, Russia, Qatar and possibly Australia. The traditional model of approving multi-billion dollar projects only when offtake agreements for most of the production are finalised is also being upended, with several ventures planning on going ahead on the basis that the spot market for LNG will grow and be deep and liquid enough to absorb all the planned output. This may be somewhat optimistic as this view relies heavily on all the emerging consumers of LNG actually building the import and re-gasification capacity, and the downstream facilities to consume the natural gas. It is worth noting that the outlook for Japan, the world’s top buyer, is for demand to drift lower in coming years. It’s also expected that China’s rapid growth of recent years will start to temper, especially given the likely completion of a natural gas pipeline from Russia in the next couple of years. South Korea, which ranks behind Japan and China, is also uncertain for LNG demand in the future, given the country is now emphasising renewable energy for its future needs. The risk for LNG producers is that if all, or even a majority, of the planned projects take FID this year or next, is that a tsunami of supply will arrive at more or less the same time, and it will be enough to swamp even the most optimistic demand growth scenarios.