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.
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.
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.
This weeks npower’s very own Magali Hodgson makes sense of the energy markets for you.
As new simplification proposals designed to ease the administrative burden around complying with the Carbon Reduction Commitment (“CRC”) Energy Efficiency Scheme are announced, KPMG has released the fifth in a series of white papers on the CRC. This paper discusses the results of their survey of administration costs of the scheme, their views on the simplification proposals and highlights some lessons learned from conducting audits of participant’s compliance with the scheme on behalf of the Environment Agency.
The proposals announced today by the Department of Energy and Climate Change (DECC) are the result, in part, of research conducted by KPMG on the administrative cost of complying with the CRC. The findings of that research have been published in full on the DECC website and are also summarised in the KPMG white paper.
Ben Wielgus, lead adviser on the CRC at KPMG in the UK, said: “Our survey suggests total administrative costs of £97 million across all 2,779 participants in year one and £172m for all of phase one. But we expect these costs to drop as participants become more efficient at complying with the scheme. On average this means that participants are paying £15,500 a year for administrative costs of the scheme (although this varies significantly) and it adds about 5 percent to the cost of carbon for businesses.”
In terms of reducing emissions, the KPMG survey suggests that the CRC is having some positive results but that simplification of the registration and footprinting phases would be particularly welcome:
Millions of pounds will be saved for businesses through ambitious new proposals to simplify the Carbon Reduction Commitment Energy Efficiency Scheme, (CRC). Participants will see their administrative costs cut by almost two-thirds, equating to around £330 million of savings up to 2030. The CRC is a mandatory UK-wide trading scheme covering large business and public sector organisation, who produce 12% of UK carbon emissions. It requires businesses to report on and pay a tax on energy used, and ranks businesses in a performance league table which provides a further reputational incentive to improve their energy efficiency. The CRC is expected to deliver carbon savings of 21 MtCO2 by 2027. Businesses support the simplification of the scheme, and will now have the opportunity to comment on Government’s proposals. The package proposed is aimed at retaining the energy-saving and reputational benefits of the CRC, whilst reducing the bureaucracy of taking part.
As usual the annual Budget announcement was polemical. This time the biggest controversy was in the energy and environment sector where the announcements to support expansion of fossil fuels, especially gas, were not welcomed by environmentalists.
While George Osborne’s defends the Budget 2012 announcements that will support the construction of new gas-fired power plants in Britain by saying: “Environmentally sustainable must always be fiscally sustainable.”
British spot gas prices sank on Thursday as rising temperatures pushed demand 12 percent below the seasonal average and on reduced injection capacity into Rough storage, while weaker crude oil prices led to a drop in forward gas contracts.
Gas for immediate delivery swung to a 15-day low at 58.60 pence per therm as upward revised temperature forecasts led to expectations of lower demand during the warm spell.
Day-ahead gas fell 0.95 pence to 58.90 pence.
UK temperatures are forecast to maintain highs of up to 18 and 19 degrees Celsius until Sunday.
Centrica’s plan to halve gas injection capacity at Britain’s largest storage site, Rough, from March 26-31 added to downward momentum.
Since February, traders have been injecting gas into storage in order to balance an oversupplied gas network. Injection limits raise the prospect of continued oversupply at a time when mild weather is expected to weigh on demand.