IHS Markit Forecasts $2 Gas in 2020
Record production of US natural gas will drive the 2020 Henry Hub average price to a level not seen since the 1970s (in real dollars), according to the latest gas market forecast from IHS Markit. Associated gas from the Permian and strong production from Appalachia will push the average price down below $2.00/MMBtu for the year, IHS Markit said. (IHS Markit owns PointLogic Energy.) That is the lowest prices have averaged in real terms since the 1970s. In nominal terms, the last time that prices fell below $2 was 1995. “Prices are expected to fall despite robust domestic demand—which has increased by 14 Bcf/d in annual average demand since 2017—as well as rising levels of exports,” IHS Markit said. “The US is expected to export an additional 3 Bcf/d of LNG in 2020.” But surging demand will not be enough to absorb production that has grown by more than 14 Bcf/d since January 2018, the company said. IHS Markit expects production to average more than 90 Bcf/d this year and in 2020, based on its drilling analysis and information from leading producers. “It is simply too much [supply] too fast,” said Sam Andrus, IHS Markit Research and Analysis Executive Director for Global Gas. “Drillers are now able to increase supply faster than domestic or global markets can consume it. Before market forces can correct the imbalance, here comes a fresh surge of supply from somewhere else.” That next surge of production is expected to come from the Permian basin in West Texas, Andrus said. “Nearly all the growth in U.S. natural gas demand over the next few years will come from LNG exported to other countries. The added supply from the Permian will match—if not exceed—those volumes,” Andrus added. This fall, the gas pipeline infrastructure in the Permian began to catch up to production, thus enabling the new surge. The Gulf Coast Express Pipeline, scheduled to come online in October, will allow for an additional 2 Bcf/d production capacity. Overall, Permian gas takeaway capacity is expected to increase 6 Bcf/d through 2022. “In all events, the gas is going to get produced out of the oil well. The real change here is the transportation capacity,” said Michael Stoppard, chief strategist for global gas, IHS Markit. “You go from a situation where producers, in many cases, were paying someone to take their gas to having an economic means of getting it to market.” Price signals Signs of the sustained low prices are evident today. Henry Hub gas prices fell by more than a $0.60/MMBtu between March and August as inventories climbed towards their five-year rolling average—again, despite record use of natural gas to generate electricity and growing LNG exports. Going forward IHS Markit predicts that the US Lower 48 storage inventory will come out of the winter at 2.1 Tcf, which would be 263 Bcf higher than the rolling five-year average. Inventories could reach 4.0 Tcf in the fall of 2020. That level was reached only for a three-week period in November 2016. Eventually, the market will begin to correct itself, said IHS Markit. “The downward pressure on prices from rapid growth of associated gas will curtail drilling activity and bring the market back into balance. IHS Markit expects prices to rebound and average $2.25 per MMBtu for 2021, though that figure is still a downgrade from previous estimates,” it said. “Markets work in the end,” said Shankari Srinivasan, vice president, energy, IHS Markit. “Rising prices stimulate supply and falling prices curtail it. What is unique here is the extent of reduction required. But signs still point to this coming price fall having a limited shelf life rather than being the new normal.”
AG&P, ADNOC sign agreement for long-term charter of storage unit for LNG terminal
Liquefied Natural Gas (LNG) distributor Atlantic Gulf & Pacific Co of Manila Inc (AG&P) announced it has signed an agreement with ADNOC Logistics and Services (ADNOC L&S) for conversion, supply, operations and maintenance of a Floating Storage Unit (FSU) at AG&P’s new LNG import facility to be set up at Karaikal Port in Puducherry. “AG&P has focused on bringing down the unit cost of re-gasification terminals for smaller volumes. AG&P and ADNOC L&S are excited to reach this critical goal for our customers.” Karthik Sathyamoorthy, President of AG&P Terminals & Logistics said in a statement. The FSU owned by ADNOC L&S is being chartered for 15 years through a commercial model enabling supply to be scaled to match demand. Construction on the terminal will begin in the first quarter of 2020 with commercial operations expected to commence before the end of 2021. “The Karaikal FSU will be only the 4th FSU-based LNG import terminal in the world, after those in Malta, Malaysia and Bahrain. ADNOC L&S will provide a Japan-built, Moss-type containment vessel as FSU for the project from its fleet of eight LNG ships,” the company said in a statement. The LNG import facility at Karaikal Port will have an initial capacity of 1 million tonnes per annum (MTPA) which will be expanded to 3 MTPA in the medium-term as demand increases. The terminal is expected to cater to domestic, industrial and commercial customers within a 500 km radius including the heavily industrialized regions of central Tamil Nadu. In addition, it will serve gas-fired power plants and AG&P’s own city gas distribution network across South India.
Indonesia’s PGN says first gas shipment to China delayed amid virus outbreak
Indonesian state gas utility PT Perusahaan Gas Negara’s (PGN) first shipment of liquefied natural gas to China has been delayed to around April from last month, company director Syahrial Mukhtar told reporters on Monday. PGN signed a deal with China’s Sinopec Corp in November to supply LNG this year, with the first shipment expected in January. However Mukhtar said on Monday the shipment had not yet been carried out. “(Chinese buyers) are freezing all contracts now,” he said, adding that the company expects to send its first LNG shipment to China in April. Mukhtar said PGN is maintaining its target of exporting a total of six LNG cargoes this year despite the delay, with some bound for Europe. Asia’s largest oil refiner Sinopec is cutting oil throughput this month by around 12 per cent, its steepest reduction in over a decade, as the spread of coronavirus hits fuel demand and distribution, four people with knowledge of the matter said. Meanwhile China National Offshore Oil Corp (CNOOC), the country’s biggest importer of LNG, has suspended contracts with at least three suppliers, two sources said last week. The death toll from the epidemic has risen to 908, all but two in mainland China, as of Sunday. The number of confirmed cases rose to 40,171 after over 3,000 new cases were reported in mainland China.
Petronet reports highest ever quarterly profit at Rs 675 cr in Q3
Petronet LNG Ltd, India’s biggest liquefied natural gas importer, on Monday reported highest ever quarterly net profit of Rs 675 crore in the third quarter ended December on back of processing higher volumes of gas. Net profit in October-December at Rs 675 crore was 17 per cent higher than Rs 565 crore net profit in the same period a year ago, Petronet Managing Director & CEO Prabhat Singh told reporters here. Petronet processed 233 trillion British thermal units (TBtus) of LNG in the quarter as compared to 202 TBtus in Q3 of 2018-19. Its flagship Dahej import facility in Gujarat operated at around 100 per cent of its nameplate capacity and processed 222 TBtus of LNG, up from 197 TBtus a year back, he said. “The significant increase in profit year to date is due to higher volumes processed owing to commercial efficacy and better efficiency in operations,” he said.
Record low LNG spot prices attract bargain hunters
Record low spot prices for liquefied natural gas (LNG) are attracting buying interest from companies in Asia hunting a bargain after China’s top buyer of the fuel declared force majeure last week, four trade sources said on Monday. Sellers, however, are wary because of an array of operational issues, the sources said, speaking on condition of anonymity. Asian spot LNG prices touched a record low this month following reports China’s top LNG buyer China National Offshore Oil Corporation (CNOOC) had declared force majeure on some prompt LNG deliveries. Companies have been seeking to invoke force majeure, a legal provision that allows them to break contractual obligations because of circumstances beyond their control. The drop in demand following the coronavirus outbreak has added to oversupply caused by mild weather. On Monday, price agency S&P Global Platts’ assessment process, which it calls market-on-close, attracted five bids, one of the highest numbers in recent months, industry sources said. Three of the bids were placed by commodity trader Vitol while the other two were by Trafigura and BP, according to Platts. But despite record low prices of below $3 per million British thermal units (mmBtu), there was little selling interest, traders said. “There are so many operational issues, sellers are also wary,” a Singapore-based LNG trader said. Energy ship broker and consultancy firm Poten & Partners said on Friday at least five LNG cargoes had been diverted from China, and another 30 scheduled to land there this month could face diversions, delays or declarations of force majeure. Several Asian buyers also entered the spot market, traders said. Japan’s Chugoku Electric bought a cargo for delivery into Mizhshima or Yanai in first half of April at below $2.90 per mmBtu, two sources said. South Korea’s steelmaking company POSCO and GS Caltex jointly bought a cargo for delivery in second half of March at about $2.80 per mmBtu, the sources added. Both deals could not immediately be confirmed and companies typically do not comment on trades, citing confidentiality obligations. Indian Oil Company (IOC) also entered the market to seek a cargo for delivery over March to April through a tender, the sources added.
Reliance Industries looking at expanding Dahej Manufacturing Division at a cost of Rs 5,100 crore
Reliance Industries Ltd (RIL) is planning to expand Dahej Manufacturing Division (DMD), which produces a variety of petrochemical and downstream products, at a cost of Rs 5,100 crore, according to an application submitted by RIL to the environment ministry. “Dahej petrochemical manufacturing facility is proposing to set up the new plants and facilities, which includes manufacturing of Ethylene Dichloride (EDC), CHDM, PET-G, establishing New incinerator in VCM unit, separation of hydrogen as a product in CA plant and CO2 recovery unit in EO-EG unit. These plants will be located within the existing RIL DMD spread over 700 hectares,” the company said. EDC is used a raw material for manufacturing Vinyl Chloride Monomer (VCM), which is used in making polyvinyl chloride (PVC). PVC is among the most widely produced synthetic plastic polymers, and is used in a variety of applications in the building, construction, health care, electronics, automobile and other sectors. According to the company, the proposed EDC plant will meet the raw material requirement of an initial plant which will produce 500 Kilo Tonnes per Annum (KTA) of VCM/PVC. The DMD site is already making 360KTA of VCM/PVC and has approvals to build a new VCM/PVC plant of 1200 KTA capacity. According to the application, DMD will produce 200,000 million tonne per annum of PET-G post expansion of the facility. PET-G or Polyethylene Terephthalate (with a glycol modification) is among the most common polymers used currently. It is used to make water bottles, food packets and other common plastic items. The company will also produce 50,000 MTPA of Cyclohexanedimethanol (CHDM), a key raw material used for producing PET-G as well as various other polymers. Amidst a global shift towards renewable energy and electric mobility, RIL is implementing a strategy to transform itself from a primary producer of fuels to chemicals. The company is implementing an oil-to-chemical strategy that involves setting up crude-to-chemical projects adjacent to the existing Jamnagar refinery and petrochemical complex at a cost of Rs 70,000 crore. The Jamnagar refinery, at the culmination of the oil-to-chemical transition, will only produce jet fuel and petrochemicals The company also plans to remove production bottlenecks at its flagship Vadodara Manufacturing Division (VMD) at a cost of Rs 2,270 crore. RIL’s petrochemical production rose to 9.9 Million Tonne during the quarter ended December 2019, as compared to 9.7 MT produced in the corresponding quarter a year ago.