Cheap energy masks downturn (part 3)

Indian firms looking to activate agreement to import LNG from Iran

India wants to activate a shelved decade-old agreement to import LNG from Iran as the Islamic regime prepares to be freed of international trade sanctions following recent breakthrough talks with six world powers over its nuclear energy programme.

Petroleum Minister Dharmendra Pradhan told India’s Parliament that state owned gas utility GAIL has initiated talks with Iran to revive the agreement that it and two other Indian firms signed with National Iranian Gas Export Company (NIGEC) in June 2005. GAIL had agreed to import 2 million tpy of LNG, while Indian Oil Corp (IOC) signed for 1.75 million t, and Bharat Petroleum Corp wanted 1.25 million t.

The deal was never implemented, possibly because Iran may have suffered seller’s remorse in agreeing to a very low term price of US$3.215 per million BTU.Even at today’s low oil and gas prices after the 60% collapse over the past year, that term price would be considered cheap and uneconomic as Japan is paying about US$7.50 - 8 per million BTU for its LNG imports.

GAIL said Iran has yet to respond to its request to implement the agreement that would require Iran to make a substantial investment to develop a gas liquefaction terminal and marine facilities at Chabahar port on the Gulf of Oman.

The two countries signed an agreement in 2003 to develop the port that would enable India to conduct trade with Iran without going through Pakistan. India has plans to help Iran develop Chabahar into a major free trade zone to facilitate its trade with Central Asia and the Middle East.

Indian Foreign Secretary S. Jaishankar, who recently visited Iran to boost bilateral energy and security co-operation, described Iran as offering his country an alternative route to Central Asia.

With the global economy slowing down, India is eager to revive trade with Iran to drive its own long-term growth. Iran holds large easily accessible oil and gas reserves that will help India meet its projected one-third increase in natural gas demand over the next three years.

Australia may miss out on AUS$55 billion worth of LNG windfall

“Having done the hard part of attracting AUS$250 billion worth of LNG investments, Australia may yet miss out on AUS$55 billion worth of benefits when a wave of new plants starts up over the next few years,” said consulting firm Accenture (US$1 = AUS$1.4).

In a report, the firm said the country’s LNG sector lacks competitiveness against international rivals as it faces tough “regulatory constraints”, an overpaid workforce, inflexible labour relations, and costly tendering and contracting processes.

For Australia to derive the benefits from having ‘the world’s largest and most technologically advanced’ LNG industry, Accenture said the country needs to “improve international competitiveness, remove regulatory constraints and introduce a more flexible labour relations regime.”

The report analyses the readiness of the LNG industry to capitalise on future opportunities as it moves from construction into production.

In May, Australia launched commercial operations at the world’s first plant to convert coalbed methane (CBM) to LNG after over a year of start-up delay.The Queensland Curtis LNG (QCLNG) plant on Curtis Island near Gladstone was officially dedicated on 15 May at a ceremony attended by the state’s Premier, Annastacia Palaszczuk, and Federal Industry and Science Minister, Ian Macfarlane. Equally owned by UK’s BG Group and China National Offshore Oil Corp (CNOOC), QCLNG started up one of its two 8.5 million tpy trains last December and has since shipped 16 cargoes while undergoing commissioning and performance testing by builder Bechtel Australia Pty Limited.

The US$20.4 billion project comprises the liquefaction trains that draw natural gas through a 540 km pipeline from the coalbed methane reserves of the onshore Surat Basin in southern Queensland. The second train is due to start up in 3Q, more than five years after the company began constructing the project.

Apart from being a shareholder, CNOOC is also a foundation customer with a 20 year contract to purchase an annual 3.6 million t of the fuel. Along with QCLNG, two other major LNG projects in Australia will also face start-up delays.The US$34 billion Ichthys project in Northern Territory and Chevron’s US$29 billion Wheatstone project in Western Australia are both expected to be delayed by several months.

Japan’s Inpex Corp may have to wait until 2017 to start its onshore Ichthys terminal due to the delays in the production of a vital offshore platform at South Korea’s Samsung Heavy Industries shipyard.

As a result of cost overruns, delays, and recent tight labour conditions, consulting firm Wood Mackenzie has trimmed as much as 11 million t of production from its earlier forecast of Australia’s LNG output for the 2015 - 2019 period.

“The next wave of LNG from Australia will start in 2017 and be exposed to a different economic climate, labour market and changing cost environment than the first tranche of projects,” the report stated. Australia has attracted a total of US$180 billion worth of LNG investments for start-up in the second half of the decade.

Malaysia’s Petronas faces possible negative cash flow in 2015

After announcing a 47.3% plunge in the company’s 2Q profit, the CEO and President of Malaysia’s state-owned energy firm Petronas said he expects to tap into its cash reserves this year to help pay for operating expenses, capital investments, and dividends to the government.

Wan Zulkiflee Wan Ariffin said sharply lower oil and gas prices and sales sent net profit falling to RM11.1 billion in the April - June quarter from RM21.06 billion the same quarter last year. Revenue was off nearly 27% from RM86.36 billion - RM63.1 billion (US$1 = RM4.15).

While promising to continue its RM26 billion dividend payment to the cash-strapped Malaysian government, Wan Zulkiflee said Petronas will “persevere with more austerity measures” to maintain profitability at the company, which provides as much as 45% of the state budget.

In February, Petronas announced plans to reduce this year’s capital expenditure by 15% and dividend payment by around 10%. The Malaysian economy badly needs Petronas’s cash as domestic political instability and reduced energy earnings have caused the ringgit to plunge by more than 35% to a 17 year low of 4.35 against the US dollar over the past year.

Find part 1 and 2 here.

Written by World Pipelines’ correspondent Ng Weng Hoong, and edited from a published article by Stephanie Roker

To read the full version of this article, please download a copy of the November 2015 issue of World Pipelines.

Read the article online at: https://www.worldpipelines.com/special-reports/29122015/cheap-energy-masks-downturn-part-3/