LNG Prices

[greengiraffe]

Asia LNG prices hit 3-year low
DOW JONES NEWSWIRES JULY 10, 2014 1:00AM

The price of liquefied natural gas in Asia has plunged by nearly half over the past five months -- to the lowest level in more than three years -- as Japan and South Korea have slowed fresh purchases and supply has risen.

Dealers say the drop has forced some to sell shipments at a loss, and analysts say that if the price stays at current levels Asian buyers may be less willing to commit to planned billion-dollar export projects in the US, Canada and Australia.

South Korea and Japan are the world's two biggest buyers of LNG, natural gas that is super-chilled into liquid form for shipping and storage, but both countries have slowed buying.

South Korea has been hoarding gas since last winter, when its nuclear power plants went offline after a safety scandal. Now those plants are restarting and state-run importer Korea Gas Corp, or Kogas, is running down stock levels because it overbought.

In Japan, which became the world's biggest LNG buyer after the 2011 Fukushima nuclear disaster shut down a third of the country's electricity generation, recently bought tanker cargoes of LNG for delivery in the second half of August and September.

The price of LNG cargoes on the Asian spot market has fallen to less than $US11 per million British thermal units, almost half of the $US20 price in February, traders say. The latest price according to the Platts Japan/Korea Marker on July 9 was at $US10.925 per mBtu, the lowest since March 2011.

An unusually steady supply from producers in Qatar, Australia and Southeast Asia, which haven't seen the usual rate of production outages, has also weighed on prices. Papua New Guinea, too, has been adding to supply after its new plant started production in May, ahead of schedule.

"The situation has been exacerbated because some traders got caught with expensive cargoes -- bought at $14 and which need to be sold at $13 or lower," said Tony Regan, gas consultant at Singapore-based Tri-Zen Consulting.

He said some distressed cargoes -- bought by traders and later offered at a lower price -- have been seen on the market, and buyers have been pushing down bids to take advantage of falling prices.

LNG buyers in Japan and South Korea typically make most of their purchases, accounting for around 80 per cent of their needs, through long-term contracts at fixed prices. The remaining 20 per cent is bought in the open market called the spot market, where prices fluctuate.

North Asian utilities can choose to buy slightly less under these term contracts to allow for seasonal fluctuations. Currently, this has left suppliers such as Australia with extra cargoes to put into the spot market, adding to further downward pressure on prices. Sluggish economic growth in China and India, which use gas in the industrial and transport sectors, has also weighed on prices.

"Looking forward, spot prices will rise when bidding will start for winter cargoes but given the current market sentiment, it is unlikely that we will see price levels similar to last year's levels," said Abhishek Rohatgi, an analyst at consulting firm Enerdata.

[greengiraffe]

Oil slump is threat to LNG projects: falling prices could cut export revenue by $11bn
THE AUSTRALIAN OCTOBER 25, 2014 12:00AM

Matt Chambers

Resources Reporter
Melbourne
Oil slump threat to LNG projects
A liquefied natural gas tanker at the Karratha loading terminal in Western Australia. Source: Supplied

LOWER oil prices could put a stop to the nation’s future LNG projects, even ones that still stack up on paper, and cut up to $11 billion a year from increasingly LNG-reliant export revenue, ­industry leaders and analysts say.

Brent crude prices that held above $US100 a barrel for most of the past three years have slumped dramatically since June, falling 25 per cent to a four-year low of about $US85 a barrel and, if ­sustained, hitting the economics of six under-construction LNG plants, whose contract prices are linked to moves in oil.

If prices don’t bounce, industry experts and analysts say returns will be poor on most existing projects and any Australian future LNG projects will be questionable.

Adding to the hurdle of getting a new LNG project into construction at a time when shareholders are demanding greater discipline would be a big overall cashflow hit to the oil majors, which are the most likely proponents of new LNG projects.

Former senior BHP Billiton executive Alberto Calderon, who was a contender to replace chief executive Marius Kloppers last year, says a sustained period of $US80 oil would accelerate an inevitable move to lower LNG prices that would make most Australian LNG projects not return their cost of capital.

“The problem with Australian LNG is it has a break-even price of somewhere around $US14 (per million British thermal units),” Mr Calderon, BHP’s former chief commercial officer, told The Weekend Australian.

“An oil price of $US80 a barrel would translate to $US12 LNG, which is close to spot prices and which would hurt the LNG projects. Anything at below $US13.50 or $US14 means money is being lost.”

Mr Calderon, who was head of corporate strategy when BHP went big into US shale oil and gas when it sold out of the Browse LNG project in WA, said LNG ­prices would probably drift down to $US12 in the longer term as the US exports up to 100 million ­tonnes of LNG a year over the next decade and cheaper Russian gas arrives in China.

LNG pricing is kept confidential, but the general assumption is that at $US100 a barrel, LNG ­prices are $US15 per MMBtu. A 20 per cent drop in oil would be ­reflected in the LNG price, with contract floors not kicking in until oil prices fall to $US60 or less.

Oil has slumped as global demand falters, the US and Libya have increased supply and Saudi Arabia’s unwillingness to cut production to underpin prices has led to speculation it is happy to leave prices at levels that may hamper US shale oil growth.

Few are forecasting oil will stay at current levels, with long-term analysts forecasts for Brent remaining at just above $US100.

But futures markets, where traders are betting on and hedging oil prices, are indicating that prices are now not expected to rise above $US90 in the next five years.

In March, Australia’s Bureau of Resource and Energy Economics forecast a $US105 oil price would earn the nation $60.5bn a year of LNG export revenue in 2017 and 2018, when the $180bn of under-construction projects should be in full production.

At current prices of $US85 a barrel, and keeping BREE’s currency assumptions of US85c, revenue falls by $11.5bn to $49bn. The lower profits would also substantially extend the wait for the new projects to use up ­depreciation credits and start paying the Petroleum Resource Rent Tax.

Oil Search managing director Peter Botten said a recent company strategic review had employed consultants to take a close look at global LNG projects.

It found most Australian projects were not profitable at lower oil prices, unlike in Papua New Guinea. “A number of projects across the world become pretty marginal at $US80-$US85 and if you believe the oil price is going to stay in that range of $US80-$US90, that will start to impact ­future investments for projects,” Mr Botten told The Weekend ­Australian.

“If you spent your money, you’re still likely to produce but I’m sure that oil price will attenuate new projects.”

He also warned that the game could change for projects that were still marginally economic as big oil companies dealt with falling cashflow.

“Where shareholders are already telling you to demonstrate discipline in investment and instead of putting it in marginal projects, give it back, some of these projects are going to struggle to get boards around the world to commit substantial licks of money,” Mr Botten said.

Neither Mr Botten nor Mr Calderon said they were forecasting oil prices would stay at depressed levels.

The most likely future LNG projects in Australia are three Woodside-operated Browse floating LNG plants off Western Australia, which would use major partner Shell’s technology, and a $US10bn fourth-train expansion of the Gorgon LNG plant being built by Chevron and which has Shell and ExxonMobil as ­partners.

London-based JPMorgan oil analyst Fred Lucas said the lower oil price was expected to lead to “big ticket” project deferrals.

“The prospect of another ­potentially prolonged period of much lower than expected oil ­prices should see big oil’s boards reach for the ‘save cash, preserve value, protect the dividend’ ­restructuring folder,” Mr Lucas said.

“We expect the first company signals on 2015 upstream capital expenditure to point to lower than prior guidance.”

JPMorgan estimates that a $US25 drop in oil prices to $US80 during 2015 and 2016 would mean $US38bn of lost free cashflow for Shell.

Credit Suisse analyst Thomas Adolff, who covers big oil from London, said many LNG projects were based on Brent staying at $US90-$US100.

[greengiraffe]

LNG exports to quadruple in five years

Commodities Scott Parker
427 words
22 Oct 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.

The recent sharp drop in the oil price is a threat, but overall, the prospects for Australia's relatively "new kid on the block" – liquefied natural gas – remain good, Commonwealth Bank of Australia director of commodity strategy Lachlan Shaw said.

Mr Shaw, one of a number of experts speaking at the Commonwealth Bank's 7th Annual Austra­lasian Conference in Sydney, expects volumes for Australian LNG exports to more than quadruple in the next five years.

The main problem in achieving this, he said, was that Australia's high capital costs could be a sig­nificant challenge to sustained, con­tinued growth.

"Unless capital intensity shifts, ­Australia's LNG export industry will be limited to the current gen­eration of projects," he said.

Mr Shaw said current export ­volumes are all "locked in and ­contracted", but there would be sig­nificant export and spare capacity ­volumes from 2017 onwards.

Continued expansion in the Aus­tralian LNG sector could see Australia become one of the largest suppliers of LNG in the world.

High capital costs and the fact that the price of LNG is linked to the price of oil, which is currently experiencing multiyear lows due to an abundance of supply, are real risks to an Australian LNG expansion program.Oil prices slipped 22pc this year

It's estimated there are $US190 billion ($216.5 billion) in LNG projects currently under way in Australia, with Woodside Petroleum, Origin Energy and Exxon Mobil three of the bigger participants.

Oil prices have slipped 22 per cent this year, with the global ­benchmark, Brent, dropping last week to a four-year low of $US82.60 a barrel, before stabilising to trade at $US85.46 a barrel on Tuesday.

FACTS Global Energy chairman Fereidun Fesharaki said sub-$US80 oil prices could be disastrous for some LNG projects.

Dr Fesharaki forecast Brent prices may drop as low as $US60 a barrel before the end of the year, looking to rebound to $US80 by the end of 2015.

Mr Shaw pointed to both Saudi ­Arabia's ability to absorb supply, as well as other Organisation of the Petroleum Exporting Countries as reasons the oil price will hold up.

"Major Middle Eastern OPEC ­countries need $US90 to $US100 per barrel for fiscal sustainability," Mr Shaw said. "Otherwise the governments lose money on their budget."

The CBA mining and energy commodity price deck forecast Brent crude to drop from an average of $US104 a barrel in 2014 to $US98 a barrel in 2015.


Fairfax Media Management Pty Limited

Document AFNR000020141021eaam00007

[greengiraffe]

EU may chase Aust gas: report
STAFF REPORTER OCTOBER 27, 2014 5:15AM

Australian liquefied natural gas (LNG) could be the answer to the European Union’s troubled relationship with key gas supplier Russia, a top European energy official has said, according to The Australian Financial Review.

Dominique Ristori, the director general of the European Commission’s Directorate-General for energy, said he was expecting “activity” in the near-term with Australian corporates and the federal government amid plans to reduce the region’s reliance on Russia.

“The main priority will be to reduce our vulnerability of our energy system,” he told the AFR.

“We would like to reduce this dominant situation from Russia in our energy market. This could open [a] new route for increasing energy co-operation between Europe and Australia.”

[greengiraffe]

Australia to be largest LNG exporter 'by 2018'
AAP NOVEMBER 03, 2014 10:30AM

Australia is expected to become the world's largest exporter of liquefied natural gas (LNG) within four years.

An HSBC report has found that LNG is likely to contribute significantly to economic growth and overtake coal as the nation's second biggest export behind iron ore.

The gas boom is set to kick off from next year as LNG export volumes rise 70 per cent in 2015/16 and by an average of 42 per cent per year to 2018.

"Australia is set to overtake Qatar to become the largest exporter of LNG in the world," HSBC's Downunder Digest said.

"LNG is now set to be a major driver of export growth over coming years."

HSBC economists expect a sharp boost in volumes will come from seven new projects being built around the country.

These will contribute around 0.7 percentage points to GDP growth each year for the next three years.

"Although the LNG plants are largely foreign-owned, so profits from the plants will go abroad, the economy will be supported by growth in tax revenues, as LNG exporters pay both corporate tax and state royalties," HSBC said.

The gas will be supplied to countries such as China, Japan, Korea, Taiwan and India.

The 70 per cent boost in LNG exports next year is expected to be driven by Western Australia's Gorgon project and the QCLNG project in Queensland.

But the ramp up could have a negative effect on the domestic gas market, as supply is diverted from local provision to export facilities, the report found.

[greengiraffe]

Japan builds energy hub to tap US shale gas revolution
Minister calls for more flexible contracts to usher in an era of cheap energy in Asia

By
Anthony Rowley
Mr Miyazawa says easing of destination clauses will make markets more flexible, enhance energy security
7 Nov5:50 AM
Tokyo

THE shale gas "revolution will finally cross the Pacific Ocean" from 2016 with US exports of liquefied natural gas (LNG) beginning to reach Asia, bringing the promise of a new era of cheaper fuel, Minister of Economy Trade and Industry Yoichi Miyazawa predicted in Tokyo on Thursday.

With an array of LNG projects also planned in Australia, Canada, Russia, Alaska and elsewhere, prospects for plentiful and cheap energy for the Asia region look good, provided greater flexibility can be introduced in energy contracts, Mr Miyazawa told a conference.

He quoted predictions by the International Energy Agency (IEA) that global LNG demand would soar by 30 per cent within the next five or six years while the increase in global LNG export capacity should more than keep pace, rising by 380 million tonnes a year.

Australian Minister for Industry Ian Macfarlane and Canadian Minister of Natural Resources Greg Rickford also spoke at the conference on the prospect of their countries becoming "energy superpowers" in coming years.

Japan, meanwhile, is "moving towards establishing an LNG hub in Asia in the future", Mr Miyazawa told the conference which was co-sponsored by Meti and the Asia Pacific Energy Research Centre.

"In September, an over-the-counter market for LNG was set up (in Japan) with around 20 companies participating," he said. With the government now publishing LNG import spot prices on a monthly basis, the foundation for an energy hub is emerging in Japan. Spot transactions and short-term contract transactions have jumped from around 10 per cent of all Japanese LNG transactions to 30 per cent since the 2011 Fukushima disaster, the minister said at the conference attended by around 1,000 official and business representatives from 50 countries.

LNG transactions "are becoming increasingly diverse and flexible and more responsive to the regional demand" compared with the past when the market was dominated by relatively inflexible long-term contracts between suppliers and customers, My Miyazawa noted.

Relaxation of the so-called "destination clauses", under which fuel suppliers can dictate where the fuel is shipped to and who uses it, will "make LNG markets more flexible and enhance the security of natural gas supply", he said.

The EU decision that destination restrictions are not permissible from a competition policy perspective along with agreement by G-7 nations and by Apec to relax such restrictions suggest that "the world is moving towards a common understanding on this issue".

LNG export projects currently approved by the US alone "are set to produce 380 million tonnes of LNG per annum - a volume equal to one half of Asia's current total LNG demand", said Mr Miyazawa. "Based on current prices, the US LNG reaching Japan could be 20-30 per cent cheaper than current (price) levels even after the costs of liquefaction and transportation are taken into account."

Meanwhile, "methane hydrate, an area where Japan is leading the world by successfully carrying out offshore production tests, may bring the next revolution after shale gas", Mr Miyazawa suggested. "Japan is working on technological development with an eye to commercialisation."

[greengiraffe]

Right time to step down, says Gorgon mastermind

Angela Macdonald-Smith
1158 words
8 Nov 2014
The Australian Financial Review
AFNR
English
Copyright 2014. Fairfax Media Management Pty Limited.
Exclusive Colin Beckett leaves project with sense of achievement.

For the man in charge of bringing ­Australia's biggest resources project to reality, it has been a gruelling last nine years.

But as Chevron's manager for Greater Gorgon, Colin Beckett reflects back on the epic journey to bring the $US54 billion ($63 billion) LNG project to the cusp of production, the headaches of blown budgets, union disputes and weather woes are overshadowed by a sense of awe at the scale of what has been achieved on a humble island off Western Australia.

"It's just a great sense of wonderment as everything comes together," says Beckett on the eve of his penultimate trip to the island before retiring.

"I'm still amazed at how thousands of people all across the globe are all working on various things and it all ends up where it's supposed to at the end."

Beckett, 62, will depart Chevron on November 18, heading to the UK for babysitting duties for his first grandchild, born this month.

With Gorgon still about a year away from start-up, the timing has surprised some who expected him to remain until the mammoth project, which has consumed his career for almost the last decade, ships its first cargo to Asia.

But Beckett insists it "feels like the right time to go", and points to the preparations in place to take Gorgon from construction into operation.

"Everyone knows what they've got to do," Beckett says.

"It feels to me that the organisation is right to proceed and in fact by moving away, by leaving now, it reinforces that we're getting into operations and others can sort of spread their wings a bit."Not without risks

Not that the final months before then are without their risks. Chevron chief financial officer Pat Yarrington told investors in late October the start-up was due "a year from now", implying another few months delay from the previous mid-2015 schedule, which had slipped from late 2014.

The $US54 billion budget has swelled by an eye-watering $US17 billion since Chevron and its project partners ExxonMobil and Royal Dutch Shell inked their commitment to build the plant in September 2009.

While foreign exchange rates and weather – outside anyone's control – accounted for a sizable chunk of the blowout, highly publicised union disputes, partly arising over claims over subpar worker productivity, have plagued the construction period.

The selection of Barrow Island, a Class A nature reserve, was based on its relative closeness to the huge Gorgon, Jansz and Io gas fields, about 70 kilometres away, and its suitability for underground disposal for the carbon contaminants extracted from the gas.

But it also meant a number of unique and costly challenges, including strict quarantine controls, stringent environmental protection for the island's rare fauna, and impossibly tight limits on the area set aside for the LNG plant.

Beckett acknowledges the logistics were more difficult – and therefore more costly – than anticipated, causing "some grief" to contractors not used to the detailed advanced planning required for each piece of equipment.'The right site'

Some have questioned the decision for the plant location, but Beckett is adamant it was the right one.

"Other gas fields are going to be easier to develop because you have got the infrastructure on Barrow Island," he says. "I think over time people will not need to ask that question."

The cost overruns must have laid extra pressure on Beckett. But he says there was never a point that he, or Chevron, did not have a plan on how to move forward and solve the issues that arose.

"That's how you deal with this sort of thing: you break it down into small pieces and you work on that basis," he says. "The same sense of concern is around if someone gets hurt – in some ways that's even more personal."

The scale of Gorgon is staggering. There is 15.6 million tonnes of LNG capacity across three "trains", equal to about 8 per cent of the world's current supply, plus a domestic gas plant. While not quite as big as the North West Shelf LNG venture, Gorgon, involving 180 million man-hours of work, is being built in one go, rather than a gradual expansion over 18 years.

With a life of 50 years, Gorgon will have a major legacy, contributing about $64 billion to Australia's GDP.

Beckett points to a "ripple effect" from the project, evident in, for example, GE's $100 million maintenance and training complex opened in Jandakot in 2011, and research efforts at universities with results shared worldwide.Beckett resume

British-born Beckett's career has been sandwiched by big projects, having started off with BP in 1976 after the first OPEC oil crisis when the North Sea was a frenzy of activity. Moving to Perth in 1988, the Cambridge-educated engineer worked for BP, then for Mobil, including on an earlier effort to commercialise the 40 trillion cubic feet Gorgon fields. When he joined Chevron in 2000 as strategic planning manager, the Gorgon project had gone cold, thanks to the Asian financial crisis.

The merger of Chevron and Texaco in 2001 breathed new life into Gorgon, putting a majority stake for the first time into a sole pair of hands. But when Beckett took over from Paul Oen as Gorgon general manager in 2005, Chevron and its partners were still at odds on how to move ahead.

A rapid uptick in construction costs took its toll on project economics, triggering a re-think on the size of the project that was boosted to three large trains in a bid for scale benefits.

Getting partner alignment was a task, so too the multiple approvals needed from government and regulators that Beckett describes as "the most personally consuming" part of the task.

In construction, the day-to-day responsibilities now lie with his direct report Scott Young, while Beckett has focused on broader management and relationships. Expansion has also been on his radar, but has been delayed by the cost overruns and now look set to be revisited only once output begins.

More recently, Beckett has widened his work outside of Chevron, feeding his keen interest in education. He became chancellor of Curtin University about 18 months ago and is also on the board of science education centre Scitech.

Once he returns from his vacation, Beckett envisages a board role and has other plans he is keeping under wraps.

"I like change and I embrace change," he says.

When Gorgon finally starts up, Beckett will be celebrating with the thousands of others that have had a hand in the project over the years.

"It still is quite an amazing achievement, and it really requires very good processes and very good people to make it happen," he says.


Fairfax Media Management Pty Limited

Document AFNR000020141107eab80001z

[greengiraffe]

Woodside warns over oil price slump threat to LNG projects
THE AUSTRALIAN NOVEMBER 07, 2014 2:42PM

Matt Chambers

Resources Reporter
Melbourne
WOODSIDE Petroleum chief Peter Coleman has given a bleak assessment of the LNG industry in a lower oil price environment, saying projects face the axe as shareholders demand capital returns or investment in more lucrative oil projects.

“Our industry’s financial performance is deteriorating, we are operating in a capital constrained world where oil prices and free cash flow are falling and, at the same time, we have risks emerging,” Mr Coleman told an LNG producer-consumer conference in Tokyo yesterday.

The Perth-based energy chief told the conference a prolonged oil price slump would threaten new projects and reduce returns on existing LNG projects, which link nearly all of their pricing to oil.

“In this environment, LNG projects face the axe in favour of more lucrative oil projects or capital buybacks,” he said.

“Our shareholders would prefer that cash was returned to them rather than wagered on marginal investments, and rightly so — it can take five to eight years before we see any returns on our huge capital-intensive LNG project.”

Oil prices have slumped by more than $US20 a barrel to below $US80 in recent months, hitting levels that make many new LNG projects unprofitable under current pricing.

The comments come after Woodside (WPL) shareholder and partner in the Browse floating LNG project, Shell, last week flagged delays in Browse project approval because of uncertainty in the market.

They also come after similar warnings on the effect of lower oil prices on LNG from Oil Search chief Peter Botten and former BHP Billiton senior executive Alberto Calderon.

Mr Coleman’s downbeat talk was part of an appeal to LNG buyers, such as Japan and Korea, to stop trying to drive prices down.


“We actually need to make final investment decisions on new LNG projects now to ensure that we don’t have a shortfall as early as 2020-21,” he said.

“By holding out for a cheaper price, customers are potentially exacerbating project final investment decision delays and may unwittingly help bring on a supply crunch.”

Japan and Korea have been hardening their stance on LNG pricing, pointing to the emergence of US shale gas LNG exports (which they have supported) as a sign prices should come down.

“After 2020, many customers in Asia are looking to US LNG as a solution, however we know that US LNG will not be enough to meet demand, not in terms of volume and not in terms of balancing risk,” Mr Coleman said.

“Risks from this new source of supply include commodity price risk and volatility, regulatory risk, and transportation risk, including potential capacity limits on the Panama Canal.”

The situation with prices probably makes it more unlikely the Sunrise LNG partners — Woodside, Shell and ConocoPhillips — would take on the risk of building an LNG plant in East Timor, but Mr Coleman confirmed recent reports that discussions with the government were canvassing this.

“We have been in discussions with the Timorese around different development concepts, both floating and onshore,” Mr Coleman told Reuters in Tokyo.

The partners had settled on floating LNG to develop the Timor Sea fields that are jointly owned by Australia and East Timor but will the smaller nation has continued to demand an onshore plant be built there.

[greengiraffe]

China gets cozier with Russian gas
DOW JONES NOVEMBER 12, 2014 1:30PM

China and Russia are adding fuel to their natural-gas fire. It’s a potential deal that could burn the oxygen out of the room for other gas producers.

Six months after Russia secured a final agreement to sell US$400 billion of natural gas to China for 30 years through eastern Siberia, state-run Gazprom and its counterpart China National Petroleum Corporation are discussing another pact, this time for gas from western Siberia.

It’s a sign of Moscow’s desperation to secure new energy sales. After foreign-policy forays heightened risks in Gazprom’s traditional market in Europe, cheap oil has squeezed Russian revenues.

Russia tried a decade ago to sell China gas from western Siberia, but China refused. China knew Gazprom would bargain for a higher price by threatening to divert sales from western Siberian fields to Europe. Longer pipeline distances also hurt. China now must think Russia is weak enough to succumb to a low price. Expect that price to be lower than the roughly US$10 per million British thermal units CNPC inked earlier this year.

If this second deal goes through, Russia could satisfy 19 per cent of Chinese gas demand in 2020, up from 11 per cent after the first deal, based on official targets. That’s bad for others looking to sell gas to this fast-growing market.

High-cost Australian producers of liquefied natural gas such as Santos and Woodside Petroleum are already getting hammered, since the oil-linked LNG prices they sell at have fallen along with crude. Now they’re rendered more uncompetitive, given their projects require gas prices between US$14 and US$18 per million BTU to be economical.

China’s increasing interest in Russian gas is also a tacit admission that it isn’t so sanguine about shale gas. Though China boasts the world’s largest technically recoverable shale-gas reserves, according to the U.S. Energy Information Administration, its geology is tricky and its market hostile to competition and experimentation. If China slows down shale exploration, that hurts firms that offer shale-related services such as Anton and SPT Energy.

Those benefiting from a second Russian gas deal are Chinese gas distributors such as China Gas Holdings and Beijing Enterprises . They will transmit greater volumes to consumers, and reap more revenue. China also needs to build infrastructure to receive gas from western Siberia, a boon for equipment makers like Hilong .

The first Russia-China deal roiled global gas markets with its low sales price. The second deal should also drive home the point that it’s now a buyers’ market in gas.

[opmi]

Petrodollars: Figuring out what to do with PNG’s new LNG wealth
14 Platts Barrel Blog by John Kingston

As Papua New Guinea enters the small fraternity of LNG exporters, it needs to figure out what do with the money the poor nation is going to earn. Christine Forster looks at the issue in this week’s Oilgram News column, Petrodollars.

—————–

The start-up in April this year of the ExxonMobil-operated Papua New Guinea LNG project was an historic moment for the small Pacific nation, marking the arrival of the world’s newest player on the global gas market.

At a price tag of $19 billion, the PNG LNG project represents the biggest investment in the country’s history. With the project now up and running at full capacity, and with the prospects firming for the development of a second LNG project at the InterOil-operated Elk-Antelope fields, PNG’s economy is set for a transformation.

But with the oil and gas industry’s increasing importance to PNG’s economy comes an even greater need for transparency, according to Oil Search, a key stakeholder in both PNG LNG and Elk-Antelope and operator of all the country’s producing oil fields.

“We estimate that over the next 30 odd years some $40 billion in total cash flow will come to the PNG government,” Oil Search Managing Director Peter Botten told a recent investor briefing when discussing the returns expected from the emerging LNG industry. “That clearly has to be managed well through a sovereign wealth fund…We need to help, along with ExxonMobil and our other partners in making sure that that those benefits do get delivered.”

The PNG parliament passed legislation in 2011 and 2012 to create a sovereign wealth fund to manage government surpluses from projects such as PNG LNG. But there are still serious challenges for the government to ensure transparency and accountability for the revenues flowing from development.

“Transparency is a very big thing,” Botten acknowledged. “EITI [the Extractive Industries Transparency Initiative] and transparency of where those funds go, the development of the sovereign wealth fund and certainly publishing where all those benefits go is of critical importance in terms of managing community expectations and ensuring we meet those obligations,” he added.

—————–

Natural resources already dominate PNG’s export mix, accounting for nearly two-thirds of earnings, headed by oil, gold and copper. ExxonMobil’s project adds to this list export capacity of 6.9 million mt/year of LNG from two production trains at the liquefaction facilities near Port Moresby.

The project is an integrated development that includes gas production and processing facilities in PNG’s Southern Highlands, Hela, Western, Gulf and Central provinces. More than 700 km (434 miles) of pipelines connect the project facilities, including a gas conditioning plant at the Hides field and the liquefaction and storage infrastructure on the coast.

The project delivered its first LNG cargo in May and reached full operating capacity ahead of schedule in late July, following what was reportedly a trouble-free ramp-up. By the end of September, it had shipped 23 LNG cargoes, including the first delivery under its long-term contracts, which cover 95% of capacity and are with China’s Sinopec, Tokyo Electric Power Company and Osaka Gas, and Taiwan-based CPC.

The scale of the project is huge for such a small nation. Since the start of construction in early 2010, the PNG LNG project has employed a total of more 55,000 workers, peaking at a workforce of 21,220 in 2012. Around 40% of the project’s workforce were PNG citizens, and the co-venturers had spent more than Kina 11 billion ($4.2 billion) on local services and supplies by the time production started.

PNG enjoyed its tenth straight year of economic expansion in 2012, when real gross domestic profit rose by 8.1%, according to figures from the Australian government’s Department of Foreign Affairs and Trade. Growth slowed to an estimated 5.5% in 2013 and is forecast to be 5.8% in 2014.

According to the 2014 CIA World Factbook, the massive gas development has the potential to double PNG’s GDP in the near-term and triple its export revenue from the $5.6 billion recorded in 2012. It will boost government coffers, generate local employment opportunities and royalty payments to landowners, and provide infrastructure which could spur further industry development.

That means the oil and gas industry’s already well-established role in PNG’s economy is likely to get even bigger. For its part, Oil Search is already managing a range of significant infrastructure projects on behalf of the government, and is delivering its own community programs in areas such as agriculture and water supply. In addition, the company is the second-largest health service provider in the country.

For PNG, where only 6% of people have access to power and 30% of the population still lives below the international poverty line of $1.25/day, LNG should be a game-changer.

— Christine Forster in Sydney