Pre conference troduction
Mart 7 and Mart 8 CEE (Central and East European) Gas Conference will be held in Zagreb Croatia. The title of conference is 8 predictions on the future of the Central & Eastern European gas market. The conference will The bring together regional and international industry stakeholders, gas suppliers, TSOs, regulators, government members, commercial executives and industry consultants - to share insights, meet new and existing customers and suppliers, and capitalise on the opportunities presented by these dynamic markets.
The conference is organised by Croatian national Oil Company INA, East West Institute, Energy Community, LNG Croatia, LNG Allies, Tellurian, National Croatian Gas Distribution Company – Plinacro and CEGH.
The Conference comes in time when Gas production in Croatia from Pannonian Basin and North Adriatic Offshore has trend of decrease. At the moment, domestic production satisfies approximately 60% of Croatian needs, but without further investment in Exploration and Production, this percentage will decrease, and in the future Croatian dependences on imported gas will grow.
Certain reserves of gas can be storage in Underground Gas Storage Okoli, and in the future is new peak Underground Gas Storage is planned.
Another supply direction is planned from new floating LNG terminal that should be installed at Island Krk (Primorsko – Goranska County).
This conference comes only four days after demonstration against new LNG terminal were held in Rijeka City, the capitol of the Primorsko Goranska County.
Regarding all emerging issues, I expect to see interesting discussion at this conference.
At the end, special thanks to the Company NRG Edge, Singapore ( www.nrgedge.net ), that enables me to be there as their representative.
CEE Gas Conference Day 1.
CEE Gas Conference, Hotel Sheraton, Zagreb.
Gas conference started wary intensively, after Welcome words by Organiser, Minister of Economy And president of the board of the Croatian national oil company INA, sessions started with LNG Croatia Keynote by Goran Frančić, Managing Director LNG Croatia.
The most important information’s were on public discussion on Environmental Impact Assessment on LNG Terminal in Omišalj (Island Krk) held on Monday.
According to dynamics, they expect location permit by the end of April, and expected finalising the project was predicted by the end of 2019.
At the moment conceptual project is finalized, and the main project is ongoing.
Due economical feasibility, according to National energetic institute Hrvoje Požar, it is expected to be feasible in capacities between 700 x 106 Sm3/year to 900 x 106 Sm3/year.
Since the present domestic production of gas at the moment satisfies 40% of needs, 60 % came from the import, mostly from Russian Federation.
LNG in long term will enable diversification of supply and consequently expected decrease of prices.
In spite that LNG ensure more expensive gas than pipeline, for LNG terminal it needs to be liquefied and after gasified, supply by pipeline is often covered by risks of global political situation, unfair prices, etc. The good example was the problem of Russian Gas supply through the Ukraine several years ago.
At the territory of European Union, at the moment 25 LNG terminals are operative, and which can increase the offer of natural gas, respectively, LNG terminals can be a factor of price and supply balance.
The main question on LNG terminal is sustainability, which depends of price, time of installation and total capacity. One negative example is LNG terminal in Tuscany, built in relatively long period of 5 years with total expenses of about 850 x 106 EUR.
With maximum expected expenses for LNG terminal in Omišalj of about 200 x 106 EUR, it should be feasible in capacities of about 109 Sm3/year .
Spreading of market for LNG has a big space in transportation sector, for example, large Italian truck producer IVECO, produce LNG driven vehicles.
LNG terminal at Island Krk will be performed in two phases, in the first phase it is planned to be installed offshore as floating terminal with total capacity of 5 – 6 x 109 Sm3/year , and in second phase it is planned to be installed onshore with total capacity of 6 – 8 x 109 Sm3/year. The main problem of location of the LNG terminal was a land owning. More than year ago, the owners weren’t even known so to avoid problems with interrupting properties, it was planned to install offshore terminal. During the last year, all surfaces was bought, so onshore LNG terminal, as previously was planned, and was chosen to be built.
Since the LNG business is according to opinion of majority of visitors is driven by politics rather than market, it was suggested to rebrand LNG project from Croatian to regional or EU project, which will enable integration of non EU countries into the system (Serbia, Albania, Bosnia and Herzegovina, etc.). The main problems in that part are bureaucracy and infrastructure. In this part it was pointed as a question what was first chicken or egg, respectively, what should be first infrastructure or the offer?
The other problem is legislative, possible new more restrictive environmental legislative for Mediterranean area, the similar problem appeared in Poland where new legislative literarily driven majority of energetic investors out of country, from 14 of them, only 2 or 3 left.
The environmental regulative for EU predicts a use of natural gas as a transfer fuel toward renewable in next 20 to 25 years, and use of natural gas was planned to decrease. This represents a problem for investments in new pipelines, roads, etc, since this is a relatively short period. In spite of that it is expected that gas demand will grow, and price will depend primarily on Chinese needs.
USA has the great interests on LNG export, since they expect significant increase of shale gas production in following years. Their formal attitude is that they don’t force anyone for buying their LNG since them already has a big market in South America and Asia.
At the moment in Croatia, domestic gas production decreases rapidly so it will be necessarily to invest in further exploration and production. The most perspective area is Adriatic offshore, but the further investigation is expensive. So national Croatian Oil company INA, search for partners, but applications are expected after new Law on Hydrocarbons will be ratified in Parliament, which can be done even by the end of March.
CEE Gas Conference Day 2.
CEE Gas Conference, Hotel Sheraton, Zagreb.
Second day of the conference was planned to encircle question oh transportation, regulatory framework, forming of prices at the market, hubs and regulations.
Regarding traffic issue, it was pointed that this topic in the past usually wasn’t considered, or if it was it was mostly at the margins. At this conference transportation issue was a part of it, and in the future it is expected that it will be more and more important.
At European Union CO2 emissions reached a level from 1999, only in traffic sector they have a trend of growth. This is important since 1/3 of all CO2 emissions came from traffic. At the maritime traffic, regulation on protection of Mediterranean Sea (MARPOL Convention) requires continuous decrease of the pollutant.
Maritime traffic was recognised as a great market niche for the LNG, but at the conference was pointed a question on Chicken or Egg, does ships needs to be driven by LNG or to install appropriate terminals first? Of course it would be ideal if it would be simultaneously.
Generally after investment in maritime transport, there is a lot of space for spreading LNG toward a road transportation, which was recognised in Italy, so their truck producer IVECO started to produce trucks driven by the LNG, recently Scania and Volvo joined into race, and Volvo developed a truck driven by new bi fuel engine, diesel and LNG. In Italy it is expected that 1 million tons of LNG per year will be used in traffic by 2030.
The main problem for the LNG market in Europe is a regulation, first of all the regulatory is issued in Bruxelles. At the moment, it is expected that energy efficiency will rise up to 35% by 2030, and new upcoming regulative on Renewable energy and Energy efficiency will influence to the business in the future.
The main spreading of the LNG infrastructure is expected to be between 2025 and 2035, and it is important to include all stakeholders, distributors, final users, traders, etc. That means the LNG represents a big business opportunity in the future.
The issue of LNG prices is a question should it be regulated according to oil prices, should it be separated from oil, should it be regulated by state or by market?
State monopoly doesn’t allow creation of market price, but if gas business turns from national to regional, what is a vision of the EU, it will enable to include more players on the market, attract investors, create more hubs which will enable greater flexibility in gas supply. In this constellation upstream can also jump in directly to distribution on the market.
In spite of importance of market influence, energetic projects can’t be a 100% market driven because they need to ensure security of distribution toward final users.
Some options of financing are private financing, financing by European Bank Of Reconstruction and Development, Structural Funds, Horizon 2020 (Only for research).
European Investment Bank is interested in financing of such projects, and between 2014 and 2016 it financed a gas infrastructure in 1.6 billion euro. For application of financing, EIB in energy projects, take a special care to Carbon Footprint and their threshold for financing is 150 g of CO2 per kWh.
Post conference Conclusion
The main target of the CEE gas conference in Zagreb was development of the LNG – terminals, infrastructure, discussion of potential market chances. LNG represents more expensive option in compare to pipeline gas. On the other hand it enables flexibility of gas supply, and decrease potential risks of global politic situation, which are higher in pipeline transport. On the other hand potential solution for feasibility achievement are market spreading toward border and non EU countries, toward a new sectors such as production of electricity and a new fuel for transportation. These projects in Croatia are unfortunately influenced by politics which can use a demonstration for collecting points. The main issue in Croatia is still a communication between investors and stakeholders. At the moment I prepare this report, demonstrations against new LNG terminal in Omišalj (Island Krk) were held. New LNG terminal brings more expensive gas, but in the other hand enable diversification of supply. This will be important in upcoming years due depletion of domestic gas production. In the introduction I wrote that domestic production covers approx. 60% of gas needs (2 years old data), but at the conference it was pointed that today it covers no more than 40% and still decline.
New LNG project can set Croatia as a regional leader in energy distribution, but it should be performed fast and efficient.
Dr.Sc. Ratko Vasiljević, Grad.Eng.Geol.
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The week started off ominously. Qatar, a member of OPEC since 1960, quit the organisation. Its reasoning made logical sense – Qatar produces very little crude, so to have a say in a cartel focused on crude was not in its interests, which lie in LNG – but it hinted at deep-seated tensions in OPEC that could undermine Saudi Arabia’s attempts to corral members. Qatar, under a Saudi-led blockade, was allied with Iran – and Saudi Arabia and Iran were not friends, to say the least. This, and other simmering divisions, coloured the picture as OPEC went into its last meeting for the year in Vienna.
Against all odds, OPEC and its NOPEC allies managed to come to an agreement. After a nervy start to the conference – where it looked like no consensus could be reached – OPEC+ announced that they would cut 1.2 mmb/d of crude oil production beginning January. Split between 800,000 b/d from OPEC members and 400,000 b/d from NOPEC, the supply deal contained a little bit of everything. It was sizable enough to placate the market (market analysts had predicted only a 800,000 b/d cut). It was not country-specific (beyond a casual mention by the Saudi Oil Minister that the Kingdom was aiming for a 500,000 b/d cut), a sly way of building in Iran’s natural decline in crude exports from American sanctions into the deal without having individual member commitments. And since the baseline for the output was October production levels, it represents pre-sanction Iranian volumes, which were 3.3 mmb/d according to OPEC – making the mathematics of the deal simpler.
Crude oil markets rallied in response. Brent climbed by 5%, breaking a long losing streak, as the market reacted to the move. But the deal doesn’t so much as solve the problem as it does kick the can further down the road. A review is scheduled for April; coincidentally (or not), American waivers granted to eight countries on the import of Iranian crude expire in May. By April, it should be clear whether those will continue, allowing OPEC+ to monitor the situation and the direction of Washington’s policy against Iran in a new American political environment post-midterm elections. If the waivers continue, then the deal might stick. If they don’t, then OPEC+ has time to react.
There are caveats as well. OPEC members, who are shouldering the bigger part of the burden, said there would be ‘special considerations’ for its members. Libya and Venezuela - both facing challenging production environments – received official exemptions from the new group-level quota. Nigeria, exempted in the last round, did not. Iran claims to have been given an exemption but OPEC says that Iran had agreed to a ‘symbolic cut’ – a situation of splitting hairs over language that ultimately have the same result. But more important will be adherence. The supply deals of the last 18 months have been unusual in the high adherence by OPEC members. Can it happen again this time? Russia – which is rumoured to be targeting a 228,000 b/d cut – has already said that it would take the country ‘months’ to get its production level down to the requested level. There might be similar inertia in other members of OPEC+. Meanwhile, American crude output is surging and there is a risk to OPEC+ that they will be displaced out of their established markets. For now, OPEC remains powerful enough to sway the market. How long it will remain that way?
Infographic: OPEC+ December Supply Deal
Headline crude prices for the week beginning 10 December 2018 – Brent: US$62/b; WTI: US$52/b
Headlines of the week
The Permian is in desperate need of pipelines. That much is true. There is so much shale liquids sloshing underneath the Permian formation in Texas and New Mexico, that even though it has already upended global crude market and turned the USA into the world’s largest crude producer, there is still so much of it trapped inland, unable to make the 800km journey to the Gulf Coast that would take them to the big wider world.
The stakes are high. Even though the US is poised to reach some 12 mmb/d of crude oil production next year – more than half of that coming from shale oil formations – it could be producing a lot more. This has already caused the Brent-WTI spread to widen to a constant US$10/b since mid-2018 – when the Permian’s pipeline bottlenecks first became critical – from an average of US$4/b prior to that. It is even more dramatic in the Permian itself, where crude is selling at a US$10-16/b discount to Houston WTI, with trends pointing to the spread going as wide as US$20/b soon. Estimates suggest that a record 3,722 wells were drilled in the Permian this year but never opened because the oil could not be brought to market. This is part of the reason why the US active rig count hasn’t increased as much as would have been expected when crude prices were trending towards US$80/b – there’s no point in drilling if you can’t sell.
Assistance is on the way. Between now and 2020, estimates suggest that some 2.6 mmb/d of pipeline capacity across several projects will come onstream, with an additional 1 mmb/d in the planning stages. Add this to the existing 3.1 mmb/d of takeaway capacity (and 300,000 b/d of local refining) and Permian shale oil output currently dammed away by a wall of fixed capacity could double in size when freed to make it to market.
And more pipelines keep getting announced. In the last two weeks, Jupiter Energy Group announced a 90-day open season seeking binding commitments for a planned 1 mmb/d, 1050km long Jupiter Pipeline – which could connect the Permian to all three of Texas’ deepwater ports, Houston, Corpus Christi and Brownsville. Plains All American is launching its 500,000 b/d Sunrise Pipeline, connecting the Permian to Cushing, Oklahoma. Wolf Midstream has also launched an open season, seeking interest for its 120,000 b/d Red Wolf Crude Connector branch, connecting to its existing terminal and infrastructure in Colorado City.
Current estimates suggest that Permian output numbered around 3.5 mmb/d in October. At maximum capacity, that’s still about 100,000 b/d of shale oil trapped inland. As planned pipelines come online over the next two years, that trickle could turn into a flood. Consider this. Even at the current maxing out of Permian infrastructure, the US is already on the cusp on 12 mmb/d crude production. By 2021, it could go as high as 15 mmb/d – crude prices, permitting, of course.
As recently reported in the WSJ; “For years, the companies behind the U.S. oil-and-gas boom, including Noble Energy Inc. and Whiting Petroleum Corp. have promised shareholders they have thousands of prospective wells they can drill profitably even at $40 a barrel. Some have even said they can generate returns on investment of 30%. But most shale drillers haven’t made much, if any, money at those prices. From 2012 to 2017, the 30 biggest shale producers lost more than $50 billion. Last year, when oil prices averaged about $50 a barrel, the group as a whole was barely in the black, with profits of about $1.7 billion, or roughly 1.3% of revenue, according to FactSet.”
The immense growth experienced in the Permian has consequences for the entire oil supply chain, from refining balances – shale oil is more suitable for lighter ends like gasoline, but the world is heading for a gasoline glut and is more interested in cracking gasoil for the IMO’s strict marine fuels sulphur levels coming up in 2020 – to geopolitics, by diminishing OPEC’s power and particularly Saudi Arabia’s role as a swing producer. For now, the walls keeping a Permian flood in are still standing. In two years, they won’t, with new pipeline infrastructure in place. And so the oil world has two years to prepare for the coming tsunami, but only if crude prices stay on course.
Recent Announced Permian Pipeline Projects