U.S. LNG producers are racing to add production capacity amid forecasts for strong growth in demand, with the total—concentrated in Louisiana and Texas—set to reach 10 billion cubic feet daily by the end of next year, from about 4 billion cubic feet a day today. And yet, all this capacity will not be enough to prevent the supply crunch that has been predicted by Shell.
The crunch will be a result of a shortage in final investment decisions on new LNG capacity in the United States, which is shaping up as the largest emerging LNG exporter globally. And the shortage of FIDs itself is a result of producers’ uncertainty about future demand. This uncertainty has pushed them to be creative as buyers begin to shy away from long-term, fixed-price contracts, opting for shorter deals.
So, U.S. LNG producers began offering buyers low-priced LNG in exchange for investing in the construction of the liquefaction trains that will produce this LNG. The approach is working and has helped Cheniere Energy and its sector players secure future supply. However, even that won’t be enough if demand continues to grow so strongly.
By 2025, Cheniere has warned, the world will need an additional 10.5 billion cubic feet daily in LNG capacity. By 2030, another 16.4 billion cubic feet daily will need to be added. But long-term contracts that fund new capacity will continue to get harder to secure as buyers continue to prefer shorter deals and the spot market.
The good news is that this shift to shorter deals has helped make the global LNG market more transparent and this is good for liquidity. S&P Global Platts and Australia-based Global LNG Exchange have become the first platforms to facilitate transparent LNG trades. It’s still early days for LNG and transparency but hopes are that it will at some point approach the level of transparency in oil. This will make things easier for both buyers and sellers and could help the latter bring on that additional capacity forecasts say is urgently needed.
Deals, Mergers & Acquisitions
- Total is selling some $1.5 billion worth of North Sea assets, including 33% of its 60% interest in the Laggan Tormore gas field and its minority stakes—between 43% and 25%—in four other fields that the French company acquired after it took over Danish Moeller/Maersk’s oil unit. A lot of supermajors are ditching their mature assets in the North Sea for new discoveries elsewhere, while their place is taken by new independents backed by private equity set on extracting whatever is possible from the mature assets.
- BP has reportedly emerged as the top bidder for the shale oil business of Australia’s BHP Billiton, which was pressured by activist investor Elliott Management to offload the business. BP’s bid, according to unnamed sources cited by Reuters, is more than $10 billion, while rival bids from companies including Shell and Chevron were all about $9 billion. The assets on the block include 800,000 acres across the shale patch in the U.S., including the Permian.
- BP has bought a $1.98-million stake in Voltaware, a UK-based company that markets an energy-monitoring device allowing both household and industrial users to track and optimize their energy consumption. The move is the latest step in a more energy-efficient direction for the supermajor, which last year acquired Brazilian solar and biofuels company Lightsource for $200 million.
Tenders, Auctions & Contracts
- Shell, along with several other Nigerian and international companies, has inked a deal with the Nigerian national Oil Corporation to take part in the development of seven gas supply projects worth a combined $3.7 billion that will help Nigeria avoid a domestic natural gas shortage forecast for the early 2020s. The fields covered by the projects have combined reserves of 17.7 trillion cubic feet of natural gas, which will be used for power generation: Nigeria has set itself a target of 15 GW in total generation capacity by 2020.
- Iraq has extended the deadline for bidding for the construction of a new refinery in the province of Kut, south of Baghdad. Now, interested parties will have until October 4th to make offers for the 100,000-bpd facility. The oil ministry is offering bidders a choice of two contracts: build-own-operate and build-operate-transfer. The refinery project is part of Iraq’s efforts to get its oil industry back on its feet and expand its refining capacity to reduce dependence on fuel imports.
Discovery & Development
- Libya’s crude oil production has been halved to about 527,000 bpd amid oil terminal closures following militant group clashes in June that led to a change of control of the terminals and the announcement of a force majeure by the national Oil Corporation. Now the force majeure has been lifted, after the Libyan National Army conceded control of the ports to NOC but production will take time to recover.
- Indonesia’s Pertamina has dropped an LNG import terminal project that was to be its second onshore such facility. The company has decided that at the time being the project is not economically feasible. The facility would have cost $800 million and would have had an annual capacity of 4 million tons of LNG. Indonesia is forecast to become a net LNG importer by 2020 as a growing population and industrial activity boosts domestic demand for the fuel.
- An apparent increase in activity by Shell in the Canadian coastal town of Kitimat has sparked hopes the $40-billion LNG project that the supermajor is working on is nearing its final investment decision. Shell, which has partnered with Mitsubishi, Petronas, PertroChina and Kogas for the LNG Canada project, has been slow to make the decision, delaying it twice over the last two years because of the international LNG market dynamics, which swung it into an oversupply. LNG Canada will have a capacity of up to 28 million tons of LNG, to be shipped to foreign markets.
- Italy’s Eni announced a second oil discovery in the South West Meleiha license in Egypt’s Western Desert, which, the company said, confirms the potential of the Faghur Basin. It will follow up with more exploratory wells to consolidate the production area before moving on to commercialization if the reserves prove viable. Eni operates the license through its local subsidiary International Egyptian Oil Company, which pumps 55,000 bpd of oil equivalent in the Western Desert.
Politics, Geopolitics & Conflict
- President Trump has demanded that European NATO members increase their defense spending to 4% of GDP, after slamming Germany for underpaying for defense while buying “inappropriate” amounts of gas from Russia.
- Separately, Trump threatened the five Western European companies involved in the Nord Stream 2 projects with sanctions. These include supermajor Shell, French Engie, German Uniper, Austrian OMV, and Swedish Wintershall.
- The U.S. has compiled a new list of Chinese goods to be slapped with a 10% import tariff. China has said it will once again retaliate.
- Israel has proposed to Russia it will leave Bashar Assad alone if Moscow persuades Iran to leave Syria (this is also possibly the same deal the U.S. has tried to negotiate with Putin, in return for pretending the Crimea annexation didn’t happen). The proposal follows a Syrian army advance on rebel groups near the Golan Heights that Israel captured during the 1967 war.