Viewpoint: US gas output set to outstrip export gains

: Natural gas
21/12/22

US natural gas production this winter will likely outstrip increases in LNG exports, reversing a trend that led to higher prices in 2021.

US LNG exports, a key driver of the rally in Nymex gas prices over the past year, are expected to increase further this winter because of additional liquefaction capacity along the Gulf coast and as service begins at the 1.6 Bcf/d (45mn m³/d) Calcasieu Pass terminal in Louisiana.

Capacity at Cheniere Energy's Sabine Pass export terminal in Louisiana will rise to about 4.6 Bcf/d through facility modifications and as train 6 reaches full service, according to the US Energy Information Administration (EIA). Federal regulators also authorized Cheniere to boost output from Corpus Christi LNG by 14pc, lifting capacity there to 2.4 Bcf/d. The first LNG cargo from train 6 at Sabine Pass and the first LNG from Calcasieu Pass are expected before the end of this year.

At the same time, US gas production is projected to rise, potentially reaching a record high by the end of 2022 and surpassing the peak reached ahead of the Covid-19 pandemic, the EIA said. Those competing factors could reshape the market in the coming months by allowing supply to catch up with demand and put downward pressure on prices.

"While increased exports will boost demand, we expect 2022 supply to meet the call," according to a research report from Bank of America. Rising gas production and the addition of more gas to storage this fall "has helped dampen some of the more extreme bullish scenarios" for gas prices, the analysts noted.

Stocks built on mild fall, winter

Mild weather during the so-called shoulder months of September and October and at the start of heating season led to large seasonal injections, while above-normal temperatures in November curbed withdrawals early in the heating season. Inventories still started the winter at lower-than-average levels but were far higher than many had expected.

In addition, gas output has started to grow more rapidly on higher oil and gas prices. US dry-gas output, which excludes volumes lost in production and processing, is forecast to average 95.3 Bcf/d from December through March 2022, or 4.4 Bcf/d higher than a year earlier. That production gain should more than offset the projected 1.8 Bcf year-over-year increase in LNG exports.

For the rest of the winter heating season, which ends in March, the US will probably export about 11.1 Bcf/d as LNG, according to the EIA.

LNG exports skyrocketed over the summer — reaching an average of 9.5 Bcf/d, up by 6.4 Bcf/d from a year earlier and outstripping year-over-year production growth of 4.3 Bcf/d. That sharp increase in demand helped propel Nymex prompt-month prices above $6/mmBtu in October, the highest in more than a decade. Prices may not revisit those highs anytime soon.

Bank of America said it expects US gas prices next year to average $3.45/mmBtu as this year's higher energy prices accelerate production growth. The EIA projected that prices would fall from an average of $4.58/mmBtu from December to February to $3.98/mmBtu next year on slower export growth and rising gas production.

By Jason Womack

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24/11/04

Oil services upturn takes a pause for breath

New York, 4 November (Argus) — The boom in demand for oil field services is showing signs of wavering in the short term as international customers signal greater caution around spending and the outlook for US shale remains challenged. Upstream spending growth in the North American onshore market is expected to be flat in 2025, with low natural gas prices, drilling efficiencies and further consolidation among producers in the shale patch all exerting downward pressure. Given a mixed international outlook, one bright spot will be offshore markets, and deepwater in particular, according to investment management firm Evercore ISI. "The solid growth years of 2023 and 2024 are over as the cycle resets," senior managing director James West says. "We view 2025 as an aberration in a long-term, albeit slower, growth cycle." In the near term, the sector's attention will be focused on spending plans by top producers including state-run Saudi Aramco and Brazil's Petrobras, as well as any signs of a potential recovery in Chinese oil demand given the government's latest stimulus efforts to kick-start growth. The sector has had to contend with more than $200bn of shale mergers and acquisitions over the past year, which has shrunk the pool of available customers, and led to oil field services providers beginning their own round of consolidation. Moreover, with capital discipline remaining the rallying cry, significant productivity gains have enabled producers to do more with less. Its immediate challenges were put into stark contrast this week by oil's renewed plunge, this time on the back of Israel's decision to spare Iran's energy infrastructure from retaliatory strikes. SLB, the biggest oil field services contractor, has attributed recent price volatility to concerns over an oversupplied market owing to higher output from non-Opec producers, as well as questions over when the cartel will return barrels to the market and weak economic growth. That spurred some customers to adopt a "cautionary approach" when it came to activity and spending in the third quarter. Gas to the rescue But SLB remains upbeat over the long-term outlook, given the current emphasis on energy security, a key role for natural gas in the energy transition, and expectations that oil will remain a "large part" of the energy mix for decades to come. Gas investment remains robust in international markets, particularly in Asia, the Middle East and the North Sea. "While short-cycle oil investments have been more challenged, long-cycle deepwater projects globally and most capacity expansion projects in the Middle East remain economically and strategically favourable," SLB chief executive Olivier Le Peuch says. Exploration successes in frontier regions from Namibia to Suriname are also unlocking vast reserves that only serve to bolster confidence in the offshore market. Global offshore investment decisions will approach $100bn this year and in the next 2-3 years, adding up to more than $500bn for 2023-26, according to Le Peuch, representing a "growth engine for the industry going forward". Meanwhile, Baker Hughes expects to capitalise on a growing market for gas infrastructure equipment. The company forecasts natural gas demand will grow by almost 20pc by 2040, with global LNG demand increasing at a faster rate of 75pc. "This is the age of gas," chief executive Lorenzo Simonelli says. The top services firms see limited short-term growth prospects for North America, with the exception of the Gulf of Mexico. Hydraulic fracturing services provider Liberty Energy plans a temporary reduction in its fleet in response to slower customer activity and market pressures. And SLB says any potential pick-up in gas rigs could be offset by a further decline in oil rigs owing to efficiencies. By Stephen Cunningham Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Mexican hydrogen regulatory efforts gain ground

24/11/01

Mexican hydrogen regulatory efforts gain ground

Mexico City, 1 November (Argus) — The Mexican hydrogen association (AMH2) has made significant strides in recent discussions with regulators and officials, unveiling a comprehensive roadmap for industrial hydrogen adoption. The group's report estimates there will be demand for about 392,189 tonnes (t) of hydrogen per year across seven major industries during Mexico's pilot hydrogen development phase. This includes sector-specific hydrogen demands of 148,350 t/yr from oil refining through 10 potential applications; 107,325 t/yr for mining; 55,877 t/yr for hydrogen blending in natural gas; 23,932 t/yr in the metals industry; 35,040 t/yr tied to ammonia production; 15,265 t/yr for public transport; and 6,400 t/yr for methanol production. AMH2's strategy urges the administration of President Claudia Sheinbaum to designate a lead ministry for hydrogen development, prioritize green hydrogen production and introduce incentives for project financing, technology development and energy transition initiatives. Additionally, it calls for regulatory adaptations to facilitate hydrogen's integration into Mexico's natural gas infrastructure, including quality, transportation, distribution and safety standards, especially for industrial equipment. Legal reforms to support hydrogen development will also be needed, according to the report, targeting laws governing mining, water, hydrocarbons, nuclear energy, energy transition, environmental protection, electric power, bioenergy and geothermal power. For green hydrogen — generated with renewable energy — the focus would be on the latter five areas. These efforts align with Mexico's long-term energy plan (Prodesen 2023-2037), which envisions converting 12 combined cycle power plants, totaling 1.024GW, to operate on a 70pc natural gas and 30pc hydrogen blend between 2033 and 2036. AMH2 president Israel Hurtado said although Mexico's pipeline infrastructure could handle up to a 15pc green hydrogen blend, achieving a 30pc blend would require further technological advances expected over the next decade. Prodesen also identifies regions for hydrogen injection into pipeline networks, including Sonora, Sinaloa, Tamaulipas, Oaxaca, Veracruz, Baja California and the Yucatan peninsula. Yet new regulations will be crucial to establish a robust framework for hydrogen blending in existing infrastructure. The Sheinbaum's administration has committed to reducing carbon emissions and promoting clean energy, Hurtado said, with a $13.5bn investment pledge in renewables over six years and a target for 45pc of national power from renewables by 2030. AMH2 has built early connections with Sheinbaum's team, including Jorge Islas, her energy and climate advisor during the campaign, who now heads the energy ministry's (Sener) energy transition unit and supports green hydrogen initiatives. AMH2 leaders also recently met with energy regulator (CRE) president Leopoldo Melchi and commissioner Walter Jimenez, who expressed strong interest in hydrogen regulation. The association and CRE agreed to form a technical workgroup to develop clean hydrogen regulations collaboratively. Looking ahead, AMH2 plans to meet with energy minister Luz Elena Gonzalez and Mexico's economy ministry to further discuss the hydrogen strategy. But CRE's workgroup is on hold pending potential legislative reforms that could reorganize Mexico's energy regulators under Sener's supervision. Projects in development AMH2 has identified 16 hydrogen projects in Mexico, with eight in various development stages and eight announced. Primarily focused on green hydrogen, these projects represent an estimated $19bn investment. The largest, Helax, is a $10bn green hydrogen production facility in Oaxaca, connected to the Interoceanic Trans-Isthmus Corridor. AMH2 anticipates production to start within two years following initial permitting. The roadmap suggests that, even if only six projects are operational by 2030, the sector could generate 3.351GW and attract $1.8bn in investments. These projects are projected to bring in $2.5bn in revenue over six years and yield $1.9bn in tax contributions. By James Young Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US job growth slumps in October, jobless rate at 4.1pc

24/11/01

US job growth slumps in October, jobless rate at 4.1pc

Houston, 1 November (Argus) — The US added only 12,000 nonfarm jobs in October, reflecting the impacts of two hurricanes, a strike at aircraft manufacturer Boeing and a slowing trend in hiring prompted by high borrowing costs. The unemployment rate remained unchanged at 4.1pc, still close to a five-decade low of 3.4pc reached in early 2023, the Labor Department reported today. Last month's gains were far fewer than the 113,000 forecast by analysts surveyed by Trading Economics. Job gains for the prior two months were revised down by a combined 112,000 jobs, leaving September with a still robust 233,000 and August with 78,000 jobs. A Labor Department report earlier this week showed job openings in September were at their lowest since January 2021. Still, job gains for the 12 months through October averaged 194,000, a little higher than the 12-month period before Covid-19 struck the US beginning in early 2020, causing millions of job losses and a sharp but short recession. Today's employment report, the last before next week's US presidential election, cements odds of a quarter point cut in the Federal Reserve's target rate next week to nearly 100pc from about 96pc Thursday, according to CME's FedWatch tool. The Fed cut its rate by half a point in late September, the first cut since 2020, as it is just beginning to loosen monetary policy after the sharpest tightening in decades to battle surging price gains. Inflation has since moved close to its 2pc target and job gains have gradually slowed, even as the economy remains robust, growing by nearly 3pc in the second and third quarters of the year. Hurricane Helene made landfall in northern Florida in late September and slammed northwards into Georgia, the Carolinas and Virginia, leaving major damage in its wake. Hurricane Milton struck Florida on 9 October, within the period of both surveys used for the job report. About 32,000 unionized workers at Boeing have been on strike since early September. Job growth trended up in government and in health care and social services, which added 40,000 and 51,000, respectively, while manufacturing declined by 46,000, partly due to strikes. Construction added 8,000 jobs. Average hourly earnings edged up to an annual 4pc from 3.9pc. By Bob Willis Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

US court set to weigh biofuel blend mandates

24/10/31

US court set to weigh biofuel blend mandates

New York, 31 October (Argus) — A US court on Friday will weigh some novel issues that could affect enforcement of the Renewable Fuel Standard (RFS), the federal program that sets minimum biofuel blending levels for domestic motor fuel supplies. The Environmental Protection Agency (EPA) in last year's RFS regulation required refiners and importers to blend increasing volumes of renewable fuel from 2023-2025. But the rule differed from past obligations in a crucial way. While the RFS law set annual volume targets of cellulosic, advanced and conventional biofuels through 2022, it tasked EPA with setting volumes in subsequent years by balancing factors such as the environmental impacts of biofuels, energy security, expected production and consumer costs. In a consolidated case to be heard Friday by the US Court of Appeals for the District of Columbia Circuit, environmental groups and oil refiners are separately challenging aspects of how the EPA applied those factors in setting 2023-25 volumes. The court has previously affirmed the legality of many RFS rules. "Past cases always give you some perspective on how the DC court might see it," said Susan Lafferty, a partner at law firm Holland & Knight. "But the DC court could also say, ‘not relevant anymore because this is a different part of the statute that we are working with.'" Refiners say EPA misapplied the criteria, upping compliance costs more than necessary by setting targets for cellulosic and conventional biofuels too high and targets for advanced biofuels too low. They also challenge EPA's balancing of potential impacts, noting that the agency assumed that all parties can easily pass the costs of compliance on to consumers. In a separate case this year, the DC Circuit discarded EPA rejections of program waiver petitions, in part because judges disagreed that refiners can easily pass on the cost of Renewable Identification Number (RIN) credits used to show compliance with the RFS program. EPA used this pass-through theory in the 2023-2025 rule "like a magic wand, waving it around to dismiss any argument that the rule will cause harm", the American Fuel and Petrochemical Manufacturers and small refineries said in a case filing. Lafferty expects the judges at Friday's hearing to probe the extent to which EPA's volumes relied on this pass-through theory, "a policy that now this very court has gutted." Environmentalists have similarly targeted EPA's cost analysis, arguing that the agency downplayed the environmental drawbacks of growing crops for energy. The Center for Biological Diversity and the National Wildlife Federation argue that EPA has legal discretion to set post-2022 volumes for corn- and soybean-derived biofuels as low as zero. EPA counters that the court owes the agency deference in evaluating scientific data and making predictive judgments. And biofuel groups that have intervened argue that the program is designed to require more biofuel production even if there are no formal volume requirements in law anymore. While EPA's post-2022 authority to set blend mandates is a new issue, the DC Circuit has handled various cases about EPA's implementation and has generally been deferential to the agency's volume decisions. The court this year upheld 2020-2022 targets. In a 2019 decision, the court kept volumes in place , despite telling EPA to more deeply weigh endangered species impacts. While the court might take issue with some aspects of EPA's latest rule, including the agency's lateness in finalizing volumes, judges could again be reluctant to upend fuel markets if they find only small oversights. Depending on how skeptical judges appear about EPA's arguments on Friday, the case could cause concern for biorefineries. A decision is expected next year, meaning any order for EPA to better justify its decisions or go back to the drawing board would likely fall to the next president's administration. On the panel for Friday's hearing are two judges familiar with the program: Democratic appointee Cornelia Pillard, who wrote the opinion this year upholding 2020-2022 blend mandates, and Republican appointee Gregory Katsas, who dissented and said those volumes were excessive. The third judge on the panel is Democratic appointee J. Michelle Childs. RINcrease or decrease RIN market activity has thinned as participants await the results of the court case and November's presidential election. In its latest rule, EPA aimed to provide a clearer picture over a longer timeline by finalizing volumes over multiple years. But the agency underestimated the growth in renewable diesel production, partly because of unexpectedly high feedstock imports. The result has been persistent oversupply, which took D4 biomass-based diesel credit prices from around 150¢/RIN in spring last year to as low as 42¢/RIN a year later according to Argus assessments. Multiple refiners have consequently dialed back biofuel production. In the past, RIN prices have proven sensitive to legal developments as traders anticipate supply and demand shifts. Prices softened this summer after the DC Circuit vacated small refinery waivers, leaving it unclear whether many facilities would have to buy RIN credits at all. By Cole Martin and Matthew Cope Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

Investment funds’ net long position on Ice TTF jumps

24/10/31

Investment funds’ net long position on Ice TTF jumps

London, 31 October (Argus) — Investment funds' net long position on the Intercontinental Exchange (Ice) TTF jumped by nearly 34TWh on 18-25 October, a week in which the Argus ' TTF front-month price rose by 11pc. The net long position had reached a record high of more than 268TWh in the week ending 30 August , revised data show, before a significant reduction to a recent low of 192TWh by 20 September. Investment funds' net position then remained roughly unchanged over the following weeks. But there was a sharp increase to nearly 236TWh in the week ending 25 October, according to Ice's latest data ( see graph ). This was driven by a 36TWh increase in long positions that was only partly offset by a 2TWh increase in shorts. TTF prices across the curve rose significantly that week, with the Argus TTF front-month contract up by 11pc and similarly large moves for the first-quarter 2025 and summer 2025 contracts. The calendar 2025 price was also up by 9pc ( see table ). Increased geopolitical risks caused by rising tensions in the Middle East may have encouraged investment firms to boost their net long positions over that week, as Israel prepared for a retaliatory strike on Iran that came on 26 October . There was also a switch to net storage withdrawals across the EU on 22-25 October as a result of colder weather, which boosted demand and drew down stocks. Europe's gas market has lost some of its flexibility in recent years, following the loss of most Russian pipeline gas and the resulting higher reliance on LNG, which takes much longer to be physically delivered. This has increased price volatility, as small changes to the gas balance such as minor production constraints in Norway or brief cold snaps are no longer able to be quickly compensated for, which can then drive large price swings. Investment funds, which make most of their money on volatility in the market, amplify these price movements, contributing to the frequent sudden price spikes as fundamentals change. Such a large net long position suggests investment funds expect a tight European gas balance this winter. Record-low freight rates have brought the cost of shipping US LNG to Asia closer to the cost of the shorter US-Europe route, meaning European prices have to rise sufficiently high enough to offset this and close the inter-basin arbitrage again in order to attract uncommitted cargoes. At the same time, Egypt — which became a net LNG importer in May — bought 20 LNG cargoes last month and could seek a similar number of cargoes in the first quarter of next year, further tightening the availability of LNG imports in Europe. Market participants are also concerned about a potential delay to the commissioning of the 27.2mn t/yr Plaquemines terminal in Louisiana, although there has yet to be any confirmation of a change to the timeline. The facility is scheduled to start exports by the end of this year, developer Venture Global said earlier this month. Unlike investment funds, the other two major categories of market participants on Ice — commercial undertakings and investment/credit firms — boosted their net short positions by a combined 33TWh, nearly fully offsetting the net long increase from investment funds. Commercial undertakings, defined as companies with retail portfolios, raised their long and short positions in risk reduction contracts, with longs growing by about 8TWh and shorts by a larger 20TWh. Commercial undertakings' gross short position was nearly 746TWh on 25 October, the highest of any date since December 2021, as firms looked to hedge a significant physical long position of gas in storage. EU storage sites were more than 95pc full as of the morning of 30 October, below 99pc on the same date last year but still well above the 2019-21 average of 90pc. But their net short position is still 163TWh, below the three-year high of nearly 182TWh on 30 August. By Brendan A'Hearn Argus TTF prices, 18-25 Oct €/MWh TTF Nov TTF Dec TTF Q125 TTF Sum 25 TTF Win 25 TTF Cal 25 TTF Cal 26 18-Oct 39.16 39.60 39.91 37.97 38.70 38.60 34.05 25-Oct 43.47 43.69 43.77 41.36 41.51 41.98 35.91 % change 11.0 10.3 9.7 8.9 7.3 8.8 5.5 — Argus Net positions on ICE TTF TWh Send comments and request more information at feedback@argusmedia.com Copyright © 2024. Argus Media group . All rights reserved.

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