Monthly Gas News Commentary: January – February 2018
India’s push to more than double the share natural gas has in its energy mix to 15 percent by 2022 will require a huge increase in imports and the construction of LNG terminals. India has four terminals to receive LNG and imports around 20 mt of the super-chilled fuel a year. But over the next seven year the government plans to build another 11 terminals. That would raise India’s LNG import capacity to more than 70 mt per year in the coming seven years, in what would be one of the fastest gas import expansions since China embarked on its huge gasification programme last year. India would eventually require even more than 15 terminals to meet its demand. India has stated it plans to raise the share of natural gas in its energy mix to 15 percent by 2022 from about 6.5 percent now. The 70 mt a year target a few years later would mean Indian would need to import more than China took last year via both pipelines and tankers, and it would put India close to what top importer Japan currently buys. India plans to electrify millions of households that still burn wood for light, heat and cooking. Like China, it also plans to reduce its heavy reliance on thermal coal, a bigger polluter than gas. Gas would also be needed to provide power to electric vehicles, which India plans to account for all new car sales by 2030. India is also pushing for more scooters and motorcycles to run on CNG with pilot schemes recently launched in major cities including New Delhi and Mumbai. Beyond LNG, India is looking to access untapped domestic gas reserves off its east coast. As part of its drive to reduce pollution by increasing natural gas use the government was encouraging Indian railway companies and LNG importers to look at fuelling trains by LNG instead of diesel. India also wants to become a hub for supplying ships that run on LNG, with plans to build more facilities like a fuelling station at Kochi port. LNG as a shipping fuel is being pushed by International Maritime Organization rules that come into effect by 2020 and require the use of cleaner fuels.
IGS an equal joint venture of BP and RIL in 2011 plans to begin selling imported LNG to Indian customers in 12-18 months to cater to the rising natural gas demand in the country. India Gas Solution administers the existing gas sales contracts to customers for production from the RIL-BP’s KGD6 block and is actively pursuing opportunities for marketing the proposed output from R-Series field in the KG Basin. R-Series is expected to begin producing 12 mmscmd from 2020. The firm was in talks with all the players in the value chain, including customers, suppliers, pipeline owners and the regasification terminal operators, and everything would come together soon. BP has a huge presence globally in the LNG trading business, is hoping to lean on that experience and network to bring Indian gas consumers a competitive deal. By entering LNG supply business in India, India Gas will directly compete with state-run suppliers such as GAIL (India) Ltd, Indian Oil and Petronet LNG.
RIL and BP Plc, partners in a gas block in the KG basin, have started approaching prospective customers to sell gas that will start flowing from their R-series field in 2020. The firms will sell gas through IGS for the sourcing and marketing of gas. New gas production from the D6 field in the KG block will flow from 2020 and is expected to bring a total 30-35 mmscmd phased over 2020-22. So far, only the D6 field in KG block is producing gas. The R-Series and other satellite fields are yet to be developed. The six satellite fields include D2, 6, 19, 22, 29 and 30, in the KG block. While the development of the six satellite fields would be taken up together, D-34 or R-Series and D-55 (MJ) would be developed separately. RIL and BP announced an investment of ₹ 400 billion in their satellite fields, R-Series and MJ gas discoveries, to reverse flagging production from the KG block. This investment will boost production as much as fivefold over the next three to five years. IGS is also pursuing options to import and market LNG into India and looking to pick up stake or administer capacity in LNG regasification facilities and gas transportation pipelines. RIL and BP are partners in the KG block, which currently produces around 7-8 mmscmd. While RIL holds a 60% stake in the gas block, BP owns 30%. Canada-based Niko Resources Ltd owns the rest. The D6 field began gas production in April 2009 and was to hit a peak output of 69.43 mmscmd in March 2010. However, water and sand ingress forced the closure of some wells, leading to a drop in production. BP and RIL began their partnership in 2011, when BP picked up a 30% stake in RIL’s 21 oil and gas blocks for $7.2 billion.
ONGC’s gas production rose 7.9% and crude output went up 1.5% in the first nine months of the current fiscal against the previous corresponding period. The ONGC board had approved projects worth over ₹ 780 billion in the last three years. These projects will lead to additional oil and gas output of over 180 mtoe. The acquisition of government’s 51.11% stake in HPCL will make ONGC India’s third-largest refiner and the first fully vertically integrated energy company, straddling the entire hydrocarbon value chain. The acquisition of HPCL will bolster the kitty of MRPL, ONGC’s refining subsidiary that processed a record 16.5 mt of crude.
Hiranandani Group-promoted H-Energy, which is executing a ₹ 35 billion project to import and distribute LNG in West Bengal, has decided upon the shore-based regasification terminal model to expedite work. The company expects to complete the LNG project at Haldia within the next 18-24 months. Transportation major ‘K’ Line has a 26 percent stake in a joint venture with H-Energy to execute and manage the storage and literage part (FSU) of the imported LNG project valued at $300 million. ‘K’ Line is estimated to supply 155,000 m3 LNG FSU. However, the regasification terminal at the shore near Digha will require about $250 million, which will be executed solely by the Hiranandani Group. H-Energy intends to execute the LNG project in phases, slowly ramping up capacity from 1.0 to 4.0 mtpa. It can be later scaled up to 6.0 mtpa. The company will construct a station near Haldia to receive LNG by shuttle carriers, where it is stored and regasified in a Floating Storage and Regasification Unit, holding approximately 40,000 m3. The initial capacity of this unit will be around 1.0 mtpa. H-Energy will be constructing pipelines of about 100 km to supply gas in Haldia and West Bengal. The natural gas is also proposed to be exported to Bangladesh.
India put on auction a record exploration acreage for prospecting of oil and gas, from 55 blocks, in the first bid round in eight years. Each block on offer has been carved out by prospective bidders under the open acreage licensing of the new Hydrocarbon Exploration and Licensing Policy. Blocks would be awarded to the company which offers highest share of oil and gas to the government as well as commits to do maximum exploration work by way of shooting 2D and 3D seismic survey and drilling exploration wells. Increased exploration would lead to more oil and gas production, helping the world’s third largest oil importer to cut import dependence. India had in July last year allowed companies to carve out blocks of their choice with a view to bringing about 2.8 million square kilometres of unexplored area in the country under exploration. Under this policy, companies are allowed to put in the EoI for prospecting of oil and gas in any area that is presently not under any production or exploration licence. The EoIs can be put in at anytime of the year but they are accumulated twice annually. The blocks or areas that receive EoIs at the end of the cycle are put up for auction with the originator or the firm that originally selected the area getting a 5-mark advantage. The 55 blocks have a total area of 59,282 square km. This compares to about 1,02,000 square km being under exploration currently. ONGC and Cairn India – a unit of Vedanta Ltd, had put in 41 out of 57 bids received in November last year. Private player Hindustan Oil Exploration Company bid for one area in a round. Of the 57 EoIs put only 55 blocks were cleared for bidding after eliminating areas that are under no-go zone or overlapping with existing mining lease. He said the opening up of 2.8 million square km of sedimentary basins for oil and gas exploration will help raise domestic production and cut excessive dependence on imports. The new policy replaced the old system of government carving out areas and bidding them out. It guarantees marketing and pricing freedom and moves away from production sharing model of previous rounds to a revenue sharing model where companies offering maximum share of oil and gas to government are awarded the block. Till now, the government has been selecting and demarcating areas it feels can be offered for bidding in an exploration licensing round.
The government has approved RIL and British energy giant BP plc acquiring their cash-strapped partner Niko Resources’ 10% stake in gas discovery block NEC-25 in the Bay of Bengal. Niko had in mid-2015 chosen to withdraw from the NEC-25 block and relinquish its interest to the remaining stakeholders. RIL is the operator of the block with 60% interest while BP of the UK has the remaining 30% stake. The 10% stake has been split between RIL and BP in proportion to their equity stake. Gas discoveries in North-East Coast block NEC-0SN-97/1 (NEC-25) hold recoverable reserves of 1.032 trillion cubic feet. The Canadian company has been facing cash problems and had even put up for sale its interest in NEC-25 as well as 10% stake in RIL’s Krishna Godavari basin oil and gas producing block KGDWN-98/3 or KG-D6. It could not find a buyer though. Last year, RIL had stated that the block oversight panel, called Management Committee, has reviewed the declaration of commerciality of gas find D-32 in the block. RIL in March 2013 had submitted a $3.5 billion Integrated Field Development Plan for producing 10 mmscmd of gas from the discoveries D- 32, D-40, D-9 and D-10 in NEC-25 by mid-2019.
Shell India, the operator of the Panna-Mukta-Tapti fields, a joint venture, has shelved its plan to sell its 30% stake in the Panna and Mukta oil fields. Panna and Mukta are oil fields while Tapti is a gas field located near ONGC’s Mumbai High complex. Shell and RIL hold 30% stake each in the PMT joint venture, while ONGC holds the remaining 40%. PSC for the PMT fields is scheduled to expire in December 2019 and the three partners have not applied for an extension of the same. During the third quarter of this fiscal, the Panna-Mukta fields produced 1.32 million barrels of crude oil and 15.2 billion cubic feet of natural gas, a drop of 10% in crude oil and 3% in natural gas on an on-year basis. The Tapti field is being abandoned due to a significant drop in reserves. It will be the first offshore field to be abandoned in India.
A 5 mtpa LNG import terminal at Mundra in Gujarat state on the west coast of India, part owned by the Adani Group, will likely be operational in April or May. The terminal will have receiving, storage and re-gasification facilities for LNG and will be connected to Gujarat State Petronet’s existing pipeline network at Anjaar, Gujarat. Construction on the terminal is completed, but Adani is unable to commission operations due to issues with a 90 km section of pipeline, executive director of the company’s LNG and LPG division. Adani’s plans are in line with a broad push in India to more than double the share natural gas has in the country’s energy mix to 15 percent by 2022. India has four LNG terminals now and imports around 20 mt of the super-chilled fuel a year, but the government plans to build another 11 terminals over the next seven years.
Petronet LNG Ltd, India’s biggest importer of gas, and its Japanese partners will invest $300 million to set up Sri Lanka’s first LNG terminal near Colombo. The Indo-Japanese partnership will set up a 2.6-2.7 mt a year floating LNG receipt facility off the island’s western coast, bigger than the previously envisaged 1.5-2 mt a year facility. Petronet will hold 47.5 percent stake in the project while Japan’s Mitsubishi and Sojitz Corp will take 37.5 percent stake. The remaining 15 percent will be held by a Sri Lankan entity. Explaining the reasons for setting up a bigger capacity LNG terminal, he said Sri Lanka requires 2.5-3 mt of liquid gas to fire power plants. Sri Lankan government had in September last year issued a Letter of Intent to the company to build a floating LNG import facility to supply gas to power plants and the transport sector in the island nation. The import terminal is to be set up at Kerawalapitiya on the west coast. The terminal in Sri Lanka is part of Petronets vision to own 30 mt per annum of LNG import and regasification capacity by 2020. Petronet already operates a 15 mt per annum import facility at Dahej in Gujarat and has another 5 mt terminal in Kochi in Kerala. It has signed preliminary agreement to build a 7.5 mt LNG terminal in Bangladesh and is also looking at setting up a smaller facility in Mauritius. Dahej is also being expanded to 17.5 mt over the next two years. The India-Japan collaboration comes after a string of Chinese successes in Sri Lanka.
GAIL incorporated in August 1984 by spinning off gas business of ONGC, GAIL owns and operates about 11,000 km of natural gas pipelines in the country. It sells around 60 percent of natural gas in the country. In 2006, the Government issued the Policy for Development of Natural Gas Pipelines and City or Local Natural Gas Distribution Networks. Also, the policy and the provisions of the PNGRB Act, 2006 provide for all entities authorised to lay pipelines including GAIL to provide mandatory open access to their gas pipeline infrastructure on common carrier principle at non-discriminatory basis. At present, GAIL has about 11,000 km long gas pipeline network and is also developing about 3,500 km long pipelines projects in the country.
GAIL has placed an order worth ₹ 4.4 billion for laying 350 km pipeline from Vijaipur in Madhya Pradesh to Auraiya in Uttar Pradesh. The company said this is part of the spurline of 665 km from Vijaipur to Phulpur in Uttar Pradesh to the existing upgradation pipeline system. The pipeline laying contracts for the 315 km stretch from Auraiya to Phulpur was awarded in November 2016. The Vijaipur to Phulpur pipeline will provide the gas feed to the ongoing 2,655 km long Jagdispur-Haldia-Bokaro-Dhamra Pipeline project of GAIL, also known as the ‘Pradhan Mantri Urja Ganga’ project. Chairman and Managing Director of GAIL BC Tripathi, also said that all of GAIL’s group companies have made detailed plans for expansion of City Gas Distribution infrastructure in coming years.
The downstream regulator is reworking city gas licensing rules, readying to launch 100 new city gas distribution licences, and cut myriad litigations it’s been caught in with gas companies, to rebuild itself into a more effective and credible watchdog that can help country achieve its target of raising the share of natural gas in the energy mix from 6% to 15% by 2030. PNGRB has often been criticised in the past for less than optimal rules needed to support the development of the gas sector in the country. PNGRB will announce the names of 100 more districts for which it intends to award licences. The choice of districts will be such that more highways have gas coverage, making inter-city commute for CNG vehicles possible, he added. So far only 91city gas licences have been awarded in the country, including 14 delivered in the last one month. Before the auction for 100 new licences are launched by March, PNGRB plans to rework bidding norms, hoping to plug the loopholes in the existing rules often blamed for poor growth of city gas. As per the draft guidelines, open to stakeholder consultation, winner will be chosen on the basis of the number of consumers connection and CNG stations, and the length of gas pipeline bidders promise to achieve in a given time frame.
After “one paisa” bids spoilt the initial auction rounds, oil regulator PNGRB has proposed to radically change the bidding parameters for obtaining a licence to retail CNG and piped cooking gas in cities. The PNGRB has proposed to conduct future auctions by asking companies to quote the tariff they will charge for transportation of CNG and piped natural gas or PNG within the city, with lowest rate getting preference. They would also be asked to quote the number of CNG stations and households proposed to be connected within a given timeframe, according to PNGRB. Besides, bidders will also have to quote how much pipeline would they lay on winning the licence. PNGRB has so far held eight rounds of bidding where companies were asked to quote the tariff for pipeline that carries gas within the city limits. This bidding criteria did not include the rate at which an entity would sell CNG to automobiles or piped natural gas to households using the same pipeline network, leading to companies offering one paisa as tariff to win licences. PNGRB in the notice invited comments on the draft bidding regulations by February 2 after which it will finalise the criteria.
Rest of the World
BP expects gas to overtake oil as the world’s primary energy source in around 2040 as demand for the least polluting fossil fuel grows. Emery highlighted estimates for demand growth for gas in China of around 15 percent year-on-year last year and said BP expects overall gas demand to grow around 1.6 percent a year for years to come, compared with 0.8 percent for oil. In terms of demand for gas from different sectors, industry is especially resilient and transport is fast-growing, albeit from a low base, at annual rates of three to four percent. BP is due to reveal more details in its next energy outlook on February 20. In its last outlook it said it saw gas overtaking coal’s share in the primary energy market to become the second-largest fuel source by 2035. BP’s previous forecast to 2035 forecast oil’s share shrinking from around 33 percent to around 30 percent and gas’ share grow from the low 20s to the mid 20-percentage range. One of the biggest challenges for the gas industry was reducing methane leakages from pipelines, which he said was estimated at around 1.3 to 1.4 percent.
BP has commenced gas production from the $1 bn Atoll phase one field offshore Egypt, seven months ahead of schedule. Located in the North Damietta Concession offshore Egypt in the East Nile Delta, the Atoll field was discovered by BP in March 2015. It is being developed in phases. BP estimates the Atoll field’s main reservoir to hold 1.5 trillion cubic feet of natural gas and 31 million metric barrel of condensates. The project, which is now producing 350 million cubic feet of gas a day and 10,000 barrels a day of condensate, was delivered 33% below the initial cost estimate, BP said. The Atoll Phase One involved the recompletion of the original Atoll exploration well to a producing well as well as drilling of two more production wells. Production from the Atoll gas field is being exported to the existing onshore West Harbor gas processing plant. Located offshore on the border between Mauritania and Senegal, the Tortue/Ahmeyim gas field is estimated to contain 15 trillion cubic feet of gas resources.
Cheniere Energy Inc said LNG production from its Sabine Pass export plant in Louisiana will not be affected following an order to shut two cracked storage tanks that leaked the super-cold fuel. The US Department of PHMSA ordered Cheniere to shut two LNG storage tanks after plant workers discovered a one-to-six foot long crack at one tank that leaked the fuel into an outer layer. The order comes as Cheniere is preparing to expand another LNG export facility at Corpus Christi in Texas that is under construction after signing a multi-year deal to sell fuel to a company in China. During the investigation of the Sabine site, PHMSA discovered a second tank had also experienced releases of LNG from the inner tank, raising the possibility that similar leaks may have occurred in multiple tanks, it said. Cheniere’s Sabine Pass terminal in Louisiana is currently the only big LNG export facility operating in the country. Several other companies are building other trains at six sites which is expected to make the United States into the third biggest LNG exporter by capacity in 2018.
Russia’s oldest natural gas buyer is ready to break up after more than 74 years. Poland, which relies on Kremlin-controlled Gazprom PJSC for about two-thirds of its gas, says diversification trumps potential price cuts it could leverage from building an import link to access Norwegian fuel. That comes after the eastern European nation in 2016 completed a liquefied natural gas terminal to diversify away from the Russian gas it’s been buying since 1944. Poland is also vying with Gazprom over the Russian company’s plan to expand its Baltic Sea gas pipeline to Germany, called Nord Stream 2. Poland argues that the project would make countries like Ukraine more vulnerable if Russia decided to shut down gas links running across its territory to western Europe. PGNiG gets 10 bcm a year under the Gazprom contract. It doubled its LNG purchases from Qatar as of this year to about 3 bcm and signed a mid-term deal for US deliveries. The LNG terminal’s capacity is set to rise 50 percent to 7.5 bcm a year after 2020. At the same time, the Polish company committed to transit 8.78 bcm a year via the Baltic Pipe when it starts. Additionally, the country produces more than 4 bcm of its own gas a year and in order to export an excess it may have post-2022 it’s building links with neighbouring countries including Slovakia, Lithuania, the Czech Republic and Ukraine.
The Nord Stream 2 pipeline project has received a permit for construction and operation in German territorial waters and the landfall area around eastern Germany’s Lubmin, the project’s operator said. Nord Stream 2 said it has fulfilled all requirements and expects permits to be issued by other countries in time for construction to begin as scheduled in 2018. Nord Stream 2 would double the existing Nord Stream pipeline’s current annual capacity of 55 billion cubic meters. Nord Stream runs on the bed of the Baltic Sea from Russia to Germany.
Mozambique’s council of ministers approved the development plan for Anadarko Petroleum Corp’s LNG project in the north of the nation, an investment estimated at about $20 billion. Anadarko and its partners have agreed the price and volumes for 5.1 million metric tons a year of gas production, out of the 8.5 million tons required to reach financial close, the company said. During the last quarter of 2017, it signed an agreement with Tohoku Electric Power Co. of Japan to sell it gas. Anadarko said it’s already started resettling communities from the land where it plans to build its LNG plant. Exxon Mobil Corp and Eni SpA are developing another gas project near Anadarko’s. The development of Mozambique’s gas deposits could make the southeastern African nation the world’s fourth-biggest natural gas exporter.
Croatia will pass a special law to speed up the construction of a LNG terminal in the northern Adriatic. Croatia produces more than half of its gas consumption, some 2.5 bcm a year. Once the LNG terminal is built it hopes to be able to supply both its own market as well as central and eastern European countries. The European Union has decided to put the floating LNG terminal on the island of Krk on its list of projects of common interest since it wants to diversify sources of supply and reduce dependence on Russian gas. Brussels will invest € 101.4 million, or 28 percent of the project’s assessed value. Croatia aims to bring a final investment decision this year and plans to make the terminal operational in early 2020. Croatia’s plan is to construct a terminal with an initial capacity of 2.6 bcm of gas a year, which could be gradually expanded to as much as 7.0 bcm a year.
China announced retroactive adjustments in reference prices for importers to use as a base for tax rebates, part of a long-standing policy started in 2011 to give importers some respite on tax payments. Reference prices for LNG will be set at 26.64 yuan ($4.21) for each Joule (GL), retroactive from October 1 of last year, and pipeline gas at 0.94 yuan per cubic metres, according to the finance ministry. Between July and September last year, LNG reference prices were set at 27.49 yuan per GL and pipeline gas at 0.97 yuan per cubic metre.
Tehran is ready to file a case with the International Court of Arbitration over the quality and price of gas it receives from Turkmenistan, the Iranian oil minister said, as a dispute between the two nations over payments escalates. The Central Asian nation stopped gas exports to Iran in January 2017, saying it was owed $1.5 billion to $1.8 billion for gas it had delivered to Iran. Iran, which disputes the claim, has imported Turkmen gas since 1997 to supply its northern region, especially in winter, even though it has large gas fields in the south of the country. Iran was ready to take the dispute over price to the International Court of Arbitration. The National Iranian Gas Company had said in December that Tehran would prefer dialogue to resolve the disputes rather than resorting to international arbitration.
Bangladesh signed an agreement with Indonesia to import LNG as the South Asian country turns to the supercooled fuel to fill a shortfall of domestic natural gas. A letter of intent was signed between two state energy companies, Petrobangla and Pertamina, after a meeting between Prime Minister Sheikh Hasina and Indonesian President Joko Widodo. Bangladesh, a country of more than 160 million people, may import as much as 17.5 mt of LNG a year by 2025, as its domestic gas reserves dwindle and demand grows. Petrobangla is finalising several floating storage and regasification units, the first of which is expected to commence operations in April 2018.
JAPEX said it would book an impairment loss of $608 million on its shale gas project in Canada in the October-December quarter. The loss will hurt its net income in the April-December period by $311 million, but the company is still assessing an impact on its full-year earnings, JAPEX said.
Iraq agreed a deal with US energy company Orion to process natural gas extracted at its giant Nahr Bin Omar oilfield. The memorandum of understanding, signed in Baghdad by representatives of the oil ministry and the US company, will allow Orion Gas Processors to build facilities to capture the gas from the field located in southern Iraq and to transform it into usable fuels. Nahr Bin Omar, operated by Basra Oil Company, is producing more than 40,000 bpd and 25 million cubic feet a day of natural gas. Iraq continues to flare some of the gas extracted alongside crude oil at its fields because it lacks the facilities to process it into fuel for local consumption or exports. Orion will capture and process 100 million to 150 million cubic feet/day of gas. The gas captured will be used to feed power stations and to produce up to 10 million liters of gasoline, equivalent to 32 percent of Iraq’s total imports of the fuel, he said. Gas flaring across Iraq should end by 2021.
Woodside Petroleum expects to reveal plans for expanding its prized Pluto LNG project and connecting it to the North West Shelf LNG complex soon. Talks with the owners of the Scarborough gas resource off Western Australia, led by ExxonMobil Corp, as well as drilling of an exploration well, Ferrand-A, around March, and other tie-ins could help underpin the expansion. Some analysts had speculated that recent drilling disappointment on Woodside’s Swell exploration well could limit any expansion. Woodside said that it has looked at a range of options for expanding Pluto LNG by up to 1.5 mt a year. Pluto, Wheatstone – run by Chevron Corp – and the North West Shelf, Australia’s biggest LNG plant – run by Woodside – are all candidates for processing gas from a number of undeveloped assets off Western Australia, either for expansions or for supplying gas when their existing fields dry up. Woodside is still targeting growth in Myanmar, where it discovered gas last year and expects to drill three wells this year, starting around March or April, even amid a humanitarian crisis involving Rohingya refugees.
LNG: liquefied natural gas, mt: million tonnes, CNG: compressed natural gas, IGS: India Gas Solutions, RIL: Reliance Industries Ltd, mmscmd: million metric standard cubic meter per day, KG: Krishna-Godavari, ONGC: Oil and Natural Gas Corp, mtoe: million tonnes of oil equivalent, HPCL: Hindustan Petroleum Corp Ltd, MRPL: Mangalore Refinery and Petrochemicals Ltd, FSU: Floating Storage Unit, OAL: Open Acreage Licensing, EoI: Expressions of Interest, mtpa: million tonnes per annum, km: kilometre, UK: United Kingdom, PMT: Panna-Mukta-Tapti, PSC: Production Sharing Contract, PNGRB: Petroleum and Natural Gas Regulatory Board, PHMSA: Pipeline and Hazardous Materials Safety Administration, US: United States, bcm: billion cubic meters, JAPEX: Japan Petroleum Exploration Company Ltd