Thursday, 29 March 2012

UK faces #business #gas supply shortfall from Qatargas shutdown

Shipping distance and sailing time (only) from Angola LNG. (Port World, Deutsche Bank)

Shipping distance and sailing time (only) from Angola LNG. (Port World, Deutsche Bank)

Planned maintenance at Qatargas 2 Train 4 could remove 21 million cubic metres a day (MMcm/d) from UK supply in September; however, the startup of Angola LNG could offset this, according to analysts at Deutsche Bank.

“The maintenance announced at Qatargas 2 Train 4 could arguably remove 21 MMcm/d from UK supply in September, with a non-negligible risk of delayed supply recovery into October,” the bank said in its research note European Gas: An Uneasy Balance, published on Tuesday.

“This LNG shortfall could be offset by Angola LNG if commissioning runs smoothly. Angola LNG will be marketed on a flexible basis, although at current prices, the UK will only attract cargoes that cannot be absorbed by Japan or Argentina,” the bank added.

Qatargas Train 4 produces 7.8 million tons per annum (mtpa), or 28 MMcm/d of LNG. Production from Train 4, which is one of the biggest trains in the world, is destined specifically for the US and Europe. Other trains, such as the two trains making up Qatargas 1, go elsewhere, such as Japan.

Qatargas, the largest LNG producer in the world, owns and operates seven LNG trains, four of which are known as ‘megatrains,’ each with 7.8 mtpa of capacity. Qatargas supplies around one quarter of all global LNG.

Import threat

The UK has been steadily increasing its LNG imports from Qatar over recent months. LNG’s share of the UK energy mix has also been on the rise, with LNG now accounting for more than a quarter of UK gas demand. However, there are fears that this may be threatened in future.

The UK is already losing LNG because of increased competition from Asia, Trevor Sikorski, analyst in the commodities team at Barclays Capital, told Interfax on Wednesday.

Analysts at Bank of America Merrill Lynch said earlier this month the UK may not be receiving any LNG imports by the end of the year, particularly if none of Japan’s nuclear power plants are restarted.

UK gas prices could rise to as much as 90 pence per therm (p/th) next winter on reduced LNG flows, higher oil prices and the continuing decline in indigenous gas production. LNG cargoes originally destined for Europe are being diverted away from lower-paying European markets, the bank noted.

With demand on the rise in important consuming countries such as Japan, China and Korea – and now that Indonesia and Malaysia have become LNG importers – the bank estimates UK LNG imports could drop below 25 MMcm/d over the next couple of months.

In the long term, the “UK’s production decline in gas will mean continued dependence on LNG,” Pieter Kiernan, lead energy analyst at the Economist Intelligence Unit, told Interfax on Wednesday.

Train 4 supply is likely to make up a “significant proportion” of the flexible supply entering the UK via the South Hook LNG terminal, especially with exports to the US being low, the Deutsche Bank note said.

The last maintenance period at Train 4, which lasted from May to June 2010, coincided with a marked decrease in Qatari LNG imports at South Hook, the note added. Flows dropped to an average of 19 MMcm/d from an average of 40 MMcm/d in the previous month. It took until September for full flows to resume.

Angola LNG

If Angola LNG produces 30-35 cargoes in 2012, the UK could be left with five cargoes from Angola, especially after the peak demand months of May to September in South America, Deutsche Bank said. UK prices would need to rise to $13 per MMbtu (82 p/th) in order to provide a netback profit that would attract LNG away from Argentina.

“However, the UK may, nevertheless, import some cargoes in 2012 even below this price as long as there are marginal cargoes which cannot be absorbed by the South American and Asian markets” the bank added.

Chevron’s $9.9 billion Angola LNG project, which should produce about 175,000 barrels per day of oil equivalent at peak rate, is expected to load its first cargo next quarter.

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