Posts Tagged ‘LNG’

Coal Jobs Get a Boost—From Exports

February 24, 2018

U.S. utilities continue switch to natural gas despite pro-coal policies of President Trump

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Miners in Indiana and other states are getting a small lift from global markets: American companies are shipping more coal to Europe and Asia, helping to stop the yearslong drop in the number of U.S. mining jobs.

Miners in Indiana and other states are getting a small lift from global markets: American companies are shipping more coal to Europe and Asia, helping to stop the yearslong drop in the number of U.S. mining jobs.

The latest job increase runs counter to the long-term decline in coal used to generate electricity in the U.S., as coal-fired power plants are closed in favor of plants that burn cheap, abundant and cleaner natural gas.

Exports of U.S. thermal coal used by utilities rose 117% to 42 million tons last year. That more than offset the 11-million-ton decline in coal used at U.S. power plants, which fell to 667.5 million tons last year, from 678.6 million tons in 2016. Coal accounted for 30% of U.S. electricity generation in 2016, compared with nearly 34% for natural gas.

Read more

  • Coal’s Decline Spreads Far Beyond Appalachia
  • Power Shift: How Natural Gas and Renewables Dethroned King Coal

The stronger export market is translating into a bump in coal-mining jobs. Last year, coal companies added nearly 1,000 jobs, a trickle compared with the 60,000 workers who lost mining jobs between 2011 and 2016.

Coal producer Alliance Resource Partners LP plans to reopen an underground mine in rural Gibson County, Ind. that the company shut in 2015. The mine employed 417 miners in late 2014.

“We are seeing actual coal-fired generation power plants being built in other countries,” Alliance’s CEO Joe Craft told analysts recently. “So we’re expanding.”

The export opportunities come from a tightening of global supply, attractive pricing in Western Europe and greater coal use in developing countries like India, where imports of U.S. thermal coal jumped to 6.8 million metric tons last year, from 2.4 million tons a year earlier.

By contrast, the loosening of environmental rules by the Trump administration, while welcomed by the coal industry for boosting confidence, has had little direct effect on domestic coal usage or exports, industry experts say.

Mines in the Illinois coal basin, which includes parts of Illinois, Indiana and western Kentucky, are so far benefiting the most for several reasons. The mines there tend to be lower-cost operations than in more heavily mined areas in Appalachia.

Mining companies in the Midwest can also ship coal by river and export it through the Gulf of Mexico, while ports on the East Coast are often congested and politicians and environmental groups have blocked coal shipments from the West Coast.

One major greenfield coal project—the Poplar Grove mine—is under construction in western Kentucky and expected to begin shipping coal in the fall.

Kelly Thurman, judge executive of McLean County, Ky., said he is looking forward to the jobs as well as added coal severance tax revenue based on the value of coal that is mined. The county used revenue from another coal mine that opened within the past two years to pay for a new $120,000 ambulance and to pay for part of a new fire station and a new water system.

“We’re one of the few spots that is really experiencing any growth,” Mr. Thurman said. “It has tremendous potential for us as a county government.”

The Poplar Grove mine will ship just under half of its production to a Kentucky power plant, but Paringa Resources Ltd.’s CEO, Grant Quasha, said the company will look at export opportunities. “It has been very positive to have that increase in demand from the international markets,” he said.

Other companies say they also expect exports for thermal coal to remain strong in 2018. Exports of metallurgical coal used to make steel were up 35% last year, buoyed by an improving global economy.

“Both in thermal and metallurgical, the export market is really the most interesting and really the only game in town where there’s any obvious growth,” said Paul Forward, an analyst with Stifel.

The number of coal miners rose to 82,840 last year, from 81,883 a year earlier, according to the Mine Safety and Health Administration. The figures include contract miners as well as direct employees at companies.

The latest mine openings are likely to be partly offset by the expected closure of a few mines this year, including an underground coal mine employing 370 miners in Greene County, Pa., south of Pittsburgh.

Murray Energy, the largest underground coal-mining company in the U.S., said it would export more coal this year, about 22.5 million tons, compared with 15 million tons last year.

“The world needs the coal, and we have seen the growth,” said Chief Executive Robert Murray, a vocal supporter and financial backer of President Donald Trump. “It’s not just a matter of hiring people. It’s a matter of keeping our mines alive right now.”

Write to Kris Maher at


America’s Emerging Petro Economy Flips the Impact of Oil

February 21, 2018

Higher prices used to spell trouble for the economy, but with the emergence of the U.S. as a leading oil producer, that no longer holds true

The effect of oil prices on the U.S. economy used to be straightforward: Higher was bad. Yet between 2014 and early 2016, as oil collapsed, growth slowed sharply. Since then oil has doubled, yet the economy has accelerated.

Credit this to the emergence of the U.S. as a leading oil producer and, soon, net energy exporter. More expensive oil is still a tax on consumers. But that tax is increasingly offset by the boost to energy investment, production and jobs. The U.S. business cycle is thus now tied in complex and surprising ways to the global oil market.


The rise in U.S. oil production, thanks to shale, is nothing short of spectacular. The federal Energy Information Administration projects that daily output, which was the highest since 1972 last year, will rise to a new record of 10.6 million barrels this year. BP PLC’s latest world energy outlook predicts the U.S. will account for 18% of world oil and related liquids output in a little over two decades, well ahead of second-place Saudi Arabia at 13%.

Even more consequential: The U.S. deficit in crude oil and refined products has shriveled to four million barrels a day last year from 12 million in 2007. The EIA predicts the U.S. will become a small net exporter by 2029, and if all other energy is included, in just four years.

The U.S. has plentiful reserves of “tight” oil—primarily brittle rock formations such as shale—that was unprofitable to extract until the adoption of seismic imaging, hydraulic fracturing of rock and horizontal drilling in the mid 2000s. It now accounts for more than half of U.S. crude output.

Oil’s share to U.S. gross domestic product, at 2.7%, is only marginally above its three-decade average and nowhere near as important as in true petrostates such as Russia and Saudi Arabia. But it plays an outsize role in year-to-year growth fluctuations because shale drillers, who don’t have to spend years looking for new deposits, respond so quickly to market conditions.

*Petroleum includes crude oil and refined products †Excludes petroleum products such as gasoline

Sources: Energy Information Administration (oil production, net imports); UBS (GDP, shipments)

Indeed, a recent study by Richard Newell, president of the think tank Resources For the Future, and Brian Prest of Duke University finds shale output rises nine times as much as conventional output for a given price rise, for two reasons: More wells are drilled, and each well is far more productive. (That advantage declines over time, as shale wells are exhausted more quickly.)

Each new well drilled triggers related demand, from pumps and fabricated metal to truckers. The reverse is also true. Rob Martin, an economist at UBS , estimates that after oil prices tanked in 2014, collapsing energy investment wiped a full percentage point off growth in 2015 and nearly half a point in 2016. Then as oil prices recovered, energy investment contributed 0.6 points to last year’s 2.5% growth.

This is a sharp contrast to historic patterns. When oil prices plunged in 1998 because of the Asian financial crisis, U.S. growth got a boost. When they skyrocketed in 2008, it pummeled an economy already wilting from the mortgage crisis.

Mr. Martin also found oil has had a huge influence on manufacturing. By the end of 2015, near the nadir of prices, shipments of manufactured goods potentially tied to commodities such as fabricated metal products, construction machinery and heavy-duty trucks were down 12% from a year earlier. As oil activity recovered, they turned and by late last year were up 9%.

Not all of this was homegrown. American manufacturers also benefited from recovering activity in foreign oil producers. Nonetheless, it left an imprint on regional growth. From mid-2016 through the middle of last year, more than half the net U.S. jobs created in manufacturing were in Texas, home of the tight oil-rich Permian Basin, according to UBS.

Since mid-2017 that effect has moderated as the recovery in both business investment and factory jobs has spread beyond energy. Nonetheless, Mr. Martin predicts that energy investment will contribute a tenth of the 2.9% growth rate projected for the U.S. this year.

Many crosscutting forces will determine if oil continues to exercise the same influence over the business cycle. The decision by the Organization of the Petroleum Exporting Countries and Russia to curb output a few weeks after Donald Trump was elected president in 2016 was particularly advantageous to American producers, who benefited from both a higher price and an expanded market share. OPEC and Russia may not hold back as stronger global growth propels demand.

Shale producers are also dependent on fickle stock and bond markets to finance operations and the uncertain pace at which extraction technology improves. The recent surge in stock market volatility dragged down oil prices.​

Bob McNally, president of Rapidan Energy Group, a consulting firm, warns the last price bust depressed global oil investment while ensuring U.S. gasoline consumption kept rising, contrary to the EIA’s prediction. As global growth picks up, global oil supply will be slow to respond, which Mr. McNally said is a recipe for oil to top $100 per barrel and gasoline to hit $4 a gallon, with the usual pain for consumers and the broader economy.

So oil hasn’t lost its capacity to hurt. But its capacity to help will be an important and unpredictable force for at least a few years yet.

Russia and China vie to beat the US in the trillion-dollar race to control the Arctic

February 6, 2018

Febfruary 6, 2018

Call it a new cold war: Russia, China and the United States all vying for influence and control in a part of the world that, this time, is quite literally cold.

With more than half of all Arctic coastline along its northern shores, Russia has long sought economic and military dominance in part of the world where as much as $35 trillion worth of untapped oil and natural gas could be lurking. Now China is pushing its way into the Arctic, announcing last month its ambitions to develop a “Polar Silk Road”through the region as warming global temperatures open up new sea lanes and economic opportunities at the top of the world.

At play is between one-fifth and a quarter of the world’s untapped fossil-fuel resources, not to mention a range of mineable minerals, including gold, silver, diamond, copper, titanium, graphite, uranium and other valuable rare earth elements. With the ice in retreat, those resources will come increasingly within reach.

At a December meeting of climate scientists in New Orleans, a team from the National Oceanic and Atmospheric Administration declared that the Arctic as we’ve known it is now a thing of the past. Coining a new phrase — the New Arctic — they described the uptick in ocean surface warming and decline in sea ice since 2000 as unprecedented in the past 1,500 years. The Arctic, they wrote, “shows no sign of returning to [the] reliably frozen region of past decades.”

Chinese President Xi Jinping (R) greets Russian President Vladimir Putin (L) during their bilateral meeting at the Asia-Pacific Economic Cooperation (APEC) Leaders Summit on November 10, 2017 in Da Nang, Vietnam.

Mikhail Svetlov | Getty Images
Chinese President Xi Jinping (R) greets Russian President Vladimir Putin (L) during their bilateral meeting at the Asia-Pacific Economic Cooperation (APEC) Leaders Summit on November 10, 2017 in Da Nang, Vietnam.

As the ice pulls back, corporations and governments are moving in. Seaport facilities, mining operations, oil and gas pipelines — as well as new roads, railways and airstrips to serve them — are arriving in the region at an accelerating pace. An inventory of planned, in-progress, completed or canceled Arctic infrastructure projects compiled by global financial firm Guggenheim Partners tallies roughly 900 projects, requiring a total of $1 trillion in investment, some of which is already on the way.

With $300 billion in potential projects either completed, in motion or proposed, Russia is the clear leader in Arctic infrastructure development. The world’s largest country has moved to reopen some abandoned Soviet-era military installations and place new facilities and airfields in its northern territory, while also establishing a string of seaports along its northern coastline. State-controlled oil company Rosneft started drilling the northernmost rig in the Russian Arctic shelf last year in an attempt to tap into a field that could hold more than half a billion barrels of oil. In June it found its first oilfield, in the Laptev Sea in the eastern Arctic. Meanwhile, Russian energy giant Gazprom Neft already pumps oil from beneath Arctic waters via a different offshore field, in the Pechora Sea.

The ultimate goal: to have offshore Arctic oil account for between 20 and 30 percent of Russian production by 2050.

The Prirazlomnaya offshore ice-resistant oil-producing platform is seen at Pechora Sea, Russia.

Sergey Anisimov | Anadolu Agency | Getty Images
The Prirazlomnaya offshore ice-resistant oil-producing platform is seen at Pechora Sea, Russia.

Russia isn’t alone. Finland, the United States and Canada have also proposed significant infrastructure investment within their respective Arctic zones. Norway’s state energy company is pursuing exploration activities in the far reaches of the Barents Sea even as its sovereign wealth fund considers divesting from fossil fuels. In January the Trump administration announced plans to open up much of the U.S. outer continental shelf to offshore drilling, including areas off the north shore of Alaska.

An oil rig Beaufort Sea

Trump to expand offshore drilling off Atlantic, Pacific  

But it’s the emergence of China — a nation with no territorial claim to the Arctic — as a rising polar power that has the potential to shake up the competition for resources and influence in the region. With its economic and naval power on the rise, China has begun underwriting Arctic development projects despite its lack of territory there, underscoring the region’s growing global importance.

Though not all of the Arctic infrastructure projects logged by Guggenheim will be completed, “the level of projects has been improving,” says Jim Pass, a senior managing director at Guggenheim Partners who has traveled extensively in the region. Projects once deemed largely conceptual have matured into well-thought-out capital infrastructure projects that show meaningful return on investment, he says. As the ice continues to recede, a race is on to develop or buy into the projects that can best position states and companies to compete in the New Arctic.

Racing for Arctic riches

In December, at about the same time climate scientists were discussing the latest Arctic Report Card in New Orleans, a tanker departed Russia’s Yamal LNG facility on the country’s northeastern Yamal peninsula bound for the UK. The tanker carried the first shipment of liquified natural gas (LNG) produced by the Yamal LNG facility, which officially opened in the first week of December with Russian President Vladimir Putin presiding over the occasion.

Russian President Vladimir Putin inspects Yamal LNG, Russia’s second liquefied natural gas plant, which is under construction in the Arctic port of Sabetta, Yamalo-Nenets district, Russia December 8, 2017.

Sputnik | Alexei Druzhinin | Kremlin via Reuters
Russian President Vladimir Putin inspects Yamal LNG, Russia’s second liquefied natural gas plant, which is under construction in the Arctic port of Sabetta, Yamalo-Nenets district, Russia December 8, 2017.

The project, one of the Arctic’s more complex energy infrastructure undertakings to date, is but one of nearly $275 billion in potential Arctic energy investments logged in Guggenheim’s database, and a milestone project for Russia, which accounts for nearly $150 billion of that potential investment alone.

A look at Russia’s icebreaker inventory underscores its commitment to the region; Russia has nearly 40 icebreaker ships in service, with five more under construction and six more planned. Finland, owner of the world’s second-largest icebreaker fleet has seven, followed by Canada and Sweden at six apiece. The U.S. has five, only one of which is a so-called heavy icebreaker. Scrambling to update its aging fleet, the U.S. Coast Guard plans to build six more (three heavy and three medium icebreakers), though the first won’t be delivered until 2023.

People attend a ceremony to float out the nuclear-powered icebreaker "Sibir" (Siberia), which is under construction, at the Baltic Shipyard in St. Petersburg, Russia September 22, 2017.

Anton Vaganov | Reuters
People attend a ceremony to float out the nuclear-powered icebreaker “Sibir” (Siberia), which is under construction, at the Baltic Shipyard in St. Petersburg, Russia September 22, 2017.

Energy resources will likely remain the driver of major investments in the Arctic for the foreseeable future, but for all the fanfare around them highly visible energy projects like Yamal LNG only paint a fraction of the economic picture in the Arctic, Pass says. Guggenheim’s Arctic project inventory includes a data center in Norway, a Finnish biomass-to-ethanol plant, and a Swedish lithium-ion battery factory, among many other projects that fall outside the more conventional categories of fossil fuels, mining, roads and railways.

But the greatest opportunity, he says, is arguably in transport — not just within the Arctic but through it. Much of the Arctic likely won’t see ice-free summertime shipping lanes for some time, perhaps two decades or longer. But other routes, like the Northern Sea Route along Russia’s northern shore are already navigable — albeit not easily — during certain times of the year, trimming some 30 percent to 40 percent off the distance ships would travel between East Asia and Northern Europe if they traversed the conventional Suez Canal route instead. Russia has already installed more than a dozen seaports along the route at places like Arkhangelsk and Murmansk, in the country’s northwest, to Tiksi and Pevek in the northeast.

The city of Murmansk, the Barents Sea port in the Arctic Circle, Russia, August 3, 2017.

Sergei Karpukhin | Reuters
The city of Murmansk, the Barents Sea port in the Arctic Circle, Russia, August 3, 2017.

Meanwhile, if data really is the new oil, the New Arctic could be home to those pipelines as well. Undersea cables laid through the Arctic could one day connect Asia, Northern Europe, and North America more directly, providing far shorter routes for data traveling around the northern hemisphere.

“Whether it’s the fraction of a millisecond it takes for financial transactions to travel between Tokyo and London or whether it’s shorter shipping routes from Northern Europe to China, the Arctic shortens distances,” says Heather Conley, senior vice president for Europe, Eurasia, and the Arctic at the Center for Strategic and International Studies. “As globalization continues to emphasize speed, the Arctic will continue to be an important part of our story.”

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The New Arctic

The story of the New Arctic could nonetheless prove slow to unfold. Though the ice is receding, the Arctic remains a difficult environment in which to operate. The intense cold alone presents challenges not present in other maritime environments, and while sea-ice measurements from last year were, on average, a full quarter lower than the average across three decades prior to 2010, there’s still plenty of ice in the water. Shipping concerns dreaming of an Arctic that’s both easily navigable and inexpensive to traverse will have to wait, perhaps for decades.

The icebreaker Tor (right) at the port of Sabetta in the Kara Sea shoreline on the Yamal Peninsula in the Arctic circle, some 2450 km of Moscow.

Kirill Kudryavtesev | AFP | Getty Images
The icebreaker Tor (right) at the port of Sabetta in the Kara Sea shoreline on the Yamal Peninsula in the Arctic circle, some 2450 km of Moscow.

China has nonetheless taken a keen interest in what the Arctic has to offer in terms of global shipping, fishing stocks, energy security and other mineral resources. The Chinese government has taken what is arguably the longest view in the region, using its financial might to secure access to resources it cannot obtain through territorial claims.

For instance, when funding for the the Yamal LNG facility fell short following the imposition of U.S. sanctions on Russia in 2014, China stepped in with $12 billion in financing to finish the project. During President Trump’s trip to China in November, Chinese energy concern Sinopec inked a deal alongside China Investment and Bank of China to provide financing for Alaska LNG, a liquefied natural gas export facility on the other side of the Pacific.

The Yamal LNG plant in the port of Sabetta on the Kara Sea shoreline on the Yamal Peninsula in the Arctic circle, some 2500 km of Moscow.

Maxim Zmeyev | AFP | Getty Images
The Yamal LNG plant in the port of Sabetta on the Kara Sea shoreline on the Yamal Peninsula in the Arctic circle, some 2500 km of Moscow.

“They see themselves as a near-Arctic state and as an Arctic stakeholder, and they want to make sure they’re not blocked from the Arctic by the coastal states,” Conley said. “They want to make sure they are sort of an equal partner. Right now they’re exploring their economic opportunities and making sure they have a seat at the negotiating table if anything gets decided about future use of the Arctic.”

Last summer Chinese authorities expanded the country’s $1 trillion global infrastructure initiative, known as Belt and Road, to include an Arctic component, bringing the region into China’s larger vision for a connected world with China at the hub. At the same time, a Chinese icebreaker on a scientific mission completed a circumpolar navigation, traversing both the Northern Sea Route along Russia’s northern shore and the Northwest Passage atop North America. It continues to explore free-trade deals in Scandinavia and Canada, while pushing for scientific collaboration in the Arctic as well.

Chinese President Xi Jinping speaks with Russian President Vladimir Putin as leaders gather for a family photo during the Belt and Road Forum on Yanqi Lake, outside Beijing, China, May 15, 2017.

Damir Sagolj | Reuters
Chinese President Xi Jinping speaks with Russian President Vladimir Putin as leaders gather for a family photo during the Belt and Road Forum on Yanqi Lake, outside Beijing, China, May 15, 2017.

“There’s high diplomatic engagement and initiative. The Belt and Road initiative now has an Arctic manifestation, and they have a continued interest in science,” Conley said. “The new economic dynamic is that China is very present in the Arctic.”

A thaw, and a slow refreezing

Climatological concerns aside — and there are many — one ancillary consequence of a melting Arctic is a rise in human activity there. This includes an uptick in commercial and scientific traffic and also in military presence and activity. For Russia, in particular, the receding sea ice represents the withdrawal of a natural barrier that has long protected its northern border, prompting its military to boost capability and presence in the region as a means for securing both its border and the increasingly valuable sea lanes and resource wealth beyond.

Soldiers during military training on March 16, 2015, in Murmansk, Russia.

Anatoly Zhdanov | Kommersant Photo | Getty Images
Soldiers during military training on March 16, 2015, in Murmansk, Russia.

“What we’re seeing now is a very slow refreezing of the Arctic geopolitically,” Conley said. “Russia has continued its military modernization in the north, and while it’s not massive, it’s definitely a change in posture.”

The growing Russian military presence in the region has stoked old feelings of mistrust, she said, producing antibodies within NATO that are now pushing for an increased Western military presence in the region as well. “We’re not going back by any stretch to a cold war posture, but you’re starting to see that muscle memory coming back,” she said. “And it’s because we’re seeing this uptick in military activity.”

Russia's reconnaissance unit members of the Northern Fleet's Arctic mechanized infantry brigade hold military exercises near the Lovozero settlement.

Lev Fedoseyev | TASS | Getty Images
Russia’s reconnaissance unit members of the Northern Fleet’s Arctic mechanized infantry brigade hold military exercises near the Lovozero settlement.

The notion that the Arctic might evolve into a flashpoint for global tensions remains remote. The region has long proved a place of international cooperation, where Arctic states settle boundary disputes and other conflicts amicably at the negotiating table (as Russia and Norway did as recently as 2010). But as military activity in the region trends upward alongside commercial activity, the chance of accidents, misunderstandings and miscommunications heightens as well.

U.S. Coast Guard Commandant Adm. Paul Zukunft, holding pen, joins leaders in signing a joint statement adopting doctrine, tactics, procedures and information-sharing protocols for emergency maritime response in the Arctic in Boston on March 24, 2017.

David L. Ryan | The Boston Globe | Getty Images
U.S. Coast Guard Commandant Adm. Paul Zukunft, holding pen, joins leaders in signing a joint statement adopting doctrine, tactics, procedures and information-sharing protocols for emergency maritime response in the Arctic in Boston on March 24, 2017.

In a New Arctic with emerging strategic and economic value and where norms are still being established, the potential for tensions to escalate is real. If the Arctic shortens distances, countries that once felt quite far apart may soon find themselves much closer together as the ice recedes.

Wary of what geopolitical realities the New Arctic may hold, military planners are already taking such factors into consideration. At a Surface Navy Association event near the Pentagon earlier this month, Coast Guard Commandant Adm. Paul Zukunft noted that the Coast Guard’s new heavy icebreaker will be unarmed when it enters service in 2023. But the ship will have the space, weight and electrical power built in to ensure it can carry offensive weapons in the future.

— By Clay Dillow, special to


China Sucks Gas Out of Global Market Amid Shift From Coal

January 23, 2018

Move boosts LNG price and leaves large swathes of industry in China struggling with limited gas supplies

Heavy smog envelops the express road in Shijiazhuang, north China's Hebei Province, in October. China’s smog levels are well in excess of World Health Organization standards.
Heavy smog envelops the express road in Shijiazhuang, north China’s Hebei Province, in October. China’s smog levels are well in excess of World Health Organization standards. PHOTO: JIA MINJIE/ZUMA PRESS

China is replacing coal with gas, sucking up global supplies of the fuel and pushing up the price of liquefied natural gas to a three-year high.

The world’s No. 2 economy is cutting back on coal after President Xi Jinping made a cleaner environment a key priority at last Fall’s Communist Party Congress.

That has left large swathes of industry in China struggling with limited gas, including giants like German chemical company BASF SE and local producer Yunnan Yuntianhua Co., as supplies are diverted to households that had previously relied on coal for heating.

China’s smog levels are still well in excess of World Health Organization standards, and analysts see no letup in the country’s move out of coal, which releases more greenhouse gas emissions than gas.

That’s good news for the LNG industry, which ships super chilled gas in its liquid form, at a time when large amounts of new supply has limited price gains.

“We were optimistic on the opportunity in China, but the magnitude surprised us,” said Anatol Feygin, chief commercial officer at U.S. LNG exporter Cheniere Energy Inc.

China BoomChina’s gas demand is driving the price ofliquefied natural gas higher.China’s natural gas demand
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Japan Korea Marker, per million Britishthermal unitsSource: S&P Global PlattsNote: 2018 demand is an estimate

Cheniere opened an office in Beijing in 2017 to market its LNG and is in discussions with China National Petroleum Corp. for a long-term sales contract for U.S. gas. Among others, Malaysia’s national energy company Petronas also announced plans last year to expand their LNG sales in Southern China.

The price of LNG delivered to Asia hit $11.70 per million British thermal units this month, its highest level since November 2014, according to the Platts JKM benchmark price.

Chinese LNG imports rose by almost 50% in 2017, and the country has now eclipsed South Korea to become the world’s second-largest importer behind Japan.

The extra imports still haven’t been enough for some parts of Chinese industry.

On Dec.12, BASF stopped producing some chemicals at a Chongqing-based facility due to “a supply shortage of natural gas,” it said in a statement at the time. The company told The Wall Street Journal on Tuesday that its production remained suspended and it is unclear when it will resume.

Yunnan Yuntianhua said on Dec. 13 that its ammonia and urea production lines in the southwest province of Yunnan were halted due to “partial suspension in natural gas supply in southwest regions” to ensure heating demand for residents during the winter, according to a company filing to the Shanghai stock exchange.

Analysts say that given Beijing’s very public commitment to improving air quality, the shift away from coal is unlikely to lose urgency over the medium term. But neither will Chinese policy makers let citizens freeze, meaning that gas supplies will continue to be diverted to households.

“It’s clear that Beijing will continue its push to reduce reliance on coal,” said Fan Qingtian, senior analyst at Changjiang Futures Co. It isn’t unusual for Chinese policy makers to implement broad rulings that lead to unintended consequences, he said.

China has committed to increasing gas’s share of its energy mix to 10% by 2020 from its current level of around 7%. That could increase annual gas demand by more than 50% from 2016 levels to 325 billion cubic meters, according to Bernstein.

“There’s an issue of how quickly can this be achieved without creating bottlenecks and price spikes especially when it’s cold,” said Kerry Anne Shanks, head of Asia Pacific LNG research at consultancy Wood Mackenzie.

The surge in demand from China couldn’t have come at a better time for the LNG market. A wave of new projects in Australia, the U.S. and Russia have helped keep the price of LNG at almost half its 2014 peak of more than $20 per million BTUs.

Royal Dutch Shell PLC, the biggest LNG shipper and producer, estimates that from 2016 to 2020, trade will increase by one-third to 350 million tonnes a year.

“I think part of the reason they [China] decided to do this was they knew they could purchase extra amounts from the market without tripling the price of LNG,” said Alan Townsend, senior energy specialist at the World Bank.

As it takes in more gas, China has been beefing up import facilities, according to consultancy Energy Aspects.

At the end of last year, China had the capacity to import 56 million tonnes of LNG a year and that is set to rise by a third to 74 million tonnes by 2020. A new pipeline from Russia to China is due to be completed in 2019, plus production from domestic gas fields is ramping up.

The move to gas is set to stay.

“Once certain cities, industries go into gas, they can’t get out; it’s that simple, even if the price increases,” said Javier Moret, global head of LNG at RWE Supply & Trading GmbH.

Write to Sarah McFarlane at and Nathaniel Taplin at

Saudi Arabia calls for extending non-OPEC cooperation

January 21, 2018


© AFP/File | Saudi Energy Minister Khaled al-Faleh said a new framework for cooperation between OPEC and non-OPEC oil producers might differ from the current agreement

MUSCAT (AFP) – Saudi Arabia’s Energy Minister Khaled al-Faleh on Sunday called for extending cooperation between OPEC and non-OPEC oil producers beyond 2018 after a deal to shore up crude prices.”We should not limit our efforts to 2018. We need to be talking about a longer framework for our cooperation,” Faleh said before a meeting between OPEC and non-OPEC countries in Muscat.

This is the first time OPEC kingpin Saudi Arabia explicitly calls for extending a 2016 deal between oil producers to cut back production to combat a global oil glut.

OPEC and non-OPEC countries signed a landmark agreement in November 2016 to cut output by 1.8 million barrels per day to fight huge oversupply and lift sagging crude prices.

That deal was initially for six months, but the 14-member cartel and 10 independent producers have since extended it until the end of this year.

“I am talking about extending the framework that we started ?- which is the declaration of cooperation -? beyond 2018,” Faleh told reporters.

But Faleh said the new framework for cooperation might differ from the current agreement and its production quotas.

“It does not necessarily mean sticking barrel by barrel” to the same agreement, which has helped a healthy rebound in oil prices to around $70 a barrel.

It would mean “assuring stakeholders, investors, consumers and the global community that (the agreement) is here to stay”.

It would send the message that “we are going to work together not only with the 24 countries, but inviting more and more participants,” he said.

Faleh said oil producers have not yet achieved their target of reducing world stocks to normal levels and striking a balance between supply and demand.


US oil output is booming and seen outpacing Saudis, Russia

January 19, 2018

Crude production in US at highest level in 50 years, putting it ‘neck-and-neck with Saudi Arabia’

By AFP and The Associated Press

This June 27, 2017, file photo shows an oil rig at sunset in Midland, Texas. (Steve Gonzales/Houston Chronicle via AP, File)

This June 27, 2017, file photo shows an oil rig at sunset in Midland, Texas. (Steve Gonzales/Houston Chronicle via AP, File)

PARIS — A global energy agency says that US oil production is booming and is forecast to top that of heavyweights Saudi Arabia and Russia this year.

The International Energy Agency said in its monthly market report released Friday that US oil production, which has already risen to its highest level in nearly 50 years, will push past 10 million barrels a day as higher prices entice more producers to start pumping.

It says that “this year promises to be a record-setting one for the US.”

Meanwhile, global growth in demand for oil is forecast to remain unchanged at 1.3 million barrels a day. That’s mainly due to the impact of higher oil prices and as consumers switch to other types of energy, like natural gas.

US crude production levels put “it neck-and-neck with Saudi Arabia, the world’s second largest crude producer after Russia,” the IEA said.

“Relentless growth should see the US hit historic highs above 10 million bpd, overtaking Saudi Arabia and rivaling Russia during the course of 2018 -– provided OPEC/non-OPEC restraints remain in place,” it said.

A global supply glut pushed oil prices as low as $30 per barrel at the start of 2016.

But producing nations — both inside and outside the OPEC oil cartel — struck a deal at the end of 2016 to cut back production and drive prices higher.

Geopolitical tensions and a reduction in oil stocks have also contributed to the recovery.

Crude recently rose above $70 per barrel for the first time since 2014 after OPEC and non-OPEC countries agreed to extend their combined cutbacks until the end of this year.

Rising prices have, in turn, made it more attractive for shale companies to increase drilling.

And since the United States is not a party to the deal, its shale production can continue uninhibited.

“US growth in 2017 beat all expectations … as the shale industry bounced back, profiting from cost cuts, (and) stepped up drilling activity,” the IEA said.

“Explosive growth in the US and substantial gains in Canada and Brazil will far outweigh potentially steep declines in Venezuela and Mexico,” it said.

“The big 2018 supply story is unfolding fast in the Americas,” the IEA said.

Shale production is controversial, because in order to extract oil and gas, a high-pressure mixture of water, sand and chemicals is blasted deep underground to release hydrocarbons trapped between layers of rock.

And environmentalists argue that the process — known as fracking, or hydraulic fracturing technology — may contaminate ground water and even cause small earthquakes.

Turning to OPEC output, the IEA said that there was “no clear sign yet of OPEC turning up the taps to cool down oil’s rally.”

In its own monthly market report published on Thursday, the Organization of Petroleum Exporting Countries had said that the global oil market was moving closer to reaching a healthy balance between supply and demand.


EU more dependent on Russian gas despite bid to diversify

January 14, 2018

Warships of Ukrainian navy fleet, which remained in Crimea after it was annexed by Russia from Ukraine in 2014, moor at Streletskaya Bay in the Black Sea port of Sevastopol. The conflict has unsettled European gas markets. (Reuters)
MOSCOW: Despite repeatedly vowing to reduce its energy dependency on Moscow, Europe is more reliant on Russian gas than ever before — and there are few signs of this trend reversing.
Russian gas giant Gazprom said this month it had completed record deliveries to Europe and Turkey in 2017 at a total of 193.9 billion cubic meters — 8 percent higher than its previous record, set in 2016.
This result was not only a financial victory for the company, whose exports are its main source of profit, but also a political one at a time when diplomatic relations between Russia and the EU are at their worst since the Cold War.
The numbers “show the increasing demand from European countries for Russian gas, but also the reliability of these deliveries in the required amount,” Gazprom’s chairman Alexei Miller said.
Deliveries to Germany and Austria reached a historic high and exports to France rose by 6.7 percent from 2016, according to Gazprom’s figures.
Brussels set goals to diversify its energy sources following a series of gas crises between Moscow and Kiev that affected deliveries to Europe. But the percentage of Russian gas in Europe has only increased in recent years and now represents a third of the total gas consumption in the EU.
That goal was reinforced by tensions between Brussels and Moscow following the start of the Ukrainian crisis in 2014 that led to fears of Moscow using its gas leverage for geopolitical means.
According to Valery Nesterov, an oil and gas analyst at Russian bank Sberbank CIB, EU demand for gas is rising because of “economic recovery” in Europe and thanks to gas prices being “more competitive” than those of coal.
Other factors pushing up demand include cold winters, the decline of European (mainly Dutch) gas output and the closure of nuclear power plants, such as in Germany.
If Nesterov envisages a possible reduction of Russian exports to EU this year after record results in 2017, he nonetheless says the general tendency will not change: “Gazprom will likely keep its market share in the EU.”
Strong European demand has allowed Gazprom to increase production after weak results in recent years because of decline of its market share on its home market and the loss of Ukraine, an important client which stopped buying Russian gas in 2015.
Gazprom is also looking to develop new pipelines with the support of major European companies to maintain its part in the market. But the EU is wary.
Brussels blocked South Stream, a Russian project to ease exports to southern European nations, and has been resisting other projects such as TurkStream, a pipeline planned via Turkey, and North Stream 2, via the Baltic Sea, which Gazprom justifies as necessary for the increased European demand in the future.
“A sort of schizophrenia exists between Europe’s diplomacy and its market. The market chooses the cheapest gas to produce and use in Europe, which is Russian gas. Europe is said to be too dependent but nothing has been done to change this,” said Thierry Bros, researcher at the Oxford Institute for Energy Studies.
“We could say that the speed limit signs are in place but they are ineffective because there is no speed check. There are mechanisms for regulation but there is nothing to verify that they are respected,” he added.
And Russia is not content with just pipelines. The country recently took a major step into the liquefied natural gas (LNG) market by launching the Yamal LNG terminal in the Arctic, financed by Russian gas producer Novatek with the help of France’s Total. The Yamal project will supply both Europe and Asia via sea routes.
Diversification for the EU is prevented by a simple obstacle, said Thierry Bros: It “requires additional costs and the question is: who is going to pay?”

Qatar merger creates state-owned gas giant — Qatar is the world’s largest exporter of LNG

January 3, 2018


© AFP/File | Gas exports have helped make Qatar one of the world’s richest countries

DOHA (AFP) – Qatar said Wednesday that the two state-owned firms running the country’s natural gas business had merged in a move aimed at cutting costs and creating a global energy giant.Qatargas and RasGas, operators of the wealthy emirate’s liquefied natural gas (LNG) industry, were merged under the brand name Qatargas.

Qatar is the world’s largest exporter of LNG and the tie-up comes at a time of political crisis for the Gulf state, which has been blockaded by neighbouring countries for the past seven months.

“On January 1, we announced the birth of the new Qatargas,” the chief executive of national oil company Qatar Petroleum, Saad al-Kaabi, told a press conference.

Kaabi said the merger will save two billion Qatari riyals ($545 million) annually.

When the plan was first announced in December 2016, Qatar said it wanted to create a truly unique global energy operator in terms of size, service and reliability.

Gas exports have helped make tiny Qatar one of the world’s richest countries.

Before the tie-up between the two companies, RasGas held no assets but oversaw and managed all LNG operations in the emirate.

Qatargas is the world’s largest LNG producer with output of around 77 million tonnes per year.

Last year, Qatar announced it would increase production in the North Field, the world’s largest gas field which it shares with Iran, to 100 million tonnes by 2024.

Both of the merged companies had joint ventures with oil companies including ExxonMobil, Total and Shell.

Senior executives from those companies were at Wednesday’s press conference.

Kaabi also confirmed that Qatar Petroleum is interested in investing in Iraq’s energy market.

He said he had held talks with Iraqi ministers about possible commercial tie-ups.

“Iraq is a very important country in the region,” he said.

How a Melting Arctic Changes Everything — Part III: The Economic Arctic

December 29, 2017
Image may contain: ocean, sky, outdoor and water
LNG carrier Christophe de Margerie at port in Sabetta. (Yamal Nenets via the Independent Barents Observer)
By Eric Roston

As the Arctic Circle’s ice melts away, people of the High North feel their top-of-the-world economy heating up. Gold mines, roads and a full spectrum of energy projects dot the horizon—with Russia leading the way and other Arctic countries scrambling to catch up. There’s much to do, and not enough capital to go around. That means countries with deep pockets, deep ambition and no Arctic coastline—namely China—can get a seat at the table, too.

Investing at the top of the world isn’t easy. The remoteness of the region, and a lack of basic infrastructure means the Arctic is simply not wired into the rest of the global trade system. Arctic financial data are scarce. But the global asset manager Guggenheim Partners has shed some light on what’s likely to come next in the Arctic. They’ve spent the last seven years studying the region and the last three amassing a database of 900 planned, in-process, finished, cancelled and desired Arctic infrastructure projects.

Some of the projects reflect grand ambitions to upgrade national, industrial and social systems. Others are smaller scale and meant to connect remote places into larger patterns of trade. Taken together, they would require as much as $1 trillion in investments.

So far, Russia’s oil-and-gas money has underwritten a lot of the work, giving President Vladimir Putin a leg up as changing conditions grant access to new riches. Russia has an overwhelming lead over its neighbors with nearly 250 potential projects. Finland, the U.S. and Canada follow in the number of wish-list items. Underscoring many of these initiatives is careful maneuvering by China—whether through Arctic trade deals or strategic financing.

Who can build their projects first, and who funds them, will go a long way in determining which countries are best positioned to exert economic dominance in the region over the coming decades.

Development in the Arctic

Mining, road-building, renewable energy and service businesses make up the greatest number of individual projects in the infrastructure inventory by sector, at least in part because most of those are smaller-scale items that all communities need.

Oil and gas production projects require the biggest overall potential investment—as much as $200 billion—or more than the next three categories combined (mining, renewable energy and railroads). The Arctic Circle may hold more than a fifth of the world’s undiscovered oil and gas, most of it offshore. However, with oil around $60 a barrel, not all will be worth pursuing.

There’s at least one big reason why Russia is poised to remain a dominant player in the region: the country is rich in natural resources, a disproportionate amount of which lie in the Arctic. That’s why the north already makes up about 20 percent of the Russian gross domestic product, and Russia contributes about two-thirds to the overall Arctic economy. President Vladimir Putin has presided over financially and technically ambitious energy exploration goals. He officially opened a $27 billion liquefied natural gas plant, called Yamal LNG, the first week of December on northwestern Siberia’s Yamal Peninsula.

Russia’s Arctic list is heavily populated with hydrocarbon projects, from new or expanded gas fields to refineries and the ports, pipelines and rail needed to move the product.

Drilling opportunities are expanding in the U.S. The Trump administration is preparing to open Alaska’s Arctic National Wildlife Refuge along with the Chukchi and Beaufort seas to drilling. The administration in November issued the Italian company Eni SpA in November an exploratory-drilling permit, the first since Royal Dutch Shell pulled out of its $7 billion Chukchi Sea venture in 2015.

Developing Arctic hydrocarbons is not universally considered a safe or moral decision, given the treacherous working conditions and the overdetermined dangers of further carbon dioxide pollution. Norway is out ahead of its northern neighbors in thinking through this complexity. Amidst public concern about climate change, its $1 trillion sovereign wealth fund—built by oil profits—may divest from fossil fuels. However, its state oil company has been moving ahead on new exploration despite obstacles.

The Arctic also offers hydropower, wind, geothermal, tidal and solar energy. There’s even a floating Russian nuclear power generator for Bilibino, an eastern town that is shuttering aging reactors—the world’s most northern. Miners have long desired to extract Arctic gold, silver, graphite, nickel, copper, titanium, iron, lead, coal, diamond, uranium and the rare earth metals critical to high-tech devices. And there are Arctic power grids, railroads, highways, subsea telecom fiber, satellites and aviation corridors to pin down so that everyone and everything can get anywhere anytime.

The energy and minerals that feed industry are paralleled by a volume of fish that can potentially feed people for decades, or, if caught sustainably, forever. Some species are already following warmer waters northward. It’s a complex picture, though: Changing temperature, salinity, sea-ice behavior and ocean acidification all have an effect on fish populations, and scientists have yet to draw firm conclusions about what future Arctic fisheries may look like. Accordingly, nine countries and the European Union decided in November to leave international waters at the top of the world in its under-fished state for at least 16 years. The pause is intended to allow scientists to better understand the regions fisheries and how they may change as sea ice vanishes.

Building the Arctic Infrastructure Inventory has led Scott Minerd, Guggenheim Partners’ global chief investment officer, to a counterintuitive conclusion: The firm is looking past its Arctic inventory, as much as it’s looking at it.

Oil rig in the Beaufort Sea.
Photographer: Stockbyte/Getty Images

“It’s a slow-go but it’s definitely accelerating,” Minerd said of northern investment. Updating the inventory is keeping his thought “ahead of the curve relative to most investment firms,” he said. “Most investment firms don’t even have the Arctic on their radar. Eventually they will.”

Instead of energy, bellwethers for Arctic development may include Finland’s Hotel Santa Claus, Norway’s Kolos data center, which is aiming to be the world’s largest, Sweden’s NorthVoltbattery plant and Finland’s North European BioTech Oy, which will make advanced ethanol and other products from forestry-industry waste, like recycled wood, sawdust.

Most tantalizing, however, for Minerd and many others, is the oft-promised, and yet never quite present, opening of ice-free shipping lanes.

A New Ocean at the Top of the World

Marine transportation may take most direct advantage of the unique geophysical calamity of melting Arctic sea ice. Just not quite yet.

The expanse of ice in September 2017 was 25 percent lower than the 1981-2010 end-of-summer average, putting the 10 lowest sea-ice area measurements all in the last 11 years. “There are many strong signals that continue to indicate that the Arctic environmental system has reached a ‘new normal,’” scientists concluded in their annual Arctic Report Card in December.

The ice is diminishing but may not disappear entirely in summers for another 25 years, which makes affordable and safe Arctic shipping a slow boil.

It’s also among the most difficult economic challenges. Even without ice, it’s colder up there than people might prefer, costlier to insure vessels and the region lacks adequate maritime services. Sparse satellite coverage makes navigation and tracking more difficult. There were just 19 trips between Europe and Asia through the Northern Sea Route in 2016, according to the Centre for High North Logistics, lower than average since Russia opened it to other nations in 2009.

The promise is real, which is why the world’s largest nation is upgrading its ports and its overwhelming fleet of icebreakers.

Each Country’s Icebreaker Fleet

The sea lanes above Russia cut as much as 40 percent off the distance between east-west routes through the Suez Canal. Russia already maintains at least 16 ports along the 3,000-mile route.

A commercially viable trade route is an attractive proposition for a country that’s hungry for income and power status. As recently as mid-November, Putin endorsed allowing only Russian-flagged vessels to carry and store hydrocarbons along the Northern Sea Route, signaling a strong interest in developing his own northern shipping companies and generating revenue to upgrade infrastructure along the coast.

The Northwest Passage, which weaves from the Davis Strait between Canada and Greenland to the Bering Strait, will likely remain essentially unpassable for regular commercial shipping for even longer. Its ice is more dangerous and the route itself, while about 30 percent shorter than existing routes, is underdeveloped even compared with the facilities north of Russia.

British researchers in 2016 used climate models to gain insight about how disappearing ice may enable Arctic shipping to evolve.

As the Ice Melts — Arctic Shipping Routes Expand

Source: Melia, N., K. Haines, and E. Hawkins, Sea Ice Decline and 21st Century Trans-Arctic Shipping Routes

The same British authors in July published analysis showing advances in predicting months beforehand how passable Arctic routes will be in the summer, which will be an increasingly useful skill.

Other countries aren’t ready to cede all of the Arctic’s potential riches to Russia and its Arctic neighbors. For China, which may be playing the shrewdest and longest-term hand in the Arctic, avoiding Russian tolls and territory may be less a pie-in-the-sky dream than an eventuality, as a third shipping channel—the Transpolar Sea Route—opens traffic straight over the North Pole, the fastest and shortest route.

It’s a real option, but in a future that only Chinese leaders appear to be contemplating.

The World, Turned on Its Side

China’s Arctic vision stretches out past 2049, the centennial of its revolution. The nation is playing an incredibly slow, cautious and high-stakes strategy to build itself up as a leading Arctic (and Antarctic) power, according to Anne-Marie Brady, a global fellow at the Wilson Center’s Polar Initiative, executive editor of The Polar Journal and author of a 2017 book, China as a Polar Great Power.

China’s ambitions in these regions have not received due attention, in part, Brady says, because so few Western journalists speak and read Chinese. The country has deployed what she calls “two-track messaging,” sending alternative signals to domestic and international audiences. President Xi Jingping in November 2014, for example, spoke in Hobart, Australia, where for the first time he stated that his country will be “joining the ranks of the Polar great powers,” which Western media largely missed.

In June, the government broadened its ambitious Belt and Road Initiative for trade to include the Arctic.

China cannot physically claim Arctic territory, but it can buy stakes and influence wherever it seems wise.

“China’s thinking on the polar regions and global oceans demonstrates a level of ambition and forward planning that few, if any, modern industrial states can achieve,” Brady writes.

China has undertaken a soft-power campaign, first focused on scientific collaboration, with financial interests not too far behind. The nation struck a free-trade pact with Iceland in 2013, and it has held free-trade discussions with Norway since 2008. Finland has jointly called for greater cooperation with China, in the context of European Union trade policy. Canada and China in December extended exploratory free-trade talks after being unable to launch a formal round.

Chinese agencies are already common financiers of Arctic projects, including several Russian initiatives. They have placed early bets on resources in Greenland, which have yet to pan out. And when President Donald Trump visited China in November, the oil giant Sinopec, China Investment Corp., and Bank of China Ltd. pledged to help finance Alaska LNG, a $43 billion gas-export project.

Along with finance, Chinese executives and tourists are beating a path to Scandinavia. Passengers can now fly direct to Stockholm from Beijing and Hong Kong. From Helsinki, travelers can get back and forth between at least four additional eastern Chinese cities, too.

The returns on an Arctic strategy are not only financial.

Containers stacked at a port in Nuuk, Greenland.
Photographer: David Goldman/AP Photo

Before Russia’s Yamal LNG opened in December, officials made a big show of dispatching the first shipment to China, whose $12 billion financing made the facility possible after the U.S. imposed sanctions in 2014. As fate would have it, a logistical complication forced them to reroute the shipment, and it was redirected to the U.K.

The cover of Brady’s book features a China-centric “vertical world map.”
Anne-Marie Brady; Cambridge University Press

The symbolism of the first shipment’s intended destination raises thought-provoking questions about how relationships among Arctic and other nations may evolve. How much power does financing Arctic business give China? Russia is grateful to Chinese investors who helped make Yamal LNG possible. But that also gives its southeastern neighbor leverage that’s difficult to quantify. And throwing too much money at Russia may sour China’s Western trade partners who are less amenable to the Putin regime.

If the Alaskan LNG infrastructure will eventually be built with Chinese help, would Americans be similarly beholden to Chinese soft power? To what extent might the Russian Arctic, the Greenland Arctic or the American Arctic actually become the Chinese Arctic when it comes to writing checks? What are the national security implications of China cultivating financial and maritime influence on shores and in seas that belong to other nations?

Free trade earns participants soft power. Militarization is hard power. As the U.S. and other nations have reversed long-standing free-trade ideas, that may put more onus on hard power, Minerd said.

The melting of the Arctic itself is so disorienting, and China’s ambition is so palpable that it requires a different worldview—literally. A map developed by a Chinese geophysicist, and used for more than a decade by scientists and military, Brady writes, shows both the scope of the nation’s ambitions and just how concentrated this seemingly far-flung part of the world really is. The map was first made public in 2014.

The Arctic makes up only six percent of the Earth’s surface, and yet neighbors feel like they live on the other side of the world from each other. China’s vertical map projects a view of the world few westerners have considered. But it’s a world that has China squarely at its center and is marked conspicuously by a lack of ice at the North Pole.

With China rising, just how much power Russia retains over Arctic affairs is a future much harder to project than even how fast the temperature is rising.

China’s Chongqing gas exchange aims to be Asia price benchmark

December 29, 2017

Above, a resident stands next to a newly installed gas meter in Xiaozhangwan village at the outskirts of Beijing. China is also struggling to build the infrastructure needed to freely distribute gas supplies. (Reuters)

CHONGQING, China/SINGAPORE: China plans to launch a natural gas exchange in Chongqing in early 2018, aiming to create an Asian price benchmark as the nation’s use of the fuel surges amid its shift away from coal.

China is the world’s third-biggest consumer of natural gas behind the United States and Russia. An exchange in its fast-growing market would be a strong contender for an Asian gas marker off which other supplies in the region could be priced.
The Chongqing Oil and Gas Exchange — supported by state energy majors, and private and local government-backed gas distributors — would provide a trading platform for domestic output, pipeline imports from Central Asia and Myanmar, and imports of liquefied natural gas (LNG).
Chongqing is China’s second attempt to develop a traded gas market, having set up a similar exchange in 2015 in Shanghai.
An Asian gas price benchmark to stand next to those of the United States and Europe is seen as a key missing piece in establishing a truly global market for natural gas.
“The exchange is a product of the government’s reform push — to hand the pricing power to the market,” Exchange Chairman Zhang Bowen told Reuters.
“The long-term goal is to build the exchange into a benchmark for Asia and to win China its deserved pricing power,” said Zhang, who was previously president of PetroChina Kunlun Energy.
The exchange, led by a board of nine directors including a former PetroChina executive and an ex-senior state planning official, expects to launch electronically-based spot trading of pipeline gas and LNG imports in the first half of next year.
Registered in Chongqing municipality in July with 1 billion yuan ($150 million) in capital, the exchange has a team of 30, including former market developers at state-owned energy giants CNOOC and Sinopec.
“A China gas hub certainly looks attractive from a supply/demand and infrastructure perspective,” said Jeff Brown, president of consultancy Facts Global Energy (FGE).
Chongqing exchange is appraising around 200 potential members, mostly from the consuming hub of eastern China, and will be open to foreign participation in the longer run, said exchange executives.
Still, there are several challenges to overcome, for Chongqing or any other exchanges hoping to establish an active gas trading platform.
“The biggest would be that the government is still heavily involved in ‘guiding’ prices. Access to pipelines and import terminals can also be difficult,” said Brown.
China’s National Development and Reform Commission (NDRC) currently sets wholesale or city-gate gas prices by linking them to alternative fuels such as liquefied petroleum gas (LPG) and fuel oil.
Investors fear China could be as heavy-handed with gas as it has been with coal. Authorities have repeatedly intervened whenever coal prices have risen sharply, contributing to the virtual death of coal futures in Asia.
China is also struggling to build the infrastructure needed to freely distribute gas supplies. An inadequate pipeline grid and insufficient storage helped to trigger a supply crunch this winter after millions of households were switched from using coal to gas for heating.
“Pipelines need to be more connected and greater access allowed for third parties to the grid and terminals. More investments are needed to boost gas storage,” Song Dacai, chairman of the Chongqing exchange’s supervision committee and formerly a pricing official with the NDRC.
The exchange, though, is confident rising demand and slowly expanding gas infrastructure will help it succeed.
Chongqing, with its population of more than 30 million and proximity to Sichuan province’s large gas basin, already has a relatively well-developed gas grid, and distributors there are keen to participate on the exchange.
“As an investor, we are keen to become a market maker, provided that suppliers are ready to post meaningful volumes for us to trade,” said Luo Jing, deputy head of gas development at China Gas Holdings, a piped gas distributor.
State majors are expected to nominate available volumes on the exchange annually or bi-annually, said Zhang, the exchange chairman.
Others that are trying to develop regional gas exchanges as the basis for an Asian benchmark include Shanghai Petroleum and Gas Exchange and the Japan Korea Marker (JKM) by S&P Global Platts.
The Shanghai exchange, launched in 2015, has so far failed to attract much trading interest. China’s financial hub, though, is seen as a potential oil and gas trading center and likely home of China’s long delayed crude oil derivatives contract.
In many way, the JKM, an LNG price assessment, is seen as the strongest contender to become a regional gas benchmark.
“JKM seems to be gaining steam as an Asian gas price … Since LNG is the most commoditized gas in Asia, it seems best placed to emerge as the Asia price marker,” FGE’s Brown said.