Gas & LNG in Review: April 24-29, 2016

Alexandra Marie Ferraro's picture
Alexandra Marie Ferraro, Energy Analyst, Guest Reporter
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This week’s natural gas news featured a brighter outlook for Total, a new gas tariff for Ukraine, strong earnings for Novatek, and yet another market for US natural gas. Read through our highlights below.

Total Surprises with Strong Numbers for Q1, Natural Gas Production Up: Total reported a high natural gas output and better-than-expected profits despite tumbling oil prices and lower LNG sales. Reuters reported on Wednesday that the French company’s net adjusted profit fell to only $1.6 billion, defying analysts’ predictions for $1.2 billion. The company also said it was cutting costs and spending less than the originally announced $19 billion in investments for 2016, Reuters said.

Platts highlighted Total’s expanding gas output from Europe and Central Asia the first quarter: a 16% regional increase up to 2.81 Bcf/d, and a 2% overall rise in gas production to 6.44 Bcf/d. The company credited the start-up of its Angola LNG, the Bolivian Incahuasi gas field and Kashagan oil field in Kazakhstan for enabling the rise in production this year, both news sources explained.

Reuters says Total’s shares had bumped up by 1.4% following the company’s announcement. Are you surprised that Total seems to have defied the odds and pessimistic expectations by analysts? Let us know your take on the story.

Ukraine Reconfigures Gas Prices to Secure IMF Loan: On Wednesday, newly elected Ukrainian Prime Minister Volodymyr Groysman and his government moved to unify household and industrial natural gas tariffs in an attempt to acquire a new $1.7 billion IMF loan aimed at reducing corruption and strengthening the economy, Reuters and Bloomberg reported. According to Bloomberg, the new gas tariff will no longer differentiate between winter and summer prices, and households and industrial customers will pay the same price: 6,879 hryvnia ($273) per 1,000 cubic meters effective May 1st.

The decision follows calls by the IMF for Ukraine to increase tariffs and lower subsidies for its state-run company Naftogaz, Reuters said, also citing Prime Minister Groysman asserting that this new system would be less open to manipulation and reduce corruption in the industry. However, the Assistant Secretary of State for European and Eurasian Affairs Victoria Nuland said more was needed that just the tariff reform, “Ukraine needs a new prosecutor general, real, deep judicial reform,” Bloomberg quoted Ms. Nuland.

How will this move affect the region? What impact do you think the new tariff will have on gas dealings with Naftogaz? Leave us a comment.

Russia’s Novatek Reports Strong Profit Following China Deal: In the face of sanctions, Novatek still reported a higher-than-expected net profit in the first quarter thanks to having sold 9.9% of Yamal LNG to the Chinese Silk Road Fund, according to Reuters. In their first quarter report, the company announced that including the China deal, their net profit was 115.9 billion roubles ($1.8 billion).

Reuters reported that the company had been struggling to raise investment for the expensive Yamal project and that turning to China will help offset the expense at a time when pursuing other partnerships is hindered by Western sanctions. The timing is still right for a China deal; as Forbes reported this week, China consumed 35% more gas than had been predicted for 2015 and contrary to some reports, gas demand remains high in China.

Might China become Russia’s most dependable investor as Europe increasingly shies away? Give us your thoughts below.

Mexico Might Be Ideal Market to Ease US Natural Gas Glut: The rapid flooding of the US gas market combined with a warm winter has created a supply glut that desperately needs a new market. According to the Financial Times, many US energy companies have set their sights on Mexico in pursuit of one.

The FT quoted David Porter, chairman of the Texas Railroad Commission, saying “It’s a huge potential economic benefit to US producers to be able to ship gas just across the border to Mexico.” Per the news source, several US energy companies have been investing in building up pipeline infrastructure; for example, the construction of the Roadrunner and Los Ramones II pipelines with 570m cu ft/d and 1.4 bn cu ft/d capacities, respectively.

The timing is appropriate; not only is the US facing supply glut, Mexico’s demand for natural gas is alive and well particularly as domestic production flounders. The Wall Street Journal reported this week that Mexico is importing more natural gas than it exports in crude oil. The FT cited data from Platts explaining that pipeline capacity between the two countries is even expected to far exceed anticipated gas imports.

Would you be investing in US-Mexico border pipelines right now? What are the pros/cons we can expect to see? Share your opinion.

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