US natural gas output rising, despite sinking prices

US natural gas prices last week plunged to a 30-month low, slipping below US$2 per million British thermal units (mmBtu) for the second time this year, even as some producers have cut drilling to stave off further convulsions.

Since the start of the year, US gas futures have collapsed by about 50%, a record drop for a quarter, on rising output and mostly mild weather so far this winter that kept heating demand low and allowed utilities to leave more gas in storage than usual.

There seems little chance of stopping output from continuing to grow. The amount of gas in US storage, meanwhile, sits about 21% higher than is normal for this time of year, and that surplus will set up US inventories to reach record highs before next winter's heating season.

Big gas producers including Chesapeake Energy and Comstock Resources Inc are reducing their drilling. But gas that comes up with oil will continue to rise in the biggest shale fields. And oil producers are not cutting back.

"About a third of US gas production is associated gas - produced from oil wells," said Jacques Rousseau, a managing director at research firm ClearView Energy Partners LLC. "This production is unlikely to decline given current oil prices."

The Permian basin of Texas and New Mexico, the nation's biggest shale field, is hitting record monthly highs in oil output this year, according to US Energy Information Administration (EIA) data. Gas from the Permian also has climbed to record highs every month this year.

While US gas futures were down by 50% in the first quarter of 2023, at US$2.22 per mmBtu, they are not low enough to forestall output gains, say analysts.

"Gas prices are begging the market to cut back on supply, amid falling US consumption and constrained LNG export options," said Stephen Ellis, an energy strategist at Morningstar Research Services LLC.

US gas production remains on track to hit 100.67 billion cubic feet per day (bcfd) this year, up from last year's record 98.09 bcfd, according to the US government.

Projected US gas usage, including exports, will ease to 107.3 bcfd this year from a record 107.4 bcfd last year due to expected declines in domestic consumption from residential, commercial, industrial and power generation customers.

That usage drop comes despite an expected 14% increase in US liquefied natural gas (LNG) exports now that Freeport LNG's export plant in Texas has returned to production after an eight-month outage.

When operating at full power, Freeport LNG, which shut after a fire in June 2022, consumes about 2% of total US gas supply.

Despite low gas prices, US drillers have 160 rigs seeking gas up 16% from a year ago, according to data from Baker Hughes Co.

Gas output in the Haynesville shale field in Arkansas, Louisiana and Texas where Chesapeake and Comstock are dropping rigs, also is on track to reach fresh highs in March and April, according to the EIA.

 

Pakistan plans to quadruple domestic coal-fired power generation

Pakistan plans to quadruple its domestic coal-fired capacity to reduce power generation costs and will not build new gas-fired plants in the coming years, its energy minister told Reuters on Monday, as the country seeks to ease a crippling foreign-exchange crisis.

A shortage of natural gas, which accounts for over a third of the country's power output, plunged large areas into hours of darkness last year. A surge in global prices of liquefied natural gas (LNG) after Russia's invasion of Ukraine and an onerous economic crisis had made LNG unaffordable for Pakistan.

"LNG is no longer part of the long-term plan," Pakistan Energy Minister Khurram Dastgir Khan told Reuters, adding that the country plans to increase domestic coal-fired power capacity to 10 gigawatts (GW) in the medium-term, from 2.31 GW currently.

Pakistan's plan to switch to coal to provide its citizens reliable electricity underscores challenges in drafting effective decarburization strategies, at a time when some developing countries are struggling to keep lights on.

Despite power demand increasing in 2022, Pakistan's annual LNG imports fell to the lowest levels in five years as European buyers elbowed out price-sensitive consumers.

"We have some of the world's most efficient degasified LNG-based power plants. But we don't have the gas to run them," Dastgir said in an interview.

The South Asian nation, which is battling a wrenching economic crisis and is in dire need of funds, is seeking to reduce the value of its fuel imports and protect itself from geopolitical shocks, he said.

Pakistan's foreign exchange reserves held by the central bank have fallen to US$2.9 billion, barely enough to cover three weeks of imports.

"It's this question of not just being able to generate energy cheaply, but also with domestic sources that is very important" Dastgir said.

The Shanghai Electric Thar plant, a 1.32 GW capacity plant that runs on domestic coal is funded under the China Pakistan Economic Corridor (CPEC), started producing power last week. The CPEC is a part of Beijing's global Belt and Road Initiative.

In addition to the coal-fired plants, Pakistan also plans to boost its solar, hydro and nuclear power fleet, Dastgir said, without elaborating.

If the proposed plants are constructed, it could also widen the gap between Pakistan's power demand and installed power generation capacity, potentially forcing the country to idle plants.

The maximum power demand met by Pakistan during the year ended June 2022 was 28.25 GW, more than 35% lower than power generation capacity of 43.77 GW.

It was not immediately clear how Pakistan will finance the proposed coal fleet, but Dastgir said setting up new plants will depend on investor interest, which he expects to increase when newly commissioned coal-fired plants are proved viable.

Financial institutions in China and Japan, which are among the biggest financiers of coal units in developing countries, have been backing out of funding fossil-fuel projects in recent years amid pressure from activists and Western governments.

 

QatarEnergy-Chevron Phillips US$6 billion deal

According to Reuters, QatarEnergy announced on Sunday the final investment decision on the US$6 billion Ras Laffan Petrochemicals Complex with partner Chevron Pillips Chemical which is expected to be the largest of its kind in the Middle East.

The complex, expected to begin production in 2026, includes an ethane cracker with a capacity of 2.1 million tons of ethylene per year.

The integrated complex will also include two high density polyethylene derivative units with a total production capacity of 1.7 million tons per year, QatarEnergy, Chief Saad al-Kaabi Kaabi said.

Originally announced in 2019, the project highlights how Middle East oil producers are expanding further into petrochemicals, used in the production of plastics and packaging materials, to move into new markets and find new sources of income beyond exporting crude oil and natural gas.

State-run QatarEnergy will hold a 70% stake in the venture with Chevron Phillips Chemicals holding 30% under the agreement signed on Sunday.

“This marks QatarEnergy's largest investment ever in Qatar's petrochemical sector," Kaabi said.

The complex, located in Ras Laffan industrial city, is an important milestone in Qatar's downstream expansion strategy, he said.

Qatar, one of the world's top producers of liquefied natural gas (LNG), will see its ethylene production capacity double on the back of the new complex. Local polymer production will also increase from 2.6 million to 4 million tons per annum.

The Gulf state, one of the most influential global players in the world's LNG markets, is expanding its North Field gas field that will see its liquefaction capacity increase from 77 million tons per annum to 126 million tons by 2027.

United States Joins hands with Britain to control energy trade

The United States and Britain announced on Wednesday an energy partnership aimed at sustaining a higher level of liquefied natural gas (LNG) exports to Britain and collaborating on ways to increase energy efficiency.

Britain and other European countries have turned to the United States as they try to reduce their reliance on Russian energy supplies following Moscow's invasion of Ukraine begun in February.

This partnership will bring down prices for British consumers and help end Europe's dependence on Russian energy," British Prime Minister Rishi Sunak said in a statement.

The "UK-US Energy Security and Affordability Partnership" will also aim to drive investment in clean energy and exchange ideas on energy efficiency and reducing demand for gas.

Household energy bills have hit record highs this year following Russia’s invasion of Ukraine forcing the UK government to cap costs and subsidize the difference a measure analysts forecast could cost up to 42 billion pounds or US$51 billion over the 18 months the cap is in place.

Western countries are also attempting to cap how much Russia can profit from the rise in energy costs that has followed its invasion of Ukraine.

The G7 - which includes Britain and the United States - has agreed a $60 per barrel price cap on Russian seaborne crude oil.

The United States became the world's largest LNG exporter in the first half of 2022, US Energy Information Administration data showed as the country rapidly increased its export capacity and high prices, particularly in Europe led to higher exports.

Britain said the United States would aim to export 9-10 billion cubic metres of LNG over the next year under the agreement, maintaining the increase in exports seen this year.

Refinitiv Eikon data showed Britain has imported around 11 billion cubic metres (bcm) of gas from the United States so far in the first 11 months of 2022, up from 4 bcm in 2021.

Sunak met US President Joe Biden at the G20 in Indonesia last month, where Sunak highlighted the importance of the United States as an economic partner even without a free trade deal. Talks on a free trade agreement are suspended.

On Wednesday, Junior Trade Minister Greg Hands will begin a visit to the United States, where he is announcing a memorandum of understanding on trade with South Carolina, the third such agreement with a US state aimed at boosting trade missions and sharing expertise.

 

 

 

 

 

 

 

 

 

Can Israel meet European demand for gas?

A question is being debated, can Israel meet European demand for gas, if it boycotts Russian gas. It Israel and Egypt are producers of natural gas and the question is whether they or other east Mediterranean potential producers are relevant to the current situation.

A senior German Minister has called for a discussion about boycotting the import of Russian natural gas in reaction to the alleged atrocities of Russian soldiers in Ukraine.

It is easy to imagine the discussion, if it takes place when fellow European politicians will point to their countries’ dependence on the importation of oil and natural gas and even coal, yes, coal to the continent in which the Green Deal is its new flagship.

The European Union imported 155 billion cubic meters (bcm) from Russia in 2021. Half of Germany’s imported gas arrives from Russia, 46% in Italy and a quarter in France, the three leading economies of the EU and all members of the G7. Not surprisingly, the EU has not imposed sanctions on the sector, but the issue has been very high on the agenda.

Following his three summits with the leaders of the EU, NATO and the G7 on March 25, President Biden declared that the United States will inject 15 bcm of natural gas to the world market in 2022 with more to come in the future.

The US also promised to release one million oil barrels a day in the next 6 months from its strategic reserves in an effort to lower supply and price pressures. The president must have had his own country on his mind and its economic indicators showing growing inflation in which rising fuel prices are a key factor.

Israel and Egypt are producers of natural gas and the question is whether they or other east Mediterranean potential producers are relevant to the current situation. Given production capacity, existing supply contracts and conveyance capacity, Israel may have 10 bcm annually to add to Europe’s demand, while Egypt is mostly engaged in its domestic market.

Egypt though becomes a key player if Israel is asked to help mitigate a crisis in Russia’s natural gas supply to Europe, since currently it holds the sole connection for the Israeli gas to Europe. There are two ways to convey natural gas – pump it into pipes or liquefy it, load it on specially built tankers and re-gasify it at the other end, close to the client. The liquefacation of natural gas (LNG), its shipping and regasification require investments of billions of dollars.

Israel has been able to avoid these investments because after deducting sufficient quantities for long term Israel domestic consumption and that by close regional buyers, about 500-600 bcm are left for exports, assuming no new fields are discovered. That quantity does not justify huge investments.

The most feasible financial and technical option is a pipe that would connect east Mediterranean gas fields to Turkey’s web of pipelines, which connect central Asia gas fields to Europe.

The political feasibility of this option is marred by Turkey’s President Erdogan’s unpredictability, let alone conflicts, such as those between Israel Syria and Lebanon, the Exclusive Economic Zones of which the shortest route of this pipe will have to cross, or the conflict between Turkey, Cyprus and Greece.

In the last decade, Israel and Egypt have forged close cooperation with the two Hellenic Mediterranean neighbors, which they would like to preserve while finding the miraculous formula that will enable all these old conflicts to be pushed aside seems unlikely.

What is left in this situation if Israel can relatively quickly move about 10 bcm to Europe but has no immediately available way of doing that, is to use floating liquefying installations, which are movable and can be located close to gas fields. These are costly but less than the fixed ones. This option does not rule out continuing the use of the pipeline from the Israeli gas fields to Egypt or pursuing the study of a pipeline to Turkey.

All these options depend, of course, on the European decision to purchase natural gas from the east Mediterranean. The EU has financed a study of a pipeline from the gas fields of the region to Europe but seems indifferent to this project.

When considering the LNG from the region, the EU and the US should also consider the probability, though not high, that Lebanon, a declared bankrupt state, would come to its senses and agree to settle the maritime border dispute with Israel in an equitable manner. That may unblock its ability to start the production of natural gas in its economic waters.

The foreign companies involved, Chevron on the Israeli side, Total and Eni on the Lebanese side, will then find it easy to reach operational agreements on the joint use of pipes and liquefying equipment.

The pace of Israel depleting its natural gas reserves by local and regional consumption, and preferably with European demand, will also determine how fast it moves towards reliance on renewable energy sources .The Russian invasion of Ukraine is a human, moral and economic disaster. It may be also remembered as a major catalyst in the elimination of dependence on fossil energy resources, not just Russian ones.