Page 9 - AsianOil Week 32
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Japanese utilities respond to low LNG spot prices
PROJECTS & COMPANIES
JAPANESE utilities are becoming more aggressive in their price reviews for long-term LNG contracts owing to a decline in spot market prices for the fuel, which have fallen to three-year lows.
Citing lawyers and analysts that have com- mented on this trend, Reuters reported that these utilities were also seeking to buy more LNG on the spot market, where LNG-AS prices are around half the average contract import price.
Japan is the world’s biggest buyer of LNG and buyers from the country have tradition- ally prioritised stability of supply over price, which is attributed largely to the fact that they could pass the cost on to consumers. How- ever, liberalisation in Japanese markets means utilities risk losing customers to new entrants unless they cut costs.
“Given the gas and power markets liberalisa- tion and intensifying domestic competition in Japan, it is very important for Japanese utilities to achieve competitive LNG prices, so price review negotiations are becoming more intense,” Wood Mackenzie’s head of gas and LNG consulting for Asia-Paci c, anasis Ko nakos, was reported as saying.
Indeed, reports have emerged that Japan’s Osaka Gas is in arbitration with ExxonMobil
a er failing to obtain a reduction in prices from the PNG LNG project in Papua New Guinea during a price review.
is is reportedly the second price arbitration in Asia, a er Woodside Energy’s North West Shelf LNG project in Australia started proceed- ings against South Korea’s Korea Gas (KOGAS) in 2018.
And more contract reviews could go into arbitration, especially if Japanese buyers continue to take a tougher line in negotiations. However, Reuters cited one anonymous gas executive with experience of LNG projects and price reviews as saying that even if Osaka Gas succeeds in having prices reduced, they are unlikely to be more than 5% below the agreed contract price.
With arbitration being a costly and risky move, it is unsurprising that a number of util- ities are turning to the spot market instead. ose seeking to take advantage of cheaper spot prices include Tokyo Gas, Hokkaido Elec- tric Power, Tohoku Electric Power, Kyushu Electric Power and Hokuriku Electric Power. But given that most of these utilities’ supply comes from binding long-term contracts, they are also limited in the number of spot cargoes they can currently buy.
PDVSA, CNPC expand Sinovensa production
PROJECTS & COMPANIES
SINOVENSA, a joint venture between Vene- zuela’s state-owned PDVSA and China National Petroleum Corp. (CNPC), is taking steps to increase output levels signi cantly.
Venezuelan President Nicolas Maduro said on August 8 that Sinovensa had begun work on an expansion project designed to bring its pro- duction capacity up to 165,000 barrels per day. is represents a 50% increase, since the joint venture is currently turning out 110,000 bpd of blended crude oil.
Maduro did not say how quickly Sinovensa expected to reach the target of 165,000 bpd. He did remark, though, that his government appre- ciated the willingness of CNPC and Beijing to broaden ties with PDVSA. “ anks always to China, for all this e ort and all of this co-opera- tion,” he said during a televised appearance with Chinese government o cials.
Later on August 8, PDVSA issued a state- ment saying that Sinovensa would implement the expansion project in two stages. In the sec- ond stage, it noted, the joint venture will push
production capacity up again to 230,000 bpd. is would represent an increase of nearly 40% over rst-stage capacity and is about 109% above current capacity.
PDVSA subsidiary Venezuelan Petroleum Corp. (CVP) set up the Sinovensa joint venture with CNPC in 2001 with funding from China Development Bank (CDB). e Chinese com- pany originally owned a 37.5% stake in the pro- ject, but its equity holdings have risen over the years. In September 2018, PDVSA agreed to transfer another 9.9% to CNPC, thereby reduc- ing its own stake to 50.1% and bringing the lat- ter’s participation up to 49.9%.
Sinovensa extracts extra-heavy Orinoco crude and then blends it with lighter feedstock to produce a blended medium-weight grade known as Merey. Venezuelan blends are popular in China and other Asian countries, and Madu- ro’s administration has been trying to increase sales to Asian customers since the US govern- ment’s imposition of stricter sanctions earlier this year.
Week 32 14•August•2019 w w w . N E W S B A S E . c o m P9
