America’s LNG Problems Hit Banking Crisis Snags
The banking crisis that started with the failure of Silicon Valley Bank (SVB) is putting major U.S. LNG projects at risk, as rising interest rates and supply chain issues introduce financial challenges that have already led to delays. According to Reuters, two of four new projects that were slated for final investment decisions in Q1 of this year have seen the deadlines extended. Reuters cited Kpler’s lead natural gas analyst Eleni Papadopoulou as raising “concerns that banking lending activity might be pulled back” and we might see more FID delays due to the banking crisis. The delays are tied to export terminal projects by NextDecade and Energy Transfer LP, affected by rising interest rates, rising construction and labor costs and the disconnect between natural gas prices in the U.S. and the rest of the world. NextDecade has delayed construction of its Rio Grande LNG facility in Texas, and is now expecting an FDI by the end of Q2. In filings with the SEC, NextDecade said it had extended its construction agreements to June 15. The cost of the first three trains of Rio Grande LNG is estimated at $11.5 billion, with a 16 million tonnes per year capacity. According to Reuters, the French bank Societe Generale SA withdrew last year as the lead bank for Rio Grande. The two projects that are advancing without delay are Venture Global LNG’s project in Louisiana and Sempra Energy’s LNG project in Texas. Advancement now means that these promising big projects will have to rely much more significantly on advance offtake deals than on developer equity. In other words, the projects that will be able to move forward without any financial snags will likely be those that can contract their entire capacity in advance. That makes offtake deals even more important going forward. That also means dealing with volatile natural gas prices that make long-term offtake deals risky.
Saudi Aramco Bets On Continuous Growth Of Chinese Oil Demand
The world’s largest crude oil exporter, Saudi Arabia, is betting big on the growing market for crude China, as Saudi oil giant Aramco is strengthening its downstream presence and crude supply market share in the world’s top importer. Saudi Aramco announced this week two major refinery and petrochemical deals in China, which not only give the world’s largest oil firm a share of the Chinese downstream market but also an additional export outlet for 690,000 barrels per day (bpd) of Saudi crude in China. With the two agreements, Saudi Arabia is betting on continuous growth in Chinese oil demand on the one hand. On the other hand, the Kingdom is looking to boost its market share in the world’s top oil importer, where its partner in the OPEC+ pact, Russia, has gained market share with cheap crude after the Russian invasion of Ukraine and the sanctions on Moscow that followed. Saudi Arabia and Russia have been neck and neck on the Chinese oil market for years, but the fight for market share has become more contested since the war in Ukraine began as Russia pivoted to Asia and now bets on China and India as the key buyers of its crude, often offered at wide discounts to international benchmarks. Saudi Arabia sells its crude oil under long-term contracts, so it has a guaranteed share of the Chinese market. But Russia, having pivoted to Asia for crude and fuel sales after the Western sanctions, is offering its oil at discounts and could attract more Chinese buyers who don’t abide by the G7 price caps. Russia was the single largest crude oil supplier to China in January and February, overtaking Saudi Arabia, which was the number-one supplier of oil to China last year. As China accelerated the buying of cheap Russian crude oil at discounts to international benchmarks, Chinese imports of crude from Russia jumped by 23.8% year over year to 1.94 million bpd in January and February 2023, per data by China’s General Administration of Customs cited by Reuters. While Russia pushes to sell its crude—banned in the West—in Asia at discounts, Saudi Arabia is locking in long-term demand in China with stakes in refining and petrochemical projects. A Saudi Aramco joint venture plans to build a $10-billion refining and petrochemical complex in China over the next three years, the Saudi oil giant said on Sunday. The complex in northeast China will have the capacity to process 300,000 bpd, of which Aramco will supply 210,000 bpd. The project “represents a major milestone in our ongoing downstream expansion strategy in China and the wider region, which is an increasingly significant driver of global petrochemical demand,” Mohammed Al Qahtani, Aramco Executive Vice President of Downstream, said on Sunday. On the following day, Aramco said it would buy 10% in private refiner Rongsheng Petrochemical for the equivalent of $3.6 billion and would supply 480,000 bpd of Arabian crude oil to Rongsheng affiliate Zhejiang Petroleum and Chemical Co. Ltd (ZPC), under a long-term sales agreement. The two deals give Aramco a long-term export outlet to 690,000 bpd of Saudi crude to China, which would boost Saudi Arabia’s market share by locking in contracts for the coming years and decades. The acquisition “demonstrates Aramco’s long-term commitment to China and belief in the fundamentals of the Chinese petrochemicals sector,” Aramco’s Al Qahtani said. “It also promises to secure a reliable supply of essential crude to one of China’s most important refiners,” the executive added. Russia may be attracting Chinese buyers with cheaper spot cargoes, but Saudi Arabia is playing the long game with long-term contracts to lock in oil sales for decades.
ONGC to start oil production from KG block in May, gas in 2024
Oil and Natural Gas Corporation’s (ONGC) delayed Krishna Godavari basin KG-D5 project is likely to start crude oil production in May this year and gas output a year later, a senior company official said. ONGC was originally to start gas production from Cluster-II fields in block KG-DWN-98/2 (KG-D5) in June 2019 and the first oil was to flow in March 2020. The company blamed contracting and supply chains issues due to the pandemic for shifting the start of oil production first to November 2021, then to third quarter of 2022 and now to May 2023. Gas output start target was first revised to May 2021, then to May 2023 and now to May 2024. ONGC Director (production) Pankaj Kumar said a floating production unit, called FPSO, which will be used to produce oil, is already in Indian waters. “We estimate oil production should start in May,” he said. The block is currently producing 1.7 million standard cubic meters per day of natural gas. “We will start with 10,000 to 12,000 barrels per day and reach the peak of 45,000 bpd in 2-3 months,” he said adding some 2 mmscmd of gas would also flow with oil but actual gas output will start in May 2024 when 7-8 mmscmd production is expected. The production estimates are however much lower than what was originally projected. At the time of its launch in April 2018, ONGC had said the estimated capital expenditure would be USD 5.07 billion and operational expenditure would be USD 5.12 billion over a field life of 16 years. Kumar said the company hopes to arrest the decline in crude oil production in the next fiscal while natural gas output is likely to see a rise. ONGC’s KG-DWN-98/2 or KG-D5 block, which sits next to Reliance Industries’ KG-D6 block in the KG basin, has a number of discoveries that have been clubbed into clusters. It is situated offshore the Godavari river delta in the Bay of Bengal. It is located 35-km off the coast of Andhra Pradesh in water depths ranging from 300-3,200 metres. The discoveries in the block are divided into three clusters — Cluster-1, 2 and 3. Cluster 2 is being put to production first.
PNGRB Notifies Levelized Gas Pipeline Tariff
The Petroleum and Natural Gas Regulatory Board (PNGRB) has notified a levelized Unified Tariff of Rs.73.93/MMBTU. It and created three tariff zones for Unified Tariff, where the first zone is up to a distance of 300 kms from gas source, second zone is 300 – 1200 kms and third zone is beyond 1200 kms. The Zonal unified tariffs will be effective from 1st April 2023 and details of the same are webhosted on the PNGRB’s website(www.pngrb.gov.in). The national gas grid covers all the interconnected pipeline networks owned and operated by entities viz. Indian Oil Corporation Limited, Oil and Natural Gas Corporation Limited, GAIL (India) Limited, Pipeline Infrastructure Limited, Gujarat State Petronet Limited, Gujarat Gas Limited, Reliance Gas Pipelines Limited, GSPL India Gasnet Limited and GSPL India Transco Limited. With commissioning of newer interconnected pipelines, the national gas grid will keep expanding for Unified tariff. These entities will get the tariff as per their entitlement while customers would pay Unified tariff. The difference between the same will be settled between the Pipeline entities for which a settlement mechanism has been notified. The reform will specially benefit the consumers located in the far-flung areas where currently the additive tariff is applicable and facilitate development of gas markets and vision of government to increase the gas utilisation in the country.