CNOOC resells floating LNG cargo to Japan amid lacklustre winter demand
China National Offshore Oil Corp (CNOOC) has resold a liquefied natural gas (LNG) cargo floating offshore South Korea, according to data from Refinitiv Eikon and three industry sources, highlighting the drop in winter gas demand in China. The move is a departure from the 2017/18 winter, when China was desperate to procure LNG to meet demand for the super-chilled fuel amid a spike in natural gas consumption following a government-mandated switch from coal to gas for residential heating and industrial processes. In 2017, CNOOC spent $10 million to lease two LNG tankers, including one called the Neo Energy, as an emergency stash of the fuel for unloading at the company’s receiving terminals at Tianjin in northern China and Ningbo on the east coast. Now, CNOOC has sold a cargo on the Neo Energy, which was loaded onto the ship on Nov. 15 from the Bontang liquefaction plant in Indonesia, one of the sources, with direct knowledge of the move, said on Monday. On Sunday, CNOOC redirected the Neo Energy to Tokyo from the Okpo anchorage in South Korea, the Eikon data showed. The vessel, currently fully laden, can hold about 150,000 cubic metres of LNG. Details of the buyer were not immediately clear. “The whole idea of leasing Neo Energy was to cope with spikes in winter demand but now it seems there is less such need,” the source added, who asked not to be identified as he is not authorised to speak with the media. CNOOC could not immediately be reached for comment. Last winter’s gas shortages prompted Chinese companies this winter to secure supply ahead of time and pushed LNG imports to a record monthly high in December. But temperatures have been higher than normal this winter and weather data from Refinitiv Eikon forecasts warmer-than-usual temperatures ahead, leaving suppliers with high inventories. Chinese buyers do not typically resell LNG cargoes during winter, highlighting the country’s reduced appetite for the fuel, said a second source, who is involved in LNG shipping. Companies were under pressure to remove the surplus LNG cargoes because of the supply and demand imbalance this winter, likely resulting in losses from the sales because of flat domestic gas prices, said the first source. An LNG distributor based in the northern Chinese city of Tangshan, the country’s biggest steel producing city, said Monday that industrial LNG demand has been flat this winter as users such as steel mills have curbed output to meet air pollution reduction targets. Ex-terminal LNG prices for the Tangshan region are at 5,050 yuan to 5,100 yuan ($751) per tonne, little changed from the start of the heating season in November, the operator said.
Gail India offers three LNG cargoes from Sabine Pass – sources
Gail (India) has offered three liquefied natural gas (LNG) cargoes loading from the Sabine Pass terminal in the United States this year, two industry sources said on Monday. The Indian importer has 20-year deals to buy 5.8 million tonnes a year of U.S. LNG, split between Dominion Energy’s Cove Point plant and Cheniere Energy’s Sabine Pass site. It has offered three cargoes on a free-on-board (FOB) basis from Sabine Pass for second-half January, second-half July and first-half November loading, the sources said. The tender closes on Jan. 22.
Indian Oil Corp, Gail evaluating investing in Adani LNG terminal
Indian Oil and Gail are still evaluating plans to invest in a Rs 6,000-crore liquefied natural gas (LNG) import terminal being developed by the Adani Group in Odisha. The plan was announced in 2016. According to a preliminary pact signed in September 2016, the Adani Group had agreed to give away half of equity stake in the LNG terminal to Indian Oil and Gail. The two state-run companies were to also book 3 million tonnes and 1.5 million tonnes a year of regasification capacity, respectively, in the 5-million-tonne terminal. The PSUs have gone ahead with their plans on regasification capacity but have yet to take a final call on their equity investments. “Gail and Indian Oil Corp are jointly carrying out techno-commercial and legal due-diligence studies,” Gail said in an emailed response to ET’s query on the status of planned investments in the LNG terminal. Indian Oil, too, said it was carrying out due diligence in the matter. It is unclear why the government firms have taken so long to make up their mind on investing in the project. A spokesperson for the Adani Group said construction orders have been placed and the LNG terminal is on track. Adanis have roped in French energy giant Total to invest in Dhamra LNG terminal. “The companies will jointly develop various regasification LNG terminals, including Dhamra LNG, on the East coast of India,” the two companies said in a statement in October 2018. The Adani Group didn’t offer an update on Total’s investment plans for Dhamra LNG terminal. According to the 2016 pact, the country’s top refiner IOC and top gas transporter Gail were to hold 39% and 11% equity stakes, respectively, in the Dhamra LNG terminal. The Adani Group was to hold the remaining 50%. IOC and Adani were to give away 1% each to a financial institution at a later stage, reducing their stakes to 38% and 49%, respectively. Indian Oil’s 5-mt-a-year LNG terminal at Ennore in TN is almost ready to go on stream.
Oil prices edge down as global growth worries threaten demand
Oil prices edged lower on Tuesday as concerns over global economic growth stoked fears over future demand. International Brent crude oil futures were down 10 cents, or 0.2 percent, at $62.64 by 0106 GMT. They closed down 0.1 percent on Monday. U.S. West Texas Intermediate (WTI) crude futures were at $53.70 per barrel, down 0.1 percent, or 4 cents. “Trade war concerns have reduced global growth expectations and with it comes a lower demand for energy,” said Alfonso Esparza, senior analyst, OANDA. The International Monetary Fund trimmed its global growth forecasts on Monday and a survey showed increasing pessimism among business chiefs, highlighting the challenges facing policymakers as they tackle an array of actual or potential crises, from the U.S.-China trade war to Brexit. Also clouding the outlook was data showing a slowdown in growth in China, the world’s second biggest economy. However, oil prices were offered some support in the wake of recent data that indicated major exporters were beginning to curtail production. In the United States, energy services firm Baker Hughes said that energy companies cut the number of rigs drilling for oil by 21 last week, the biggest decline in three years and taking the count down to the lowest since May, 2018 at 852. The Organization of the Petroleum Exporting Countries (OPEC)on Friday published a list of oil output cuts by its members and other major producers for the six months to June, an effort to boost confidence in a move designed to avoid a supply glut in 2019.
Pertamina gas unit PGN targets domestic sales of 935 billion btu in 2019
Perusahaan Gas Negara (PGN), the gas unit of Indonesian energy holding company Pertamina, targets domestic natural gas sales of 935 billion British thermal units (Btu) per day in 2019, it said in a statement * PGN is targeting domestic gas transmission at 2.16 billion cubic feet per day in 2019, according to a statement on Monday
CNPC says oil and gas output rises 4.5 pct in 2018
China National Petroleum Corp (CNPC) said its oil and gas production rose by 4.5 percent year-on-year to 286.35 million tonnes of oil equivalent in 2018. The figure, which includes CNPC’s output both at home and overseas, works out at around 5.73 million barrels of oil equivalent per day, according to Reuters calculations. The state-owned company, China’s top oil and gas producer, also said its crude oil processing volumes rose by 4.7 percent from 2017 to 207.31 million tonnes, or 4.15 million barrels per day, while refined product sales were up 9.6 percent at 199.96 million tonnes. Natural gas sales were up 13.2 percent at 180.7 billion cubic meters, CNPC said in a report on its website dated Jan. 19.
Numaligarh Refinery Limited wins ‘Refinery Performance Improvement Award’
Numaligarh Refinery Limited (NRL) has been adjudged 2nd among Indian refineries at the ‘Refinery Performance Improvement Awards’ for the year 2017-18. The award was presented by Secretary, Ministry of Petroleum & Natural Gas (MoP&NG), Govt. of India Dr. MM Kutty to Team NRL led by Director (Technical)-NRL BJ Phukan at the inaugural function of the 23rd Refining & Petrochemicals Technology Meet (RPTM) held in Mumbai recently. Instituted by MoP&NG, this award recognises the best in performance under six key parameters viz. Crude Throughput, Specific Energy Consumption, Specific Steam Consumption, Carbon Emission Intensity, Operating Cost and Specific Water Consumption. The companies selected for this prestigious award go through a rigorous test of competence and is selected by a committee constituted by MoP&NG.
Reliance seeks Niko’s exit from KG-D6 over payment default
Reliance Industries has asked its partner Niko Resources to withdraw from eastern offshore KG-D6 gas block over default in payments for field development cost, but the Canadian firm has sought to stall the move by invoking arbitration, the companies said. Niko, which defaulted on payment of loans to its lenders, has been unsuccessful in seeking a possible buyer for its 10 per cent stake in Bay of Bengal block KG-D6 or securing financing for its share of the $5-6 billion R-Cluster, Satellite Cluster and MJ development projects in the block. In its third quarter earning statement last week, Reliance Industries stated that Niko “defaulted on Cash Calls and accordingly default notice was issued as per the provision of Joint Operating Agreement (JOA)“. “Since Niko did not cure the default within the default period, RIL and BP issued notice to Niko for withdrawal from Production Sharing Contract (PSC) and JOA and assign the participating interest to RIL and BP,” RIL said. “In response to the notice, NIKO has served notice of Arbitration.” Reliance is the operator of KG-D6 block with 60 per cent stake and UK’s BP plc has 30 per cent interest. Niko, in a corporate update, said that it has on December 17, 2018 “received a notice from the non-defaulting parties requiring the subsidiary to withdraw from the KG-D6 PSC and JOA“. The company said it was evaluating its legal options regarding the notice. Niko decided not to pay a KG-D6 Block cash call that was due in early October 2018. This led to Reliance slapping a default notice under the production sharing contract (PSC). Under the terms of the joint operating agreement (JOA) between the participating interest holders in the D6 PSC, during the continuance of a default, the defaulting party shall not have a right to its share of revenue (which shall vest in and be the property of the non-defaulting parties who have paid to cover the amount in default). In addition, if the defaulting party does not cure a default within 60 days of the default notice, the non-defaulting parties have the option to require the defaulting party to withdraw from the D6 PSC and JOA. Niko had previously withdrawn from eastern offshore NEC-25 block due to cash crunch. Its 10 per cent interest was assigned to Reliance and BP. Subsequent to that, Reliance now holds 66.6 per cent interest in NEC-25 and BP the remaining 33.37 per cent.
The Future Is Now for LNG as Derivatives Trading Takes Off
With natural gas demand growing faster than for any other fossil fuel, LNG futures may be finally taking off. Derivatives represented about 2 percent of global LNG production at the beginning of 2017 as an array of contracts around the world struggled to gain traction. But by the end of last year, volumes had grown to almost 23 percent, led by a burgeoning Intercontinental Exchange Inc. contract based on S&P Global Platts’ Japan-Korea Marker spot price assessments. While volumes are a long way off established global energy benchmarks such as Brent crude — where trade dwarfs worldwide oil production many times over — the accelerating growth in LNG derivatives illustrates how the market is maturing. An explosion in supply, from the U.S. to Australia, is bringing more market participants and a shift away from traditional pricing. “There’s more short-term physical trading indexed to JKM and new counterparties active in the market,” said Tobias Davis, head of LNG–Asia at brokerage Tullett Prebon. “This creates more liquidity and in turn, builds more confidence in trading the swap and using it as a viable hedging tool.” Bright Futures JKM LNG derivatives trading is taking off as more cargoes are sold on a spot basis There are now at least six derivative contracts for LNG, ranging from U.S. Gulf Coast futures on ICE to Dubai-Kuwait-India on Singapore Exchange Ltd. The most established by far is ICE’s Japan-Korea Marker, launched in 2012. More than 17,000 contracts traded in December, a 10-fold increase from January 2017. The next most active is CME Group Inc.’s futures contract, also based on S&P Global Platts’ JKM assessment. Its monthly volume peaked in November last year at 3,335 contracts. The need for a liquid LNG benchmark has been the subject of much debate. Traditionally, when oil was used more commonly in power generation and production, it was almost exclusively valued relative to crude oil and brought and sold under long-term contracts. One advantage of that system is that oil has a liquid and established futures market that gives market participants visibility and the confidence to hedge. Long Way to Go LNG futures trail other oil and gas benchmarks in terms of open interest But oil and gas don’t move in lockstep and buyers have become increasingly reluctant to be tied to crude markets. The expansion in global supply, most notably with the development of shale reserves that transformed the U.S. into a major natural gas exporter, has opened up other options and stimulated a shift to more spot trading. About 27 percent of LNG was sold under spot- or short-term deals in 2017, up from 12 percent in 2003, according to the International Group of LNG Importers. That just increased the need for a reliable price benchmark and liquid futures market for hedging. Regional gas benchmarks such as Louisiana’s Henry Hub, the U.K.’s National Balancing Point or Dutch Title Transfer Facility reflect local fundamentals and therefore may not be ideal proxies for the global LNG trade, where the vast majority of sales are in Asia. So that’s where LNG futures come in. JKM “is much more trusted, much more accurate, and the paper market is helping make it be more responsive to price movements,” Gordon D Waters, the global head of LNG at ENGIE, said by phone on Friday. JKM contracts could reach the level of NBP or TTF “most likely within the next 5 years.” NBP and TTF volumes both averaged about 37,000 contracts a day in 2018. There’s still a long way to go. ICE JKM is still much smaller than other global oil and gas benchmarks. Exchange open interest, or the amount of outstanding bets at the end of every day, accounted for about $2 billion at the end of 2018, compared with $36 billion for U.S. natural gas and more than $100 billion for Brent oil, according to Bloomberg estimates. How the debate over natural gas pricing is playing out in Europe For a futures market to be considered truly liquid, volumes should be about 10 times the size of the actual physical trade, according to Total SA, one of the world’s biggest producers and a major participant in the JKM market. With volumes multiplying by about three times a year, JKM should reach that level in about five years, Philip Olivier, Total’s general manager of global LNG, said in October. Brent and U.S. gas traders also have much more flexibility, as they’re able to buy and sell futures by the second, with prices updating to reflect the fast-moving market. Most JKM LNG trades are still brokered offline and then cleared by exchanges. Contract values are based on a monthly average of Platts assessments, so the price updates once a day when the new assessment is added. Still, LNG has already surpassed one energy derivative. ICE’s JKM contract now has more value in open interest than the exchange’s Newcastle coal contract. The two fuels, of course, also vie in the real world for space in power plants in some regions. The Future is LNG More money is now tied up in LNG futures than in coal “If you have a look at how the coal market developed in the mid-2000s, it took over a decade to transition to a liquid exchange order book,” said Gordon Bennett, managing director for utility markets at ICE. “It definitely feels like JKM is evolving quicker.”
China Pushes LNG Imports to the Limit
China is importing record volumes of liquefied natural gas (LNG) to meet its air quality targets and may have no alternative for the next several years, experts say. In November, China’s LNG imports soared 48.5 percent from a year earlier to 5.99 million metric tons, according to customs figures. In the 11-month period, imports of 47.52 million tons climbed 43.6 percent from a year before, the official Xinhua news agency said. Total natural gas imports, including both pipeline gas and LNG, rose 31.9 percent to a record of 90.39 million tons last year, the General Administration of Customs said Monday. Last year marked the second in a row of LNG growth rates of over 40 percent as the government presses ahead with its wintertime fuel-switching policy to reduce heating with high- polluting coal. Despite higher costs and infrastructure problems, the government has shown determination to pursue the gas policy as the gap between domestic production and consumption grows. In November, China’s gas output jumped 10.1 percent from a year earlier, but the daily consumption rate also rose to a new record on Nov. 21, Reuters reported, citing the National Development and Reform Commission (NDRC). A detailed study released last month by the Oxford Institute for Energy Studies suggests that China faces a critical period between now and 2020 with implications for the international LNG market, depending on how far the government pushes its fuel-switching campaign. Total natural gas consumption in 2020 will range between 300 billion and 400 billion cubic meters (10.6 trillion and 14.1 trillion cubic feet), based on minimum and maximum estimates of coal-to-gas switching, said the study by senior researchers and analysts at Osaka Gas Co., Ltd. of Japan. Central Asian pipeline network Domestic gas production is likely to contribute 180 billion to 200 billion cubic meters (bcm), or anywhere from 45 to 67 percent of consumption. In the first 11 months of 2018, China’s gas output inched up 6.6 percent from a year earlier to 143.8 bcm, Reuters said, citing National Bureau of Statistics (NBS) data. China can fill some of the gap with imports of pipeline gas, but capacity and supplies will be limited, the study said. The country’s major Central Asian pipeline network from Turkmenistan through Uzbekistan and Kazakhstan is nearing its rated capacity of 55 bcm per year. Efforts are planned to boost the volume to 65 bcm with new compressor stations, but progress on building a fourth strand of the system through Tajikistan appears stalled. Last year, the Central Asian system increased supplies by 21 percent to 46.9 bcm, according to state-owned Turkmengaz, as reported by Azerbaijan’s Trend News Agency. Another import pipeline through Myanmar is expected to deliver only modest volumes to China in 2020, estimated at 4 bcm, despite its 10-bcm capacity. And Russia’s mammoth Power of Siberia gas pipeline project, scheduled to open next December, will supply China with only 6 bcm in 2020, the analysts said. By then, the total of pipeline gas available to China will reach only 55- 65 bcm, they said. The rest of China’s demand will have to be filled by LNG imports, although the conclusions are subject to a host of variables. Last year, China overtook South Korea to become the world’s second-largest LNG importer, surpassed only by Japan. According to the study, China had 19 receiving terminals for the tanker-borne fuel with an annual capacity of about 59.6 million tons as of last August. The volume is the equivalent of about 81 bcm. By 2020, new terminals and other infrastructure could raise LNG import capacity to as much as 70 million tons, or about 95 bcm. ‘Virtually impossible to meet projected demand’ Although some of China’s terminals have already operated at more than 100 percent of their rated capacity, the study concludes that “it will be virtually impossible to meet projected demand” if China sticks to its maximum target for switching from coal to gas. Capacity constraints will also keep China from meeting its 2020 target for raising the natural gas share of its primary energy supply to 10 percent, the study said. Gas is believed to account for about 6 percent of the country’s energy mix now. The authors also see implications for LNG demand beyond 2020 if Russia’s plans for larger volumes of pipeline gas are delayed. The study said that “LNG demand will depend above all on steady growth in natural gas imports from Russia from 2020 onward. If imports from Russia grow steadily, this makes it more likely that LNG imports will slow from 2020. Conversely, if natural gas imports from Russia do not, for some reason, grow as planned, dependence on LNG will increase further.” The conclusions suggest that China may have to pursue more moderate targets or build even more LNG infrastructure to avoid excessive reliance on Russian supplies. Mikkal Herberg, energy security research director for the Seattle-based National Bureau of Asian Research, said the report highlights both pluses and minuses for China as gas demand rises at astronomical rates. On the plus side, the finding that eastern LNG import terminals were able to operate at over 100 percent of rated capacity suggests there may be elasticity in the system, said Herberg. On the downside, the average 82-percent utilization rate of all terminals as of mid 2018 is a sign that the system will be running “pretty close to flat out” with the larger volumes expected in 2020, he said. Although the international LNG market is expected to be well supplied over the next two years, any glitch in China’s system could lead to sudden shortages. “It’s still a pretty rickety LNG and gas supply logistics system bumping up against stunning increases in LNG use,” Herberg said by email. “Lots can go wrong, especially if there’s a very cold winter in 2019 or 2020,” he said. “The system will be running so tight that things will get very difficult, and serious regional supply shortages would inevitably occur.” ‘Industry and market indigestion’ Vessel traffic at China’s