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Volume 3 Issue 205
Wednesday, 23 October 2013

The pipeline that cried wolf: Will

the Russia-China deal ever close?

Inside Natural Gas Daily

Exploration & Production

IOCs prepare the path for a
return to Iran
Page 5

Russian Prime Minister Dmitry Medvedev met Chinese Premier Li Keqiang in Beijing this week. (PA)

from CNPC and Gazprom attended, as did

the political leadership of both countries.

Colin Shek
China news editor
James Byrne
East Asia editor

Pricing problems

After a decade of delays and disappointments, there have been hopeful signs in
2013 that the 38 billion cubic metre per year
Russia-China pipeline deal which plans
to connect large untapped deposits in
Eastern Siberia to Chinas gas-hungry
northern provinces might close before
the end of the year.
Russian Energy Minister Alexander
Novak said at the World Energy Congress
last Wednesday that Gazprom and China
National Petroleum Corp. (CNPC) expected
to reach a final agreement by the end of the
year. The Kremlin confirmed the next day
that both sides were ready to sign an
agreement before 2013 draws to a close.
But with little time remaining, Gazprom
and CNPC still do not appear to have
agreed on important details, reportedly
differing over the pricing coefficient in
the contract a crucial determinant in the
final border price of Russian gas.
Looking to clear the final hurdle, another
high-level negotiation was underway in
Beijing this week. Senior representatives
Interfax Information Services Group

After the talks, Russian Prime Minister

Dmitry Medvedev said a pricing formula
had been agreed a statement which
indicated the formula, rather than the
coefficient, had been settled.
This was confirmed by Gazproms
Chief Executive Alexei Miller, who said
after the meeting that a final agreement
has been reached on the use in the contract
of a multiplicative formula tied to the cost
of oil products.
Gazprom had long insisted on linking
the price of its pipeline exports to China to
oil prices, a push which CNPC has recently
resisted by proposing a link to prices at the
Henry Hub in the United States.
How we would look at it is: What
sort of price is needed so that Gazprom
makes a reasonable return on the
upstream? We think you can deliver gas
to the border at $8, and Gazprom can
make an attractive return from that, Gavin
Thompson, head of Asia Pacific for Wood
Mackenzie, told Interfax, adding he did not
rule out the possibility of an element
of hub indexation.


War of words breaks out over
Argentinas LNG
Page 11
Gas Natural prohibited from
Argentine tender

Romgaz stake sale aiming to

raise $570 million

Reliance dispute bodes ill for

African explorers

Tunisia mulls enormous

shale potential

More explorers dive into

treacherous Great Aussie Bight

BHP drops Indian blocks, highlighting investor difficulties

Japan Number Crunch:

Japans LNG imports

Sino-Myanmar gas trunk line

begins full operations

2013 Interfax Ltd



There may be a 10% spot price

component in there could be NBP, could
be Henry Hub, could be Zeebrugge. But I
think, ultimately, its got to be a price that
reflects capital costs of development and a
return for Gazprom.
While this disagreement now looks to
have been settled in Gazproms favour,
analysts have expressed scepticism the
deal will be finalised before the years end.

It will take a little bit longer than the end

of this year. Theres just getting the
agreement on price and a legally binding
contract, but in 12 to 24 months I think
itll be done
gavin thompson
Head of Asia Pacific, Wood Mackenzie

Ticking clock
It will take a little bit longer than the end
of this year, said Thompson. Theres just
getting the agreement on price and a
legally binding contract [to do], but in 12
to 24 months I think itll be done.
Thomson noted the potential demand
in northeast China, where up to 38 bcm/y
of Russian gas would enter the country
annually via the so-called eastern route.
The alternative is a lot of LNG through
Liaoning or extending the big cross-country
pipes up to the northeast, which just does
not make a lot of sense when youre so
close to a big resource in East Siberia,
he said.
Finalising the agreement after more
than a decade of talks would be a major
boon for Gazprom, which needs investment

to develop fields in eastern Siberia, such

as Chayanda and Kovykta.
For China, more supplies of cleanerburning gas are needed if the central
government is to tackle chronic air
pollution. Thick smog blanketed the
northeastern city of Harbin this week,
causing schools and roads to close and the
airport to delay or divert dozens of flights in
what the media termed the airpocalypse.
The Russians are under pressure to make
this deal, and 24 months may be too long
to wait under present market conditions,
Keun-Wook Paik, an expert in Russia-China
energy cooperation and former adviser to
CNPC, told Interfax.
In the meantime, the US could approve
more LNG export projects, Canada could
progress with several of its own and East Africa is moving forwards. How will Gazprom
penetrate the Chinese market if global LNG
capacity looks set for significant expansion?

Today on
Policy & Regulation

Israel sanctions gas exports,

Woodside sits on Leviathan deal
Israels High Court has rejected a petition
calling for Israels gas export policy to be
nullified. The Leviathan partners can now
push forward with export plans.

Wildcat Blog

Looking west
With Beijing and Moscow closing in on
the eastern deal, negotiators are turning
to the prospect of Russian gas entering
well-supplied west China. Gazprom will
begin negotiating deliveries via the western
route after it signs the contract for the eastern supplies, Miller told reporters in Beijing
on Tuesday.
Russian supply into Western China, which
already has significant infrastructure connecting Central Asia to the countrys eastern
provinces, could allow Gazprom to function
as a swing supplier in the gas market.

EUs uncomfortable reminder to

South Stream
Gazprom was reminded last week that
South pipeline does not enjoy the support of Brussels, as the European Commission excluded it from its list of PCIs.

Most read

Contact the editor at:


US allies plead for expedited LNG

Bangladesh sweetens its PSC terms

to lure more IOCs
PetroChina manoeuvres to ward off
Chart Insight: Ramones tender
jeopardises Mexicos gas import plans

China needs greater supplies of natural gas to combat is chronic air pollution problem. (Gazprom)


Fighting Russia is pointless


Natural Gas Daily | 23 October 2013 | 2


A round-up of the latest news and developments in the LNG shipping sector

lng | argentina

Gas Natural prohibited from

Argentine tender
Jason Torquato
global markets editor

An LNG supply contract

awarded to Spains Gas
Natural Fenosa (GNF) is being
challenged by the Argentine
Consumers Union (UCA) (see
War of words breaks out over
Argentinas LNG, page 11).
The UCA said there is a
conflict of interest as Repsol
owns shares in both YPF and
GNF. YPF is the LNG broker
for Argentinas Enarsa and
GNF has won the majority of
Argentinas supply tenders in
the past two years. The UCA
claims the tender process lacks
open participation.
Earlier this month, Enarsa
launched a supply tender for
5.71 mt of LNG over the next
two years.
A total of 48 cargoes have
been requested for delivery at
the Bahia Blanca terminal, 25
in 2014 and 23 in 2015.
The price of the Bahia Blanca
cargoes will be linked to Henry
Hub. Market participants were
also asked to deliver 3 mtpa to
Escobar during the same period,
with the gas price to be indexed
to Brent crude oil.
The request to have the price
of Bahia Blancas imports linked

to Henry Hub, while indexing

Escobars gas to Brent, was
perceived as a hedging exercise.
However, with Latin American
oil-indexed rates having reached
record highs in the recent
southern hemisphere winter,
the plan could backfire.
It seems a strange move
for them [Bahia] to request
oil-linkage when everyone is
trying to move away from it,
said one source close to the
tender. At the same time, they
have been going against the
grain in terms of avoiding
long- or even mid-term
As many as 75 cargoes could
be needed to fulfil the Escobar
requirements as draught restrictions at the facility are limited
to small ships or half-laden
larger tankers to enable them to
offload gas.
GNF is one of the few
operators with a fleet of small
vessels, and will likely damage
Enarsas bargaining power with
permitted suppliers. The cost
of shipping gas in half-laden
tankers significantly increases
costs, potentially leaving
Enarsa to foot an increasingly
burdensome import bill.
Contact editorial at:

LNG market commentary

Mexico set for record imports
Mexico will receive a record volume of LNG this month and
the figure will also be a record for Latin America as a whole,
according to data from Waterborne Energy. A total of 643
million cubic metres (MMcm) has already arrived in the
country, while another 393 MMcm is on the water potentially taking total imports this month to 1.04 billion cubic metres.
This will be the first time a Latin American country has taken
more than 1 bcm in a single month. Mexicos previous high
was set in September, when 837 MMcm was imported, while
Argentina set the continents previous record of 914 MMcm
in July.

East Asian LNG prices surge

Spot LNG prices have risen in the past few weeks, traders have
said. Prices for December deliveries to Japan and South Korea
are now closing at $17/MMBtu as forecasts predict strong
demand. A lack of production growth, combined with increased
demand in Latin America, has tightened the market. Price rises
in Latin America have also caught the attention of European
capacity holders at reload plants. The majority of re-exported
European gas was delivered to Latin America this year as
opposed to the East Asia, with shipping costs within the Atlantic
Basin significantly lower although the widening spread between the Atlantic and Pacific Basins could change trade flows
in the coming weeks and months. Deliveries to northwest
Europe are priced around $11-12/MMBtu a significant
discount to the East Asia which should encourage
cross-basin trade.

European reloads strong despite high demand

Reload operations continue to play a major role in the
European LNG market. The Dutch Gate terminal is the latest to
offer the service and the first reload could take place this winter.
The Vitol-controlled Magellan Spirit lifted volumes from Belgiums Zeebrugge terminal last week and is en route to Escobar
in Argentina where it will offload as part of a strip deal between
the Swiss commodity house and Enarsa. The Petrobras-chartered
Wilgas reloaded volumes from Spains Sagunto terminal and is
headed to the Guanabara Bay FSRU in Rio de Janeiro. Spain was
also the site of another reload as BPs British Sapphire tanker
lifted volumes from Huelva which it will unload at Japans Futtsu
terminal on 23 November.

Chilean Mejillones expansion put on hold

GNL Mejillones has postponed plans to increase capacity at its
Chilean LNG plant by 50% because of weak demand. Chilean
demand has increased in recent years, but has barely exceeded
the 2.5 mtpa capacity of the GNL Quintero facility, while the
Mejillones LNG terminal has added a further 2 mtpa to the
countrys import capacity. The Atacama FSRU is expected to
come online in 2015 with a capacity of 2 mtpa.

The court claimed a conflict of interest in YPF buying LNG from Gas Natural. (GNF)


Natural Gas Daily | 23 October 2013 | 3


companies & finance | romania

Romgaz stake sale aiming to raise $570 million

Joshua Posaner
CE Europe editor

The Romanian government

began offering shares in
national gas producer Romgaz
on Tuesday, as part of longdiscussed plans to privatise
15% of the company under the
conditions of an earlier bailout
package with the International
Monetary Fund (IMF).
The initial public offering
will last until 31 October,
according to the filing, with
the indicative pricing range
set by the government aiming
to raise between RON 1.39
billion and RON 1.85 billion
($427-569 million). This values
the full company at up to
$3.8 billion.
The sale was given a deadline
of November as part of the IMF
deal, with another minority 10%
stake in Nuclearelectrica sold off

earlier this month and a series

of similar transactions to follow.
A stake sale in transmission
system operator Transgaz raised
RON 315 million in April.
In total, 85% of the shares
offered in Romgaz will be sold
to institutional investors, while
the remaining 15% will be made
available to individuals through
the Bucharest bourse.
Constantin Nita, Romanias
energy minister, said he was
encouraged by prior interest
from investors in the offering,
and that he strongly believes
privatisation and liberalisation
of the Romanian energy sector
are the best means of further
developing this segment of
[the] economy.
The IMF sent a delegation to
Bucharest this week as part of a
review of funding commitments
to the EUs second-poorest
member state. The hope is

Romgaz will be partly privatised under a deal with the IMF. (Romgaz)

told Interfax.
Romgaz is the largest
producer of gas in Romania,
supplying 5.66 billion cubic
metres in 2012. The company
also operates six gas storage
facilities with a combined
capacity of 2.76 bcm.

the privatisation programme

will both raise funds and spur
economic activity.
We think the forecast for
Romania is positive. On a
baseline scenario, Romania will
not need [further] access to
IMF resources, the agencys
representative in Bucharest,
Guillermo Tolosa, recently

Contact the editor at:


policy & regulation | North Africa

Reliance dispute bodes ill for African explorers

Tom Hoskyns
Western Europe editor

An ongoing legal dispute

between Reliance Industries
and the Indian government is
bad news for IOCs operating
in North Africa, according to a
senior arbitration lawyer.
John Bowman, a partner
at United States-based law
firm King and Spalding, told
delegates at the North Africa
oil and gas summit in Tunis that
attempts made by the Indian
government to recoup cost
recovery from Reliance could
soon be replicated across
North Africa.
In my experience disputes
are like fires, said Bowman.
They tend to jump over
one house and land on the

neighbours house next door

and burn it to the ground.
Especially when it comes to
the latest argument, especially
when its a counter claim in
connection with something
else. One has to be worried
about this attempt to claw
back cost recovery.
The Reliance dispute relates
to the companys operations in
an ultra-deepwater discovery
off the eastern coast of India
in the Bay of Bengal. The
government contended
gas production estimates
submitted by Reliance in its
development plan constituted
a binding commitment by the
company, so when production
levels were disappointing the
government asked Reliance to
repay approximately $1.5 billion

in cost recovery.
The government now insists
cost recovery, which was obtained with respect to facilities
constructed to accommodate
much higher volumes, should
be reduced in proportion to the
actual production and currently
estimated recoverable reserves,
explained Bowman.
By attempting to recoup
money from Reliance, Bowman
suggested the Indian government had flouted the basic
relationship of a production
sharing contract (PSC), which
[details] that the operator takes
the exploration risk and if the
operator is unsuccessful then
that money is to lose.
The government doesnt
step in and say well pay
you a reasonable rate for

your time and effort. But in

return the deal is the operator
gets cost recovery 100%,
added Bowman.
Bowman also had words of
caution for NOCs across North
Africa. He pointed to the trend
throughout the 1980s and
1990s for PSCs to be signed
not by the host government
and an IOC, but directly by
the NOC with the IOC. Many
of these contracts include a
provision known as allocation
of burden, where a guarantee
of fiscal stability is agreed upon
by the NOC rather than by the
state itself. Any sudden changes
in a countrys fiscal regime,
therefore, can leave NOCs
open to legal action.
Contact the editor at:

Natural Gas Daily | 23 October 2013 | 4


IOCs prepare the path for a return to Iran

With reports that talks in Geneva between Iran and the P5+1 group are going well, oil majors are anticipating a return
to the Islamic Republic. Arron Merat reports.

While Irans nuclear negotiators come

close to a deal to end sanctions, IOCs are
preparing their return to the Iranian oil and
gas sector.
The Iranian oil ministry initially denied
it was in talks with oil and gas majors in
an effort to mollify hardliners suspicious of
foreign companies but it has now gone
public about the meetings.
There are no restrictions for foreign
partnership in Irans petroleum industry,
said Mansour Moazzami, head of Irans
International Affairs Department, this month.
The Oil Ministry and the National Iranian
Oil Company [NIOC] have no problem with
American oil companies.
Oil Minister Bijan Zanganeh has shaken
up senior management at the ministry
and the NIOC, dismissing many of former
President Mahmoud Ahmadinejads staff
and reappointing many of his own from
when he last held the oil portfolio, from
1997-2005 a so-called golden age for the
Iranian hydrocarbon industry. He has likened
the former presidents appointees to an
ambulance driver that drove over hundreds
of pedestrians in order to get one sick man
to hospital.
Most notably, Zanganeh has appointed
his former deputy Mehdi Hosseini a
familiar face to Western oil executives to
lead a committee to reform Irans buy-back

contracts into something more closely

resembling Iraqs service contracts. Experts
in Tehran say production-sharing agreements
may be offered for the huge, untapped
and riskier fields on the border with Iraq.
We have more professional people
in charge now, an NIOC employee told
Interfax. Western companies are calling us
every day to be the first ones through the
Executives at Total and Shell have spoken
this month of the inevitability of IOCs
returning to Iran. Both the head of the NIOC
and Irans ambassador to France have said
talks have begun with Total, the last Western
oil firm to leave Iran as the United States
sanctions tightened.
Irans post-sanction strategy is to retake
market share by offering discounts, attractive
credit terms, and tapping oil in storage. At
the same time, Iran wants to avoid flooding
the market and outpacing the recovery,
said Matthew Reed of Foreign Reports, a
Washington DC-based consulting firm.
Experts say exports of 0.8-1 million
barrels per day could be brought online in
the short term if Iran and the US can agree
a deal for sanctions relief in exchange for
more transparency over Tehrans nuclear
Iran is competing against Iraq for very
similar grades and markets, said Robin

If sanctions are lifted, IOCs will return to exploit Irans huge gas reserves, such as the South Pars field (Statoil)


Mills, head of consulting at Manaar Energy.

Their success will depend on the nature of
sanctions relief if it appears short-term or
reversible, it will need steeper discounts to
regain customers.
If Iran and the US can put 34 years of
discord behind them and come to a deal
in the coming months, the Islamic Republic
will face big challenges to regain the market
share it enjoyed prior to the sanctions.
The protracted lull in Iranian production
has also sent many of the countrys oil
reservoirs into decline, and they will need to
be revived by injecting gas into the wells.
But although Iran holds the worlds largest
gas reserves, the sanctions have stymied
its gas development projects particularly
South Pars which caused gas shortages
last winter. Iran may have to become an
even bigger gas importer to prevent further
decline in its oil supply.

US hostility
However the biggest impediment to the
resurgence of the Iranian oil and gas industry
remains the US Congress, traditionally
hawkish on dtente with Iran. The shale
boom has made the US more self-sufficient
and entrenched Congressional hostility
towards the Islamic Republic. A growing
habit of brinkmanship between the
Republican party in Congress and President
Barack Obama has only the situation worse.
During the reportedly successful Geneva
talks between Iran and the P5+1 group (the
five permanent members of the UN Security
Council, plus Germany) 10 senators wrote an
open letter to Obama. We reaffirm that a
credible military threat remains on the table
and we underscore the imperative that the
current sanctions be maintained aggressively,
and call on you to increase pressure through
sanctions already in place, it said.
This weekend, as news leaked of a plan
by Obama to ease sanctions by releasing
millions of Irans petrodollars held overseas,
a group of Republican senators said it may
defy the president and fight for a bill to
increase sanctions against Iran.
Contact editorial at editorial.news@interfax.co.uk

Natural Gas Daily | 23 October 2013 | 5


Tunisia mulls enormous shale potential

Algeria and Libyas potential for shale production has been widely discussed, but it could be their smaller neighbour
Tunisia that beats them to the post. Tom Hoskyns reports.

Extensive but as yet untapped shale

resources could help transform Tunisias
energy market and provide a welcome
economic boost to the struggling nation,
according to a senior British economist.
Tunisian shale production could virtually
triple the countrys remaining conventional oil
and gas reserves, Sam Moore, chief operating
officer for UK-based consultancy Oxford
Economics, told delegates at the North
African oil and gas summit in Tunis.
Theres obviously uncertainty about
the level of hydrocarbons, but our top
production scenario would be transformative
to the energy balance in Tunisia and would
generate significant additional benefits,
[such as] energy security and stable prices,
he said.
Moore laid out three possible scenarios
for Tunisian shale production, with the most
conservative assuming only one of the
countrys six recognised unconventional plays
progresses from exploration to full-scale
production. Even this outcome, however,
would result in production of around
660 million barrels of oil equivalent, which
represents 65% of the countrys conventional
reserves. The second and third scenarios
assumed two and four plays, respectively,

being developed, with the latter resulting

in volumes amounting to 2,650 MMboe, or
260% of Tunisias remaining conventional
reserves. Other economic benefits would
likely follow, said Moore, largely thanks to
the influx of foreign investment, while the
presence of one or more IOCs should also
help boost the skillsets of domestic suppliers.
Significant shale volumes would help
remedy the countrys production deficit in the
medium term, resulting in a peak in output
by around 2026. Moore conceded, however,
that even in the most optimistic case Tunisia
would become reliant on imported oil and
gas again in the late 2030s.
In terms of GDP, Moore estimated the
most optimistic shale production scenario
would add TND 46.8 billion ($28.5 billion) to
Tunisian GDP over a 47-year period. Tunisias
shale industry, meanwhile, would support
8,000 jobs a year.

Stability benefits
The Oxford Economics study also suggested
an increase in government revenue from
shale could be used to help balance Tunisias
wide disparities in regional welfare, lending
much-needed stability to the region. How the
country decides to allocate spending among

*Indicative map - not to scale




Rich reserves

Mediterranean Sea



Shell, IHSE

Map of Tunisias potential shale resource plays


its people remains to be seen, however.

Despite Moores optimism for the Tunisian
shale industry, some conference attendees
felt underwhelmed by the scale of his
predictions. One delegate, who wished to
remain anonymous, said he felt the third
scenario underestimated Tunisias scope for
shale production. A second agreed, pointing
to Moores projections for the number
of wells to be drilled. Oxford Economics
predicted peak drilling activity on a single
play of approximately 70 wells, which the
delegate noted was far below the less prolific
US shale plays.
However, Tunisian shale is not without
its detractors. Last year, protesters gathered
outside the Ministry of Industry to voice
their displeasure at Shells plans to drill in
the Kairouan region. Despite being a former
French colony, sentiment appears less
negative than in France, where numerous
protests and cautious politicians saw a ban on
fracking imposed in 2011.
Tunisian shale resources are split into two
areas: one in the north of the country, just
south of the capital Tunis, and one in the
south, extending to the borders with Algeria
and Libya. Hopes were high recently that
Tunisias neighbours might be able to harness
their enormous shale potential, but ongoing
security concerns have made it difficult for
them to convince explorers of their suitability
for unconventional development.

Libya is the most shale-rich of North African

nations, with 8.21 trillion cubic metres of
estimated shale reserves. Tunisia is estimated
to hold 2.27 tcm, and Morocco 311 billion
cubic metres.
The shale revolution in the United States
has triggered a surge of interest in the
unconventional gas, but progress outside
the US has been slow. In addition to North
Africas reserves, much is expected of shale
plays in Argentina, China, South Africa and
Europe, although high population density
and lack of political will looks set to stymie
progress in other parts of the world.
Contact the editor at tom.hoskyns@interfax.co.uk

Natural Gas Daily | 23 October 2013 | 6


exploration & production | australia

More explorers dive into treacherous Great Aussie Bight

Sara Stefanini
Asia Pacific editor

Chevron, Murphy Oil and

Santos have joined BP to explore
for gas in the waters of the Great
Australian Bight, securing three
exploration licences between
them and committing to a
combined investment of A$536
million ($515.9 million) for initial
work programmes.
Chevron received rights
to exploration permits for
petroleum (EPPs) 44 and 45 in
the Bight Basin, agreeing to
shoot 3D seismic over 900,000
hectares, drill two exploration
wells and invest $237 million in
EPP 44; and shoot 3D seismic
over 1.2 million hectares, drill
two wells and invest A$249
million in EPP 45.
Meanwhile, the United States
Murphy Oil and Australias
Santos were jointly awarded EPP
43, where they have agreed to
invest A$50 million on 2D and

3D seismic surveys in the first

The three Bight Basin permits
received two or three bids each,
highlighting the growing interest
in the untouched area which
is believed to hold significant
hydrocarbon reserves.
BP, in partnership with Statoil,
has led the way in exploring the
basin. Since receiving its four
exploration permits in January
2011 for which it is expected
to invest A$600 million in the
first phase the UK major has
made a 3D seismic survey and
is preparing to begin a two-year
drilling programme in late 2015.
It has also signed on to use a
new semisubmersible rig being
built especially for the area (see
BP on the hunt in the Great
Aussie Bight, 7 October 2013).
However, commercialising
the basins hydrocarbons could
be difficult. Delivering gas to
LNG plants in Western Australia
(WA), the Northern Territory (NT)

*Indicative map - not to scale

Woodside Energy,
Mitsui E&P Australia

Murphy Australia Oil,
Santos Offshore


EPP44 and EPP45

Chevron Australia
New Ventures


Shell Development
Great Australian

Interfax/Department of Industry

Exploration interest is growing in Australias waters especially the southern coast

and Queensland would require

piping it across thousands of
kilometres, and the cost of
building a greenfield plant could
be exorbitant.
The move to the Bight Basin
is part of the Chevrons focus on
pursuing high-impact exploration opportunities, it said in a
statement. Chevron has made 21
deepwater gas discoveries since
2009 in WAs Carnarvon Basin, an
area also prone to cyclones and
rough waters.

Murphy Oil and Santos are

also exploring in the NTs Bonaparte Basin and WAs Carnarvon
and Browse basins.
The Bight Basin permits were
granted in the second round of
the 2012 Offshore Petroleum
Exploration Acreage Release.
The five permits awarded will
provide A$580 million over the
next three years, said Australias
Department of Industry.
Contact the editor at:

Exploration & Production | india

BHP drops Indian blocks, highlighting investor difficulties

Sara Stefanini
Asia Pacific editor

BHP Billitons decision to

relinquish its share in nine of its
10 exploration blocks offshore
India highlights the difficulty
companies have in navigating
the countrys complicated
regulations and different
government authorities.
The Australian mining and
petroleum major had imposed
force majeure on the nine
deepwater blocks, located in the
western Mumbai Basin, while
in discussion with the Indian
government over receiving
unencumbered access to the
areas. The decision to relinquish
these blocks is the result of an

exploration portfolio review

and the inability to carry out
exploration operations in these
blocks, BHP said in a statement.
BHP received a 26% share in
six of the blocks in the seventh
round of Indias New Exploration
Licensing Policy (NELP) in 2005
while Indian conglomerate GVK
holds the remaining 74% and
100% ownership of the other
three blocks in the eighth NELP
round in 2009.
The company is, however,
holding on to its 50% stake in
a Mumbai Basin block it was
awarded in ninth round of NELP
in September 2012, which BG
Group operates with the other
50% share. The partners have
been able to carry out a 2D

seismic survey over 200,000

hectares in the block and are now
awaiting the results, BHP said.
BHPs blocks were among
a number of oil and gas
exploration areas which Indias
Ministry of Defence has shielded
as no-go zones drawing
strong protests in recent years
from companies about the
conflicting signals from different
government agencies. Others
affected include state-run Oil
and Natural Gas Corporation,
and private Reliance Industries
and Cairn India.
Under pressure from the
Prime Ministers Office, the Ministry of Defence said earlier this
year it would look at loosening
the restrictions and giving

conditional approvals to allow

for more oil and gas exploration
and production.
The governments ongoing
dispute with Reliance over the
Krishna Godavari D6 (KG-D6)
Block on the east coast has also
caused international investors to
rethink making large investments
in the country, an India analyst
noted to Interfax.
As KG-D6 production has
steadily tumbled since 2010,
Reliance and the government
have sparred over the companys
cost recovery claims, the
subsidised gas price and new
plans of development, among
other issues.
Contact the editor at:

Natural Gas Daily | 23 October 2013 | 7


Japans LNG imports

Japanese LNG imports,

Jan-Sep 2012 vs 2013

Japanese LNG imports, 2012 vs 2013




















Jan Feb Mar Apr May Jun


Japans imports fell by 7.7% year on year

in September, to 6.58 mt, according to
preliminary data from the countrys Ministry
of Finance this week. LNG imports are down
by 2.5% in 2013, as declining power demand
and an increase in coal consumption have cut
demand for the fuel.

LNG imports percentage change,

2012 and 2013, year on year



Jul Aug Sep

Source: Interfax, Japanese Ministry of Finance



Thermal generation from utilities was

3.42TWh lower year on year, according to
Energy Aspects. Utility use of LNG in power
generation was down by 63 kt (-1.4%), while
coal use was up by 1 mt (24%). Coal imports in
September were down by 2.2 mt (-13%) the
largest year-on-year decline for Japanese coal
imports this year although we expect this
came as utilities undertook some destocking,
said the London-based consultancy.

The average cost of

Japans LNG in US dollars
declined in September
to $15.1/MMBtu, the
lowest price so far this
year. With the majority
of Japans LNG delivered
under long-term
contracts linked to the
price of oil, the decline
in LNG prices tracked
softening oil prices earlier
in the summer when
Brent traded around

Cost of Japanese LNG imports vs Brent price (in MMBtu)

Depressed by Prime
Minister Shinzo Abes
aggressive programme
of quantitative easing,
a weak yen has caused
significant pain for Japans
LNG importers. The cost
of LNG in yen per ton
has mushroomed as the
currency has weakened,
making Septembers
deliveries the 10th most
expensive on record.

Cost of Japanese LNG imports in yen




Change in Jan-Sep LNG

imports, year on year




Cost per MMBtu












Brent price









Source: Interfax, Japanese Ministry of Finance


Natural Gas Daily | 23 October 2013 | 8


pipelines & storage

Sino-Myanmar gas trunk line

begins full operations
Tang Tian

The trunk line of the SinoMyanmar Gas Pipeline (CMGP)

became fully operational this
week, according to a report
in China Petroleum Daily, the
in-house newspaper of China
National Petroleum Corp.
(CNPC) the pipelines
The trunk line has annual
transmission capacity of 12
billion cubic metres, of which
10 bcm/y will be delivered
within China.
Data from the countrys
General Administration of
Customs (GAC) showed the
arrival of the first pipeline gas
imports from neighbouring
Myanmar via the CMGP.
The 12 bcm/y of gas will
displace 30.72 mt of coal and
reduce 52.83 mt of carbon
dioxide emissions every year,
the report said, adding the
gas is being sourced from
assets in the Bay of Bengal
and will eventually be fed
into Guangdong, Sichuan and
Guizhou through the West-East
Gas Pipeline (WEP) network and
Zhongwei Gas Pipeline.
Speaking to Interfax on
Wednesday, Yang Jianhong,

deputy director of a Beijingbased PetroChina engineering

unit, said gas from Myanmar,
transmitted via the CMGP, was a
critical source for China. China
is experiencing a boom in gas
demand, said Yang. Demand
will increase by 20 bcm/y in the
next several years, and existing
gas sources will be inadequate
to match the surge, especially
during the four-month peak
winter heating season.
The Myanmar gas will help
relieve pressure on PetroChina
to come up with adequate
supplies, Yang said.
On the downside, gas from
Myanmar gas may rank as the
most expensive pipeline gas imported by China. The GAC data
indicated the 10,874 tons of
pipeline gas PetroChina imported from Myanmar in September
was valued at $11.09/MMBtu
27% higher than pipeline gas
imports from Turkmenistan,
Uzbekistan and Kazakhstan. If
PetroChina imports Myanmar
gas at this price, the company
will have to contend with thinner margins, Wang Xiaokun, an
analyst with industry consultancy Sublime China Information
told Interfax.
Contact editorial at:

Interfax Europe Ltd

19-21 Great Tower Street, London EC3R 5AQ, United Kingdom
+44 (0) 20 3004 6200 interfaxenergy.com customer.service@interfax.co.uk

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Christopher Noon

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Gas will be fed from the CMGP pipeline through the WEP pipeline network. (CNPC)


Natural Gas Daily is published daily except during the last week of December by Interfax
Ltd. ISSN 2048-4534. Copyright 2013 Interfax Ltd. All rights reserved. No part of this
report may be reproduced or transmitted in any form, whether electronic, mechanical or
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or liability for its completeness or accuracy.

Natural Gas Daily | 23 October 2013 | 9


Updates from the worlds largest energy consumer

Ex-works LNG prices by region


Inner Mongolia






























Lowest price, 12-18 October



Highest price, 12-18 October




Ex-works LNG prices averaged

RMB 5,048 per ton in the
third week of October,
showing a weekly increase
of 1.06%. Anticipating price
hikes of feedstock gas from
PetroChina, seven LNG plants
across Shaanxi, Qinghai and
Inner Mongolia raised quoted
prices by 3.71% week on
week, on average. The most
expensive LNG came from Jilin
at RMB 5,800/t unchanged
from the week before.




*All figures in RMB/ton

Sublime China Information/

LNG shipping rates via diesel-fuelled tanker truck, 12-18 October


LNG shipping rates via LNG-fuelled tanker truck, 12-18 October
















<1,000 km, lowest price

1,000-2,000 km, lowest price

>2,000 km, lowest price

<1,000 km, highest price

1,000-2,000 km, highest price

>2,000 km, highest price

Source: Sublime China Information

The cost of shipping LNG by diesel-fuelled trucks remained unchanged in the third week of October. Rates for transporting a ton of LNG
within a distance of 1,000 km ranged from RMB 0.80/km to RMB 1.10/km by diesel-fuelled truck, compared with RMB 0.78-0.95/km for
LNG-fuelled trucks.

LNG spot trading on the Shanghai Petroleum Exchange




Available volume

8 Oct

9 Oct

Transacted volume

10 Oct

11 Oct

12 Oct

14 Oct

15 Oct

16 Oct

17 Oct

18 Oct

Source: Sublime China Information

No major spikes were recorded on the Shanghai Petroleum Exchange last week. Shenergy Group put up 700 tons for trade between
12 and 18 October, all of which sold for an average of RMB 5,201 per ton. Volumes sold during the third week of October will be delivered
daily to buyers between 16 and 23 October, except for 20 October.


Natural Gas Daily | 23 October 2013 | 10


War of words breaks out over Argentinas LNG

Interest group the Argentine Consumers Union has claimed a conflict of interest in Buenos Airess latest mega-tender
for LNG, writes Chris Noon

Argentinas future LNG supplies, which

are crucial to the countrys energy matrix,
have been jeopardised by a legal spat
between state-run company YPF and a
powerful consumer interest group.
The Argentine Consumers Union (UCA)
said on Monday that YPF had contravened a
court order when it awarded an LNG supply
contract for 2014 and 2015 worth $2.25 billion
to Spanish giant Gas Natural Fenosa (GNF)
last week.
The award constituted around half of the
LNG supply Buenos Aires was seeking for the
next two years, Interfax understands, which
was approximately 100 cargoes, worth
$4.5 billion.
The UCA has said there is a conflict of
interest in the deal, stemming from Spanish
company Repsol owning shares in both YPF
and GNF, which would prohibit the latter from
participating in Argentinas LNG tenders. GNF
has won most of the Argentine orders over
the past two years.
What lofty interest could [YPF Chief
Executive Miguel] Galuccio have for making
a mockery of justice and violating a judges
decision? said UCA President Fernando
Blanco Muio in a statement earlier this
week. The public tender for the countrys
LNG supply resembled a private competition,
and lacked transparency, he added.
Argentines end up with cheaper gas
if there is more transparency and greater
competition, said Blanco Muio.
YPF, which purchases LNG on behalf of
Argentine state agency Enarsa, denied there
was any conflict of interest. The company
operates throughout the process for and on
behalf of Enarsa, which is the final buyer of
LNG, the company said in a statement
on Tuesday.
Enarsa had no links to any of the
participants in last weeks LNG tender, YPF
said, and added there would have been no
irregularities even if YPF were the ultimate
buyer of the fuel.
The state-run company also said in a
statement sent to Interfax that last weeks
tendering process for Argentinas LNG cargoes
was fully transparent. The objective of this

The UCA says YPF has flouted a court order by awarding LNG supply contracts to Gas Natural Fenosa. (GNF)

LNG tender is to provide a basic feedstock

for power generation in the country, at the
best price and with the best suppliers in the
international market. And that goal is being
fully met, said Carlos Alfonsi, YPFs vice
president of downstream operations.
All winners of LNG supply contracts in 2013
have complied with the terms and conditions
set out in trade agreements between Enarsa
and the respective companies, Alfonsi added.

Top bidders
The latest tender involved around 24
companies and received 12 bids from
top international companies, according to
YPF. Previous Argentine LNG tenders have
attracted around five or six bidders. The
tender was successful, with Buenos Aires
meeting the quotas sought for both the
countrys terminals, Bahia Blanca and Escobar.
Enarsas tender requirements were different
for Bahia Blanca and Escobar. A total of 48
cargoes were requested for delivery to the
3.9 mtpa Bahia Blanca over the next two years,
with 25 required in 2014 and 23 the following
year. Enarsas specifications for the 4.6 mtpa
Escobar terminal mean as many as 75 tankers
could arrive over the next 24 months as part
of the deal (see Argentinas imports become
political football, 7 October 2013).
BP picked up 40 cargoes in the tender,

with 21 set for 2014 delivery and 19 for 2015,

according to data supplied to Interfax by
Houston-based Waterborne Energy. Statoil
and Gazprom won six cargoes each.
Gas Natural won the majority of the
Escobar volumes, but they are trying to work
through this whole legal issue, which I think is
just for show, said a market source, who did
not wish to be named.
Gas Natural is one of the few suppliers
with smaller-sized LNG tankers that meet the
draught requirement for the Escobar terminal.
If you dont have the small LNG tankers then
you have to come in at half-load or perform a
lightering operation, which requires an extra
tanker. Either way, your shipping cost per unit
of energy is going to increase twofold, the
source added.
Several analysts believe Argentinas
Supreme Court will throw out the UCA lawsuit.
I do not understand the uproar in Argentina
about purchasing LNG from Repsol all the
countrys Bolivian imports are produced by
Repsol, said Bernardo Prado, the editor of
hidrocarburosbolivia.com via his Twitter
account on Tuesday.
Buenos Aires isnt going to let a consumer
group get in the way of national interests,
said a second source, who did not wish to
be named.
Contact the editor at: chris.noon@interfax.co.uk

Natural Gas Daily | 23 October 2013 | 11