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Australia has double LNG and supply boost for domestic gas

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East Coast gas supply begins to be resolved while staying No. 1 ahead of Qatar

LNG Journal editor

Australian liquefied natural gas production in the third quarter of 2019 represented an annualised rate of 79.5 million tonnes, keeping the nation in the No. 1 spot of global producer, ahead of Qatar’s nameplate capacity of 77 MTPA.

The output reached a record 20.0MT in the third quarter, up from 19.3MT in the second quarter and 18.1MT in the same three months a year ago, according to a report from consulting firm EnergyQuest.

Climbing

“We expect total Australian shipments to be about 82MT in the 2020 fiscal year,” said EnergyQuest.

Following the commissioning earlier in 2019 of the Royal Dutch Shell-operated Prelude FLNG plant offshore northwest Australia, national nameplate liquefaction capacity rose to 87.45 MTPA.

However, EnergyQuest said that the last quarter had seen dramatic declines in international energy prices compared with a year earlier.

“The biggest falls have been in spot LNG and coal but oil has also experienced a significant decline,” it added.

“However, the long-term oil-linked contracts that underwrote Australia’s LNG investment boom are still quarantining local producers from a global LNG glut that has taken Asian spot prices to a 10-year low,” explained EnergyQuest.

The Australian LNG price in the third quarter was between US$7.60 per MMBtu and US$8.80 per MMBtu.

During the quarter, the Australian East Coast natural gas market posted its largest surplus since LNG exports began from the three coal-seam-gas-to-LNG plant on Curtis Island near Gladstone in Queensland.

Natural gas production reached a record 500.1 petajoules during the three months with the new Northern Gas Pipeline supplying 6.1 petajoules, and amounting to a total increase in supply of 26.5 petajoules from the previous quarter.

“This is the largest East Coast surplus since the beginning of LNG exports and a dramatically better outcome than in the third quarter of 2018 when there was a deficit,” stated the report.

The LNG plants, Queensland Curtis, the Gladstone and Australia-Pacific LNG supply the main North Asian nations such as China, Japan and South Korea.

Australia-Pacific, operated by ConocoPhillips, ships cargoes to Chinese major Sinopec, which has a 7 million tonnes per annum contract, while the Shell-owned QCLNG delivers many cargoes to southern China.

“Record CSG production allowed Queensland’s LNG projects to satisfy political pressure to supply more gas to the domestic East Coast market while modestly increasing gas exports,” explained EnergyQuest.

Short-term east coast gas prices averaged A$8.23 per gigajoule (US$5.32 per million British thermal units), down by 7.8 percent from an average A$8.93 per gigajoule (US$5.77 per MMBtu) in the third quarter last year.

EnergyQuest noted that the Queensland prices were lower than those in the South of Australia and the significant fall in prices was likely to weaken the case for tightening the Australian Domestic Gas Security Mechanism (ADGSM) to guarantee domestic supplies.

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French LNG maritime storage design firm GTT awards licence for all ships to China’s Wison

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Gaztransport and Technigaz (GTT), the French technology firm for designs of systems for the maritime transportation and storage of liquefied natural gas, said it signed a technical and licensing agreement with Chinese shipbuilder Wison Offshore and Marine for a range of LNG vessels.

The assistance accord and licensing covers floating LNG production hulls, Floating Storage and Regasification Units (FSRUs), Floating Storage Regasification and Power (FSRP) units and conventional LNG carriers.

Wison is a pioneer in floating LNG in China, being the first in the world to deliver a barge-based FLNG production hull and an FSRU.

The Chinese yard has now obtained its GTT licensing deal after having successfully completed a qualification process that began earlier in 2019, including the construction of a Mark III technology storage tank mock-up.

“This agreement will enable both partners to further expand their offering to ship owners, to target new markets, especially focusing on floating based solutions, and to advance the development of LNG in the global supply chain,” said a GTT statement.

The Wison yard in Nantong port in the eastern province of Jiangsu delivered the FLNG production hull currently deployed at the port of Bahia Blanca in Argentina, the “FLNG Tango”.

The yard also constructed the world’s first barge-based FSRU. Both the LNG production barge and the FSRU were delivered to Belgian shipping line and project company Exmar.

“We are pleased to count Wison among our newbuilding partners,” said Philippe Berterottière, Chairman and Chief Executive of GTT.

“We are very interested in developing and building together new LNG infrastructures which can provide innovative natural gas value chain solutions,” added the CEO.

The President and Chief Operating Officer of Wison, An Wenxin, said the company was delighted with the deal.

“We are very proud to be licensed by GTT for membrane technologies. This will allow us to offer more actively LNG solutions with GTT’s technologies in China, which is what the market is asking for,” stated the COO.

In its most recent earnings, GTT reported a jump in nine-month revenues as its order book rose to 120 units.

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Leviathan gas field set to start amid FLNG plan

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Delek Group, the Israeli company developing the Leviathan gas field offshore Israel with Noble Energy of the US, confirmed the start of first gas deliveries in December and ongoing plans for a floating LNG project.

Delek outlined its proposals as it reported third-quarter revenues of 2.0 billion Israeli shekels ($578 million), down 9 percent compared with $2.2Bln ($651M) posted in the same three months of 2018.

Nine-month revenues were 6.04Bln shekels ($1.75Bln) versus 6.11Bln shekels ($1.76Bln) in the same period of 2018.

“The Leviathan project is fully complete, with domestic gas sales and exports to Egypt and Jordan scheduled to begin in the coming weeks,” said Delek.

The Israeli Leviathan gas field has resources of around 21.4 trillion cubic feet while the Tamar gas field reserves are 11.2 Tcf.

Other Delek-Noble interests in the Eastern Mediterranean include the Aphrodite gas field offshore Cyprus with an estimated 4 Tcf of recoverable resources.

Delek’s share of revenues from oil and gas sales, net of royalties, totaled 1.01Bln shekels ($291M) compared with 1.06Bln ($305M) million in the same period last year.

“In studying options for increasing production output in the Leviathan Reservoir Delek Drilling and the other Leviathan partners signed two separate interim agreements on July 29 with technology and FLNG service providers,” noted the company.

“These agreements concern suitability studies and detailed engineering design works for building an FLNG facility for the Leviathan Project in Israel’s exclusive economic zone,” it stated.

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LNG for bulk carrier

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Dec 9 (LNGJ) – The American Bureau of Shipping has granted approval in principle to Finnish company Deltamarin and French LNG storage tank firm GTT for a dual-fuel Newcastlemax bulk carrier design with LNG capability. Deltamarin, GTT and ABS have been cooperating on the development of this LNG-fueled bulk carrier. It is intended to meet current and future environmental targets by introducing GTT membrane-type LNG tanks with LNG fuel stored at atmospheric pressure and designed to ABS Class.

   ABS said that the approval addressed the design’s introduction of a membrane fuel tank sited in the aft of the vessel. The tank design is intended to maximize cargo capacity, with the additional tank having zero impact on available cargo space or the vessel’s hull dimensions. “A design such as this would allow owners and operators to capitalize on the potential of LNG as marine fuel to help meet emissions reduction objectives without having to compromise on cargo load,” said Patrick Janssens, ABS Vice President for Global Gas Solutions.

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US natural gas data

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Dec 9 (LNGJ) – The volume of US natural gas that was reported as vented and flared reached its highest average annual level of 1.28 billion cubic feet per day last year, according to the Energy Information Administration’s Natural Gas Annual, which contains updated data .

   The percentage of US natural gas that was vented and flared increased to 1.25 percent of gross withdrawals, up from 0.84 percent the previous year. Two states, North Dakota and Texas, accounted for 1.1 Bcf per day, or 82 percent, of the vented and flared gas.

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Adriatic LNG tender

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Dec 6 (LNGJ) – Adriatic LNG, the offshore import terminal owned Qatar Petroleum, ExxonMobil and with Italian gas grid operator Snam S.p.A. as a shareholder, has published a tender for the winter peak-shaving service to supply one LNG cargo with quantities between a minimum of 60,000 and a maximum of 70,000 cubic metres.

   The Italian Ministry of Economic Development said it would use the regasification terminal for peak-shaving during any high natural gas demand period. “The tender will close at 12.30pm on December 17 and LNG will have to be unloaded at the Terminal in one of the available slots: January 2-5, January 14-17, January 30 – February 2,” said a statement.

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Malaysians order ships

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Dec 6 (LNGJ) – French LNG storage technology firm GTT received an order from the South Korean Samsung Heavy Industries shipyard for tanks for two new LNG carriers on behalf of Malaysian ship-owner MISC Group.

Each vessel will have capacity of 174,000 cubic metres and will be fitted with the GTT Mark III Flex-plus membrane containment system when delivered in the first quarter of 2023. “This new order from our long-term partners SHI and MISC is proof of our mutual trust and the performance of our technologies,” said Philippe Berterottière, GTT’s Chairman and Chief Executive.

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Pakistan Struggles to Sustain LNG Demand as Economy Falters

Pakistan likely to curtail LNG imports in the short-term but efforts are underway to maintain foreign direct investment in the local energy sector by opening up domestic gas distribution channels.

Since 2015, Pakistan has become one of the fastest growing LNG markets as the country has pushed to ramp up its LNG import capacity to alleviate chronic energy shortages that have led to a decade of electricity blackouts. Regulatory challenges did not deter investors and the country now boasts two LNG import terminals (FSRUs) near Karachi.

Slower economic growth and structual market impediments weigh on LNG demand

However, slowing economic growth and structual market impediments are placing Pakistan’s LNG economy under considerable strain. Delays in the formulation of domestic gas regulations to allow third party access to gas infrastructure, limited domestic pipeline capacity as well as effectively reserving LNG for exporters and fertiliser producers through subsidies leave a substantial gap between imported and local gas prices whilst domestic gas reserves are dwindling. Estimates by the Asian Development Bank peg the country’s GDP growth at just 3.3% this year and 2.8% in 2020, compared to 5.5% in 2018.

Pakistan forced to reduce expensive LNG imports

Consequently, Pakistan has been trying hard to reduce its LNG imports. Our LNG Market Tracker shows the coutnry’s LNG offtakes on a protracted downards trend since March this year, with November’s imports at their lowest since 2016.

Major LNG supply tender cancelled

In October, state-owned Pakistan LNG cancelled a tender for 240 cargoes intended over a 10-year period (roughly equivalent to 14.5mmt) it had issued earlier in June, for which Qatar was rumoured to be the frontrunner, and instead opted to turn to the spot market when required.

Country hooked on relatively expensive Qatari LNG

Pakistan is already receiving the lion share (3.75mmt) of its LNG imports under a 15-year ‘take or pay’ supply contract with QatarGas II, constituting more than 63% of Pakistan’s LNG imports in 2019 to date. Under the terms of the deal, LNG arriving in any particular month will fetch 13.37% of the preceding three-month average price of a barrel of Brent. At the time, LNG spot prices in Asia were reported as low as $5.75/mmBtu whilst the Qatar deal equivalent would supply gas at around $7/mmBtu F.O.B.

Beyond this contract, Qatar has been supplying roughly 0.38, 0.83 and 1.4mmt under short-term contracts (and at presumably higher prices) in 2017, 2018 and 2019, respectively, our LNG Market Tracker shows. Pakistan’s remaining LNG imports derive from a wide roster of sources, ranging from Equatorial Guinea and Nigeria to portfolio trades out of the United States and European re-exports.

Recent spot tender closed 3pp below Qatar’s long-term prices

Pakistan LNG currently has only one open tender for one cargo of c. 140,00m3  D.E.S. with a delivery window of 16-17 February 2020. A recent Pakistan LNG tender for 5 cargoes closed last week, with Gunvor and DXT Commodities emerging as winners to supply roughly 1.5mmt in total at around $6/mmBtu ex ship (depending on Brent price developments in December).

Qatar unwilling to discuss discounts as part of current 15-year contract

Pakistani media have been reporting Qatar refused Pakistan’s requests for price adjustments earlier this year to prevent other offtakers to do the same. LNG imports are covering almost 25% of Pakistan’s gas demand, so that a protracted curtailment of imports raises the spectre of crippling electricity and gas shortages in 2020.

Pakistan keen to achieve turnaround by opening up domestic gas market

This forced Pakistan to quickly adjust legislation to explore other avenues to offset the costs of relatively expensive Qatari LNG at times of slower economic growth. As such, ExxonMobil signed a gas-for-transport agreement with with Pakistan’s Universal Gas Distribution Company (UGDC) to become the first importer of LNG that is not subject to control by state-owned assets.  Singapore-based commodity trader Trafigura also signed an agreement with UGDC to use surplus LNG capacity at the country’s second chartered FSRU (the BW Integrity) to supply the domestic transport sector. The companies aim to convert a share of Pakistan’s petrol market into a compressed natural gas market, arguing that they would be able to provide cost savings of up to 30% to private motorists if they convert their vehicles.

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Osaka Gas in US buy

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Dec 3 (LNGJ) – Osaka Gas, the Japanese utility and LNG buyer, has completed the purchase of a US upstream oil and gas firm, Sabine Oil and Gas Corp. from its parent company Sabine Holdings. As part of the sale, Osaka Gas said its US subsidiary would retain the current Sabine executive team and employees.

   Osaka Gas President Takehiro Honjo said he welcomed the acquisition of US expertise in shale development. “While Osaka Gas has participated in the Freeport LNG liquefaction project and independent power projects in the United States, we intend to expand our US upstream business by enhancing our capabilities with Sabine Corp’s excellent operatorship,” stated Honcho.

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Engineer Subsea 7 goes ahead with Wheatstone field contract

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LNG Journal editor

Norwegian-listed engineering company Subsea 7 SA said it would be going ahead with a substantial contract for the second phase of the Julimar-Brunello fields development project linked to the supply of feed-gas to the Wheatstone LNG export plant in Western Australia operated by US major Chevron Corp.

The contract was awarded to Subsea 7 earlier in 2019 subject to the final investment decision of the Julimar-Brunello gas field joint venture participants, Woodside Petroleum of Australia and Kuwait Foreign Petroleum Exploration Co. The FID has now been taken.

Partners

Woodside and its Kuwaiti partner each own 13 percent of the Wheatstone project which came on stream in 2017 and comprises two Trains with output of almost 9 million tonnes per annum.

Chevron retains over 64 percent of the venture while two foundation customers, JERA Co. Inc and Kyushu Electric Power of Japan, hold smaller stakes.

The onshore Wheatstone liquefaction plant is located 12 kilometres west of the town of Onslow in Western Australia’s Pilbara region.

The Julimar gas field is located about 200 kilometres offshore the northwestern coast of Australia.

The concept definition for phase two of the Julimar-Brunello project will tie-back the Julimar field to the existing Brunello subsea infrastructure.

Across the 25-year life of Wheatstone two flowlines of around 22.5km long are needed to connect the Julimar and Brunello fields at production and crossover manifolds back to the Wheatstone offshore platform.

Subsea 7, whose corporate headquarters are in Luxembourg, will now supply and construct the second of the two flowlines and other infrastructure.

“The offshore activities will be performed in 2021 using Subsea 7’s reel-lay and heavy construction vessels,” it added.

Andy Woolgar, Subsea 7 Vice President for Australia and New Zealand, said that the contract with Woodside reflected what can be achieved with strong collaboration and early engagement.

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