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Wood Mackenzie consultants say forecasts are unpredictable but point to demand growth

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Wood Mackenzie, the UK-based energy consultants, said the while the collapse of LNG prices towards US production break-evens was foreseeable, the narrative for the rest of 2020 could not be more unpredictable.

In their latest short-term natural gas and LNG outlook, the consultants weigh the risks that coronavirus, sustained low oil prices and LNG oversupply pose to the sector this year.

“An already oversupplied LNG market comes out of a mild winter with high inventories across Europe and Asia, only to face a global pandemic which has already destroyed gas demand across China and looks increasingly set to do the same across the Asia Pacific and Europe,” explained Wood Mackenzie research director Robert Sims.

“We expect global LNG demand to grow by 6 percent year-on-year to 371 million tonnes in 2020; the numbers will need constant revision as economies around the world feel the force of the growing pandemic,” said the report.

Wood Mackenzie said the impact to gas consumption in China had been severe, as robust containment measures were quickly put in place through January and February 2020.

With a resumption in economic activity, the report estimates a full-year gas demand reduction of between 6 billion cubic metres and 14 Bcm in 2020, translating to a 4 percent to 6 percent growth in gas demand this year.

“With the daily number of new cases continuing to fall in China, policy focus has turned to gearing up economic recovery,” said Wood Mackenzie.

“Daily tariff indicators suggest transport and logistic constraints are being lifted quickly,” it added.

“Also, the government is reducing gas prices to non-residential users, which provides support to coronavirus-affected businesses to resume operations,” stated the report.

However, in Wood Mackenzie’s view these measures were insufficient to stir lost-demand recovery and new coal-to-gas switching programmes.

China’s LNG demand is expected to reach 65MT this year, representing a 6.6 percent growth year-on-year.

The report noted that in Europe, low gas prices continue to support gas-fired generation, though future coronavirus containment measures and threats of an economic downturn pose a risk to market growth.

“Worst-case scenarios could see lockdowns deployed in more countries, risking severe disruptions to global supply chains by restricting movements of people and goods,” said Wood Mackenzie.

One outcome of the oil slump appears to be that sustained low prices supports coal-to-gas switching in the power sector but hurt US producers

Wood Mackenzie forecasts that should low oil prices be sustained, oil-indexed LNG contracts in Japan and South Korea will become cheaper and this could disrupt coal generation in favour of gas in both markets.

This could happen as early as August 2020 and the effects would be similar to sustained low Dutch Title Transfer Facility prices in 2019 removed coal from power grids across Northwest Europe.

The consultants expect Japan’s LNG demand to grow 5.1 percent to 81MT in 2020, compared to last year.

At the same time, the forecast South Korea’s LNG demand could rise 7.7 percent to 42MT as more LNG displaces coal in the power sector of both countries.

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Mexican Costa Azul project set to advance with second-quarter FID

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Sempra Energy said its Mexican subsidiary would move forward in 2020 with the Costa Azul liquefied natural gas export project in the northern Pacific Coast state of Baja California with permits already in place to re-export as LNG pipeline supplies imported from the US.

Sempra said a final investment decision to transform the existing Costa Azul import terminals into an export plant would come in the second quarter, pushed back from the first quarter, though all preparations were on track.

“The current economic environment may impact the schedule,” said Justin Bird, President of Sempra LNG. “However, the company remains confident in the long-term demand for LNG,” added Bird.

Sempra subsidiary IEnova, or Infraestructura Energetica Nova SA as it is officially known, is overseeing the project.

Costa Azul will have its liquefaction capability constructed in two phases.

The first part of the transformation of the plant will see the building of a single liquefaction Train to be located adjacent to the existing terminal and with capacity for 2.4 MTPA of exports.

The Mexican project has already signed three accords with French major Total and Japanese companies Mitsui & Co. and Tokyo Gas for the full export capacity of Phase 1 development at Costa Azul.

The Costa Azul venture has additionally received US authorizations for natural gas to be exported to Mexico and re-exported to Non-Free Trade Agreement countries.

Costa Azul was the first LNG import terminal on North America’s West Coast and was built in 2008 about 15 miles north of Ensenada and with bi-directional pipeline connects to the US.

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Shell given until May 31 by regulator to meet Australian offshore safety requirements for Prelude FLNG hull

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Royal Dutch Shell has been given more time by the Australian regulatory authorities to meet additional safety requirements on its Prelude floating LNG export hull deployed offshore northwest Australia.

Shell was told that due to “mitigating circumstances” of the coronavirus, it had been given until May 31 to satisfy the list of requirements that followed a previous inspection visit.

The Australian regulator that has issued new directives to Shell is the National Offshore Petroleum Safety and Environmental Management Authority (Nopsema).

The Prelude FLNG hull, located 475 kilometres north-northeast of the town of Broome in Western Australia, started commercial operations in June 2019 and has capacity to produce 3.6 million tonnes per annum of LNG.

It is anchored in the Browse Basin and is the world’s fourth FLNG venture to start operations.

According to Nopsema, Shell had made significant progress during the previous audit to ultimately comply with the regulations.

At the end of January 2020, Shell was asked to act on two particular issues on the Prelude hull.

It was firstly told, to conduct a detailed review of those aspects of the safety management system (SMS) that related to the safe isolation of plant and equipment and to identify the gaps with industry good practice.

Another directive told Shell “not to conduct intrusive activities into plant and equipment where the loss of containment as a result of that intrusive activity could result in risk to the health and safety of persons.”

Nopsema had conducted an inspection that included the topic “Safe Isolation of Plant and Equipment”. It said at the time that Shell’s written aspects of the SMS were broadly consistent with good industry practice.

However, the report made 10 recommendations to improve minor gaps.

“Since September 2019 there have been three notifications of dangerous occurrences at the Prelude FLNG Facility that Nopsema inspectors attributed to deficiencies in the aspects of the SMS that relate to the safe isolation of plant and equipment,” it added.

There are currently four FLNG production vessels in commercial operation worldwide. The first FLNG hull to enter production was one developed by Petronas of Malaysia and which has already been moved to a new stranded gas field location.

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Chinese gas company ENN Energy boosts city franchises and small-scale distribution profits

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ENN Energy Holdings, the Chinese city-gas company and owner of the Zhoushan LNG import terminal in eastern Zhejiang province, reported a jump in annual profits and increased retail gas sales.

ENN posted annual revenues of 70.18 billion yuan (US$9.9Bln) a 15.6 percent increase on the 60.69Bln yuan US$8.58Bln) of income recorded in the previous year.

Sales jump

“The increase was mainly driven by the robust growth of natural gas sales, the integrated energy business and value added activities,” said ENN.

The company said its profits from pipeline natural gas, city-gas supplies and a growing gas-fuel business for vehicles increased by 18 percent to 5.27Bln yuan (US$746 million) from 4.47Bln (US$632M) during the year.

ENN, which is listed on the Hong Kong stock exchange, said profits attributable to owners of the company doubled to 5.6Bln yuan (US$802 million) from 2.81Bln yuan (US$398M) the previous year.

“The surge in net profit was attributable to the strong growth of the group’s core businesses mentioned above and the improvement of its operating efficiency,” explained ENN.

“In addition to that, oil price movements also led to a large fair value change of the derivative contracts which were used to hedge the group’s long-term liquefied natural gas contracts,” it added.

ENN’s retail natural gas sales volumes rose 14.7 percent in the year to 19.92 Bcm cubic metres, the equivalent of almost 15 million tonnes of LNG, from 17.37 Bcm the previous year.

At year-end ENN had a total of 217 city-gas franchises spanning 22 provinces and added 30 more during the year.

“The Group upheld its customer-oriented philosophy, dug deep into the existing customer base and explored new customers with potential demand,” said ENN.

“Most of the ENN’s franchises are located in key areas of air pollution prevention and control, including Beijing-Tianjin-Hebei, Henan, Shandong, Jiangsu, Zhejiang, Guangdong, where local governments strictly implement environmental protection policies,” it explained.

ENN said it took advantage of strategic positioning of its Zhoushan LNG import terminal to expand its wholesale and retail gas businesses.

“We distributed LNG to downstream customers such as small-scale gas distributors and retail gas users outside its city-gas concessions, to LNG refuelling stations and to power plants,” added ENN.

The company said that its final dividend per ordinary share would be 43.3 percent higher than the previous year at HK$1.67 (US$0.21) versus HK$1.19 (US$0.15) in 2018.

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Indian LNG imports continue to rise with regas capacity

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LNG Journal editor

Indian liquefied natural gas imports jumped by more than 67 percent last month to 40 cargoes as import capacity gradually increases to handle the shipments, mainly from Qatar, Australia, the US and Africa.

LNG imports for the month of February amounted to 2.55 million tonnes (3.45 billion cubic metres), which was 67.5 percent higher than the 1.52MT recorded in February 2019.

Volumes received in January had come to 2.05MT, about 25 percent up on the 1.64MT received in January 2019.

For the first 11 months of the fiscal year, Indian LNG imports surged 16.9 percent to 27.80MT compared with 19.50MT in the period from February 2018 to the end of March 2019, according to the Indian Ministry of Petroleum and Natural Gas.

The main operating terminals on India’s West Coast are at Dahej, Hazira and Dabhol, near Mumbai. The newest terminal at Mundra is north of Mumbai and is now operational and awaiting more shipments.

There is additionally the Kochi facility in the southwest state of Kerala and one East Coast terminal at Kamarajar, 25 kilometres north of Chennai Port in Tamil Nadu, and also known as Ennore.

The total of LNG imports has been rising towards 250 cargoes a year as more infrastructure is constructed, including pipelines to reach more industrial and city-gas customers. The Ministry noted that February 2020 imports cost $900 million compared with
$700M in February 2019 on higher volumes.

Costs for the fiscal year to date came to $8.8 billion versus $9.5Bln in the first 11 months of 2018-2019.

Domestic natural gas output for February 2020 was 2.341 Bcm, down 8.8 percent from the 2.82 Bcm logged in February 2019.

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Atlantic Basin arrivals

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March 31 (LNGJ) – Norway and the US are keeping up the supply of cargoes to European terminals. Among the steady flow of shipments, the 140,000 cubic metres capacity “Arctic Discoverer” is scheduled to unload on April 2 at the Dunkirk terminal on the Channel Coast of France from the Hammerfest plant in Norway operated by Equinor. The 147,200 cubic metres capacity vessel “Arctic Lady” will deliver a second Norwegian cargo to France on April 4 when a shipment is discharged at the Fos sur Mer facility on the French Mediterranean coast near Marseilles. The 173,400 cubic metres capacity carrier “Oak Spirit” will unloadi a US cargo on April 1 at the Polish terminal at the Baltic port of Swinoujscie from Corpus Christi in Texas.

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Piraeus-based fleet owner GasLog launches latest LNG carrier at Samsung yard in Korea

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GasLog Ltd., the LNG carrier fleet owner with 20 vessels and with another 15 ships held by its US affiliate GasLog Partners, has launched its latest carrier at the South Korean Samsung Heavy Industries shipyard.

The carrier named “GasLog Georgetown” was expected to be delivered for service by late October 2020.

The vessel has capacity of 180,000 cubic metres and will also feature WinGD’s low-pressure gas X-DF propulsion.

The X-DF engines are able to operate both on natural gas or diesel fuel.

GasLog took delivery of two newbuilds in 2019 and signed long-term charters with two new customers, JERA Co. Inc. of Japan and the Spanish utility, Endesa SA.

GasLog, which was previously based in Monaco now has its headquarters in the Greek port of Piraeus, has a total fleet of 35 vessels, with 28 carriers on the water and seven on order.

The company relocated senior management and more of its employees to the Piraeus office to improve efficiency and to reduce overheads.

GasLog reported annual and fourth-quarter losses in February 2020 of $119.9 million versus a profit of $30.3M in the same quarter of 2018.

For the year, GasLog’s losses came to $114.6M compared with a profit of $126.4M in 2018.

Annual revenues rose to $668.8M from $618.3M in the previous year, while fourth-quarter revenues slipped to $182.2M from $188.6M in the prior-year quarter.

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OLT auction timetable

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March 30 (LNG) – OLT Offshore LNG Toscana SpA., the operating company of the floating storage and regasification unit “FSRU Toscana” moored 22 kilometres off the Italian coast between the cities of Livorno and Pisa, had its updated gas agenda approved by Italian regulators. “One of the key changes introduced regards the possibility to send one or more expressions of interest for annual and multi-year regasification capacity,” said OLT Offshore. “This update has been introduced to offer to users the possibility to request regasification capacity in accordance with long-term import projects,” it explained.

   Expressions of interest for OLT Offshore’s allocation process will have the following timeframe: April 1st, 2020 , publication of available continuous capacity on OLT’s website; April 14, each interested party may send one or more expressions of interest to OLT; April 30, publication of the continuous capacity conforming to expressions of interest received; and starting from May 27, an auction on the PAR Platform.

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Q-Max for UK April 5

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March 30 (LNGJ) – Qatar is keeping up its steady stream of the deliveries to the UK with the Q-Max carrier “Al Mafyar”, with 266,000 cubic metres capacity, scheduled to unload a cargo on April 5 at the South Hook terminal in Milford Haven in Wales from Ras Laffan.

   The cargo was heading for the UK as the National Balancing Point natural gas price dropped again from last week to $2.30 per million British thermal units while Continental Europe’s Dutch Title Transfer Facility (TTF) price was also lower at $2.35 per MMBtu.

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