Gas on the move [NGW Magazine]
Two floating regasification and storage vessels left their moorings this autumn, and not to be replaced by more permanent, import pipelines – but by exports. Argentina is now selling gas to Chile; and Egypt, thanks to LNG, is selling gas to the world – once more. In the generally slow-moving world of natural gas, this counts as split-second timing; a coincidence that it is difficult to ignore.
Both countries are sitting on vast amounts of gas that their own economies cannot absorb. While Europe is becoming used to growing import dependency and new parts of Asia are growing used to importing LNG, other countries – and not just the US – are looking for new countries or aggregators to sell to and convert their surplus resources into useful money.
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It would of course be a step too far to include the UK in this category: nobody expects its shale gas production to displace imports, or even cut them appreciably. Nevertheless autumn 2018 will be seen in the UK as the month that onshore output started, after a long hiatus, and it will be watched closely. Cuadrilla’s CEO Francis Egan said the brittle rocks were behaving as expected when fracked, and have yielded some gas.
Even if predictable, the sailing away of the two vessels draws attention to the broader shifting patterns. Gas is reaching a tipping-point as an acceptable, available and affordable fuel for power generation and heating, thanks mostly to LNG as new trading patterns open up. Liquefied or compressed, natural gas is also capturing the imagination of the transport sector on land and sea, displacing dirtier fuels with little loss of convenience and some savings of money.
While Egypt and Argentina are only just at the inflection point, their volumes for sale will ramp up depending on the scale and speed of investments. This is all very good news for gas consumers as, glut or not, competition between suppliers will grow as more of them appear; and all things being equal, push prices down and force creativity. Not a price-maker yet in Europe, LNG will have to compete with pipeline gas, a role it is likeliest to perform well in for about a third of the year, from December to March when prices peak.
The pitch is tilted against cheap gas in Poland, where relations with the US have extended to various military agreements, as well as LNG imports that are Henry Hub based but now, under its Cheniere LNG purchase contract, include delivery to Poland, rather than free on board. Gradually the country’s import terminal is filling up, as politics trump economic self-interest.
This move to diversify will also mean a little more Russian gas is available for sale outside Poland in a few years’ time, and a little more Norwegian gas delivered into Poland.
But elsewhere in Old Europe, Germany and Austria continue to emphasise the importance of affordable gas, which is subliminally linked with Gazprom. Its super-cheap exports through amortised infrastructure are available in volume for decades to come, and mostly linked to the same pricing hubs as the LNG imports.
This growing liquidity drives consumer and political confidence in the reliability of gas, especially important if the energy transition is to succeed. Renewables, without coal and gas would be unthinkable unless we accepted a drop in our living standards. And with one or two glaring exceptions, such as RWE’s lignite mining operation in Germany, coal is being pushed to the margins in Europe.
It is also good news for producers – particularly those with the requisite financial scale and geographical spread of assets to take advantage of growing liquidity. Shell’s integrated LNG division was the company’s biggest earner in Q3, beating both its upstream and downstream divisions. French Total has also created a similar division, but it was in Q3 that it concluded its purchase of most of Engie’s LNG business so next quarter’s figures will be more revealing.
As trading develops, optimisation has become the LNG-related buzz-word, explaining the narrow difference between Asian and European hub prices.
The German utility RWE and Tokyo gas are just the latest in a line of Eurasian pairings that want to avoid the waste that can occur when cargo swaps and other opportunities are missed. With the customary veil drawn over the details of their early November memorandum of understanding, their intent is co-operate on LNG procurement, and so each can save time and money when shipping to the highest price market. This is probably better in the long term for both, even if the profits of each trade have to be shared between the two somehow.
Reloads from Europe now have to work with a smaller arbitrage, thanks perhaps to more Panama capacity available this autumn, as well as to closer co-operation between the hemispheres. Either way, more LNG is being regasified in Europe than reloaded this winter than was the case a year ago. Side-benefits of this include lower methane emissions – for all the talk to the contrary, LNG is not oil and it does have a high cost of storage and transport – or conversely, more value being delivered in shorter journeys.
The success of the Japan Fair Trade Commission in banning destination clauses will go a long way to enabling even more cargo swaps and more efficient trade. The European Commission’s own investigation into Qatari LNG export contracts with European customers might also unearth some oddities that do not fit into accepted European Union competition law.
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