US gas price volatility likely to continue

Spanish Market: Natural gas
28/03/23

The past 18 months have been a wild ride for natural gas prices, as well as for the bottom line of investors and companies that are subject to their gyrations.

Spot prices in production and demand centers of the US have broken volatility records in recent months, while producers have reversed their course on hedging as gas prices collapsed.

The next few years portend more of the same.

"I think volatility is here to stay for the foreseeable future," Citi analyst Paul Diamond told Argus. "The underlying issues causing that step change in the last 24 months are not going away."

If one measures volatility by the number of days an asset moves by more than 7pc in value, 2022 was the most volatile year for natural gas prices since at least the beginning of the shale era. In 2022, the price for day-ahead delivery at the US benchmark Henry Hub in Louisiana rose or fell by more than 7pc on 65 occasions, the most of any year since at least 2009, according to an Argus analysis.

So far, the Henry Hub has done so 21 times this year. At that rate, 2023 will be more volatile than 2022.

How volatility returned to gas markets

After the shale revolution of the 2000s brought cheap and efficient techniques for increasing domestic gas production, including horizontal drilling and hydraulic fracturing, or "fracking," US gas prices enjoyed a long decade of low volatility. On average, the US benchmark only moved by more than 7pc on 17 days/yr between 2009-2021 — about one-third the 2022 rate.

That period of relative price stability ended sometime around the fourth quarter of 2021 when prices rose on an unexpected increase in power demand and record-high LNG exports. Despite tight supplies and high prices, producers mostly stuck to their promises to investors to maintain capital discipline, declining to increase production at pace with demand.

Producers stuck to their script even when Russia invaded Ukraine in 2022, threatening gas supply to Europe and causing a global energy crisis in which overseas appetite for US gas soared, lifting prices even higher.

The prompt-month price — the price for delivery of gas every day in the following calendar month — for the Henry Hub in December 2021 averaged $3.86/mmBtu. In May 2022, the price was more than twice as high, at $8.16/mmBtu. It averaged over $7/mmBtu in subsequent months, peaking at $9.68/mmBtu on 22 August, the highest since 23 July 2008.

When the 2 Bcf/d (57mn m3/d) Freeport LNG export terminal in Texas went off line in June after a fire, record-high gas consumption kept prices afloat even as domestic supply instantly increased. When the consumption leveled off as cooling demand fell, however, prices began to fall, insulated from the overseas chaos by an absence of LNG export capacity. The price drop accelerated when the US experienced historically low heating demand in January and February, pushing inventories from a deficit to a surplus to the five-year average.

In the two months ended yesterday, the Henry Hub prompt-month price averaged $2.47/mmBtu.

Why volatility could be here to stay

While some of the volatility of recent months has been because of unforeseen events — the war in Ukraine, the fire at Freeport LNG, historically mild weather — much of the volatility to come is expected to arise because of structural uncertainty currently being built into the gas market.

One piece of that uncertainty is what price crude oil and gas will be fetching when LNG export terminals begin coming on line in late 2024 and beyond. For example, if oil prices are low and producers in the Permian respond by pulling back on drilling, that will reduce associated gas production, which could starve LNG terminals. Low gas prices could also reduce production in the Haynesville, which would be hard to make up for in the Marcellus and Utica shales, where pipeline takeaway capacity limits production growth.

If LNG terminals are delayed, prices could plunge as domestic supply races ahead of demand.

"As we add more LNG demand along the Gulf Coast, the timing between LNG facilities, the pipelines to feed them, and the production to meet the new demand all has to be in sync," BTU Analytics analyst Connor McLean told Argus. "If the timing slips for any of those pieces, we are likely to see the market react strongly until the other pieces catch up."

On top of the uncertainty, the steady retirement of coal-fired power plants has reduced the ability of electrical utilities to switch from coal to gas when supplies of one or the other are constrained. And while gas consumption continues to rise, regional opposition to the construction of new pipelines has led to a slowdown in expansions of pipeline capacity.

The increased reliance on gas can make market participants react more strongly to price signals than they would have otherwise.

By Julian Hast

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18/11/24

Cop: Progress on actions to cut emissions uncertain

Baku, 18 November (Argus) — Progress on mitigation — actions to cut greenhouse gas emissions — is uncertain at the UN Cop 29 climate summit, as talks on a specific text related to the issue are at risk to be pushed back to 2025, losing any progress made in the past year. Some countries had proposed using the mitigation work programme — a work stream focused on reducing emissions — to progress the commitment made at Cop 28 in 2023 to "transition away" from fossil fuels. But talks have stalled and could end without a conclusion at the summit. Developed countries as well as developing nations including some small island states and countries in Latin America — such as Brazil, Colombia, Peru, Mexico — have expressed disappointment about how mitigation talks were going. New Zealand called on countries to follow up on last year's decision on mitigation at Cop 28 and Norway added that these issues deserved "more than silence on mitigation". Switzerland complained that mitigation was "held up by a select few", and said that the discussion was critical for increased commitments for next year's 2035 Nationally Determined Contributions (NDCs). NDCs are countries' climate plans that include emissions reduction targets. Cop parties are due to submit new versions by February 2025. The US also said that Cop 29 needed to "reaffirm the historical Global Stocktake decision" taken last year. And developed nations, led by the EU, called for the discussion to continue this week — the second week of Cop 29. But countries including Bolivia, Iran and Saudi Arabia, for the Arab Group, pushed back on this. The mitigation work programme is "not… open to reinterpretation", Saudi Arabia's representative said today. The country said earlier that it did not want new targets to be imposed, complaining about the "top-down approach" taken by developed countries. India reminded developed countries that they have yet to deliver on their new finance commitment — a crucial step for more ambitious NDCs in developing nations. But "Cop 29 cannot and will not be silent on mitigation", the summit's president, Mukhtar Babayev said today. "On mitigation we have been clear that we must make progress, "he said, adding that he has asked ministers from Norway and South Africa to consult on what an outcome on mitigation could look like. EU climate commissioner Wopke Hoekstra today said that it is "imperative that we send a strong signal this week for the next round of NDCs", he said. Points related to mitigation — including transitioning away from fossil fuels and phasing out inefficient fossil fuels subsidies — are currently mentioned in the draft text for the new finance goal, known as the new collective quantified goal (NCQG). It is the key issue at Cop 29. Developed countries agreed to deliver $100bn/yr in climate finance to developing nations over 2020-25, and Cop parties must decide on the next stage — including the amount. Developed countries are likely push for the fossil fuel language to stay in the finance goal text, especially if mitigation talks stall elsewhere. But countries such as Saudi Arabia have long opposed this, while developed countries have received some criticism for still not having given an amount for the new finance target. By Georgia Gratton, Prethika Nair and Caroline Varin Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Cop: G20 momentum key to Cop climate finance outcome

18/11/24

Cop: G20 momentum key to Cop climate finance outcome

Baku, 18 November (Argus) — The outcome of the G20 leaders' summit in Brazil taking place on Monday and Tuesday on climate financing will be key to the success of the UN Cop 29 climate conference in Baku, Azerbaijan, summit president Mukhtar Babayev said today. "We cannot succeed without [the G20], and the world is waiting to hear from them," Babayev said. The leaders' summit takes place at the beginning of the second week of the Cop 29 conference. Progress at Cop 29 last week towards agreeing a new climate finance target for developing countries — the so-called NCQG — was not sufficient, Babayev said. He is concerned that parties are not moving towards each other fast enough. Little progress was made in the first week on three main areas of disagreement: the amount of climate finance which should be provided, how it should be structured, and which countries should contribute. Babayev urged G20 leaders, including US president Joe Biden who will be present in Brazil, to send a "positive signal of commitment to solving the climate crisis," and deliver clear mandates for Cop 29. The talks in Baku move from the technical to the political phase this week. Ministers typically have more authority to move red lines. But parties should focus on wrapping up less contentious issues early in the week so as to leave time for major political decisions, according to Simon Stiell, executive secretary of UN climate body the UNFCCC. Babayev expects talks on the amount of climate financing which will be on the table to continue until the last day of the summit at the end of this week, he said. The Cop presidency has invited former and upcoming Cop hosts the UK and Brazil to advise and "ensure an ambitious and balanced package of negotiated outcomes." Both countries have in the past week communicated more ambitious emissions reduction targets, which have been broadly welcomed. The EU today called for the Cop presidency to step up its role in the process. "We do need a presidency to lead, to steer us in the direction of a safe landing ground," European commissioner for climate action Wopke Hoekstra said. Hoekstra declined to be drawn on the amount of climate financing that the EU would like to see. Developing countries have pushed for a high goal of $1.3 trillion/yr, well above the previous target of $100bn/yr. The EU today reiterated instead its desire for the base of contributor countries to be enlarged beyond the current roster of countries defined as developed under the UNFCCC, and for as much private finance to be mobilised as possible to add to public finance. By Rhys Talbot Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Q&A: Chevron sees global exploration revival

18/11/24

Q&A: Chevron sees global exploration revival

London, 18 November (Argus) — US major Chevron and its peers are taking a more prominent role in global frontier exploration as they push for scale and value in oil and gas output in the face of an uncertain energy transition. Chevron vice-president of global exploration Liz Schwarze spoke to Aydin Calik at the African Energy Week conference in Cape Town, South Africa, earlier this month, Edited highlights follow: How much of a role do you think exploration will play for Chevron and the wider sector in the next 10 years? We believe the future of energy is lower carbon, and we're leveraging our strengths to grow energy delivery to an energy-hungry world. We see oil and gas being part of the energy mix for longer, investing to reduce the carbon intensity of our existing operations. Growing our oil and gas for longer, because it's a declining business — as you produce it, you have to replace it. We replace our resources to underpin our future in three ways. Exploration is one; M&A, buying other companies, is another; and then technology is the third. So think in terms of shale and tight development in the US, with drilling and completions technologies; and the Anchor technology, bringing on the world's first 20k [20,000 lb/inch², ultra-high pressure deepwater] production platform in the Gulf of Mexico. That's technology. It's a new development, but it will help in the long term. For exploration, at Chevron, we invest in exploring in our existing assets — if we can find new oil and gas pools that we can tie into existing infrastructure, it's a win... it comes on faster, creates a lot of value, leverages existing infrastructure — but we're [also] increasing our investment in more frontier areas, where we can build big, material positions at scale, early and if successful, really build new businesses. That's what you see us doing in places we've added acreage recently, like Brazil and Uruguay. We have the block in Namibia, we're going to drill, and we're in Egypt and so forth. So exploration is a very important part of Chevron's future, and because it's a bit of a long-cycle game, yes, for exploration, 10 years is an easy horizon. And do you think things might change in terms of what you're exploring for — more oil, more gas? Oil is relatively straightforward to get to markets, because there's a global market for liquids. If we're going to explore for gas, it'll be in a place that has either an existing market or existing assets to market, for the most part. Sometimes you explore for oil and you find gas. Sometimes search for gas and you find oil — because it's model based particularly in these frontier areas. So, you know, whatever mix we find we have to look at the development scenario for that, so that we can bring as much of that product to market with the highest returns possible for our shareholders. What are the biggest challenges for explorers today? We'll focus on the frontier first. Chevron looks at entering a new country or a new basin for exploration, really looking for four things to be there. First, of course, are the rocks — a compelling hypothesis that there are hydrocarbons at commercial scale. Second is a supportive fiscal environment, with which, upon discovery, you'd have the opportunity to create value for everyone. The third is access — the country has to offer a way for an operator like Chevron to enter, whether that's through a competitive bid round or through a direct negotiation; we'll also do farm-ins to other people's acreage. And regular access. That hypothesis of where hydrocarbons are can change through time. Having regular, predictable opportunities to access acreage is important, and it is sometimes a challenge. Some countries have opportunities for a while, and then they'll take things off the market, and then you don't really have another way to invest, and that creates a challenge. And then the fourth consideration is just the overall welcomeness for us to deliver the work programme that we commit to — functioning governmental organisations, all the way from environmental to operational permitting. Where is the most exciting place to explore at the moment? Are there any new Namibias around the corner? I hope so! Everywhere we enter, we have a story. Sometimes it works and sometimes it doesn't work. But we've got a well drilling in in Egypt now, so west of the Nile in the Herodotus basin — it's called the Khendjer well. So Egypt, we're excited. Namibia, it's the hot story of the past few years. In the Orange basin, we're in PEL90, and that well will start notionally [on a] December timeframe. Think of a big deepwater exploration well. Think of 90 days as an average. [We are] really very keen to see what our block holds. Certainly, high hopes. And then we've added new acreage in Brazil, the South Santos and the Pelotas basin, we signed a block last week in Uruguay. And so, you know, some of that geology is what we call conjugate margin in Namibia. And Angola and Nigeria. There are places in the world that are very successful hydrocarbon provinces that are still under explored and we think have a tremendous potential. And Nigeria deepwater is one. We had a lovely discovery on the Nigeria shelf a few weeks ago — the Meji well. And then we added two blocks in Angola earlier this year, deepwater. I'm getting a sense, not just from Chevron, that exploration around the world is picking up? I think this is true across the board. And one of the reasons that you explore is the idea that there's likely a further advantaged barrel relative to some of the existing discoveries. So there are a lot of stranded discoveries — either cost-prohibitive, geopolitically challenged, any number of issues that prevent some of the really big discoveries around the world from coming to market. From an exploration standpoint, if you are able to discover at scale, develop that and then bring it to market, it will be lower in the supply stack from a breakeven perspective. And lower carbon intensity as well from the get go, and it will find a place in the market. On Namibia, what we have heard from some other operators is high gas content. This might make it more challenging. Have you thought about that? So when we're thinking about entering a new basin, and then when we're thinking about drilling the well, before we make those investments, we're always thinking about what the development scenario might look like. Because we've got to test that development scenario against our range of resource outcomes and test, you know, whether it's going to be economically viable. Or how would we make it economically viable? So for Namibia, we have considered, what would you do at various gas contents? The first, simplest, development is that you bring your production flow to your FPSO, compress the gas and reinject it. You can do that, given the resource volumes at a commercial outcome, Over time, I think it'll be interesting to see if there's a broader-basin scale gas solution that comes to bear, whether that's pipe to shore or LNG. It depends on the GOR [gas-oil ratio] and then it'll depend upon the gas terms that the government provides. In the eastern Mediterranean, is Egypt your main exploration prospect? Our focus is Egypt for exploration. When we go into an area like Egypt, we try to pick something at scale, and then high-grade from there. And so you relinquish the leases that, with additional data, don't look as prospective as the other ones. Right now, our focus is on block four. We're going to drill, and then we're also in [a block] north of that, that someone else operates on our behalf, and we have a minority interest. What about Algeria and its shale potential? To what extent do you think you'll be able exploit those resources? And will you be signing something soon? Chevron has been in conversations with the ministry, upstream regulator Alnaft and Sonatrach since 2020. We signed MOUs, that was in the news. And then the big milestone was 13 June of this year, where we aligned on two areas of interest. And we signed heads of agreement to negotiate Chevron's entry into these two areas of interest. And so that's ongoing now, and that's all I can say about that. We have two areas, one in the Ahnet and one in the Berkine, and seeing if there's a negotiated agreement that would have Chevron enter the country, working with Sontrach to explore and develop those. Algeria is, again, one of these very hydrocarbon-rich countries in Africa. A tremendous gas resource. So we think it's a really strategic opportunity for Chevron, if we can get to a negotiated agreement that's amenable to both parties. You know, significant resources in an existing, vibrant oil and gas sector, access to markets through pipelines and LNG for the gas. And so we believe at Chevron that we can bring our global experience, and in particular our shale and tight expertise to bear in Algeria. To help them explore and ultimately develop. But you think you can do shale development there? Yes. I mean, the first piece would be exploration, right? So, you know, even in shale and tight, the molecules are there, or you're fairly confident the molecules are there. It's just, are the molecules producible at a commercial scale? And so that's always the first phase — you drill some pilots, look at your flow back, then optimise. And we believe everything that we do in the Permian is potentially applicable, especially from a factory perspective, right? And then the challenges are going to be things like supply chain. How much more exploration potential is there left in the Gulf of Mexico? Would you say, is it mature, or is it still much to play for? The Gulf of Mexico tends to reinvent itself. So we still see plenty of potential there. What's going on in the Gulf of Mexico right now are two critical technologies. One is on the geophysics side — ocean bottom node acquisition for exploration, which is giving us much better images of very complicated geology. That's a critical technology evolution. And we believe that that will help discern between prospects — point the way of where not to drill, and where maybe to drill. And then the other one is, of course, the Anchor platform, which is the world's first 20k. We are currently the only operator in the world that's operating a 20k field, and so I don't know where that technology would be applicable globally yet. But you know what we see? You've got to build the technology, you put it on production, and then you realise, oh, okay, now I can use this to really unlock some other areas. Still pretty, pretty excited about the Gulf of Mexico. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Hong Kong unveils green maritime fuel action plan

18/11/24

Hong Kong unveils green maritime fuel action plan

Shanghai, 18 November (Argus) — The Hong Kong special administrative region government unveiled a green maritime fuel action plan on 15 November, aimed at making the region a top-tier centre for green fuel bunkering and reducing carbon emissions from the port of Hong Kong. According to the Action Plan on Green Maritime Fuel Bunkering, Hong Kong aims to curb carbon emissions in line with the International Maritime Organization (IMO), which targets 20% emissions reduction in international shipping by 2030 and a 70% reduction by 2040, compared with 2008 levels, before achieving net-zero emissions by or around 2050. The plan also targets to reduce carbon emissions from Hong Kong-registered ships by at least 11pc, compared with 2019 levels, and have 55pc of diesel-fuelled vessels in the government fleet switch to green maritime fuels by 2026. Hong Kong will target lower carbon emissions from the Kwai Tsing Container Terminals by 30pc, compared with 2021, and ensure that 7pc of its registered ships use green maritime fuels by 2030. Separately, the plan outlines that Hong Kong will have completed the development of the Code of Practice (CoP) on liquefied natural gas (LNG) and green methanol bunkering by 2025. The government will also invite industry expressions of interest by end-2025 for the conversion of a land parcel near the port in Tsing Yi South for green maritime fuel storage. Hong Kong is expected to achieve an annual sale of over 200,000t of green marine fuels by 2030, with over 60 LNG or green methanol bunkering services for ocean-going vessels a year, according to the plan. Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

India cuts allocation to city gas firms again

18/11/24

India cuts allocation to city gas firms again

Delhi, 18 November (Argus) — The Indian government has reduced the domestic gas allocation to the city gas distribution sector by state-run distributor Gail, effective from 17 November. This is the second cut after they first slashed allocation by 20pc, or 4mn-5mn m³/d , last month. The cut for Delhi-based city gas entity Indraprastha Gas is a reduction of 20pc, for Mumbai-based Mahanagar Gas it is 18pc, and for privately owned Adani Total Gas it is 13pc, the firms' stock exchange filings stated over the weekend. The move would reduce the overall share of domestic gas allocation to city gas distributing companies to 30-37pc from 50pc last month and 70pc at the beginning of the year. City gas firms had received priority status for gas allotment over the past two years. "It is uncertain what could have re-instigated this cut, but this may translate into 6.5mn-7mn m³/d based on the different growth rates of city gas firms," Moody's affiliate ICRA senior vice-president Prashant Vashisht told Argus . City gas entities are mulling a hike in CNG rates and are heard to be in talks with the government over the policy changes. The government is yet to formally announce a statement over the cuts and is heard to be asking retailers to give a cost break-up to justify the hike, sources say. These cuts are mainly aimed at compressed natural gas (CNG) supply that has been receiving domestic gas allocation at a fixed price by the government of $6.5/mn btu under New Delhi's pricing mechanism — almost half the price that firms would pay for spot LNG. City gas firms are discussing the possibility of increasing CNG prices by Rs5-5.5/kg by the end of the year to preserve their margins. This would represent a 7pc increase compared with the average CNG price of Rs75.1/kg ($0.88/kg) against Rs94.77/litre of petrol in New Delhi. But the price hike may reduce CNG's competitiveness, hampering further development of the sector and limiting LNG demand growth. CNG vehicles have rapidly expanded their share of the Indian fleet, accounting for 14pc of all four-wheelers at present, up from 8pc three years earlier, data from the government's Vahan website show. The reduction in allocation is linked to reduced supply from conventional gas fields run by state-controlled upstream companies such as ONGC and Oil India. The sector received 27.8mn m³/d of domestic gas over April-September, including about 5mn m³/d of higher-priced supply from high-pressure, high-temperature fields, oil ministry data show. Allocation to the sector was largely unchanged during the same time last year. To bridge this shortfall, city gas firms are exploring options of sourcing gas through LNG , domestically produced high-pressure and high-temperature gas, production from ONGC's new wells, and long-term gas contracts. By Rituparna Ghosh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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