OPINION: China still wants LNG this winter, but not every last drop
The liquefied natural gas (LNG) market in Asia appears to be coming to terms with the likelihood that China will still buy robust volumes over winter, but not quite at the rate it did last year. In the winter of 2017-18 China’s unrestrained appetite for the super-chilled fuel drove spot prices to what was then a three-year high, upending a market that had previously believed a supply surplus was looming. However, this time around China appears to be managing its winter demand in a more orderly fashion. That means while it will still likely increase cargoes in the coming months, it won’t be trying to suck every available drop of LNG from the market. Having been caught short of natural gas last winter, China has taken steps to ensure that the coming winter will see adequate supplies. It has boosted storage facilities and domestic output, while maximising use of pipelines from Asia and LNG terminals are being maximised. China has expanded use of natural gas in winter, primarily for heating as part of its policy of burning less coal in order to improve air quality. Domestic natural gas production rose 6.2 per cent to 116.17 billion cubic metres (bcm), equivalent to about 86 million tonnes of LNG, in the first nine months of the year compared with the same period last year, according to official data. Natural gas imports from both LNG and pipelines were up 33 per cent in the first 10 months of the year to 72.06 million tonnes. State-controlled oil and gas major Sinopec said on Monday that it will boost its supply of natural gas for the heating season by 18 per cent from last winter to 18.17 bcm, and that its three LNG receiving terminals are fully booked for December and January. PetroChina, another state-controlled oil and gas major, said on Monday that the Central Asia-China pipeline will operate at 100 per cent capacity this winter and supply a record 160 million cubic metres of natural gas per day. NO WINTER PRICE RALLY The separate announcements on the same day by China’s two largest oil and gas companies is an illustration that Beijing is determined that this winter won’t see a repeat of last year’s supply crunch and price spike. So far, the market seems to be in agreement, with the spot price actually weakening from late September to early November, a period when it has started rising in past years. Spot cargoes for December were assessed last week at $10.30 per million British thermal units (mmBtu), up 10 cents from the prior week and the first gain in six weeks. The decline in spot LNG prices over the past two months, and the tentative move higher last week, contrast with the 90 per cent surge in prices last year between late August and the peak of $11.50 per mmBtu, reached in the week to Jan. 12. Some Chinese LNG buyers have scaled back their winter purchase plans and are re-selling cargoes in the spot market, Wen Wang, a senior consultant at Wood Mackenzie said in a note on Monday. “Industrial coal-to-gas switching in the second half of 2018 could fall short of expectations, reflected by weak domestic LNG prices,” the consultant said. “Policy signals also suggest that winter coal-to-gas switching in the heating sector could be moderate compared to last year.” China did boost LNG imports in October from September, according to vessel-tracking and port data compiled by Refinitiv. Imports were 4.49 million tonnes in October, up from 3.97 million in September but down from August’s 4.52 million. For November, the shipping data suggest that imports will be at least 3.7 million tonnes – although that figure can still rise as more vessels depart for China from Asian and Australian producers. The overall message is that while China is still the key growth market for LNG, it’s unlikely to exert the same influence on prices this winter as it did last year.
Gas to overtake coal as world’s second largest energy source by 2030: IEA
Natural gas is expected to overtake coal as the world’s second largest energy source after oil by 2030 due to a drive to cut air pollution and the rise in liquefied natural gas (LNG) use, the International Energy Agency (IEA) said on Tuesday, The Paris-based IEA said in its World Energy Outlook 2018 that energy demand would grow by more than a quarter between 2017 and 2040 assuming more efficient use of energy – but would rise by twice that much without such improvements. Global gas demand would increase by 1.6 percent a year to 2040 and would be 45 percent higher by then than today, it said. The estimates are based on the IEA’s “New Policies Scenario” that takes into account legislation and policies to reduce emissions and fight climate change. They also assume more energy efficiencies in fuel use, buildings and other factors. “Natural gas is the fastest growing fossil fuel in the New Policies Scenario, overtaking coal by 2030 to become the second-largest source of energy after oil,” the report said. China, already the world’s biggest oil and coal importer, would soon become the largest importer of gas and net imports would approach the level of the European Union by 2040, the IEA said. According to Reuters calculations, based on China’s General Administration of Customs data, China has already overtaken Japan as the world’s top natural gas importer. Although China is the world’s third-biggest user of natural gas behind the United States and Russia, it has to import about 40 percent of its needs as local production cannot keep pace. Emerging economies in Asia would account for about half of total global gas demand growth and their share of LNG imports would double to 60 percent by 2040, the IEA report said. “Although talk of a global gas market similar to that of oil is premature, LNG trade has expanded substantially in volume since 2010 and has reached previously isolated markets,” it said. LNG involves cooling gas to a liquid so it can transported by ship. The United States would account for 40 percent of total gas production growth to 2025, the IEA said, while other sources would take over as U.S. shale gas output flattened and other nations started turning to unconventional methods of gas production, such as hydraulic fracturing or fracking. Global electricity demand will grow 2.1 percent a year, mostly driven by rising use in developing economies. Electricity will account for a quarter of energy used by end users such as consumers and industry by 2040, it said. Coal and renewables will swap their positions in the power generation mix. The share of coal is forecast to fall from about 40 percent today to a quarter in 2040 while renewables would grow to just over 40 percent from a quarter now. Energy-related carbon dioxide emissions will continue to grow at a slow but steady pace to 2040. From 2017 levels, the IEA said CO2 emissions would rise by 10 percent to 36 gigatonnes in 2040, mostly driven by growth in oil and gas. This trajectory was “far out of step” with what scientific knowledge says would be required to tackle climate change, the report said.
DGH may get power to auction output to keep conflict of interest at bay
The government is planning to amend a provision on sale of petroleum in its new exploration licensing policy that would let the upstream regulator, and not the producer, auction output to avoid conflict of interest in cases where producer’s affiliate is likely to bid for the produce. An amendment is necessary to eliminate scope for future dispute that may arise due to conflicting provisions in the current contract under the licensing policy. The contract allows a producer to sell its output to an affiliate if the sale is on arm’s length basis. But a definition of ‘arm’s length sale’ in the contract explicitly excludes sale to an affiliate. To resolve this contradiction, the ministry first thought of redefining ‘arm’s length sale’ in the narrow context of this contract to drop reference to sale to an affiliate. But, after some deliberation, dropped the idea of fiddling with the universal principle of arm’s length sale. Now, officials plan to empower the Directorate General of Hydrocarbons (DGH), the upstream regulator, to transparently auction petroleum in cases where a producer’s affiliate intends to participate, people familiar with the matter said. In other cases, where an affiliate is unlikely to participate, producers can oversee the auctions themselves, they said. By assigning regulator this job, the government is trying to remove any scope for conflict of interest that could arise if a producer were to end up selling its output to its affiliate even if in a competitive bid. A committee of secretaries will soon take a final view on this proposal to amend the contract provision. Once amended, the new provision will apply only to new contracts that will get signed after the planned second exploration licensing round. This will not help resolve the issue for the 55 blocks that were recently awarded in the first licensing round. In the first round, Vedanta received 41 exploration licences while ONGC obtained two. The government plans to offer 14 blocks in the second round of oilfield auction under the new exploration licensing policy. Of these, four blocks have been identified by the government and the remainder by the explorers.
ONGC ordered to pay wharfage compensation to Mumbai Port Trust
Oil and Natural Gas Corporation Ltd (ONGC), has been ordered to pay arrears of ₹1.7369 billion to Mumbai Port Trust as wharfage compensation for the transportation of crude oil through two pipelines it had laid within the limits of the state-run port. The wharfage compensation payable by ONGC according to a 28 January 2005 agreement signed with Mumbai Port Trust was approved by the Tariff Authority for Major Ports or TAMP, the rate regulator for major ports such as Mumbai, with retrospective effect on a proposal filed by Mumbai Port Trust. “ONGC shall pay to the Mumbai Port Trust a compensation at one half (1/2) of wharfage rate as applicable on the per tonne of crude oil which will be imported into the Port of Mumbai through all or any of these ONGC pipelines and which will not be exported through the Mumbai Port Trust marine oil terminal, Jawahar Dweep or through any other existing and future oil, gas or chemical terminals of the Port,” TAMP wrote in its 03 October order. The TAMP order settles a long-running dispute between two state-run firms over wharfage levied on the two pipelines, each stretching 19.5 km, within Mumbai Port Trust limits. The Mumbai Port Trust said that as per the terms and conditions of the agreement entered between ONGC and MBPT, ONGC has committed to pay wharfage compensation to the Port Trust. ONGC paid the wharfage compensation charges till fiscal year 2014, but discontinued payment from then on citing that such a levy, apart from being “unreasonable”, did not have the sanction of the rate regulator for major ports and hence, Mumbai Port Trust was “not authorized to levy compensation on ONGC”, according to documents reviewed by BusinessLine. ONGC further contented that Section 38 of the Major Port Trusts Act, 1963, is applicable for sea going vessels for goods and passengers, whereas, crude oil is transported from Mumbai High field to Uran plant by pipelines and it is not brought to the Port and the Port Trust has not created any facility for receipt of crude oil from offshore fields of ONGC. The oil explorer also argued that it signed the 2005 agreement with Mumbai Port Trust “under duress and without full consent.” “But, the ONGC was not obliged to accept such agreement if it did not want to. The intention of Mumbai Port Trust to levy the wharfage compensation charge was known to the ONGC way back in 2003 itself,” the TAMP order read. “Having signed the agreement, the ONGC cannot, at this stage, argue that it signed the agreement under duress and without consent,” it said. “Agreement has been made between both the parties who have intended to bind together to serve the interest of both the parties. When a binding agreement is not honoured by one party to the agreement by non-performance there is breach of agreement. The other party is discharged from its obligation under the agreement and it is entitled to rescind the agreement which would affect the oil industry. The MBPT, as a responsible public authority, has chosen not to rescind the agreement,’ TAMP wrote in its order.
Sudan to launch over 30 oil bids in 2019
Sudan is preparing to launch over 30 oil exploration bids next year in an attempt to lure western companies to reinvest in its petroleum industry after the left of economic sanctions, the Financial Times reported on Monday. “Now, as relations between Sudan and the US improve, the ministry of petroleum plans to tender 30 to 35 new oil blocks in the second half of next year to revive exploration activity in the country,” Azhari told the Financial Times. Since the split of South Sudan in 2011, the Sudanese economy felt the tough effect of economic sanctions because it did not use oil financial income to develop the national economy but to fund its war against the armed groups in southern Sudan and Darfur region. The Sudanese oil industry was developed by the oil-hungry China, India and Malaysia. The U.S. Chevron oil company made the first discovery of oil in Sudan in the late 1970s, but it had to stop exploration activities after the outbreak of Sudan’s second civil war in 1983 After, the lift of embargo in October 2017, few western countries showed interest to invest in Sudan because it is still under several U.S. sanction as the country remains on the list of state sponsors of terrorism. Also, corruption and heavy taxes dissuaded investors from the Gulf to work in Sudan. However two weeks after the lift on 31 October of the past year, Sudan’s Oil and Gas Ministry invited several U.S. oil firms to visit the country and offered them to invest in Sudan, pointing to the need of introducing advanced technology to push forward oil production in Sudan. During a meeting with the visiting oil firms, the then oil minister Abdel-Rahman Osman called to invest in a number of oil blocs in the Red Sea area, eastern Sudan. Following what, Baker Hughes a U.S. industrial service company in November 2017, signed a cooperation agreement with Asawer Investment Company, the technical arm of the state oil and gas firm Sudapet. Sudan has proven gas reserves of 3 trillion cubic feet, but development has been limited. It also does not have the pipelines or the port terminals to bring in gas or liquefied natural gas, according to the U.S. Energy Information Administration in 2014. Sudan lost 75% of its oil reserves after the southern part of the country became an independent nation in July 2011, denying the north billions of dollars in revenues. Oil revenue constituted more than half of Sudan’s revenue and 90% of its exports. Sudan currently produces 133,000 barrels of oil per day (bpd). The country’s production is stationed mainly in the Heglig area and its surroundings, as well as western Kordofan.
Asia to dominate global LNG regasification capex and capacity additions
GlobalData’s report, H2 2018 Global Capacity and Capital Expenditure Outlook for LNG Regasification Terminals – Asia to Dominate LNG Regasification Capex and Capacity Additions states that the global liquefied natural gas (LNG) regasification capacity is expected to grow by 48% during the outlook period 2018–2022, from 43.7 trillion cubic feet (tcf) in 2018 to 64.6tcf by 2022. Among regions, Asia continues to lead in terms of planned and announced regasification capacity growth, contributing 62% of the total global growth. The region is expected to add around 12.4tcf of regasification capacity by 2022. The Middle East and Europe follow with capacity additions of 2.3tcf and 1.8tcf, respectively. Among countries, India leads globally with 5.2tcf of regasification capacity additions by 2022. China and Bangladesh follow with 2.3tcf and 1.6tcf, respectively. Planned and announced LNG regasification capacity additions by key countries, 2018–2022 In terms of new-build capital expenditure (capex) outlook for planned and announced regasification projects during the period 2018–2022, Asia again leads with proposed capex of $49bn. Europe and the Middle East have almost equal capex of $6bn each, to be spent during the outlook period. Among countries, in terms of new-build capex during the outlook period, China, India, and the Philippines lead globally with $18.5bn, $6.8bn, and $5.9bn, respectively. Among companies, Kuwait Petroleum Corp, Bangladesh Oil, Gas and Mineral Corp, and China National Offshore Oil Corporation have the highest planned and announced LNG regasification capacity additions globally by 2022, with capacities of 1,155 billion cubic feet (bcf), 910bcf, and 684bcf, respectively. In terms of capex, China National Offshore Oil Corporation has the highest new-build capex of $5.4bn to be spent on new-build regasification projects in the outlook period. Shandong Hanas New Energy Co and Kuwait Petroleum Corp follow with $3.4bn and $3.2bn, respectively.
China overtakes Japan as world’s top natural gas importer
China has overtaken Japan to become the world’s top importer of natural gas, as Beijing’s crackdown on pollution boosts its demand for the more environmentally friendly fuel, while the restart of nuclear reactors in Japan reduces its LNG imports. China’s total natural gas imports over January to October this year via pipeline and as liquefied natural gas (LNG) were at 72.06 million tonnes, up a third from the same period last year, according to Reuters calculations based on General Administration of Customs data. Japan, on the other hand, imported about 69.35 tonnes of LNG over that period, according to ship-tracking data from Refinitiv Eikon, down 17 per cent for the same 10 months of 2017. Japan imports all of its gas as LNG. China’s push to switch away from coal to natural gas is key to its rapid gas demand growth, said Edmund Siau, gas analyst with energy consultancy FGE. “Meanwhile, nuclear reactors continue to restart in Japan, which reduces demand for gas-fired power generation and consequently LNG demand,” Siau said. China – already the biggest importer of oil and coal – is the world’s third-biggest user of natural gas behind the United States and Russia, but it has to import around 40 per cent of its total needs as domestic production can’t keep up with demand. China still lags behind Japan on LNG imports but could overtake its North Asia neighbour in the early 2020s, FGE’s Siau said. China’s surging demand pushed it past South Korea as the world’s second-biggest LNG importer in 2017. China last year started to move millions of households and many industrial facilities from coal to gas as part of efforts to clean its skies, sparking an unprecedented rally in overseas import orders. Its three biggest LNG suppliers are Australia, Qatar and Malaysia. Pipeline imports come from Central Asia and Myanmar, and a pipeline connecting China to Russia is under construction. “China has become a hotbed of contracting activity, with many suppliers courting the large Chinese national oil companies as well as the emerging buyers for long-term contracts,” Siau said. China’s natural gas demand is expected to grow about 10 per cent next year, he said, while Japan’s gas demand will continue to fall.
Digitalisation can save oil upstream business $73 bn a year: Woodmac
Energy firms could save an annual $73 billion within five years in oil and gas exploration and production by making better use of existing computing technology, energy consultancy Wood Mackenzie said. Exploration and production, known as the upstream industry, requires energy firms to analyse huge amounts of seismic and geological data and to monitor and maintain offshore platforms and other complex assets, often in high-risk environments. In a report on how technology can be used for these tasks and potential savings, Wood Mackenzie (Woodmac) said many firms could spend less by buying technology and know-how from outside of the industry. “Start-ups that merge Silicon Valley roots and domain knowledge … may bring benefits to companies much more quickly than in-house approaches,” it said. The consultancy saw big savings from using technology that would make drilling faster, more accurate and less likely to end up with a dry well, and by using applications to predict when maintenance would be needed. Woodmac estimated the industry could save up to $12 billion a year on drilling, mostly in onshore and shallow waters. It said big savings were also available from the use of cloud computing services, particularly for smaller firms that did not have enough in-house computing power. The US shale industry, which uses a cocktail of high-pressure water and chemicals to coax crude from rock deep underground, known as hydraulic fracturing or fracking, could also offer insights to conventional drillers, the report said. In offshore drilling, where rig rates tend to drive costs, the industry overall might be able to use rigs for 2,000 fewer days through more digitalisation and automation, Woodmac said. It said average annual exploration spending of $50 billion could be cut to about $35 billion, while still boosting the discovery success rate to 45 per cent from about 35 per cent now. In addition, it estimated the industry could save as much as $24 billion a year on operating oil producing assets through better use of technology. Citing examples of firms that have effectively employed new technology, it said Norway’s Equinor estimated more automation would drill wells 15 to 20 per cent faster by 2020. Norwegian firm Aker BP had bought software engineer Cognite to digitise its assets, and was now selling software to rivals and sharing data, it said. The report also said Aker had shifted from rigid maintenance schedules to a more flexible system, while BP was using robots and drones to inspect a platform in the Gulf of Mexico.
Saudi Aramco, Abu Dhabi’s ADNOC agree to invest in gas exploration, LNG
The state petroleum producers of Saudi Arabia and Abu Dhabi on Monday signed a “strategic framework agreement” to invest in natural gas exploration and liquefied natural gas ventures. The heads of Saudi Aramco and ADNOC signed the agreement at a ceremony in Abu Dhabi.
Central Asia-China gas pipeline to hit maximum capacity: PetroChina
* China oil major PetroChina says the Central Asia-China gas pipeline will supply 160 million cubic metres of gas per day this winter, its highest ever level * The pipeline will be operating at 100 percent utilisation rate, said the company on its website on Monday * The announcement comes as China prepares to start up winter heating across the north from November 15 * Demand for gas in China surged last year leading to a shortage of supply, after a government push to switch household heating systems to gas from coal * The pipeline accounts for about 25 percent of China’s oil and gas pipeline network, it said * The Central Asia-China pipeline bring natural gas from Turkmenistan, Kazakhstan and Uzbekistan to China