July 1st has arrived, the new financial year. A little pressure...

July 1st has arrived, the new financial year. A little pressure mounting for the remainder of 2018 amid Venture Global signing 4mt this year, Cheniere signing first ever US deal with China, CNPC. But IDG investing in our ant was significant... GV & Co partially delivering on the company's 2018 goals, to raise $30 Million in capital & sign 4mt worth of BTAs with credit worthy buyers.

The Trump administration’s trade dispute with China has supposedly delayed our bid to sign long-term natural gas deals.

LNG LTD is in “advanced” discussions to sign 20-year deals for its $4.35 billion Magnolia LNG export project in Louisiana, but a number of parties have indicated they’re waiting to see how the tensions shake out before making final decisions, Vesey said in an interview in Washington on Monday.“ We’re kind of sitting back and waiting for this whole tariff and trade war thing to settle down,” for potential buyers, he said. “ Has that affected the timing of their decision? Absolutely.”

China has threatened an additional 25% tariff on $50B worth of US goods. $34B worth of US agriculture products, cars and marine products are due to come into effect on July 6, according to announcement by the Customs Tariff Commission of the State Council. Additional duties on the remaining $16B of goods including crude oil, LPG, gasoline, Naphtha, fuel oil and natural gas will be announced at a later date! Very much doubt the government will slap tariffs on LNG given how vital the energy source is to their long term future!

Currently 15 terminals have been commissioned with a handling capacity of 54.2mt. 11 terminals & expansions under construction 32.7mt. Thats a total of 86.9mt... @ a terminal utilisation rate of 56%  = 48.66mt worth of LNG they are looking for. Currently the Chinese have contracted 41.1mt!

From there you have expected expansion projects from terminals already commissioned/operating = 29.3mt + proposed terminals likely to succeed and their expansions 43.2mt... Total 72.5mt @ 56% Utilisation Rate = 40.6mt possible future demand and thats on the conservative side!

What i haven't shared before is China's natural gas producing fields vs their consumption. This paints a true picture of how rapidly consumption is growing in comparison to own production in which the latter won't, can not keep up. Yearly production & % increase from year to year:

2005 - 37.7mt (18.9%)   2006 - 44.8mt (18.2%)   2007 - 52.9mt (16.1%)   2008 - 61.4mt (6.2%)   2009 - 65.2mt (12.4%)   2010 - 73.3mt (10%)   2011 - 80.6mt (2.6%)   2012 - 82.7mt (9.4%)   2013 - 90.4mt (7.7%)  2014 - 97.3mt (3.5%)   2015 - 100.7mt(1.7%)   2016 - 102.4mt (7.9%)   2017 - 110.4mt

Average production growth from 2005 - 2015 = 10.3%


Yearly consumption & % increase from year to year:

2005 - 35.6mt (23.2%)   2006 - 43.8mt (23.2%)   2007 - 54mt (15.3%)   2008 - 62.2mt (10.2%)   2009 - 68.5 (20.1%)   2010 - 82.2mt (24.2%)   2011 - 101.4mt (10.1%)   2012 - 111.6mt (14%)   2013 - 127.2mt (9.6%)   2014 - 139.4mt (3.4%)   2015 - 144.1mt (7.7%)   2016 - 155.6mt (14.3%)   2017 - 177.8mt

Average consumption growth from 2005 - 2015 = 15%

In 2017, China imported 38.1mt of LNG,  29.1mt (39.4BCM) natural gas via pipeline (Turkmenistan 23.4mt, Uzbekistan 2.5mt, Myanmar 2.4mt) & 110.4mt (149.2BCM) from own field production which accounts for their 177.8mt (240.4BCM) domestic consumption.  CNPC forecasts production to rise 8% in 2018 while SIA Energy quotes 6-8%. If production rises by say 7% = 118.1mt, an additional output of 7.7mt from 2017... if consumption rises by say 12% = 199.1mt, additional supply of 21.3mt is needed... a 13.6mt differential. The only LNG BTA that will commence in 2018 is CNPC's 3mt shipments from Yamal, Russia, meaning China will need to lock in approximately a further 10.6mt.

There's also a historic milestone to take into consideration, the first ever Russia to China 3000km NG pipeline called the Power Of Siberia, which as of late March is 75.5% complete. Due to come online late 2019, early 2020s and will have a 28mt capacity. Gazprom already has a $400B sales and purchase contract with CNPC, signed May 2014, for export of 28mt over a 30yr period! China in July 2007 signed a 30yr sales and purchase contract with Turkmenistan for the supply of 22.2mt (30BCM) from the Galkynysh gas field... then in 2008 added a further 7.4mt (10BCM) to their initial agreement. On September 3, 2013, another sales and purchase contract was signed for an additional 18.5mt (25BCM) plus an EPC contract with CNPC to build an upstream complex for Phase 2 at Galkynysh. The pipeline linking Turkmenistan with China currently holds a capacity of 40.7mt (55BCM) but will deliver the entire contracted volumes of 48.1mt (65BCM) by 2020.

Asia's other big gun, India, has 17 terminal proposals for a total of 60.mt @ 75% current terminal Utilisation Rate = 45.3mt the country could be looking for in future. There are risks involved in signing contracts with India in terms of credit worthiness & a keen willingness to re-negotiate existing contracts... our company is wary of this!

Taiwan currently has 2 terminals in operation - Taichung 3mt + 3.5mt expansion under construction + Yang'an 10mt. Have 3 terminal proposals 1) CPC 3mt + 3mt exp in Taoyuan 2) Taipower 2.4mt Keelung Xiehe 3) TPC 4.1mt Taichung... total 12.1mt. With a Utilisation Rate of 118% = 11.2mt possible future demand.

Now moving on to Europe, an interesting story. The following have depleting natural gas reserves in their own fields. Using a reserves/production ratio (R/P) - if the reserves remaining at the end of any year are divided by the production in that year, the result is the length of time that those remaining reserves would last if production were to continue at that rate. Figures are by year's end 2016. The top 5 are:

Denmark NG field production 3.3mtpa - 2.9yrs remaining (reserves remaining 10.4mt)
United Kingdom  30.3mt - 5yrs (152.9mt)
Germany 4.8mt - 5.3yrs (25.1mt)
Italy 3.9mt - 6.6yrs (25.1mt)
Romania 6.8mt - 12yrs (81.7mt)

Top 7 world countries with depleting natural gas reserves by years end 2016:

Mexico NG field production 34.9mtpa - 5.2yrs (reserves remaining 180.1mt)
Thailand 28.5mt - 5.4yrs (152.9mt)
Bangladesh 20.3mt - 7.5yrs (152.9mt)
Trinidad Tobago 25.5mt - 8.7yrs (222mt)
Argentina 28.3mt - 9.2yrs (259mt)
Bahrain 11.4mt - 10.5yrs (121.5mt)
*USA* 554.4mt - 11.6yrs (6.4Billion t)


* Its worth noting that production from Europe's largest natural gas field, Groningen in the Netherlands, has been falling rapidly since 2013. In 2013 the field produced 50.7mt, 2014 42.8mt, 2015 32mt, 2016 29.7mt , 2017 17.7mt and expectations for 2018 is at 14.2mt. The Dutch Government intends to cut production to 8.8mt by October 2022. The reductions is due to limiting the risk of earthquakes  after decades of extraction has led to dozens of earthquakes each year. The Netherlands only has 2 other sources of domestic gas supply... Norg/Grijpskerk fields 5.2mt and Bergermeer field 3mt.  Their domestic consumption is approximately between 24mt - 26mt per annum but the following countries have been reliant on Netherlands pipeline exports;

Germany imported 2017 - 14.9mt   2016 - 16.9mt   2015 - 17mt   2014 - 13.3mt
Italy 5.9mt, 6.8mt, 4.4mt, 6.8mt respectively.
UK 0mt, 3mt, 2.2mt, 4.8mt
Belgium 7.1mt, 8mt, 2.1mt, 3.9mt
France 3.6mt, 3.4mt, 3.4mt, 3.6mt

Netherlands exported in 2017 - 32mt   2016 - 38.7mt   2015 - 30mt   2014 - 32.6mt
Imported via pipeline in 2017 - 30.2mt  2016 - 28.1mt   2015 - 22.3mt   2014 - 17.1mt

So who will these countries turn to to help eleviate their supply issues? Norway has very little room to move... their annual supply sales are consistently fixed year by year with the following countries; UK 22.1mt, Germany 22.2mt, Netherlands 14.5mt, France 12.5mt, Czech Republic 2.1mt, Spain 2mt Austria 1.8, Other Europe 1mt. Over the last 3yrs Norway has contracted consistently 84mt annually in pipeline sales while their own consumption has averaged 3.5mt during that time. The country ramped up production in 2017 to 91.1mt, up from 86.2mt the previous year. Only 3.6mt went uncontracted!

Algeria has no pipeline gas or LNG available for supply. Their production hit 67mt over the last 2yrs... consumption 28.8mt with remaining supply totally contracted to Europe/worldwide. Europe is purely at the mercy of Russian piped gas or LNG worldwide.

Europe's top 5 Natural Gas Suppliers in 2017 were;

1) Russia exported 140mt
2) Norway 84.5mt
3) Algeria 34.7mt
4) Netherlands 32mt
5) UK 7.4mt

The conclusion... there's an abundance of future natural gas demand oppourtunites to be soaked up by aspiring worldwide export projects. China does have big, future supply contracts already in place but their consumption will continue to grow at an exponential rate. According to an SIA energy report in 2016, the company stated that 66.1mt worth of LNG import terminals had been proposed between 2021 - 25! Europe is in desperate need of alternative options/supplies outside of Europe. We face strong competition with pipeline gas predominantly from Russia. Russia produced a record 470.3mt in 2017, imported 13.9mt, domestic consumption 314.3mt while gas sales reached 170.8mt (pipeline & LNG). In contrast, USA produced 543.5mt, imported 59.7mt via pipeline from Canada, consumed 547.2mt, while pipeline 48.9mt & LNG 61.2mt sales are in place for 110.1mt.

2 super-giants locked in battle...