Japanese buyers downplay LNG diversions to Europe
Japanese utilities have shrugged off the prospect of their LNG supplies being diverted to Europe, arguing that their domestic requirements will take precedence with forecast cold weather in Japan expected to weigh further on already reduced inventories.
Japan's trade and industry (Meti) minister Hagiuda Koichi on 9 February told the US ambassador-designate Rahm Emanuel and the EU's ambassador to Japan Patricia Flor that "as long as the stable supply to Japan is ensured, [it] will co-operate [in diverting LNG to Europe] as much as possible". The US and the EU have requested that Japan send LNG supplies to Europe, in response to a potential shortfall in Europe's gas imports from Russia in the event of an escalation of tensions between Russia and Ukraine. Europe receives around 40pc of its gas supplies from Russia.
Japan will send some cargoes with destination flexibility to Europe in March, Meti told Argus on 10 February. It did not disclose the volume of cargoes that will be diverted, but said that more cargoes from Japanese firms will arrive in Europe in March than in February, as a result of the additional allocation of cargoes to Europe.
No cargo has yet been sent to Europe as a result of the requests, with current Europe-bound shipments being part of existing contracts or trading arrangements, Meti told Argus. European gas hub prices at a premium to Asian spot LNG prices in past weeks had incentivised some Asian sellers with Atlantic supply to keep cargoes within the basin.
Industry participants suggest that any cargo that gets diverted to Europe is likely to be from Japanese trading houses or companies with upstream resources, limiting any impact on Japanese utilities and the supply-demand balance in Japan.
The government has reached out to Japanese upstream group Inpex, asking the firm if it would be possible to divert LNG to Europe in the event of any disruption in Russian gas supplies, Inpex told Argus on 10 February. The firm operates the 8.9mn t/yr Ichthys LNG, and has stakes in the 3.7mn t/yr ConocoPhillips-operated Darwin LNG and the 3.6mn t/yr Shell-operated Prelude floating LNG, which is off line. All three projects are in Australia.
"I think the government is now talking with Japanese traders," a trader at a Japanese trading house said. "They have some trading volume not for Japanese utilities. So if the government asks them to allocate, they will use such volumes. Allocated volumes will probably not be from Japanese utilities."
Gas storage levels in Europe remain below average despite brisk LNG arrivals to the region and high sendout in recent weeks, industry participants said. Gas storage sites in Europe were 35pc full at 393TWh on 8 February, down from 54pc and 602TWh on 1 January, and 47pc and 528TWh on 8 February 2021.
Trading flexibility
Several Japanese trading houses have long-term contracts with US suppliers.
US volumes are sold on a fob basis and do not have destination restrictions, granting buyers greater flexibility to trade and optimise cargoes. Mitsubishi and Mitsui each have a term supply agreement to receive 4mn t/yr of LNG from the US' 15mn t/yr Cameron terminal in Louisiana.
State-controlled Jera and utility Osaka Gas hold 2.3mn t/yr each in offtake from the 15mn t/yr Freeport LNG facility, while Tokyo Gas has 1.4mn t/yr in fob supply from the 5.75mn t/yr Cove Point terminal.
"We don't know how much volume [will be sent from Japanese firms], but it should be small," the trader added.
The Japanese government has not approached utilities in the country to divert supplies to Europe, industry participants said. But most utilities will be reluctant if asked, several market participants said.
"Meti will sooner or later ask if we have enough stock to divert to Europe, and all will answer 'no'," a trader at a power utility based in western Japan said, adding that there is currently not yet enough urgency from Europe to secure supplies as it is "not in an energy crisis yet".
"Most Japanese buyers will face low inventory from March to April, both because of the DQT [downward quantity tolerance] from Malaysia and lower temperatures," a trader at a Japanese gas utility said.
Malaysia's state-owned Petronas has since last year exercised the DQT clause in its contracts to cancel term deliveries from its 30mn t/yr Bintulu LNG from last November to potentially the fourth quarter of this year over production issues at its Pegaga field. This has pushed many term offtakers, most of which are Japanese importers, to buy replacement cargoes from the spot market.
Domestic priority
Forecasts of even lower temperatures in Japan in the next few days could draw down LNG stocks further, with the past few weeks of cold weather having already weighed on inventories and spurred spot requirements for March-April deliveries.
Weather in the Tokyo metropolitan area, the largest power consumption area, is expected to get even colder in the coming days, with sub-zero temperatures having already been seen more than 10 times this year. The Japan Meteorological Agency on 9 February warned of heavy snowfall in Tokyo across 10-11 February, predicting that the city will get 5-10cm of snow.
Japan's main utilities held 1.63mn t of LNG stocks as of 6 February, down by 2.4pc from 1.67mn t a week earlier and lower than the 2.3mn t at the end of February last year, according to a weekly survey by Meti. The latest stocks were also 17.7pc lower than the four-year average of 1.98mn t. Inventories started dropping after hitting 2.42mn t on 23 December.
Nine Japanese buyers have purchased at least 10 cargoes for March since the start of the year. A power utility is seeking an April cargo, while another utility has a spot requirement for a delivery between the end of March and early April.
"Japanese buyers feel that keeping ourselves warm during winter is most important… it is difficult to ask us to give our blanket to other countries when we don't have enough cloth," another trader at a Japanese gas firm said.
Related news posts
US M&A deals dip after record 1Q: Enverus
US M&A deals dip after record 1Q: Enverus
New York, 26 April (Argus) — US oil and gas sector mergers and acquisitions (M&A) are likely to slow for the rest of the year following a record $51bn in deals in the first quarter, consultancy Enverus says. Following an unprecedented $192bn of upstream deals last year, the Permian shale basin continued to dominate first-quarter M&A as firms competed for the remaining high-quality inventory on offer. Acquisitions were led by Diamondback Energy's $26bn takeover of Endeavor Energy Resources. Other private operators, such as Mewbourne Oil and Fasken Oil & Ranch, would be highly sought after if they decided to put themselves up for sale, Enverus says. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Start-ups to help Total keep output stable in 2Q
Start-ups to help Total keep output stable in 2Q
London, 26 April (Argus) — TotalEnergies said it expects its oil and gas production to hold broadly steady in the second quarter as planned maintenance is partially offset by rising output from new projects in Brazil and Denmark. The company expects to average 2.4mn-2.45mn b/d of oil equivalent (boe/d) in April-June, compared with 2.46mn boe/d in the previous three months and 2.47mn boe/d in the second quarter of 2023. Production is being supported by the restart of gas output from the redeveloped Tyra hub in Denmark late last month and the start of the 180,000 b/d second development phase of the Mero oil field on the Libra block in Brazil's Santos Basin at the beginning of the year. TotalEnergies first-quarter output was flat compared with the previous three months but 2pc lower than a year earlier as a result of Canadian oil sands divestments. The company reported a robust set of first-quarter results today, broadly in line with analysts' expectations. Profit for the first three months of 2024 was $5.7bn, compared to $5.6bn in the same period last year. Adjusted profit — which takes into account inventory valuation effects and special items — came in at $5.1bn, down by 22pc on the year but slightly ahead of the consensus of analysts' estimates of $5bn. Adjusted operating profit from the firm's Exploration & Production business was down by 4pc year-on-year at $2.55bn, driven in part by lower natural gas prices. The Canadian oil sands asset sales weighed on the segment's production but this was partly compensated by start-ups. As well as Mero 2, the Akpo West oil project in Nigeria started production during the first quarter. TotalEnergies' Integrated LNG segment saw a 41pc year-on-year decline in its adjusted operating profit to $1.22bn in January-March. The company said this reflects lower LNG prices and sales. But while its LNG sales for the quarter fell by 3pc in year-on-year terms, its LNG production was greater by 6pc. TotalEnergies achieved an average $78.9/bl for its liquids sales in the first quarter, an improvement on $73.4/bl a year earlier. But the average price achieved for its gas sales was 43pc lower on the year at $5.11/mn Btu. In the downstream, the company's Refining & Chemicals segment's first-quarter adjusted operating profit was $962mn in January-March, down by 41pc on the year but 52pc higher than the preceding quarter. TotalEnergies attributes the quarter-on-quarter rise to higher refining margins and a rise in refinery throughput . For the second quarter, it expects refinery utilisation rates to be above 85pc, compared with 79pc in the first quarter, boosted by the restart of 219,000 b/d Donges refinery in France. Total's Integrated Power segment continued to improve, registering a quarter-on-quarter and year-on-year increased of 16pc and 65pc respectively in its adjusted operating profit to €611mn. Net power production increased 14pc year-on-year to 9.6 TWh, while the company's portfolio of installed power generation capacity grew 54pc to 19.5GW. Total's cash flow from operations, excluding working capital, was down by 15pc on a year earlier at $8.2bn in the first quarter. The company has decided to raise its dividend for 2024 by 7pc to €0.79/share and plans a $2bn programme of share buybacks for the second quarter. By Jon Mainwaring Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Japanese gas utilities to sell more city gas in 2024-25
Japanese gas utilities to sell more city gas in 2024-25
Osaka, 26 April (Argus) — Japanese gas utilities are expecting city gas demand from their customers to rebound in the April 2024-March 2025 fiscal year, after warmer than normal weather reduced the use of the heating fuel in 2023-24. Japan's largest gas retailer by sales Tokyo Gas forecast on 25 April that its city gas sales will increase to 11.422bn m³ for 2024-25, up by 1.1pc from a year earlier. Sales to the household sector are predicted to grow by 3.4pc to 2.8bn m³, after unusually warm weather during the summer and winter of 2023-24. Supplies to the industry and commercial users are also anticipated to edge up by 0.3pc to 8.6bn m³ during the period. The optimistic outlook came after a 10.1pc year-on-year fall in city gas sales for 2023-24. Tokyo Gas sold around 2.7bn m³ of city gas, down by 2.8pc from a year earlier, to the household sector to meet weaker weather-driven demand. Sales to the industry sector plunged by 20.1pc to 4.7bn m³ because of slower operations at their customers, while wholesale sales dropped by 3.2pc to 1.56bn m³. The falls more than offset a 2.3pc rise to 2.3bn m³ in the commercial sector where hotter than normal summer weather boosted city gas demand for cooling purposes. Tokyo Gas forecast temperatures in its service area to average 16.4°C in 2024-25, down from the previous year's 17.5°C. Fellow gas retailer Toho Gas forecast its city gas sales to increase by 1.2pc from the previous year to 3.4bn m³ in 2024-25, with supplies to residential users rising by 5.6pc to 595mn m³ and sales to the industry and commercial sectors edging up by 0.3pc to 2.8bn m³. The company sold 3.37bn m³ of city gas in 2023-24, down by 2.4pc from a year earlier, pressured by the warmer weather. City gas sales by Saibu Gas are expected to rise by 2.3pc from a year earlier to 940mn m³ in 2024-25. The company expanded sales by 3pc to 919mn m³ in 2023-24. Possible increased city gas sales in 2024-25 would increase demand for its main feedstock of LNG. But the 2024-25 sales forecast by Tokyo Gas and Toho Gas would remain lower compared with their 2022-23 sales. Japan's city gas production in 2022-23 totalled 35bn m³, which required 25.5mn t of LNG, according to trade and industry ministry data. By Motoko Hasegawa Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
LNG Energy eyes sanctions-hit Venezuela oil blocks
LNG Energy eyes sanctions-hit Venezuela oil blocks
Caracas, 25 April (Argus) — A Canadian firm plans to revive two onshore oil blocks in Venezuela, but the conditional deals signed with struggling state-owned PdV come just as the US is reinstating broad sanctions on the South American country. LNG Energy Group's Venezuela unit agreed two deals with PdV to boost output in five fields in the Nipa-Nardo-Niebla and Budare-Elotes blocks, which produce about 3,000 b/d of light- to medium-grade crude, the company said on Wednesday. The Canadian company, which operates in neighboring Colombia, would receive 50-56pc of production of the blocks. Venezuela's oil ministry declined to comment. But finalizing the contracts depends on providing required investment to develop the fields within 120 days of the contract signing on 17 April, LNG Energy said. And the signing came on the same day as the US reimposed oil sanctions on Venezuela and gave most companies until 31 May to wind down business. LNG Energy Group said it intends to comply with existing and upcoming US sanctions, noting that the conditional contracts were executed within the terms of the temporary lifting of sanctions — general license 44 — but it will abide by the new license 44A. The reimposition of US sanctions on Venezuela prohibits new investment in the country's energy sector, at the threat of US criminal and economic penalties. "The company will assess in the coming days the applicability of license 44A to its intended operations in Venezuela and determine the most appropriate course of action," LNG Energy said. "The company intends to operate in full compliance with the applicable sanctions regimes." The two blocks are in the adjacent Anzoategui and Monagas states, part of the Orinoco extra heavy oil belt. Most of Venezuela's output is medium- to heavy-grade crude. Both PdV and Chevron have drilling rigs working in those two states, in separate workover and drilling campaigns. Venezuela is now producing above 800,000 b/d, after the US allowed Chevron to increase production and investment under separate waivers. By Carlos Camacho Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.
Business intelligence reports
Get concise, trustworthy and unbiased analysis of the latest trends and developments in oil and energy markets. These reports are specially created for decision makers who don’t have time to track markets day-by-day, minute-by-minute.
Learn more