Alaska’s State-Sponsored LNG Project Is Struggling To Find Investors
Last year, the Biden administration issued the green light for ConocoPhillips’ (NYSE:COP) $8 billion Willow project in Alaska, ending the company’s long wait much to the consternation and chagrin of environmentalists. ConocoPhillips is the largest crude producer in Alaska and also the largest owner of exploration leases, with extensive holdings in Prudhoe and the National Petroleum Reserve-Alaska (NPR-A). Whereas the Willow project has frequently garnered the lion’s share of attention and media coverage, another, even bigger, Alaskan energy project has been flying under the radar: the $43B state-led Alaska LNG project. Skeptics have been quick to point out that 2023 was yet another dry year for the ambitious project with no major deals or investments announced by the Alaska Gasline Development Corp., or AGDC. Things came to a head on Monday after Alaska Republican Gov. Mike Dunleavy’s administration presented the Senate Finance Committee with a $4.5 million budget request for the project, only to be met with pushback and sharp questions by three members of the committee. “In my eight years of being a legislator, I don’t think they’ve inked one investment. And so is this a good use of those funds?Or do we need a change in leadership over there?” posed Wasilla Republican Sen. David Wilson. For decades, elected leaders have dreamed about building a natural gas pipeline akin to ConocoPhillips’ 800-mile long trans-Alaska oil pipeline, that could export gas to markets outside of the state, provide cheaper heating fuel for Alaska residents and generate thousands of construction jobs. Geared toward exports to Asian markets, the idea of the project was first mooted by Republican former Gov. Sean Parnell more than a decade ago and his successors, including Dunleavy, have continued to advocate for it. When complete, the project will source its gas from the enormous Prudhoe Bay and Point Thomson oil fields owned by ConocoPhillips, ExxonMobil Corp. (NYSE:XOM) and Hilcorp. A 800-mile gas pipeline would then run south to the Kenai Peninsula, where a LNG plant would liquefy the gas before loading onto tankers bound for Asia. North Slope fields are expected to deliver ~3.5 billion cubic feet of gas per day, enough to meet a quarter of Japan’s gas consumption. Unfortunately, that dream has never been realized with the project struggling to assemble the necessary combination of oil companies willing to sell their gas at a competitive price, investors and customers despite the state spending hundreds of dollars in public funds on the project. The project is eligible for tens of billions of dollars in federal loan guarantees. It’s not for lack of trying, though. Alaska’s statewide elected officials have intensified their efforts to push the project ever since Russia invaded Ukraine two years ago. In 2022, Republican U.S. Sen. Dan Sullivan pushed Alaska LNG to potential investors and buyers in Asia, with help from Rahm Emanuel, U.S. ambassador to Japan. Currently, the project is trying to find investors or partners to provide the $150 million that AGDC needs to finish the engineering and design work required before a final investment decision (FID) can be made. AGDC is offering ownership of more than half of Alaska LNG to fund the entire project, with construction costs to be largely funded by investors or gas buyers. Unfortunately, so far, nobody has been willing to bite. Back in July, the Wall Street Journal reported that potential customers in Japan and South Korea were looking at more competitive LNG projects elsewhere. Nonetheless, multiple sources familiar with the nitty gritty of the project have revealed that two companies are seriously looking into it. The first is Venture Global LNG, a successful startup company with an operating LNG export plant in Louisiana. The company is, however, currently facing serious legal jeopardy with Shell Plc. (NYSE:SHEL) and BP Plc (NYSE:BP) among three companies seeking billions from the company through arbitration for what they claim is failure to fulfill previously negotiated long-term contracts with the European energy giants. On its part, Venture Global has defended itself by saying it’s under no obligation to fulfill those contracts until its export plant is complete and fully online. The other company is Hanwha, a South Korean company with global operations that allegedly met with the Alaskan governor last year. However, these claims cannot be verified after officials from Venture Global and Hanwha failed to respond to requests for comment. Meanwhile, Joey Merrick, a prominent Alaska labor union leader, says he’s leading a new group that’s pitching AGDC on a potential investment in the project. Merrick says he’s working with Fengate, an asset management business, and Ullico Inc., a labor-aligned insurance and investment company. Dubbed Alaska Gasline & LNG, Merrick claims his new company has access to the $150 million needed to advance Alaska LNG to its next stage. “We’re trying to, basically, take control of the project and work with AGDC and move it to the next stepI’m very optimistic. I think this is exactly what the state needs — something to be able to give us some cheaper energy, and something to be able to get us a little income in a different way,” Merrick has said.
India’s renewable energy revolution: Brighter skies ahead
India’s renewable energy journey has been nothing short of remarkable. Driven by strong government support, a burgeoning domestic market, and a growing pool of skilled professionals, the country has emerged as a global leader in renewable energy deployment. The latest IEA report, “Electricity 2024,” further underscores India’s immense potential in this sector. According to the report, India is expected to account for almost half of the world’s additional renewable energy capacity additions through 2026. This growth is attributed to the country’s ambitious renewable energy targets, which call for 40% of electricity generation to come from renewables by 2030. Bhushan Rastogi, Managing Director, Mercados Energy Markets India, commends the Indian government’s efforts in promoting renewable energy. He points to the National Solar Mission, the National Wind Energy Mission, and the Integrated Energy Policy as key initiatives that have provided a strong policy framework for renewable energy development. “These policies have not only driven down the cost of renewable energy but have also created a conducive environment for private sector investment in the sector,” Rastogi says. “This has been instrumental in India’s rapid renewable energy growth.” The IEA report also highlights India’s large and growing domestic market for renewable energy technologies. This market is expected to reach $150 billion by 2025, creating significant employment opportunities and fostering innovation. “The domestic market is a key driver of India’s renewable energy success,” Rastogi explains. “It provides a steady demand for renewable energy products and services, which encourages domestic manufacturing and R&D.” In addition to strong government support and a growing domestic market, India also has a growing pool of skilled renewable energy professionals. This talent pool is being trained at India’s universities and technical institutions, and is also being nurtured by a vibrant start-up ecosystem that is fostering innovation and entrepreneurship. “The availability of skilled professionals is essential for India to continue its renewable energy growth,” Rastogi emphasizes. “These professionals are the backbone of the sector, and they are playing a critical role in ensuring that India meets its ambitious renewable energy targets.” The confluence of these factors – strong government support, a burgeoning domestic market, and a growing pool of skilled professionals – is creating an unprecedented opportunity for India to become a global leader in renewable energy. By harnessing these advantages, India can not only meet its energy needs but also create a cleaner, healthier, and more sustainable future for its citizens. The road ahead is undoubtedly challenging, but with unwavering dedication and strategic partnerships, India is well-positioned to achieve its goals and become a global beacon of renewable energy innovation. The IEA report paints a bright picture of India’s renewable energy future, and it is clear that the country is poised to play a leading role in shaping the global energy landscape.
Indo-Lanka virtual LNG pipeline could bring down electricity costs: New Indian HC
The government has initiated discussions with India to set up a Kochi-to-Colombo virtual liquefied natural gas (LNG) pipeline that could bring down electricity tariffs. “…we are also working to set up a virtual LNG pipeline from Kochi to Colombo to bring down electricity costs in Sri Lanka,” said newly appointed Indian High Commissioner in Colombo Santosh Jha while marking India’s 75th Republic Day on Friday. The latest energy cooperation move between the two countries came in the wake of policy-level agreements on key projects, including a power grid connectivity project to enable Sri Lanka to export power to India and a joint initiative to develop Trincomalee as an economic hub. Pointing out that India was Sri Lanka’s largest trading partner with bilateral trade of USD 6 billion by 2022, High Commissioner Jha expressed hope to “enhance economic partnership and Sri Lanka’s export potential through the early conclusion of the Economic and Technology Cooperation Agreement (ETCA). To date, he noted that India had contributed more than USD 5 billion towards development partnerships, touching every district of the country. The flag hoisting ceremony to mark the 75th Republic Day was held earlier on Friday at India House, while the reception was held later in the day.
India’s gas demand to rise 6% in 2024: International Energy Agency
India’s natural gas demand is expected to rise by 6 per cent in 2024 with a rise in consumption in fertiliser units, power generation and industrial sectors, according to the International Energy Agency (IEA). Following the 7 per cent year-on-year decline observed in 2022, India’s primary gas supply rose by 5 per cent in 2023, with growth primarily driven by the petrochemical, power generation, refinery and industrial sectors. “Natural gas demand in India is expected to increase by 6 per cent in 2024, mainly supported by higher gas use in industry (including in the fertiliser sector) and stronger gas burn in the power sector amid the development of its national pipeline grid and city gas infrastructure,” IEA said Gas Market Report released last week. Liquefied natural gas (LNG) imports rose by 7 per cent on the year to 29 billion cubic meters last year, with import dependency at 44 per cent of the nation’s natural gas consumption. Domestic production was up 6 per cent on the year to 35 billion cubic meters on the back of a rise in output from Reliance Industries’ KG-D6 block. “We expect India to increase its LNG imports in 2024 by 7 per cent, fuelled by demand from the power and fertiliser sectors, as the country plans to stop importing urea by 2025,” IEA said. Natural gas extracted from below surface and seabeds is used to make fertiliser, generate electricity, convert into CNG to run automobiles, piped to households for cooking purposes and used as fuel and feedstock in industries. India’s domestic production is insufficient to meet demand and so the fuel is imported as LNG in cryogenic ships. Power companies imported 2.32 billion cubic meters of LNG in 2023, making up around 9 per cent of total imports and up by 76 per cent on the year. In November 2023 India approved mandatory blending of compressed biogas into the domestic gas supply. The mandate will be set at 1 per cent of total compressed natural gas and domestic piped natural gas consumption from 2025, and raised gradually to 5 per cent from 2028-29. On reforms, IEA said, “India continued to advance gas market reforms in 2023. The country introduced a unified pipeline tariff system on April 1, which could benefit consumers located far from domestic gas supply sources and/or LNG terminals. In addition to the market reforms, India is considering establishing strategic gas reserves to enhance gas supply security”. The Petroleum and Natural Gas Regulatory Board (PNGRB) introduced the Unified Tariff (UFT) policy in April 2023 to create a single, consistent and fair tariff structure for natural gas transport across the country. The UFT policy will apply to a network of 21 pipelines, representing around 90 per cent of pipelines in operation or under construction. The price of transporting gas consists of two components – a fixed unified tariff based on the levelised cost of service of the entire pipeline network, and a variable zonal factor depending on distance. “The UFT policy aims to create a more stable, competitive and transparent pricing regime, which should benefit both gas supply and demand. It is expected to assist the government in achieving the ‘One Nation One Grid One Tariff’ model,” it said. The IEA said India has approved a National Green Hydrogen Mission in January 2023. The mission sets a target for at least 5 million tonnes a year of green hydrogen production by 2030, “with potential to reach 10 million tonnes with growth of export markets”. It proposes two distinct financial incentive schemes to support domestic manufacturing of electrolysers, as well as the production of green hydrogen.
QatarEnergy Nearing Agreement for LNG Supply to India
Qatar Energy is on the verge of finalizing a substantial, long-term agreement to supply liquefied natural gas (LNG) to buyers in India. This impending deal, anticipated to feature more competitive pricing and flexible terms, is poised for completion either by the end of this month or in early February. If successfully sealed, the new contract would extend the duration of existing supply agreements set to expire in 2028, potentially lasting until at least 2050. At present, Qatar provides Indian purchasers with 8.5 million tons per annum of LNG. The impending agreement carries strategic importance for India, aligning with its aspiration to raise the proportion of natural gas in its energy blend to 15% by 2030, a noteworthy escalation from the current 6.3%. The pricing structure of Qatari LNG traditionally hinges on oil prices, utilizing a formula based on a slope or a percentage of crude. The ongoing negotiations suggest that the new deal might be pegged at around a 12% slope of Brent crude per million metric British thermal units. Another proposed pricing approach for supplies to India contemplates a range of 12–12.5% on a free-on-board basis. In the face of escalating competition, notably from the United States, Qatar is strategically positioning itself within the global LNG market. It aims to bolster its liquefaction capacity from 77 million tons per annum (mtpa) to 126 mtpa by the year 2027, Qatar is keen on solidifying its presence in both Asian and European markets. Recent long-term agreements with major European energy companies such as Shell, TotalEnergies, and Eni underscore Qatar’s commitment to maintaining a robust international LNG footprint. The expected deal with India might be officially revealed at an upcoming energy conference slated to occur in India from February 6 to February 9, 2024. Under the existing arrangement, Petronet LNG, India’s foremost gas importer, imports 7.5 million tonnes per annum of LNG from Qatar at a slope of 12.67% and a fixed charge of $0.52. Furthermore, Indian Oil, Bharat Petroleum, and GAIL (India), with stakes in Petronet, collectively purchase an additional 1 million tonne per annum of LNG. Notably, the envisaged deal is expected to confer greater autonomy upon Indian buyers, allowing them to select the receiving terminal within India. This newfound flexibility has the potential to yield substantial cost savings for Indian companies, possibly mitigating expenses associated with pipeline transportation within the country’s grid. Presently, Qatar delivers LNG exclusively to the western state of Gujarat, but this shift in flexibility could open avenues for more efficient and cost-effective logistics for Indian companies involved in the LNG trade.
Baker Hughes Reports Profit Growth on Strong LNG Demand
Oilfield service provider Baker Hughes reported higher-than-expected profit growth for the final quarter of last year attributing it to strong demand for its services from the LNG industry. Baker Hughes reported net income attributable to the company of $439 million for the three-month period, which was $257 million higher than a year earlier. The company also boasted free cash flow of over $2 billion at the end of 2023, noting it represented a 54% conversion rate from adjusted earnings before interest, tax, depreciation, and amortization. International revenues were the biggest contributor to the strong performance of the company, rising by 15% on the year while North American revenues only inched up by 1%. Baker Hughes competitors have reported similar trends, by the way, with international demand for their services much stronger than demand at home. One LNG project specifically made a massive contribution to Baker Hughes’ strong performance. This was the Ruwais LNG project in the UAE, where the oilfield service provider was awarded contractual service agreements worth $1 billion. The Ruwais project will be entirely powered by electricity and will have a capacity of 9.6 million tons of liquefied gas annually. LNG expansion at home also contributed to the company’s financial performance last year as several projects are at different stages of development, set to boost the United States’ LNG export capacity substantially over the next couple of years. Baker Hughes’ competitors SLB, formerly Schlumberger, and Halliburton, also reported forecast-beating figures for 2023, attributing the strong performance to international rather than domestic demand for their services. SLB said that its international revenue had gone up by 18% during the fourth quarter while domestic revenue remained flat. Halliburton, for its part, reported a 7% quarterly decline in North American revenues, which are the biggest contributor to its overall revenues.
Traders Turn Bearish on U.S. Oil
Traders are selling West Texas Intermediate futures in anticipation of further strong production growth. As a result, prices are weakening further despite the uncertainty of such an outlook. In fact, expectations from the industry and the EIA are for much slower U.S. oil production growth this year. But that has had no effect on trader behavior. The latter might be in for a surprise. Hedge funds and other institutional traders sold the equivalent of 24 million barrels of U.S. crude in the week to January 16, Reuters market analyst John Kemp reported this week. This compared with Brent buys equivalent to 18 million barrels, Kemp noted. Traders, then, expect even lower prices for U.S. oil later this year. And there is only one reason they expect this: more explosive growth like the one booked last year. Traders don’t want any more surprises, it seems. Yet they might still end up surprised. In its latest Short-Term Energy Outlook, the Energy Information Administration predicted that output this year could reach 13.2 million barrels daily. This would be a new record high but this is not the important part. The important part is that the projected 2024 figure is only about 200,000 bpd higher than the average daily for 2023. And that 2023 average daily represented an increase of over 1 million bpd over the 2022 average. Traders, however, have a good reason to expect more growth and that reason is that last year, the industry did not actively try to boost production so substantially. It happened kind of inadvertently as drillers continued to improve efficiency in a bid to extract more oil for the same money. A surprise for the industry itself was higher than expected productivity from many wells, which also contributed to the production growth that shocked the oil market and made traders bears overnight. The question this year would be whether the U.S. oil industry can and, more importantly, wants to repeat that stellar performance. The answer is likely to be “Not really.” The latest Dallas Fed survey, released in December, suggested that few companies in the oil patch have any major spending increase plans. Most in the industry appeared still cautious with their production growth plans and frugal with their cash. When asked about spending plans, most respondents said they planned to either keep spending at 2023 levels or increase it slightly this year. This, of course, does not mean that efficiency gains and well productivity could not still surprise to the upside. It simply means that it is not the most likely scenario: efficiency gains do not follow a linear upward curve and well productivity can surprise in both directions. So, after a year of strong gains, chances are this one may be quieter on that front. There is, then, a potential for weaker growth in U.S. oil output than expected. And this potential weaker growth would be materializing against the background of constrained supply from OPEC. Sure, Brazil’s Petrobras has big production growth plans, and Guyana’s output is growing steadily, but when analysts talk about non-OPEC supply growth, they invariably mean the U.S. first and foremost. The U.S. is the swing producer these days. And it is also the maker or breaker for oil bulls and bears alike. The problem is that the market appears to take uncertain developments for certainties. The expectation that U.S. oil output will continue growing as strongly as last year is a good example. And it appears to be an unshakeable expectation, for now. Perhaps it will materialize and shale drillers will exceed even last year’s growth rate. Or maybe growth will be as weak as the EIA and industry executives expect it and disappoint hedge fund bears.
Oil and Natural Gas Corporation Limited Approves Formation of Wholly Owned Subsidiary for Green Energy and Gas Business
The Board of Directors of Oil and Natural Gas Corporation Ltd. at its meeting held on January 23,2024 has inter-alia, considered and accorded approval for formation of a wholly-owned subsidiary company. The proposed name of the company is “ONGC Green Limited” subject to approval of the Ministry of Corporate Affairs, Govt. of India. The wholly-owned subsidiary company shall be engaged into the business of value-chains of energy business viz. Green Hydrogen, Hydrogen blending, Renewable Energy (Solar, Wind and Hybrid etc.), Bio-fuels/Bio-gas business and LNG.
India starts bidding for Jammu-Srinagar natural gas pipeline
India’s Petroleum and Natural Gas Regulatory Board (PNGRB) has started the bidding process for the 325-km Jammu-Srinagar natural gas pipeline. The pipeline’s initial capacity will be 2 million cu m/day (MMcmd). Bids for construction, operation, and future expansion work are due May 13, 2024. The Jammu-Srinagar pipeline will extend GAIL (India) Ltd.’s 2-MMcmd Gurdaspur-Jammu pipeline. GAIL last year won the license to build the 175-km pipeline linking Punjab with Jammu and Kashmir (OGJ Online, June 23, 2023)
China Takes Advantage of Lower Oil Prices to Build Inventories
China is taking advantage of the slide in oil prices, which began in October, to ramp up its stockpiling of cheaper crude. In December alone, China is estimated to have sharply boosted the volume of crude going to storage for the highest rate of stockpiling in six months, according to estimates by Reuters columnist Clyde Russell. China does not report commercial or strategic inventories, so analysts are trying to estimate the volume of stockpiling by deducting the amount of processed crude from all available crude coming from imports and domestic crude production. Per Russell’s estimates, China added in December the highest flows to storage since June 2023. The rate of stockpiling last month, estimated at around 1.39 million barrels per day (bpd), jumped from an estimated crude inventory build-up of about 20,000 bpd in November. Considering the time lag of around two months between crude purchases and nominations and the arrival of the crude in China, it could be concluded that Chinese refiners have continued to buy more oil when prices were falling. The imports and very low flows to stockpiles in November, for example, were likely the result of lower volumes of crude purchased in September, when oil hit its highest level for 2023 at over $95 per barrel Brent. With the drop in prices in the fourth quarter of 2023, China resumed the higher import levels and higher inventory builds, as evidenced in Russell’s estimates for December. Related: Tadawul Group’s Move Ignites Competition in Commodity Trading via DME Investment In the full-year 2023, flows to Chinese crude inventories are estimated at around 760,000 bpd, up from 740,000 bpd for the previous year. China imported a record-high volume of crude oil last year, beating the previous annual record from 2020, as fuel demand rebounded after the Covid restrictions were abandoned in early 2023. Chinese crude oil imports jumped by 11% year-on-year to 11.28 million bpd in 2023, according to data from the General Administration of Customs. The 2023 crude imports topped the previous record level of 10.81 million bpd from 2020 when China took advantage of the plunging oil prices to import large volumes of cheap crude. China’s crude oil imports in December 2023 alone rebounded from the low levels in November and averaged 11.39 million bpd. That was much higher than 10.33 million bpd of crude imports in November, when Chinese crude oil intake dropped by 9.2% year-over-year, marking the first annual decline in crude arrivals since April 2023. Imports in December accelerated as prices slid, and as a result, the rate of crude stockpiling also accelerated. China’s crude oil purchases and estimated inventory builds had slowed significantly in October and November in response to the 2023-high oil prices hit at the end of September. The high levels of the December stock builds are likely to continue early this year as demand and oversupply concerns keep oil prices below $80 per barrel. With oil prices now down by around 20% from the 2023 high of $98 per barrel, Chinese refiners could have more incentives to import larger volumes of crude at the start of this year, especially at prices around $75 a barrel. China’s refiners are looking to stock up on below-$80 crude early in the year in anticipation of a surge in fuel demand in the second half, analysts and trading sources told Reuters this week. “They snap oil from all over the world, except for the U.S. due to high freight rates,” an oil trader at a Chinese refiner told Reuters. New crude import and fuel export quotas allocated to refiners would also incentivize more crude imports, refinery throughput, and fuel exports to the rest of Asia early this year, analysts say. China has also just allocated a massive batch of crude oil import quotas to refiners, raising the allowances from early last year by around 60% and allocating full-year quotas to some. The early allocation of a large volume of import allowances would help refiners better plan their crude purchases in 2024, according to analysts.