Gas & LNG in Review: January 31 - February 05, 2016

Alexandra Marie Ferraro's picture
Alexandra Marie Ferraro, Energy Analyst, Guest Reporter
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This week’s natural gas news was complete with important corporate announcements, production cuts, and a potential price war. Check out the highlights below in case you missed them:

Australia’s AGL to Abandon Natural Gas Exploration and Production in Queensland and New South Wales. AGL Energy Ltd, one of Australia’s energy giants, announced on Thursday that it plans to abandon gas exploration and production projects in Queensland and New South Wales. The company cited the burden of falling global oil prices on Queensland gas prices as well as indications of lower-than-expected volumes in the Gloucester Gas Project. The decision has resulted in impairment charges totaling AUD 640 million (USD 459 million) post-tax.

There will be no change in AGL’s commercial and retail gas activities, the press release informed. “AGL is confident that it has sufficient gas for its residential and small business customers,” invoking the newly signed Gippsland Basin Joint Venture and expansion of the Eastern Gas Pipeline.

Upon review of the Gloucester Gas Project, AGL determined the AUD 1 billion investment would not yield the originally anticipated returns and that terminating production 12 years early is “the most responsible course of action”. AGL will also cease exploration in this region.

According to Reuters, AGL shares went up 2.4 % following the announcement. Will other companies follow suit as crude prices continue to plummet? Let us know your thoughts.

Total Announces Agreements with China’s ENN, Indonesia’s Pertamina. On Tuesday, French energy company Total announced it had signed long-term LNG sale and purchase agreements with the state-owned Indonesian Pertamina. The agreement involves the supply of LNG from 0.4 million increasing to 1 million tonnes per year over a period of 15 years. In exchange, Total has agreed to purchase 0.4 million tonnes of Pertamina’s contracted LNG in 2020 from Corpus Christi LNG in the U.S.

Two days later, another Total press release stated Total has signed a binding Heads of Agreement with China’s ENN LNG Trading. This latter agreement anticipates the supply of 0.5 million tonnes of LNG per year over a period of 10 years, expected to begin in 2018. As with the Indonesian agreement, the agreed-upon delivery will be sourced from Total’s global LNG portfolio.

With these new agreements, Total appears to be positioning itself as a strong partner of Asia, a key LNG market. What is the current picture for LNG demand in Asia? Share your insights below.

Russia’s Sakhalin-2’s Tightened Production Reflects in the Market. After a string of technical issues at Russia’s Sakhalin-2 cut LNG production in half at the end of January, LNG spot prices in Asia regained footing, according to Platts. Due to the tightening of LNG supply from Sakhalin, demand has increased among Asian buyers who are reviewing deliveries in the throes of a harsh winter.

Late last week, Sakhalin Energy informed buyers that a force majeure had been declared due to a power outage at the plant. Platts data shows that the resulting production reduction takes the form of between six and seven cargoes per month.

On Thursday, a spokeswoman for Sakhalin told Reuters that maintenance on the Sakhalin-2 plant was expected to last until March. This is expected to be a minor dent in Sakhalin’s long-term production, however, as Gazprom’s deputy head Alexander Medvedev stated on Monday they expect a third liquefaction train to be added at Sakhalin-2 by 2021. The plant already exceeded its design capacity by 1.2 million tonnes in 2015. How will Asian customers fare this winter?

Potential Gas Market Price War on the Horizon. With the threat of US LNG deliveries hitting the European market later this year, Gazprom may be poised to launch a price war in the global gas market to protect assets in its most profitable region, an article by the Financial Times warned. A price war in the European market would be felt across the globe.

The Financial Times article likened such a price war to the one waged by Saudi Arabia in the oil market as Gazprom has the greatest spare production capacity of all gas suppliers in the market. They also produce some of the lowest-cost gas on the market today. Analysts expect a Gazprom-led price war would make investment in U.S. LNG less attractive.

U.S. liquefaction projects have been under way since the U.S. shale boom resulted in a flooding of cheap gas. The first cargoes are expected to land in Europe in the coming months.

How would a gas price war change the make-up of global LNG? Tell us what you think.

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