Strategically-worded statements from OPEC, in particular signals from Saudi Arabia that it was moving to stabilise markets, lifted oil prices last week, moving up to the mid-US$40s as traders bet that the OPEC talks will lead to a balancing of supply with demand.
Russia’s Rosneft announced that it had made a new condensate find at its Wild Orchid gas field in Vietnam, located in the prodigious Nam Con Son offshore basin. Pre-drill preliminary assessments indicate 12.6 billion cubic metres of gas and 5.4 million barrels of condensate, which ties in synergistically as it can be linked to Rosneft Vietnam’s existing Lan Tay production platform.
Australia launched the 2016 Offshore Petroleum Exploration Acreage Release last week, covering 28 areas across five basins. The offshore blocks on offer are in the Bonaparte Basin, Browse Basin, Offshore Canning Basin, Roebuck Basin and Northern Carnarvon Basin in Western Australia, with 25 areas up for work program bidding and three areas for cash bidding.
CNPC has begun work on the fourth Shaanxi-Beijing gas pipeline, moving 25 billion cubic metres of gas per annum to China’s energy-hungry capital in a bid to reduce smog from oil- and coal-burning power plants. There are already three existing pipelines with total capacity of 35 billion cubic metres, and the new 1,114 km pipeline will bring that total up to 60 billion cubic metres when it starts up in October 2017.
Indian oil demand is growing fast, outpacing even China’s growth currently, and refiners are planning ahead to feed that demand. CPCL (Chennai Petroleum) has announced a US$3 billion plan to expand its Nagapattinam plant in Tamil Nadu from 20 kb/d to as much as 180 kb/d. A feasibility study is underway and the plans, if finalised, will go to approval by the Ministry of Petroleum and Natural Gas next year.
In more Indian refinery news, the Numaligarh Refinery in Assam, a joint venture owned by BPCL and Oil India, is planning a US$3 billion expansion of its 80 kb/d refinery, which would treble the site’s capacity to 180 kb/d. Surging demand in India’s northeast is the impetus behind the plans. Ministry approval is required for the plan to go ahead.
Santos is setting aside A$1.05 billion to pay for a tax impairment charge on its Gladstone LNG project in its 1H16 financials. The impairment comes dues to a slower ramp up of Gladstone equity gas production and an increase in third-party gas prices, with sustained low oil prices constraining capital expenditure and Gladstone ramp-up.
Indonesia has approved plans to create holding companies for state firms, including those in the energy sector. Under the new framework, which is designed to encourage state-owned companies to spearhead industrial development, PT Pertamina will be the holding company of the oil and gas sector, with PGN (Perusahaan Gas Negara) as one of its units. This will hopefully bestow some measure of decisive power in Pertamina, which it can use to push ahead with some of its ambitious upstream and refinery projects to increase Indonesia’s crude production and reduce its current dependence on imported oil products.
Continued attacks on pipeline infrastructure in Nigeria persist, despite the government issuing cash payments in efforts to negotiate peace talks. Last week, Shell declared force majeure for Bonny Light crude liftings when a leak appearing on the Niger Delta pipeline. Bonny Light is Nigeria’s fourth crude stream to be under force majeure for deliveries, after Qua Iboe, Forcados and Brass River. ExxonMobil, which exports Qua Iboe, is attempted to re-route its streams via an alternate pipeline while it focusing on repairing the main line damaged in July.
With its energy policy now set in stone, Israel is preparing to exploit the country’s new discoveries of gas (and oil). With regulatory uncertainties now eliminated, some 24 offshore exploration blocks will be up for tender in November, all of which are close to the Leviathan gas field. Preliminary indications by the Israeli Energy Ministry indicates 2,200 billion cubic metres of natural gas and 6.6 billion barrels of oil set to be discovered in Israeli waters, according to a geological survey.
Israel’s neighbor to the south, Egypt, has approved five oil and gas E&P agreements with foreign companies. BP, ENI, Total and Edison will partner with Egypt’s state gas board EGAS on four fields in the Mediterranean, while Trident Petroleum joins EGPC in the Red Sea.
Some 15 new oil rigs started up in the US last week, bringing the total number of operating oil rigs to 396, as onshore producers took heed of OPEC’s signals to strengthen prices. Gas rigs rose by 2, bringing the total number of rigs up to 481, the highest number since March 2016.
A fire broke out at the Motiva refinery in Convent, Louisiana last week. The fire was put out within the day, but not before heavily damaging the structure of the site’s heavy oil hydrocracker. The 235 kb/d is expected to be partially shut down for at least a month to repair the damage to the 45 kb/d heavy oil unit. The wider refinery will remain operational.
Expansions at the Sohar refinery in Oman are now expected to come onstream by early 2017, a slight delay from the original end-2016 start date, which would increase refining capacity to some 90 kb/d. Crude processed will be domestic, reducing the country’s crude exports by at least 50 kb/d when Sohar’s new units start up.
South Korea’s Kogas has signed an MoU with the government of Yucatan state in Mexico to build an LNG import terminal and associated pipeline infrastructure. The proposed site for the project is Progreso, well-placed to receive shipments of LNG coming from the US on the other side of the Gulf of Mexico.
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Headline crude prices for the week beginning 9 September 2019 – Brent: US$61/b; WTI: US$56/b
Headlines of the week
Detailed market research and continuous tracking of market developments—as well as deep, on-the-ground expertise across the globe—informs our outlook on global gas and liquefied natural gas (LNG). We forecast gas demand and then use our infrastructure and contract models to forecast supply-and-demand balances, corresponding gas flows, and pricing implications to 2035.Executive summary
The past year saw the natural-gas market grow at its fastest rate in almost a decade, supported by booming domestic markets in China and the United States and an expanding global gas trade to serve Asian markets. While the pace of growth is set to slow, gas remains the fastest-growing fossil fuel and the only fossil fuel expected to grow beyond 2035.Global gas: Demand expected to grow 0.9 percent per annum to 2035
While we expect coal demand to peak before 2025 and oil demand to peak around 2033, gas demand will continue to grow until 2035, albeit at a slower rate than seen previously. The power-generation and industrial sectors in Asia and North America and the residential and commercial sectors in Southeast Asia, including China, will drive the expected gas-demand growth. Strong growth from these regions will more than offset the demand declines from the mature gas markets of Europe and Northeast Asia.
Gas supply to meet this demand will come mainly from Africa, China, Russia, and the shale-gas-rich United States. China will double its conventional gas production from 2018 to 2035. Gas production in Europe will decline rapidly.LNG: Demand expected to grow 3.6 percent per annum to 2035, with market rebalancing expected in 2027–28
We expect LNG demand to outpace overall gas demand as Asian markets rely on more distant supplies, Europe increases its gas-import dependence, and US producers seek overseas markets for their gas (both pipe and LNG). China will be a major driver of LNG-demand growth, as its domestic supply and pipeline flows will be insufficient to meet rising demand. Similarly, Bangladesh, Pakistan, and South Asia will rely on LNG to meet the growing demand to replace declining domestic supplies. We also expect Europe to increase LNG imports to help offset declining domestic supply.
Demand growth by the middle of next decade should balance the excess LNG capacity in the current market and planned capacity additions. We expect that further capacity growth of around 250 billion cubic meters will be necessary to meet demand to 2035.
With growing shale-gas production in the United States, the country is in a position to join Australia and Qatar as a top global LNG exporter. A number of competing US projects represent the long-run marginal LNG-supply capacity.Key themes uncovered
Over the course of our analysis, we uncovered five key themes to watch for in the global gas market:
Challenges in a growing market
Gas looks the best bet of fossil fuels through the energy transition. Coal demand has already peaked while oil has a decade or so of slowing growth before electric vehicles start to make real inroads in transportation. Gas, blessed with lower carbon intensity and ample resource, is set for steady growth through 2040 on our base case projections.
LNG is surfing that wave. The LNG market will more than double in size to over 1000 bcm by 2040, a growth rate eclipsed only by renewables. A niche market not long ago, shipped LNG volumes will exceed global pipeline exports within six years.The bullish prospects will buoy spirits as industry leaders meet at Gastech, LNG’s annual gathering – held, appropriately and for the first time, in Houston – September 17-19.
Investors are scrambling to grab a piece of the action. We are witnessing a supply boom the scale of which the industry has never experienced before. Around US$240 billion will be spent between 2019 and 2025 on greenfield and brownfield LNG supply projects, backfill and finishing construction for those already underway.50% to be added to global supply
In total, these projects will bring another 182 mmtpa to market, adding 50% to global supply. Over 100 mmtpa is from the US alone, most of the rest from Qatar, Russia, Canada, and Mozambique. Still, more capital will be needed to meet demand growth beyond the mid-2020s. But the rapid growth also presents major challenges for sellers and buyers to adapt to changes in the market.
There is a risk of bottlenecks as this new supply arrives on the market. The industry will have to balance sizeable waves of fresh sales volumes with demand growing in fits and starts and across an array of disparate marketplaces – some mature, many fledglings, a good few in between.
India has built three new re-gas terminals, but imports are actually down in 2019. The pipeline network to get the gas to regional consumers has yet to be completed. Pakistan has a gas distribution network serving its northern industrial centres. But the main LNG import terminals are in the south of the country, and the commitment to invest in additional transmission lines taking gas north is fraught with political uncertainty.
China is still wrestling with third-party access and regulation of the pipeline business that is PetroChina’s core asset. Any delay could dull the growth rate in Asia’s LNG hotspot. Europe is at the early stages of replacing its rapidly depleting sources of indigenous piped gas with huge volumes of LNG imports delivered to the coast. Will Europe’s gas market adapt seamlessly to a growing reliance on LNG – especially when tested at extreme winter peaks? Time will tell.
The point-to-point business model that has served sellers (and buyers) so well over the last 60 years will be tested by market access and other factors. Buyers facing mounting competition in their domestic market will increasingly demand flexibility on volume and price, and contracts that are diverse in duration and indexation. These traditional suppliers risk leaving value, perhaps a lot of value, on the table.
In the future, sellers need to be more sophisticated. The full toolkit will have a portfolio of LNG, a mixture of equity and third-party contracted gas; a trading capability to optimise on volume and price; and the requisite logistics – access to physical capacity of ships and re-gas terminals to shift LNG to where it’s wanted. Enlightened producers have begun to move to an integrated model, better equipped to meet these demands and capture value through the chain. Pure traders will muscle in too.
Some integrated players will think big picture, LNG becoming central to an energy transition strategy. As Big Oil morphs into Big Energy, LNG will sit alongside a renewables and gas-fired power generation portfolio feeding all the way through to gas and electricity customers.
LNG trumps pipe exports...
...as the big suppliers crank up volumes