Global LNG

Published at 12:10 13 Apr 2018 by

The JKM LNG curve moved up in price this week, helped by a strong European market at Thursday’s close. An announcement from PNG LNG this morning (13 April) that LNG production had restarted at its facility should help dampen any further upward price movement. However, no news about start-up from the new Australian trains expected this quarter has been more supportive at the prompt. There was lots of news from India this week about supply deals and infrastructure projects, reminding us that the country is certainly a solid long-term, if not short-term, market for LNG demand. 

The JKM LNG summer curve was up w/w on Thursday’s close. The May-18 contract was largely unmoved, but the remainder of the summer 2018 delivery contracts were higher by around 3% w/w and the contracts for delivery in Q4 18 were up by around 4.5% w/w. The strength was a result of summer gas prices at European hubs rising because of a very high need for storage injections this summer after a cold winter and April, as well as growing concerns over the Dutch government’s announcement in late March of further cuts to production at the Groningen gas field. European prices at Thursday’s close were up by around 6% for the remainder of the monthly contracts for delivery this summer and 5% up for the Q4 18 contract.  

One development that could well soften prices is the somewhat unexpected announcement that LNG production at one train of the PNG LNG facility had already restarted this week, while a second train is expected to resume soon as gas production ramps up. LNG exports could restart ahead of the schedule announced by ExxonMobil when it declared force majeure. Before news broke of the restart of LNG production, ExxonMobil had said earlier this week that LNG exports would restart in May. News of production ramping up means that exports are now likely to restart at the beginning of May, at the latest, rather than much later in the month. Project partner Oil Search said that the timetable for a quicker production restart is because earthquake damage to the pipelines was much less than initially anticipated. The prompt return to production from PNG LNG should weigh heaviest on the JKM, helping narrow the spreads with the TTF, potentially to the point where the European netback for US LNG cargoes exceeds the netback from Asia. 

The JKM-TTF May-18 spread dropped to 0.2 $/mmbtu at Thursday’s close, with the spread dropping below the 1 $/mmbtu for the subsequent three months. The spreads for May favour any remaining unhedged US cargoes heading to Europe while the spreads for the next three weeks are also getting close to the level where Europe becomes the economic destination.

India: Talking a good game again

The latest statements from Indian gas major GAIL pointed to continued demand in India, with the company expecting to take eight cargoes (0.5 Mt) under its Gazprom contract and 80 cargoes (about 5 Mt) under its US contracts in financial year 2018-19. Previously, GAIL announced that it would begin to take LNG under its 2.5 Mtpa deal with Gazprom from May, although it could take 5-6 years to reach full annual volumes under the contract. GAIL did point to its desire to have location swaps for as many US cargoes as is possible, to optimise shipping costs, and reported that it had successfully arranged location swaps for three US cargoes in the current year.

Those cargoes are all contract volumes and there was little new information from GAIL’s announcements. However, the company did give important details on its pipeline projects. GAIL pointed to the needed demand expansion coming from the development of a national gas grid in India, which involves connecting the eastern part of the country to the rest of the nation. Eastern India remains largely free of gas pipelines, and GAIL’s aggressive development of eastern pipeline projects targets completion in 2022-23. That involves some 4,000 km of gas mains that are currently under construction and should be ready by December 2022. With more immediate relevance, the company said that the much-delayed Kochi-Mangalore pipeline will be completed in November, a month earlier than previously announced. This pipeline is essential for the full utilisation of the 5.0 Mtpa Kochi regas terminal, which went into service in 2013 and operated at 15% of its capacity in 2017. GAIL is also preparing to take an FID on doubling the capacity of its Dabhol regas terminal to 10 Mtpa by 2021. Dabhol, which also came online in 2013, is also underused as the lack of a breakwater at the port means it cannot be used through the four months of the monsoon season. GAIL said another tender is being readied for the building of a breakwater, which will be just another of the multiple tenders already undertaken for that specific piece of infrastructure. The experience with these two terminals highlights the risk of delays to GAIL’s timelines for project delivery.   

H-Energy confirmed a Q4 18 start-up date for commercial operations for its 4 Mtpa Jaigarh FSRU. The FSRU is leased from ENGIE and is expected to arrive in India in May and then be connected to the onshore facilities. H-Energy is building a 635-km coastal pipeline, which targets new gas markets. Given the FSRU is not going to be linked initially into the Indian gas grid, the ramp-up of that terminal is going to be very sensitive both to the completion of that downstream pipeline and the ability of H-Energy to secure new connections. Given that, the facility is unlikely to reach full utilisation any time before 2025. 

Lastly, India's Petronet LNG confirmed its intention to partner with ONGC to pick up a stake in the new LNG trains proposed in Qatar. In general, Qatari LNG companies have not partnered with buyers before in gas infrastructure developments and have instead partnered with other upstream producers such as ExxonMobil and Shell. It is not clear exactly what Petronet could bring to Qatar, apart from demand. Of the two, we would think Qatar Petroleum has the stronger balance sheet, which raises questions about this proposed partnership coming to fruition.

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