October 2, 2023

Liquefaction plants push LNG output this winter amid attractive spot prices, but some plants lose out

With spot LNG prices trading at record highs and roughly three times higher than last winter, plant operators have had a financial incentive to push output at liquefaction plants this winter. Facilities in Russia, the Middle East, the United States, Papua New Guinea, Peru and many in Australia have been successful in raising utilisation rates above nameplate capacity. But as European demand for LNG has soared amid dwindling Russian pipeline gas supplies and low storage levels, many of the region’s suppliers of LNG have simply been unable to step up production further. Plants in Africa, Trinidad and Tobago and Norway, in particular, have faced operational or upstream issues which have constrained winter supplies.

Liquefaction plants push LNG output this winter amid attractive spot prices, but some plants lose out

Plant operators typically increase production during the northern hemisphere winter when LNG demand in northeast Asia and Europe is at its highest. However, operators have had a financial incentive to raise output as much as possible this winter with spot LNG prices trading at record highs. Any cargoes produced above demand from offtakers are typically sold on the spot market, where prices have been averaging more than three times higher than the same period last year. As such, spot cargo sales have reaped significant revenue for project stakeholders this winter.

As an example, over the period mid-November to mid-February the Asian JKM swaps front-month price has averaged $32.50/MMBtu. Selling one standard-sized cargo (3.3 trillion Btu) at this price would generate revenues of $107 million. At the contract’s high point of $49.35/MMBtu on 21 December, a spot cargo would have been worth $160 million. This compares to $33 million during the same period last winter when the price averaged just over $10/MMBtu.

Plants in Russia, the Middle East, Papua New Guinea, the United States, Peru and many facilities in Australia have been able to push utilisation rates above nameplate capacity over the past 90 days, with many operators offering a number of cargoes to the spot market. However, upstream constraints and operational issues at plants in Indonesia, Africa, Trinidad and Tobago and Norway have led to other plants missing out on this lucrative opportunity.

Russia benefits from a colder climate

The two plants that have been able to push their utilisation rates the most this winter are Russia’s 16.5 Mtpa Yamal and 10.8 Mtpa Sakhalin II plants, which have produced at 123% and 119% of nameplate capacity over the past 90 days, respectively. While Russia’s arctic climate can pose challenges for building, operating and maintaining liquefaction technology, one advantage is an increase in operating efficiency during the freezing winter months as refrigeration requirements are lower.

Sakhalin Energy sells additional LNG supply from its plant at the port of Prigorodnoye via tender and has been able to offer eight spot cargoes to the market so far this winter – two cargoes loaded in the months of November, December, February and one each month loading in January and March.

Norway’s liquefaction plant usually also benefits from the colder weather during the winter months but remains offline for a second consecutive winter due to repairs following to a fire in September 2020. The 4.2 Mtpa Snohvit liquefaction plant operated by Equinor has recently delayed the restart of its plant from 31 March to 17 May.

Liquefaction plant utilisation rates over the past 90 days (%) - Source: Kpler. Includes all large-scale liquefaction plants above 2 Mtpa. Reference line at 95% utilisation.

Middle East performs above capacity, Oman and UAE invest to boost output

Liquefaction plants in the Middle East have also performed above nameplate capacity, with Oman and the UAE undertaking investments to boost output.

Qatar’s giant 77 Mtpa Ras Laffan facility operated at 106% of capacity over the past 90 days and in January produced its third-highest level of exports ever. The majority of the facility’s output is tied up in long-term oil-linked contracts with Asian buyers, who have likely maximised contractual offtake in order to reduce exposure to the expensive spot market this winter. Brent Crude prices have averaged $82.69/bbl over the past 90 days. At an oil slope of 13%, buyers would have to pay ~$10.75/MMBtu for contracted supplies – a significant discount to spot LNG prices.

The Qatari government has been in negotiations with the US Biden administration to ship more gas to Europe in recent weeks, but based on this winter’s production levels, Qatargas would have been unable to lift overall volumes much further. Unless Asian buyers agreed to a re-routing of cargoes, increasing supply to Europe would have been difficult. But with shoulder season around the corner, Qatari supply to Europe should step up over the next few weeks as Asia emerges from peak heating season.

Meanwhile, Oman’s 10.9 Mtpa Qalhat and ADNOC’s 5.8 Mtpa Das Island plant in the UAE both operated above nameplate capacity over the past 90 days, enabling the project operators to offer spot cargoes to the market this winter. Qalhat has been able to raise production due to an ongoing debottlenecking programme which is set to be completed this year and increase LNG export capacity to 11.4 Mtpa. Completion of the project will allow the facility’s three trains to accommodate more feedgas from the giant Khazzan gas field which has been under development over the last few years. Meanwhile, ADNOC is also planning to unlock greater value from its plant after awarding a front-end engineering design (FEED) contract in March last year to enhance the efficiency and extend the life cycle of its two trains.

Utilisation rate by export country over the past 90 days (%) - Source: Kpler

US largely unscathed from production problems, overtakes Australia as top exporter

Apart from an incident at Freeport LNG in early November, US liquefaction plants have enjoyed few production difficulties this winter. Combined with the ramp-up of new liquefaction plants, this has enabled the country to overtake Australia as the world’s largest LNG exporter in January. Australia exported 6.51 Mt of LNG last month against US supply of 7.05 Mt.

Overall, plants in the US have operated at 89% of nameplate capacity over the past 90 days, but that figure is distorted by the ramp-up of new liquefaction infrastructure. All of the country’s liquefaction facilities have raised their output above nameplate capacity over the past 90 days, except for the 30 Mtpa Sabine Pass facility which has been commissioning its sixth 5 Mtpa train through the course of the winter. Venture Global is also gradually bringing online 18 mini trains worth 10 Mtpa at Calcasieu Pass, with the first cargo loading currently underway onboard the Yiannis tanker. Utilisation rates at the terminal should gradually improve over the course of this year.

The US has certainly reinforced its status as a swing supplier in the LNG market this winter. As US netbacks swung in favour of Europe in mid-December, cargoes sailed across the Atlantic Ocean to help rescue Europe from a gas crisis. Nearly three-quarters of all cargoes exported from US facilities in January went to Europe compared to just under half of supply in November when netbacks pointed in favour of Asia.

In Australia, many plants have pushed production this winter, with Wheatstone, QCLNG, Ichthys, APLNG and Pluto all operating above nameplate capacity. The 15.6 Mtpa Gorgon facility also performed well at 94% utilisation, despite the facility taking its three trains offline consecutively between November and February for pipe repairs. However, output at a number of other plants has disappointed somewhat, in particular Shell’s 3.6 Mtpa Prelude FLNG. The facility operated at just 15% of capacity during the past 90 days after being taken offline in early December due to an electrical fire incident that is currently under investigation. Shell recently said the facility will likely remain offline for most of the first quarter, which will dent the company’s LNG supply.

90-day plant utilisation (%) vs. nameplate capacity (Mtpa) - Source: Kpler, includes all large-scale liquefaction terminals above 2 Mtpa except for Ras Laffan. Reference line at 95% utilisation.

Indonesia and many Atlantic basin plants struggle to fully utilise capacity

Not all plant operators have enjoyed high production and increased revenues this winter, with a number of facilities in the Atlantic basin and Indonesia underproducing due to upstream or operational issues.

In particular, supply problems at a number of plants in the Atlantic Basin have rumbled on from last year and restricted LNG supply to gas-starved Europe. While production in Peru has recovered following unexpected mechanical problems last summer, plants in Nigeria and Trinidad and Tobago have continued to produce well below capacity owing to domestic gas shortages. Like Qatar, Nigeria has also been in talks about raising LNG supplies to Europe and hosted the European Commission last week. However, Nigeria is not expected to be in a position to help unless feedgas supplies to the Bonny plant witness a turnaround.

Algeria’s two liquefaction plants have also failed to considerably raise LNG exports this winter, even after the closure of the Maghreb pipeline to Spain in late October. Gas that was supposed to be delivered through Maghreb was expected to be re-routed to the country’s two LNG terminals, but exports have in fact fallen since October as domestic consumption rises.

In the Pacific, Indonesia’s 11.5 Mtpa Bontang plant has suffered with sand production in the wells at the Merakes gas field offshore Kalimantan. Production over the 90-day period has come in at just 46% of capacity, making it one of the worst performing plants in the Pacific basin this winter. Malaysia’s 29.3 Mtpa Bintulu also lost some supply due to mercury contaminants in the gas stream from the Pegaga field.

To conclude, maintaining liquefaction production at a high level has bought value to many plant operators this winter amid high spot LNG prices. A large number of liquefaction plants across the world have produced above nameplate capacity over the period mid-November to mid-February, with many plant operators reaping significant revenue from cargoes sold on the spot market. However, production has not run smoothly at all locations, with a number of plants in Norway, Africa, Trinidad and Tobago, Indonesia and Australia missing out after facing operational or upstream difficulties that have pared back supply.

As the market emerges from peak winter season over the coming weeks, utilisation rates will likely decrease as demand in northeast Asia tails off and liquefaction plants take post-winter maintenance. Qatar’s Ras Laffan and Indonesia’s Tangguh have led the way with planned maintenance now underway.

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