China’s LNG imports could reach 110 bn cubic metres by 2025: CNPC
China’s imports of liquefied natural gas (LNG) could reach 110 billion cubic metres, or about 80 million tonnes a year, by 2025, a senior executive from China National Petroleum Corp (CNPC) said on Wednesday. The growth will be driven by a stringent environmental policy and an accelerated restructuring of the country’s energy mix, among other factors, Ling Xiao told the LNG2019 conference in Shanghai. China’s LNG imports last year were about 54 million tonnes. CNPC accounts for about 60 percent of China’s overall gas imports and 70 percent of domestic production, Ling said. “LNG price will become one of the decisive factors for the amount of LNG imports,” he also said in his presentation. And that will become even more important with the startup of a gas pipeline between China and Russia – expected later this year – that could threaten LNG imports, he said. “LNG import prices are not competitive with pipeline gas now, and the opening of the Russia pipeline will pose further threat to LNG imports,” he said. “We are hoping for cheaper and shorter term LNG contracts and only in that way can LNG be truly competitive.” Deliveries of gas to China via the Power of Siberia pipeline were due to begin at the end of December 2019, but the project is only expected to reach full capacity in 2025.
Gas price hike may give temporary relief to gas producers
Even as the increase in domestic gas prices is in line with the rise in global gas indices, the price notified at $3.69/mmbtu is expected to provide only a partial relief to the gas producers, the report said. The domestic gas price is notified at $3.69/mmbtu (GCV basis) for H1 FY2020, an increase of 9.8 percent from the price of $3.36/mmbtu (GCV basis) applicable for H2 FY19, the rating agency Icra said in its report. “The increase in domestic gas price is in line with the rise in global gas indices primarily Henry Hub over the reference period and takes the price to its highest level in two and a half years. However, with prices of gas at various international hubs falling again, the domestic gas price increase looks likely to be reversed in H2 FY20,” it said. The agency further stated that the fall in prices of gas at international hubs is contributed by the commissioning of new gas liquefaction capacities with about 35 million tonnes coming online in CY18 and another about 30 million tonnes expected to come online in CY19. “Moreover, shale gas production continues to be robust in USA. Accordingly, Asian spot LNG prices which remained $10-11/mmbtu during the summers of CY18 have already declined to well below $5/mmbtu mark,” it said. Commenting on the findings, Icra’s senior vice- president K Ravichandran said, “the gas price for H1 FY20, though higher than H2 FY19, continues to remain low at an absolute level. Accordingly, gas production remains either a break even or a loss-making proposition for most fields for the upstream producers notwithstanding some decline in oil field services/equipment cost.” He further said the appreciation of rupee against dollar in the past few months, also dampens the realisations of the gas producers. “Going forward, with several new gas liquefaction capacities coming online globally, the supply glut is expected to keep prices of domestic gas low in the near to medium term leading to poor returns even as domestic gas producers especially ONGC ramps up gas production significantly,” Ravichandran said. Also, the absence of a floor and sustained low prices as has been seen in the past few years post implementation of the modified Rangarajan formula, make exploration and production unviable even for benign geologies. “Nonetheless, the government approved the reforms in upstream sector in February 2019, which allowed, marketing and pricing freedom for those new discoveries whose field development plan is not yet approved, and fiscal incentive provided for additional gas production over and above the normal production. This should be a credit positive for the exploration and production companies,” he added. Additionally, the ceiling on price for gas produced from deep water, ultra deepwater, high temperature and high- pressure fields has also been announced at $9.32/mmbtu for the period H1 FY20 which is 21.5 percent higher than the price ceiling of $7.67/mmbtu for the period H2 FY19 which could incentivise development of such projects.
Gas price hike to push up power prices, CNG and PNG rates
The increase in domestic gas price — notified at $3.69 per metric million British thermal unit (MMBtu) — for the first half (H1) of 2019-20 would jack up prices of power from gas-based plants apart from the prices of compressed natural gas (CNG) and piped natural gas (PNG). From the consumers’ perspective, the increase in domestic gas prices is negative, according to rating agency ICRA. “The upward revision in the domestic gas price would increase the cost of domestic gas-based power generation by about 3 percent,” the agency said in a report. It added, however, the recent decline in spot R-LNG prices will provide relief for power generation projects using imported R-LNG. For every $1/mmbtu decline in R-LNG price, the cost of generation would reduce by 55-60 paise per unit for gas-based power generation projects at the prevailing rupee-dollar exchange rate. Also, nearly 42 percent of the gas requirement of the fertilizer sector is met through domestic gas while the remaining is met through R-LNG imports. Prashant Vasisht, vice-president and co-head, corporate ratings, said: “The increase in gas price should result in an increase in CNG and PNG (domestic) prices by the city gas distribution (CGD) players. Assuming that the CGD players maintain their current absolute contribution margins in Rs/kg and Rs/scm terms, the CGD players could increase CNG price and PNG (domestic) prices by Rs 1.00-1.15/Kg and Rs 0.75-0.85/scm respectively.” He also said firm petrol and diesel prices would ensure that the benefit for the end consumers from conversion economics perspective will not be significantly affected. Further, PNG (domestic) would continue to be at par with subsidized LPG (and about 28 percent cheaper than unsubsidized LPG) in terms of energy cost and thus maintain its competitiveness. The gas price hike is expected to provide only partial relief to gas producers. The domestic gas price for the first half of FY20 is an increase of 9.8 percent from the price of $3.36/mmbtu (GCV basis) applicable for the second half (H2) of the previous financial year. “The increase in domestic gas price is in line with the rise in global gas indices primarily Henry Hub over the reference period and takes the price to its highest level in two and a half years. However, with gas prices at various international hubs falling again, the domestic gas price increase looks likely to be reversed in H2 FY20,” the report said. The fall in gas prices at international hubs is contributed by the commissioning of new gas liquefaction capacities with about 35 million tonnes coming online in 2018 and another about 30 million tonnes expected to come online in 2019. Shale gas production continues to be robust in the USA. Asian spot LNG prices, which remained $10-11 per MMBtu during the summer of 2018 have already declined to well below $5 per MMBtu mark. “The gas price for H1 FY20, though higher than H2 FY19, continues to remain low at an absolute level. Accordingly, gas production remains either a break even or a loss-making proposition for most fields for the upstream producers notwithstanding some decline in oil field services/equipment cost,” K Ravichandran, senior vice-president at ICRA, said. The appreciation of the Rupee against the dollar in the past few months also dampened the realizations of the gas producers. “Going forward, with several new gas liquefaction capacities coming online globally, the supply glut is expected to keep prices of domestic gas low in the near to medium term leading to poor returns even as domestic gas producers especially ONGC ramps up gas production significantly,” he said. The absence of a floor and sustained low prices — as seen in the past few years post implementation of the modified Rangarajan formula — make exploration and production unviable even for benign geologies. Nonetheless, with the goal to increase the mix of natural gas in the overall energy mix, the Union cabinet approved the policy framework on reforms in the upstream sector in February 2019. That allowed marketing and pricing freedom for new discoveries whose FDP is not yet approved and fiscal incentive provided for additional gas production over and above the normal production. That is an overall positive step for E&P companies. According to ICRA, the ceiling on price for gas produced from deep water, ultra-deepwater, high temperature, and high-pressure fields has also been announced at $9.32 per MMBtu for the period H1 FY20. That is 21.5 percent higher than the price ceiling of $7.67 per mmbtu for the period H2 FY19 which could incentivize the development of such projects.
CNG prices likely to rise by about Rs 1.25/kg
The rates of compressed natural gas (CNG) likely to rise by about Rs 1.25 per kg and domestic piped gas by about 70-80 paise per standard cubic meters (SCM) in Delhi following a 10% rise in domestic natural gas price in the six-monthly revision on Monday, according to people familiar with the matter. Other cities too will see similar price increases. Indraprastha Gas Ltd (IGL), the city gas distributor in Delhi and its satellite cities, is expected to shortly announce new prices. The rate for Noida in Uttar Pradesh will be slightly less due to lower taxes. Mahanagar Gas, Gail Gas and other city gas distributors too are in the process of raising rates in their respective license areas. Higher prices mean costlier drive for CNG vehicle owners and increased kitchen fuel bills. City gas distributors depend on cheaply priced domestic gas for supply to vehicles and homes but source expensive liquefied natural gas (LNG) for their commercial and industrial clients. Domestic gas price, which is revised twice a year and announced at the end of March and September, is calculated by a government-set formula that takes average rates from international trading hubs. Domestic gas price has risen to $3.69 per million metric British thermal units (mmBtu) from $3.36 per MMBtu. The new price will be applicable for the April-September period. The maximum price producers can charge for gas from difficult fields has risen to $9.32 per MMBtu from $7.67 per MMBtu, much higher than the spot liquefied natural gas (LNG) rates that are around $6.5 per MMBtu. Spot rates are subdued these days mainly due to oversupply in the Asian region and weaker demand. The price ceiling, linked to alternative fuels, is based on the average of the preceding 12 months. The ceiling has jumped 40% since it was introduced in April-September 2016. The gas price jump will boost earnings at ONGC, Oil India, RIL and Vedanta but would hurt consumers. The input cost will also rise for power, fertilizer, petrochemicals, refineries and other factories using natural gas as fuel or feedstock.
Total, Tellurian sign deals to develop Driftwood LNG project
French oil and gas major Total SA and U.S. company Tellurian Inc have signed several deals to develop the Driftwood liquefied natural gas (LNG) project in Louisiana, they said on Wednesday. They have signed a non-binding heads of agreement (HOA) where Total will invest in Driftwood Holdings and offtake 2.5 million tonnes per annum (mtpa) of LNG. The HOA will include both companies entering into a binding sales and purchase agreement (SPA) to take 1.5 million tonnes per annum of LNG from Tellurian Marketing’s LNG offtake volumes from the Driftwood project. It will also include a $500 million equity investment by Total in Driftwood LNG and the purchase of an additional 1 mtpa of LNG from the proposed project. The SPA is for the purchase of LNG on a free-on-board (FOB) basis for a minimum of 15 years, at a price based on Platts Japan Korea Marker (JKM). Total will also buy about 20 million shares of Tellurian common stock for $200 million. The agreements are subject to relevant regulatory approvals and to a final investment decision on the Driftwood LNG project, which is expected to be made by Tellurian in the first of this year.
India, China to drive LNG demand in Asia for the next 15 years
Global demand for liquefied natural gas will grow at 2 percent a year for the next 15 years, the chief executive of Qatar Petroleum said at the LNG2019 conference in Shanghai on Tuesday. Growth in developed markets such as Japan and South Korea will be moderate, while there will be some growth in Europe after years of stagnation, said Saad Al-Kaabi, Qatar’s minister of state for energy affairs as well as president and chief executive of Qatar Petroleum. “China, along with India, will continue to lead Asia as the main drivers behind the growth of global LNG demand,” Al-Kaabi said at the conference, according to a press release later issued by Qatar Petroleum. Qatar has shipped more than 50 million tonnes of LNG to China, more than 22 percent of China’s imports of the fuel over the past ten years, he said. Al-Kaabi said demand for gas will continue to rise due to the growing concerns over the environment and climate change, and widespread moves towards using cleaner and more cost-effective fuels. “While some see natural gas as a transition fuel, we believe it is a destination fuel. It is the cleanest of all fossil fuels. It is reliable, affordable, and the fuel of the future,” he said. Qatar Petroleum also said in the press statement that it has awarded a number of contracts related to its LNG expansion project aimed at increasing LNG production capacity from 77 million tonnes a year to 110 million tonnes a year by 2024. Main invitations for the engineering, procurement and construction contracts for the onshore facilities will be issued by the end of the month, according to the statement. Qualified shipyards will be invited to take part in a tender for building the LNG ships that will be required for its fleet for the expansion project, it also said. It has also begun construction at its joint-venture 16 million tonnes-a-year Golden Pass LNG export project in Texas in the United States, along with project partner Exxon Mobil Corp. The project is expected to be in operation by 2024.
SoCalGas to replace 20 per cent of traditional natgas supply with RNG by 2030
Southern California Gas Co on Tuesday said it plans to replace 20 percent of its traditional natural gas supply with renewable natural gas (RNG) by 2030. By 2022, the company aims to replace 5 percent of its natural gas supply with RNG, SoCalGas said in a statement. RNG is an environment friendly renewable fuel produced from food waste, farms, landfill and sewer systems. SoCalGas, a unit of California energy company Sempra Energy , has filed a request with the California Public Utilities Commission (CPUC) to allow customers to purchase renewable natural gas for their homes and expects the approval by the end of the year.
China gas demand to reach 360 bcm in 2020: CNOOC
China’s gas demand will reach 360 billion cubic metres (bcm) in 2020 and rise to 480 bcm by 2025, Li Hui, vice-head of China National Offshore Oil Corp (CNOOC) told a conference here on Wednesday. China has put itself under pressure by signing too many long-term supply contracts at relatively high prices, he added.
BS VI fuel: Indian Oil says supply has begun in 12 NCR districts, Agra
Supply of ultra-clean Euro-VI grade petrol and diesel has begun in cities adjoining the national capital from Monday, Indian Oil Corporation (IOC) said. While Delhi in April 2018 became the first city in the country to leapfrog from Euro-IV grade petrol and diesel to Euro-VI fuels, cities in the national capital region like Noida and Ghaziabad switched over to the cleaner fuel from Monday. Rest of the country will follow suit from April 2020. “Oil companies keep up BS-VI (Euro-VI) promise! 12 NCR districts and city of Agra converted to BS-VI green fuels from today,” IOC said in a series of tweets. In keeping with the implementation plan for BS-VI grade fuels in the national capital region (NCR), the oil industry Monday switched over to supply of BS-VI grade transportaiton fuels in 12 contiguous districts of Rajasthan and Uttar Pradesh as well as the city of Agra, it said. Petrol and diesel containing 10 parts per million or ppm is now being supplied in Alwar, Bharatpur, Karauli and Dholpur in Rajasthan and Meerut, Muzaffarnagar, Ghaziabad, Gautam Budh Nagar, Baghpat, Hapur, Bulandshahr, Shamli and Agra in Uttar Pradesh. Originally Gurugram and Faridabad too were to get Euro-VI grade fuel from April 1 but supplies there have been postponed. India had in 2015 decided to leapfrog to Euro-VI emission norm compliant petrol and diesel from April 2020, from the Euro-IV grade at present. While the deadline for the rest of the country stands, the same for Delhi, which is choking on thick toxic smog, was brought forward. Euro-VI grade fuel contains 10 ppm of sulphur as against 50 ppm in Euro-VI fuels. “BS-VI fuels would be supplied through 1,630 fuel stations of the three OMCs (IOC, BPCL and HPCL) in Delhi and NCR region,” IOC tweeted.
City Gas Distribution: New gas licences promise solid gains
Consumers have never had it so good as far as potential availability of cleaner and cheaper gas for their energy needs is concerned, with 136 geographical areas (GAs) being awarded in the ninth and tenth round of city gas distribution (CGD) licence auctions in the last two years. This is a huge jump over the 91 GAs awarded in eight CGD rounds over the preceding eight years. This acceleration has been accompanied by the entry of new players in the CGD space. Almost 50% of the 136 GAs were won by Adani Gas and the oil marketing companies, outbidding incumbents like Indraprastha Gas, Mahanagar Gas and Gujarat Gas—the new entrants were aggressive with their bids even as the existing players concentrated mostly on return on capital. After the tenth round, CGD licences have been auctioned for 228 GAs in all, comprising 402 districts across 27 states and union territories. Some experts have expressed doubts regarding the viability of bids by the new players. “We remain skeptical of work completion by successful bidders given the extremely aggressive PNG (piped natural gas) and CNG (compressed natural gas) station targets,” Edelweiss Securities has observed in a report. The latest rounds entail setting up of 8,181 CNG stations and 42.4 mn PNG connections compared to 1,349 CNG stations and 4.2 mn PNG connections in the earlier rounds put together. However, the new entrants are confident of meeting targets. “We were very conscious of the number of PNG connections we quoted. We will be able to achieve those targets,” says P.P.G. Sarma, MD for CGD and logistics at Atlantic Gulf & Pacific Co of Manila (AG&P). The company won three GAs in the ninth and nine GAs in the tenth round. AG&P claims to have done a detailed study of the GAs and met customers before it bid for 13 GAs in the tenth round. “The targets will be met through innovative solutions derived from our global expertise,” he says. “It is really about how we control the molecule in its journey from the terminal to kitchens or fuel stations through our designs and systems,” points out Joseph Sigelman, CEO, AG&P. One private player to have made a huge impact in the last two rounds is Adani Gas, having won 15 GAs on its own and another ten in a joint venture with Indian Oil (IOC). Again, the company is confident of achieving targets. “Our contractual offerings are extremely flexible and designed to suit customer requirements in all the segments,” says an Adani Group spokesperson. Among the other top winners in the ninth and tenth rounds are IOC (17), Bharat Gas Resources (13), Torrent Gas (13) and Hindustan Petroleum Corporation (10). Given the aggressive bidding, analysts at Edelweiss “expect consolidation to take place, to the benefit of incumbents, as new entrants fail to deliver on steep targets”. Be that as it may, completion of work mandated by the ninth and tenth rounds —on-ground results are expected from 2020 onwards and run up to 2029— would go a long way in taking the share of gas in India’s energy mix from 6.5% to the targetted 15%.