December 2017, Vol. 244, No. 12

In The News

World News

China May Overtake U.S. as World’s No. 1 Natural Gas Consumer

China is in a “golden age” for natural gas that will make it the world’s biggest user of the fuel sometime between 2040-50, according to analysts at Sanford C. Bernstein & Co. China is poised to outpace the United States, the current No. 1 consumer of natural gas, and all other countries over the next two decades, Bernstein said in a research note reported by Bloomberg. China has led the growth in global oil demand for much of the past 20 years.

Use will probably continue to surge the next few years and exceed 10 Tcf in 2020, up from 7.3 Tcf last year. Demand could grow to 21 Tcf by 2040, according to the projection. Asia’s gas demand may double to 42 Tcf/y by 2025. Several factors are behind the surge, including economic growth, urbanization, environmental factors and a boom in U.S. shale gas. The major risk to future demand is whether renewables will take a larger slice of the global energy pie.

Meanwhile, China ordered state oil and gas companies to speed construction of pipelines to move natural gas to homes and factories, underscoring worries that a lack of pipelines could cause power outages during peak winter demand. Millions of homes across the colder northern regions will be heated for the first time by gas rather than coal.

China must ramp up imports or industrial consumers may get interrupted, warned Kerry Anne Shanks, head of Asia gas/LNG at Wood Mackenzie. “We (also) worry that China doesn’t have enough storage.” China has only 280 Bcf of gas storage capacity, about 4% of its demand – much less than other regions like the U.S. and Europe that typically store 15-25% of annual needs, she said.

Rosneft Hopes to Crack Gazprom’s Russian Gas Export Monopoly 

Rosneft has signed several deals to help it develop international gas trading and export operations, ultimately to become a major gas player and access the lucrative export market. Rosneft, majority-owned by the Russian government, produced an average of 4.2 MMbbls of oil and liquids per day last year and 6.5 Bcf/d, equal to about 1 Bbbls of oil on an energy-equivalent basis. Rosneft also sits on a huge wealth of gas reserves that it wants to monetize.

Rival Gazprom has a monopoly on pipeline exports of Russian gas. Increasing its gas output would bolster Rosneft’s claim that it be allowed to export gas via pipeline independently, circumventing Gazprom’s monopoly. Recent decisions by Rosneft, including agreements on joint trading and infrastructure, and entering new upstream gas projects, demonstrate a desire to break that monopoly and launch its own successful independent exports, according to Platts.

Rosneft  hopes to ramp up gas production to 10 Bcf/d by 2020, though that would be dwarfed by Gazprom, which expects production of over 43 Bcf/ in 2017. Rosneft has signed a deal with BP that envisages the long-term sale and purchase of gas to be supplied to European markets from 2019. BP officials said they are ready to work with Rosneft on gas exports, provided Moscow allows Rosneft to export.

Heerema Marine Contractors Forced To Restructure

Heerema Marine Contractors (HMC) will restructure after continuing low oil price and historic low investments in the oil and gas industry have created an increasingly competitive market. With market conditions and the outlook further deteriorating this year, the restructuring focuses on adapting HMC to decreased work volumes and on enhancing its cost-efficiency and competitiveness. HMC will terminate 200 worldwide office personnel and 50 fleet personnel.

Petrobras Pipeline Sale Sparks Worldwide Interest 

Twenty investors – including France’s Engie, a Brazilian investment group, and an Abu Dhabi state-owned holding group – are interested in buying a majority stake in a gas pipeline network in Brazil owned by state firm Petrobras, Reuters reported recently, citing four sources.

Apart from France’s energy group Engie, the other interested potential bidders include Brazilian investment company Pátria Investimentos Ltda, Abu Dhabi’s investment company Mubadala, Canada Pension Plan Investment Board (CPPIB), private equity EIG Global Energy Partners, and Singapore’s sovereign wealth fund GIC, according to Reuters’ sources.

Petróleo Brasileiro SA said in September that it was aiming to sell a 90% stake of its of wholly owned subsidiary Transportadora Associada de Gás SA (TAG), which holds long-term permits to operate and manage a gas pipeline system of about 2,796 miles (4,500 km), located mainly in the north and northeastern regions of Brazil.

Last month, Petrobras launched the non-binding phase for the sale of 90% in TAG, in which it sent information to interested parties qualified in the previous phase. The Brazilian state energy firm expects to receive a first round of non-binding offers for TAG shortly. Petrobras reportedly wants to obtain for TAG a price higher than the $5.2 billion for which it sold 90% in another gas network system, Nova Transportadora do Sudeste, to Brookfield Infrastructure Partners (BIP) and its affiliates.

Nova Transportadora do Sudeste owns a bigger gas pipeline network than TAG, but the latter may justify a higher price because of better economic growth prospects and investment opportunities. TAG’s stake sale is part of Petrobras’ plan to generate $21 billion from asset sales in 2017 and 2018.

Pipeline Outages Led to Negative Alberta Natural Gas Prices

Pipeline outages and maintenance work have caused volatile swings in Alberta natural gas prices, even pushing them into negative territory recent days. In the past few weeks, Alberta’s benchmark prices have fallen into negative territory – meaning producers have had to pay customers to take their gas – on multiple days. Data from Gas Alberta Inc. show prices fell to negative 7 cents from Oct. 5-9, and were also negative Sept. 25.

“We’ve never seen negative prices before this year,” said GMP FirstEnergy analyst Martin King, who has covered Alberta hub gas prices since 1993. On Oct. 12, the price of natural gas in the province jumped to $1.80 per Mcf, but “It could crash again tomorrow,” he warned.

“The volatility has been ongoing for quite a few weeks and a lot of it is related … to field maintenance TransCanada has been doing on the Alberta (pipeline) system,” King said. Service has been interrupted for maintenance on gas gathering and transmission pipelines.

TransCanada has been working to expand its system ahead of new service agreements coming into effect on Nov. 1. The extreme price swings have forced Alberta producers to make a difficult choice between selling their gas for nothing, or less than nothing, and shutting in their wells, said Tim Pickering of Auspice Capital.