Page 7 - AsiaElec Week 32

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Japanese utilities respond to low LNG spot prices
JAPAN
JAPANESE utilities are becoming more aggres- sive 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 commented on this trend, Reuters reported that these utilities were also seeking to buy more LNG on the spot market, where LNG prices are around half the average contract import price.
Japan is the world’s biggest buyer of LNG and buyers from the country have traditionally pri- oritised stability of supply over price, which is attributed largely to the fact that they could pass the cost on to consumers.
However, 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 KOGAS in 2018.
And more contract reviews could go into arbitration, especially if Japanese buyers con- tinue 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 utili- ties are turning to the spot market instead. ose seeking to take advantage of cheaper spot prices include Tokyo Gas, Hokkaido Electric 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.™
NZ’s Kupe gas field begins to decline
NEW ZEALAND
NEW Zealand’s fourth largest natural gas eld, Kupe, has started to decline and will continue doing so until a still-to-be approved compres- sion project is brought online, a junior partner in the project has revealed.
Genesis Energy said on August 2 that record production in recent years was behind the o - shore eld’s decline, but noted that dwindling output was in line with reservoir modelling. e eld produced 23.2 petajoules (604.33mn cubic metres) in the nancial year 2018-2019, accord- ing to operator Beach Energy. e project also delivered 1mn barrels of oil.
Beach has a 50% stake in the eld which lies in the Taranaki Basin. Genesis owns 46% and New Zealand Oil & Gas (NZOG) holds the remaining 4%.
In a statement to the New Zealand Exchange (NZX), Genesis said production was anticipated to decline by 1.2-1.5% per month until the inlet compression project is completed in mid-winter 2021. It added that the actual rate of decline was likely to vary based on “overall production and other factors”.
Genesis said Beach had concluded the devel- opment study for the inlet compression project and that the joint venture partners would make a nal investment decision (FID) in the “near term”.
Genesis is the country’s biggest power and gas retailer and buys all of the eld’s production. It said there had been no change to eld reserve estimates.
e eld has three producing wells and out- put is sent via a 30-km pipeline to an onshore processing station. From there it is eventually piped into the North Island transmission net- work. Condensate is exported, while LPG is sold on the local market.
Beach said in October that it might be possi- ble to continue producing from the eld for more than a decade without having to drill another well. Beach described the compression project as a “low-risk, high-value” way to extend the eld’s life. Genesis, meanwhile, has estimated that its share of the compressor project’s cost could be as much as NZ$30mn ($19.6mn) over nancial 2019-2020 and 2020-2021.™
Week 32 13 •August•2019 w w w . N E W S B A S E . c o m P7