Freeport LNG Pushes Back Restart
Freeport LNG has pushed back the date of its expected restart that it provided earlier in the month. Freeport LNG has been shut since June, and shared earlier this month that it expected to complete the repairs in time to resume partial operations in early October. But now, Freeport LNG isn’t expecting to resume partial operations until early to mid-November, reaching 2 billion cubic feet of gas production per day by the end of November, the company said in a Tuesday press release. The 2 Bcf per day mark represents 85% of the facility’s export capacity. The remaining production is expected to be reinstated by March 2023, “although typical construction risks could impact the recovery plan,” the company said. Houston-based Freeport LNG suffered an explosion on June 8, which caused the plant to shut down to assess the damage and perform repairs. Freeport LNG accounts for 20 percent of the United States’ total LNG export capacity, capable of processing 2.1 billion cu ft of gas per day. According to Freeport LNG, it is the seventh-largest liquefaction facility in the world and the second-largest in the United States. The months-long outage in the United States has restricted exports at a critical time for the EU, as the block tries to wean itself off Russian gas. Freeport LNG declared force majeure back in June after the explosion, which was supposed to last until September. The company retracted the force majeure later in June, while the facilities remain shuttered. A force majeure declaration would provide cover for traders who default on their natural gas delivery commitments. Without it, those traders must find alternate supplies on the spot market—typically at much higher prices, resulting in significant losses. Henry Hub gas futures were trading down after the announcement.
Iran And Russia Move To Create A Global Natural Gas Cartel
The US$40 billion memorandum of understanding (MoU) signed last month between Gazprom and the National Iranian Oil Company (NIOC) is a stepping stone to enabling Russia and Iran to implement their long-held plan to be the core participants in a global cartel for gas suppliers in the same mold as the Organization of the Petroleum Exporting Countries (OPEC) for oil suppliers. With a foundation in the current Gulf Exporting Countries Forum (GECF), this ‘Gas OPEC’ would allow for the coordination of an extraordinary proportion of the world’s gas reserves and control over gas prices in the coming years. Occupying the number one and number two positions in the world’s largest gas reserves table, respectively – Russia with just under 48 trillion cubic meters (tcm) and Iran with nearly 34 tcm – the two countries are in an ideal position to do this. The Russia-Iran alliance, as evidenced in the most recent multi-faceted MoU between Gazprom and the NIOC, wants to control as much of the two key elements in the global supply matrix – gas supplied over land via pipelines and gas supplied via ships in liquefied natural gas (LNG) – as possible. According to a statement last week from Hamid Hosseini, chairman of Iran’s Oil, Gas, and Petrochemical Products Exporters’ Union, in Tehran, after the Gazprom-NIOC MoU had been signed: “Now the Russians have come to the conclusion that the consumption of gas in the world will increase and the tendency towards consumption of LNG has increased and they alone are not able to meet the world’s demand, so there is no room left for gas competition [between Russia and Iran].” He added: “The winner of the Russia-Ukraine war is the United States, and it will capture the European market, so if Iran and Russia can reduce the influence of the United States in the oil, gas and product markets by working together, it will benefit both countries.” The Gazprom-NIOC MoU, as initially analyzed by OilPrice.com, contains four key elements that are geared towards the build-out of a ‘Gas OPEC’. One element is that the Russian state-backed gas giant has pledged its full assistance to the NIOC in the US$10 billion development of the Kish and North Pars gas fields with a view to the two fields producing more than 10 million cubic meters of gas per day. A second element is that Gazprom will also fully assist with a US$15 billion project to increase pressure in the supergiant South Pars gas field on the maritime border between Iran and Qatar. A third element is that Gazprom will provide full assistance in the completion of various liquefied natural gas (LNG) projects and the construction of gas export pipelines. The fourth element is that Russia will examine all opportunities to encourage other major gas powers in the Middle East to join in the gradual roll-out of the ‘Gas OPEC’ cartel, according to a senior source who works closely with Iran’s Petroleum Ministry. “Gas is widely seen as the optimal product in the transition from fossil fuels to renewable energy, so controlling as much of the global flow of that will be the key to energy-based power over the next ten to twenty years, as has already been seen on a smaller scale in Russia’s hold over Europe through its gas supplies,” he added. From a top-down perspective, the Russia-Iran alliance is focused on drawing in the overt or covert support for the Gas OPEC construct from other major producers in the Middle East regarded as undecided in committing to the Russia-Iran-China axis or to the U.S.-Europe-Japan axis. Qatar (with the world’s third-largest gas reserves of just under 24 tcm, and the top LNG supplier) has long been seen by Russia and Iran as a prime candidate for such a gas cartel, given that it shares the principal source of its ongoing prosperity with Iran in the shape of the 9,700 square kilometres (sq.km) reservoir that holds at least a combined 51 tcm of gas and 50 billion barrels of natural condensates. Iran has exclusive rights over 3,700 sq.km of this reservoir in its celebrated South Pars field (containing around 14 tcm of gas), with Qatar’s North Field comprising the remaining 6,000 sq.km (and 37 tcm of gas). A new cooperation accord was reached between Tehran and Doha in 2017 on the shared reservoir and beyond, as analyzed in depth in my latest book on the global oil markets. Since then, Qatar has overtly tried to avoid alienating either of the major two geopolitical power blocs. At the beginning of this year of Qatar’s Emir, Sheikh Tamim bin Hamad Al Thani, visited the White House, and in March he met with German economy minister, Robert Habeck, the latter visit being to discuss how Qatar could help alleviate bans on Russian gas into Europe. Prior to these visits, though, Qatar concluded a slew of long-term LNG supply deals with China that caused considerable concern in Washington (hence the visit of Al Thani to the U.S. in January). Over and above the need for a good relationship between Qatar and Iran to ensure the optimal functioning of their huge joint gas reservoir, Russia and Iran see another area of particular vulnerability in Doha’s political makeup that can be exploited in the building out of a Gas OPEC, and that is its dislike for its other neighbor, Saudi Arabia. The blockade of Qatar from 2017 to 2021 was orchestrated by Saudi Arabia and actively endorsed by the UAE, Bahrain, and Egypt initially, with later support coming from Jordan, Libya, and other smaller states. It has never been forgotten by Qatar, and nor has the support that was given to Doha during the period by Iran, and by Russia, both independently and via Turkey. Together, Russia, Iran, and Qatar account for just under 60 percent of the world’s gas reserves, and they were the three countries instrumental in the founding of the GECF, whose 11 members control over 71 percent of global gas reserves,
How rising international gas prices impact India Inc.
Gas prices in Europe and the US are trading at record levels as Nord Stream 1 gas pipeline is expected to go under unscheduled maintenance for three days at the end of the month. European gas prices hit a new unprecedented high, while the US gas prices were at their highest since July 2008. Russia’s state-owned energy giant Gazprom said it would shut down Europe’s single biggest piece of gas infrastructure – Nord Stream 1 pipeline – to service its compressor. The unscheduled maintenance works on the Nord Stream 1 pipeline, which runs from Russia to Germany via the Baltic Sea, deepen a gas dispute between Russia and the European Union and exacerbate both the risk of a recession and a winter shortage. GAIL – the largest gas transmission company in India – could see an impact on its earnings due to higher gas prices. The company imports gas from the US market – the prices of which are linked to the US gas prices. Thus, higher gas prices in the US will increase the gas sourcing cost for GAIL. Along with this, if gas usage declines in India due to higher prices, the same will lead to a lower amount of gas being transmitted through its pipeline, which will eventually lead to lower earnings. Petronet LNG – India’s largest gas importer – earns a majority part of its income from gas regasification. Reducing gas imports to the country could hurt Petronet’s regasification income. In the month of July 2022, total LNG imports in India declined 10% YoY and 8%, MoM, due to a sharp increase in spot LNG prices and also likely due to shortages driven by lower gas supply on some of the long-term contracts. City gas distribution companies also stand to impact as the blended gas cost increases. Currently, CGDs are sourcing 6% of their gas requirement for CNG and household usage from the spot market, while the gas supplied for industrial use is fully sourced through sports market. Owing to rising gas prices in the Asian market, the blended gas cost will also increase for CGDs. The same is expected to impact Gujarat Gas the most, followed by IGL and MGL.
Chennai Petroleum Corp forms joint venture for $4 billion refinery
Chennai Petroleum Corp Ltd (CHPC.NS) said on Tuesday it has formed a joint venture with its parent company Indian Oil Corp (IOC.NS) and others to build a 9 MMTPA refinery at a cost of 315.80 billion rupees ($3.95 billion) in southern Tamil Nadu state. CPCL, in which National Iranian Oil Company has about 15% stake, was operating a small refinery at the Cauvery Basin at Nagapattinam, where the new plant will be located. The new refinery will come up after dismantling the existing 1 million metric ton per annum (MMTPA) refinery, according to CPCL’s website, and will produce liquefied petroleum gas, BS VI quality gasoline, diesel and aviation turbine fuel. CPCL will hold 25% stake in the new refinery for an investment of 25.70 billion rupees, while IOC and other seed equity investors including Axis Bank (AXBK.NS), HDFC
India’s crude oil production falls 3.8% in July, misses target
Crude oil production in India declined by 3.76% year-on-year to 2.45 million tonne in July 2022. Crude oil output was 2.54 million tonne during the same period last year. Crude oil production missed the 2.59 million tonne target for the month by 5.57%, said a statement from the ministry of petroleum and natural gas. State-run energy major ONGC’s production was 1.63 milion tonne, 3.36% lower than target of the month and 1.70% lower when compared with production of July 2021. The statement said the fall in ONGC’s production came on the back of decline in output from Gandhar in Ankleshwar (Gujarat), ceasing of high potential wells in Geleki field in Assam, restriction on drilling activities due to socio-political issues in Cauvery, among others. Oil India Ltd’s production stood at 263,700 tonne, which is 8.11% lower than the target of the month. It was, however, 4.12% higher when compared with production of July 2021. The fall in crude production comes at a time when oil prices remain volatile amid the Russia-Ukraine crisis and concerns of a global slowdown. India has been making efforts to increase its domestic oil production to reduce import dependence. The country imports around 85% of its energy requirements. In March, a standing committee on petroleum and natural gas recommended that the government review its strategy to increase domestic oil production and take concrete, tangible steps for this. The data from the petroleum and natural gas ministry showed that natural gas production during July 2022 declined 0.40% on a year-on-year basis to 2.88 billion cubic metres. It was 3.33% lower than the target for the month. ONGC produced 1.66 billion cubic metres of natural gas, 3.92% lower than the production level of July 2021. Oil India’s natural gas production, however, increased 5.69% to 262.53 million cubic metres.