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U.S. Expected to Approve Expanded LNG Exports to Japan

The US policy of LNG exports to Japan is expected to see a significant change in near future as more export approvals are considered.

A report published by Baker & McKenzie has said that last year the US government approved exports from a second terminal, and decisions on eight other applications for export approval are expected later this year.

Implications for Japanese LNG buyers and investors

The report stressed that expanded U.S. LNG exports represents an opportunity not only for Japanese LNG buyers to diversify their supply sources with shale gas but also at more competitive pricing linked to Henry Hub prices rather than oil prices.  Japanese companies also could establish value chains in the U.S. by investing in projects to build export facilities and by acquiring interests in shale gas fields.

Since 1967 the Kenai LNG Plant in Alaska, which produced all eight of the LNG cargoes shipped from the U.S. to Japan in 2011, had been the only LNG plant with export approval.  This changed last year when the Sabine Pass facility in Louisiana obtained export approval.  Eight other applications for export approval are now pending.

Export approval process and outlook

Under the Natural Gas Act gas exports require permission from the federal government.  Such permission is only granted if the Department of Energy (DOE) determines that the proposed exports are consistent with the public interest.  Exports to 17 countries which have free trade agreements (FTAs) with the U.S. are deemed consistent with the public interest and the DOE must approve exports to these countries “without modification or delay”.  In contrast, approvals for exports to non-FTA countries, including Japan, are subject to a lengthy public interest finding process which allows for comments, protests, and motions to intervene from interested parties.

The applicable legislation does not require the DOE to take action on applications within a certain timeframe.  After Sabine Pass received approval for exports to non-FTA countries in May last year, the DOE suspended consideration of all applications pending the results of a study on the impact of exports on the domestic energy market.  This followed complaints from some U.S. lawmakers who were concerned that exports might increase domestic prices.  The domestic market impact study was initially scheduled to be completed by the first quarter of this year, but it is still pending and is now expected to be completed later this summer.  Accordingly, none of the pending applications are likely to be approved until the fourth quarter of this year at the earliest.

There are, however, some reasons to believe there is political support for expanding LNG exports to non-FTA countries such as Japan.  For example, on July 2, 2012, a bipartisan group of 21 members of Congress from states with shale gas deposits sent a letter to Energy Secretary Steven Chu urging the DOE to expedite the pending LNG export applications.  In February, Secretary Chu said he supports LNG exports, and Prime Minister Yoshihiko Noda also said he discussed expanding LNG exports when he met with President Barack Obama on April 30, 2012.

Actions to consider 

• Conduct preliminary due diligence on LNG projects with pending non-FTA export approval applications, as these projects are likely to be now seeking LNG buyers and equity investors.

• Monitor the DOE’s non-FTA export approval process.

• Investigate the compatibility of LNG produced from U.S. shale gas with regasification facilities and pipeline networks in Japan

Conclusion

Given the currently wide differential between the Henry Hub spot price used for trading on the New York Mercantile Exchange (NYMEX) and JCC pricing, expanded LNG exports produced from U.S. shale gas fields is a potential game changer for the gas market in Northeast Asia, and Japan in particular.  From the Japanese buyer’s perspective, it is clear that approvals for further export terminals is an important development to monitor in order to position themselves as potential buyers and equity investors.  For more information, please contact Colin Cook or Hiromitsu Kato.

Source: Baker & McKenzie via: Source

Bahrain Prefers Russia Over Iran for LNG

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Bahrain is expected to start importing liquefied natural gas from Russia by 2014.

Bahraini officials said Russia would replace Iran as a supplier of liquid gas amid deteriorating relations between Bahrain and Iran.

“Whether Russia supplies us with Iranian liquid gas or from anywhere else is up to them,” Bahraini Energy Minister Abdul Hussein Mirza said. “We have a deal that they are our main supplier.”

Last year Bahrain terminated a gas deal with Iran, accused of supporting the Shi’ite revolt in the Gulf Cooperation Council kingdom.

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New Zealand Energy Announces Production Test for Taranaki Basin Well

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New Zealand Energy Corp. has initiated an extended production test of its Copper Moki-2 (CM-2) well and commenced drilling Copper Moki-3 (CM-3), its third well in the Taranaki Basin of New Zealand’s North Island.

The company has also entered into a farm-in agreement with L&M Energy Limited and will subsequently earn an additional 15% in the Alton Permit, increasing NZEC’s interest to 65%.

The CM-2 well commenced flowing on February 15 and is currently flowing at a rate of 1,000 barrels of oil per day and 820 thousand cubic feet of natural gas per day.

NZEC has commenced drilling CM-3, with the expectation of releasing well results by the end of March 2012. CM-3 will be NZEC’s first well to target the deeper Moki formation, and the company will collect information from both the Urenui and Mt. Messenger formations as CM-3 drilling proceeds. Immediately following the conclusion of CM-3 drilling, NZEC anticipates commencing drilling of the Copper-Moki-4 well from the same drilling pad.

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Analysis: Bulgaria’s Shale Gas and the Wider Geo-Economic Game

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In mid-2011, the Bulgarian government announced it would provide shale gas exploration licenses to Chevron for the Northern part of the country.  Under the terms of the agreement the company would pay around $30 Million USD in order to begin its project. Initial findings pegged assumed reserves anywhere from 300 BCM up to 1 TCM. These prospects presented for shale gas were quite significant, not just for Bulgaria but for the whole of Europe.  It should be noted that reserves likely extend to the neighboring state of Romania, which is just a few kilometers from the country’s Northern borders.

Nevertheless, soon NGO‘s and various environmental and citizen’s groups started campaigning against shale gas exploration, citing the dangers of hydraulic fracturing (hydrofracking). These campaigns took the form of street protests, Internet broadcasts and intense lobbying of local councilors and politicians, which eventually forced the government to retreat from its original plans that spoke of making Bulgaria the shale gas champion in Europe.

The Center Left party (Socialist) in Bulgaria that is often perceived by outsiders as pro-Russian took a leading role in opposing shale gas research. In the Bulgarian Parliament two judicial initiatives were submitted with regards to this.

The first was drafted by three members of parliament of the Socialist party that proposed a complete ban on research and exploitation of any shale gas reserves in the country. The second initiative was drafted by the incumbent government and called for a moratorium on the exploration of shale gas until a new environmental-friendly method is found.

Media reports from Bulgaria have often mentioned the initiatives both by the Socialists and the environmental NGO’s to be linked to the interests of Russian gas companies, namely Gazprom. In fact the Minister for Economy and Energy, Traicho Traikov, went as far as saying in public that behind all protests, powerful energy import interests are to be found, indirectly pointing the finger at the Russians.

It is important to note that Ivaylo Kalfin, a leading Socialist politician, organized the local movement against shale gas in Northern Bulgaria where Chevron was to explore. Moreover, two out of the three Socialist MP’s that drafted the judicial initiative against shale gas had signed in the past when they were in government important energy deals with Gazprom. The third MP has business collaborations with a consultancy that supports the construction of the Belene thermonuclear power station, which was awarded to the Russian company, but has been “frozen” as a project over the past two years.

Furthermore, it is widely known that the current Bulgarian government is seen as anti-Russian under Premier Boyko Borizov, who has effectively frozen many bilateral agreements with Moscow, ranging from Burgas-Alexandroupoli oil pipeline to the South Stream pipeline gas project to the Belene nuclear station. Thus, the question arises: why did the Bulgarian government decide to stop a project that may eventually lead to the diversification of its energy dependence from Russia?

The answer is that Bulgaria has already started a whole range of initiatives in order to decrease its dependence by interlinking its system with that of Greece and Turkey and by bidding for a pipeline route in the Southern Corridor through its territory. Also, Russia exerts considerable influence in Bulgaria and it is likely that Borisov’s government decided that it is the best not to oppose Russia any further, bearing in mind that the opposition against shale gas exploration in the country was not solemnly coordinated by Moscow and really had strong domestic social support against it.

A third answer is that strong domestic energy interests, that are anti-Russian but also pro-natural gas, have played their role in undermining shale gas explorations. These interests are in favor of importing natural gas from markets such as Azerbaijan, thus they viewed shale gas as their opponent as they have traditionally viewed Gazprom as well.

The story though does not end in Bulgaria alone. On the 26th of January, Borislav Sandov, one of the leaders of the opposition against shale gas, made statements in the Bulgarian media and supported protests against shale gas exploration in Romania as well. There was a protest at the Romanian Embassy in Sofia and it seems that Bulgarian and Romanian NGO’s are coordinating their activities. In parallel, the government in Romania is battered by an ongoing wave of protests by state unions and workers against its economic policies, and the ability of Bucharest to resist yet another campaign against its policies is decreasing. Lastly, the especially harsh winter period in both Bulgaria and Romania with temperatures in major cities reaching minus 32 degrees Celsius and with a considerable number of casualties, has increased significantly the natural gas imports from Gazprom, which seems in any case to be the only sure winner from all of these developments and the current failure of shale gas explorations in these particular countries.

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Jubilant Energy to Invest $80 million in Myanmar Oil, Gas Block

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Jubilant Energy plans to invest about to $80 million on an onshore oil and gas block in Myanmar, media reports said Tuesday.

Myanmar recently awarded 10 onshore oil and gas blocks.

“We had bid for two blocks. They have offered us one, but we are keen for both. We are still negotiating,” Chief Financial Officer Vipul Agarwal told Reuters.

The production sharing contract for the block will likely be signed in two to three weeks, he said.

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InterOil and Gunvor ink LNG supply deal

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InterOil and Pacific LNG have inked an Head of Agreement with Gunvor of Singapore for supply of one million tonnes of LNG per year from the Gulf LNG Project Papua New Guinea.

InterOil and Pacific LNG said that they were working to complete the negotiation and finalise a binding sale and purchases agreement with Gunvor by second quarter of 2012.

The Gulf LNG Project in Papua New Guinea comprises the Elk and Antelope gas fields and the planned liquefaction and associated facilities in the Gulf Province of PNG to be developed by Liquid Niugini Gas Ltd., InterOil and Pacific LNG’s joint-venture project company.

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Bangladesh: Looks to joint oil-gas exploration with Myanmar (Burma)

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Bangladesh is keen to import natural gas from Myanmar or explore oil and gas in joint ventures with the neighboring country from its offshore blocks, Bangladeshi government officials said Saturday.

Myanmar is likely to consider the issue of gas exports to Bangladesh after meeting its domestic demand.

The two countries are considering bilateral talks regarding Bangladesh’s interest in exploring offshore blocks.

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Saudi Arabia stops Oil Expansion Plan, Switches to Natural Gas

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Saudi Arabia has stopped $100bn expansion of its oil production capacity after reaching a target of 12m barrels a day and now plans to shift its spending priorities to natural gas, refining and the chemicals business, media reports said.

Expectation that new oil resources like Libya and Irqa will meet rising demand has been cited as the reason behind this decision.

Libya has resumed oil production and Iraq is coming out as the biggest contributor to the global oil supply growth between 2010 and 2035, adding more than 5 million barrels a day.

The kingdom is, therefore, not pushing ahead with an assumed expansion plan to produce 15 million barrels a day by the end of 2020.

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