Europe not out of the energy crisis woods yet
An 18% reduction in EU gas demand since the introduction a year ago of the emergency REpowerEU plan has led to back-slapping in Brussels as Vladimir Putin’s energy blackmail has seemingly been seen off. But now comes the hard part ahead of next winter and the need to ensure structurally lower gas consumption via the rapid deployment of green technologies, writes Dave Keating in Energy Monitor.
The state-owned oil and gas group tightening its grip on Polish society
The rise of Poland’s PKN Orlen, under the recent acquisition drive of political appointee Daniel Obajtek, is raising concerns that the PiS government is seeking to leverage corporate interests to solidify its power base, writes Raphael Minder in The Financial Times.
U.S. public finance starts to flow for LNG in latest Biden administration climate capitulation: A US$500 million public guarantee from the U.S. International Development Finance Corporation (DFC) to help Poland increase its imports of U.S. LNG has been slammed by environmental groups. Under the funding arrangement, signed off by DFC’s board of directors as a deal involving minimal environmental concerns, Polish energy company PKN Orlen will have its payment obligations to Goldman Sachs covered for LNG-related hedging activities carried out by the bank on its behalf. This latest Biden administration backing for LNG is doubly egregious, said Oil Change International, because it breaks a U.S. climate pledge to end public finance for international fossil fuel projects by the end of 2022. A plea from a group of U.S. senators to the administration to enhance its enabling of gas exports was delivered just days prior to the DFC funding decision. “Excessive restrictions on public financing of gas projects and unnecessary delays in approving privately-financed projects,” wrote senators including Joe Manchin and Ted Cruz in a letter to U.S. Ambassador to Japan Rahm Emanuel, “impede the development of critical infrastructure to expand output and exports.” (Oil Change International, Bloomberg, U.S. Senator Dan Sullivan press release)
Moscow attempting sanctions work-around with new Murmansk LNG proposal: Recent reporting in Russian media that Novatek is planning to build a new LNG export terminal near the northwestern port of Murmansk on the Barents Sea is being interpreted as the Kremlin adapting its gas export strategy in the face of international sanctions imposed since the invasion of Ukraine. The 20.4 million tonnes per year (mtpa) Murmansk project is slated to start production in 2027 and would boost Moscow’s aim to export 100 mtpa by 2030, up from 32.5 mtpa in 2022. As western sanctions have already hampered Novatek’s securing of gas turbines for power generation at its other in-development LNG projects in the Arctic, electricity for the proposed facility would come from the state-owned Kola nuclear plant located roughly 200 kilometers from Murmansk. The project would also require the construction of a 1,300-kilometer pipeline for delivery of feeder gas from Gazprom’s Arctic fields that are currently underutilized as access to northwestern European markets has been closed down. In this context, said an observer at Moscow-based energy consultancy RusEnergy, the proposal “looks more like a state-backed effort from Novatek to save Gazprom.” (Energy Intelligence, Upstream)
Renewables targets in jeopardy as Israel approves two gas plants: Amid warnings of potential electricity shortages in the next few years, the Israeli government has given the go-ahead to two new gas plant development projects. It also opted, for now, not to advance two other gas power proposals that have the backing of state planners. To supply energy to the densely populated Tel Aviv area, green lights have been given for construction of the new Kesem plant and the expansion of the Dorad plant in the southern coastal city of Ashkelon. The proposed 780 megawatt Kesem project continues to be opposed by local authorities over fears that it will cause air pollution and contaminate the Yarkon-Taninim (or Western Mountain) Aquifer, which provides 30% of Israel’s drinking water. Environmental Protection Minister Idit Silman expressed her misgivings about the new approvals. Her ministry has recently warned that the country is on course to generate only 19% of national energy generation from renewable sources by 2030 compared to an official target of 30%. (The Times of Israel)
Insurance campaigners turn their attention to U.S. LNG: A new campaign is underway to pressure insurance companies to stop covering new LNG export projects along the U.S. Gulf Coast as well as the expansion of existing terminals. Mary Lovell, energy finance campaigner at Rainforest Action Network, one of the groups spearheading the initiative, summed up the motivation: “It’s unconscionable that insurers are covering the very industries that are causing the climate crisis, then sticking their customers with the consequences in terms of higher premiums and withdrawals of coverage.” State Farm has recently joined the growing number of U.S. firms that have stopped offering policies to new homeowners due to what the country’s top property insurer describes as “rapidly growing catastrophe exposure” being driven by extreme weather events such as wildfires and increasingly intense hurricane seasons. This new targeting of LNG insurers comes as the U.S.’s eight operating export terminals are shipping record-high quantities of LNG to Europe and Asia and as the Biden administration is demonstrating its keenness to back more facilities. Pressure from environmental groups in recent years has resulted in the drying up of essential coverage for coal projects from many of the world’s largest insurers and has impacted the development plans of industry players. (E&E News, Axios)
Poland and Romania pushing the EU funding envelope for gas projects: New analysis from finance watchdog group CEE Bankwatch Network finds that, despite the EU goal of slashing gas consumption by 2030 and the introduction of some restrictions on gas financing across EU funding programmes, Poland and Romania are planning to increase their allocations of EU funding for gas projects in the coming years. According to the Bankwatch report, the Polish government is looking to tap more than €2 billion (US$2.1 billion) from Brussels to support projects including an LNG import terminal in Gdansk, new gas-based transmission and distribution networks, and subsidy schemes for gas boilers in buildings. This marks a rise in the €1.3 billion of EU public money support committed to Polish gas projects in the 2014–2020 period. In Romania, which committed €480 million in EU money to gas projects in the same funding period, the planned allocations for gas projects have jumped to over €1.7 billion. Bankwatch is calling for the Polish and Romanian governments to revise their funding allocation plans in favor of renewables and energy efficiency investments, and for the European Commission to revise existing EU funding rules to prevent the use of EU funds for new gas projects. (CEE Bankwatch Network [Pdf])
UK watchdog bans Shell, Repsol, and Petronas greenwashing ads: The UK’s Advertising Standards Authority (ASA) has banned a series of adverts from Shell, Spain’s Repsol, and Malaysia’s Petronas on the grounds that the “green” marketing had misled the public on the climate and environmental benefits of the companies’ products overall. Of the Shell campaign, involving a TV, poster, and YouTube campaign promoting renewable electricity, wind, and car charging point initiatives, the advertising watchdog said that the impression given is that a “significant proportion” of Shell’s business comprises low-carbon energy products. However, this did not tally with the “vast majority” of the company’s business model both now and in the near future, geared as it is to large-scale oil and gas investment and extraction. The ASA is currently drawing up rules to govern carbon neutrality and net zero claims made by companies, and investigated the Shell advertising following a complaint lodged by the campaign group Adfree Cities. The group’s Veronica Wignall said the ban “marks the end of the line for fossil fuel greenwashing in the UK. The world’s biggest polluters will not be permitted to advertise that they are ‘green’ while they build new pipelines, refineries and rigs.” (The Guardian, The Financial Times [Paywall])
Australia: An activist from the Disrupt Burrup Hub campaign was arrested after staging a fake gas leak at the headquarters of Woodside Energy in Perth that led to the evacuation of hundreds of the company’s staff.
Azerbaijan: First gas at the Absheron field (estimated reserves of 350 billion cubic meters) in the Azerbaijani sector of the Caspian Sea is expected in the next few weeks, according to TotalEnergies.
Colombia: A relaunched tender process for the long-delayed Pacific LNG import project has been postponed by the government for a second time due to tepid investor interest for the build, own, and operate contract.
Hungary: State-owned utility MVM has signed a contract with Azerbaijan’s Socar for delivery of a small quantity of gas by the end of the year, with a view to agreeing to a future long-term contract for two billion cubic meters per year. The Czech Republic was also reported to be interested in receiving gas from the Caspian state “in the near future.”
Iran: Oil minister Javad Owji has said that efforts are advancing to set up a gas hub in the Persian Gulf in cooperation with Russia, Qatar, and Turkmenistan.
Pakistan: Islamabad is on the verge of finalizing an agreement with Azerbaijan for the purchase of one LNG cargo per month at a rate reported to be 30% lower than prevailing market prices.
Spain: Operator Enagas has launched a binding open season for logistics services at the El Musel LNG terminal in Gijon ahead of the facility’s expected start-up in July.
U.S.: The Biden administration has banned new oil and gas drilling leases within ten miles of the Chaco Culture National Historic Park, a sacred Indigenous site in New Mexico.
U.S.: Grand Isle LNG has presented plans for two 2.1 mtpa floating liquefaction platforms that it expects to be operational in Louisiana by 2026.
The Gas Graph
Via Energy Monitor, the top ten countries with the most in development — and post-final investment decision — oil and gas fields, alongside reserves in those fields (barrels of oil equivalent / boe).
Japan moving fast to line up more LNG partnerships in the Philippines: Fresh from its diplomatic coup at last month’s G7 meeting, where a U-turn saw the endorsement of public financing for the gas sector make it into the group’s final communiqué, Japan has wasted no time in laying out its pro-LNG stall with the Philippines. During a meeting with President Ferdinand R. Marcos Jr. in Manila, senior officials from the Japan Bank for International Cooperation (JBIC) communicated the state-owned financial institution’s willingness to support the development of LNG and renewables projects in the country. Meetings to develop a partnership between JBIC and three Philippine LNG players — Aboitiz, Metro Pacific, and San Miguel — were also reported to have taken place. JBIC is already an investor and part owner of Atlantic, Gulf and Pacific Company (AG&P), whose import terminal in Batangas City received the Philippines’ first ever LNG cargo in April. Environmental groups in the Philippines and Japan have called on JBIC to withdraw from the AG&P project due to its negative impacts on the Verde Island Passage, described as the Amazon of the oceans and one of the world’s most biodiverse marine habitats. (Philippine News Agency, Business World, Center for Energy, Ecology, and Development)
BNP Paribas exits bond arranging for new oil and gas expansion: France’s biggest commercial bank has quickly followed up on its commitment made last month to end project financing for the development of new oil and gas fields by announcing it will no longer help to arrange bond issues for companies that intend to use the proceeds for new exploration and production projects. BNP’s move to restrict its capital markets business for oil and gas is rare across the banking sector though may be a portent of things to come. While restrictions on banks’ fossil fuel lending — particularly for coal — have become commonplace, bond issues remain the sector’s biggest source of fundraising. The Partnership for Carbon Accounting Financials, an initiative aiming to align the financial industry with the Paris climate agreement, is trying to address this elephant in the room by drawing up standards to limit the banking sector’s so-called “facilitated emissions” that result from the syndication of bonds. These issues net the oil and gas industry hundreds of billions of dollars in new capital every year. (Bloomberg)
Policy changes in Australia posing worries for Japanese LNG importers: According to CEO Yukio Kani, the implementation of policy changes in Australia — Japan’s top LNG supplier — may force JERA to diversify its supply sources, with Africa or the Middle East potential new sources for Japan’s biggest power generation company. Australian supply currently accounts for 42.7% of Japan’s LNG imports, but the introduction in April of the Australian Domestic Gas Security Mechanism, which allows for the restriction of LNG exports to avoid domestic gas shortages, has already created supply and investment uncertainties for Japan and other Asian buyers. A further policy change, aimed at reducing emissions at Australia’s largest industrial facilities, becomes effective in July and is likely to lead to higher costs being passed on to buyers and, going forward, make new gas investment projects more expensive. (S&P Global)
Altamira Fast LNG project clears hurdle in Mexico: U.S. energy company New Fortress Energy (NFE) has received an export permit from Mexico’s Ministry of Energy for its Altamira Fast LNG facility that should allow operations to start up in the coming few months. The 1.4 mtpa terminal is the first in a planned collaboration between NFE and Mexico’s state-owned electric utility Comisión Federal de Electricidad (CFE) to create a floating LNG hub off the coast of Altamira in the Gulf of Mexico. The project’s permitting comes as commodities analytics firm ICIS warned of an uphill struggle ahead for LNG developers in Mexico due to regulatory hurdles and unclear permitting processes that are overseen by state agencies. A string of export projects are lined up mostly on Mexico’s west coast, and project promoters are reported to be encountering some delays due to nonstandardised, often discretionary steps taken by CFE and other state bodies. (Offshore Energy, ICIS)
Sempra looks to Tribal Nations for U.S. west coast pipeline push: In an attempt to overcome a lack of political leverage and predicted opposition to its plans on the American west coast, Sempra Infrastructure is framing its push to develop new pipeline networks to supply its export hub in Mexico as “tribal justice.” A group called the Western States and Tribal Nations (WSTN) is working in tandem with Sempra, electric utility Dominion Energy, and several drilling companies to promote the transit of gas from the Rocky Mountains and Great Plains to the Pacific coastline and south to Mexico, and then onwards to Asian gas markets. The WSTN currently has three tribes among its members and is reported to be coordinated by HBW Resources, a Houston-based energy lobbying firm. The group was founded by Andrew Browning, a former special assistant at the U.S. Energy Department’s Office of Fossil Energy during the Clinton presidency. Documents obtained by the Energy and Policy Institute, a watchdog group that monitors fossil fuel companies and utilities, show Sempra’s strategy to overcome permitting and financing hurdles to pipeline build-out, including the leveraging of “ESG optionality,” and how Rahm Emanuel, U.S. ambassador to Japan, was enlisted to speak at a WSTN event last December. Sempra’s playbook also features the Western Interstate Gas Authority, a potential multi-state and Tribal Nations coalition that would issue bonds to finance new pipeline infrastructure. (The American Prospect, Western States and Tribal Nations Natural Gas Initiative)
Short-lived price blip but Europe’s gas market remains on edge: A one-day, 20% surge in European gas futures earlier this week faded quickly but nevertheless demonstrated the sense of nervousness prevailing over the market. After a 30% drop in futures last month, prices fell further at the start of June to less than €24 per megawatt hour (MWh) before briefly jumping to €28.48/MWh. By comparison, €340/MWh last August was the historical price peak set amid a summer of panic buying and diversification away from Russian supplies. Triggers for the temporary jump are thought to include a maintenance closure until June 10 at France’s Montoir import terminal, the temporary outage of the Hammerfest export terminal in Norway as a result of a gas leak, and short-term maintenance work on the the Turkstream gas pipeline, which transports gas from Russia through the Black Sea to Türkiye. All eyes remain, though, on when European buyers may be forced to act to lure U.S. LNG shipments away from Asia where they are currently more profitable in July, August, and September, according to BloombergNEF, due to the region’s high demand for cooling in the summer months. (Bloomberg, Trading Economics EU Dutch TTF)
REPowerEU: One year later, European Commission, May 2023. (Pdf)
This 5-page document outlines the progress made over the last 12 months since the European Commission put forward its REPowerEU plan aimed at rapidly reducing dependence on Russian fossil fuels.
Against hydrogen blending: Building the UK’s hydrogen economy needs a more strategic approach, E3G, June 8, 2023. (Pdf)
This 10-page briefing argues that, as the UK government prepares to decide this year on whether to permit a 20% blend of hydrogen into the gas grid, blending could raise household energy bills by 7–20%, does not encourage strategic deployment of hydrogen in sectors where it is the primary option for decarbonisation, and risks derailing domestic heat decarbonization.