Could NBP prompt mirror TRS volatility?

Developments at France’s smaller TRS gas hub this winter have provided some good parallels with the UK’s NBP, one of Europe’s most liquid markets.

The TRS was — in my view — Europe’s most exciting market, with prices responding well to the fundamental drivers of supply and demand. It also delivered some interesting examples of how European hub pricing might operate as global LNG supply increases, along with the potential for more volatility in prompt prices.

Continue reading

Is the LNG market oversupplied or not?

Shell gave its outlook for the LNG market during a media briefing yesterday. Afterwards, a number of news reports emerged saying that Shell predicted no oversupply in the LNG market.

I nearly choked on my coffee.  What are they talking about?

Well, we listened to Shell’s comments again.  It seems like the company said something more nuanced.

“In 2016, we didn’t see an oversupply… for the rest of the decade we expect strong supply growth but also strong demand growth and to the extent that there’s an imbalance between the two, we believe Europe can easily absorb those volumes,” Shell gas marketing and trading executive Steve Hill said.

So is the LNG market oversupplied?  Perhaps it depends on the definition of oversupply.

It is true that all LNG produced in 2016 found a home.  But that is true every year because of the way expensive liquefaction projects are financed and because regasification capacity is underutilised. Even if the LNG price is below the breakeven price, it is still better to claw back some of the investment than to shut down the export facility.  And because liquefaction facilities are so expensive to build — or were built so many years ago that the project has been paid off, or makes all its money from associated condensates anyway — they are never shut down because of low LNG prices.  Continue reading

Ukraine’s lack of perspective

Ukraine needs foreign investment, particularly in the energy sector – this mantra is repeated time and again by the authorities. Proven natural gas reserves of more than 1 trillion m³ and government plans to boost gas production to 27bn m³/yr in 2020 from the current 19.9bn m³/yr should draw the eye of investors. The obstacle is decisions made this week in parliament that militate against a healthy investment environment in the sector.

Parliament’s tax committee rejected a draft law to decrease subsoil taxes for gas producers for new wells to 12pc from a current 28pc of the price of gas sold. The decision was a bitter blow to gas producers who lobbied for the new tax rates over several months. “We failed to prove for foreign investors that Ukraine is a good place to invest in gas production and we are left on the world map as a country with one of the highest tax rates for gas production”, said head of Ukraine’s association of gas producers Daniel Maydanik. The tax committee argument that there might be a loss of state revenues was weak, given that producers asked for low rates only for future wells. Besides, the committee approved a drop in tax rates for crude production that will lop 2bn-3bn hryvnia ($76.5mn-$114.8mn) off the 2017 budget.  Continue reading