E&Ps, Analysts See Brighter Outlook for Natural Gas from Oil Shut-ins, Spending Cuts
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Vol. 39, No. 40 MONDAY, MAY 25, 2020
E&Ps, Analysts See Brighter Outlook for News This Week
Natural Gas from Oil Shut-ins, Spending Cuts Fire at Elba Island LNG Shuts Down Three
Units, Cuts Feed Gas Deliveries............................. 2
Producers and analysts are cautiously “Gas producers are touting the macro
ICE Reports Steep Gains in Trading of Worldwide
— but increasingly — optimistic about the impact of curtailments and associated gas Natural Gas Contracts............................................ 3
outlook for natural gas prices amid Lower supply declines, which should set up for New York, New Jersey Again Reject Northeast
48 output declines, curtailed oil invest- a better price environment” for E&Ps in Supply Enhancement Project.................................. 4
ments and idled rigs. 2021, said U.S. Capital Advisors analyst Q&A with David Madero on Mexico’s Natural
The actions are reducing the supply Becca Followill. Gas Market Development....................................... 5
of associated gas from oil wells ahead of Goodrich Petroleum Corp., which con- FERC Greenlighting Alaska LNG Export Project
Called ‘Capstone Moment’...................................... 7
expected increases in demand as states lift centrates its natural gas development in the
NextDecade Delays Rio Grande LNG FID
stay-at-home orders and more Americans Haynesville Shale, said reduced drilling to 2021, Cuts Costs to Reach Finish Line............... 7
go back to work. and shut-in wells in response to the col- Stalled Louisiana LNG Project Revived After
The U.S. Energy Information Admin- lapse in oil prices were starting to limit Founders Take Reins Again.................................... 8
istration (EIA) said that as of mid-May, associated gas supply and generate pricing FERC’s Kohout Named First Chief of LNG
exploration and production (E&P) compa- momentum. CEO Gil Goodrich cited “sig- Division................................................................... 9
nies were operating the fewest oil and nat- nificant improvement“ in forward-looking Goldboro LNG Hits Regulatory Snag in Alberta
Related to Supply Acquisition................................. 9
ural gas rigs on record in the United States strip prices during the Houston operator’s
Using Coronavirus as ‘Excuse,’ Mexico Pushes
at 339, according to Baker Hughes Co. data first quarter earnings call. Through Power Rules Said Damaging to Private
dating to 1987. Most of the decline was EQT Corp. CEO Toby Rice, who Sector.................................................................... 10
concentrated in oil-focused plays, but gas- runs the largest natural gas producer in the Natural Gas Said Key To Colombia Energy
focused plays also fell. nation, also said (continued on page 25) Transition as Fracking, Offshore Gather
Momentum............................................................ 11
U.S. Oil, Natural Gas Rig Count at Record Low
as Demand Recovery Sputters............................. 12
Steep Production Cuts Lift Natural Gas Forward Lower 48 Production Cuts, Economic
Reopenings Help Boost WTI Prices...................... 13
Prices, but LNG Demand Still Major Concern U.S. Oil Output Set for Consecutive Declines, but
Demand Recovery Likely to Begin This Year........ 13
Bearish indicators are not in short of the curve shifting less than 5.0 cents.
supply for the natural gas market, but for- By comparison, Appalachia’s
ward prices staged a meaningful comeback Dominion South jumped 19.0 cents to
during the May 14-20 period, according to $1.385 for the June contract, and the bal-
NOAA Expecting as
NGI’s Forward Look. ance of summer climbed 8.0 cents to Many as 10 Atlantic
The biggest gains — to the tune of $1.410. The rest of the curve was more in
about 20 cents for the June contract — were line with Nymex futures and other markets
Hurricanes This Season
in Appalachia, where markets responded across the country, slipping a couple of pen- The 2020 Atlantic hurricane season,
swiftly to news that EQT Corp. is curtailing nies for both the upcoming winter and next which runs from June 1 to Nov. 30, will
1.4 Bcf/d now to take advantage of higher summer. be a busy one, producing 13-19 named
prices later this year. Other Appalachian points posted simi- storms, including six-10 hurricanes, with
June forward prices climbed an average larly sharp gains. Transco Leidy Line June up to six of them major hurricanes (Cate-
11.0 cents for the six-day period, while the prices climbed 20.0 cents for the May 14-20 gory 3 or higher), according to forecasters
balance of summer (June-October) tacked period to reach $1.322, while the balance of at the National Oceanic and Atmospheric
on 3.0 cents on average, Forward Look data summer tacked on 10.0 cents to average Administration’s (NOAA) Climate Predic-
show. Further out the curve, the winter strip $1.35, according to Forward Look. Prices tion Center.
(November-March) slipped by an average for the winter 2020-21 strip stayed flat at “The combination of several cli-
2.0 cents, as did prices for next summer. $2.270, but summer 2021 prices were down mate factors is driving the strong likeli-
A similar pattern was seen along the 2.0 cents to $1.900. hood for above—normal activity in the
Nymex Henry Hub futures curve, with the Management for Appalachia pure-play Atlantic this year,” NOAA said Thursday.
June contract picking up around 9.0 cents EQT, the largest natural gas producer in the “El Niño Southern Oscillation conditions
from May 14-20 to reach $1.77, and the rest country, joins peers in (continued on page 27) are expected to either (continued on page 2)
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NOAA Expecting as Many as 10 The 2019 Atlantic hurricane season area-wide auctions, which reversed years of
(continued from page 1) was tied with 1969 as the fourth most-active leasing in specific targeted regions, have to
remain neutral or to trend toward La Niña, hurricane season on record with 18 named date drawn limited interest from operators.
meaning there will not be an El Niño present storms. Oil and natural gas-impacting Oil and natural gas prospects in the
to suppress hurricane activity. storms during the year included Hurricane GOM drew bids from 22 operators in a
“Also, warmer-than-average sea sur- Barry in July, and Hurricane Dorian and federal lease sale this spring, but whether
face temperatures in the tropical Atlantic Tropical Storm Imelda in September. Barry it was the coronavirus or slumping oil
Ocean and Caribbean Sea, coupled with took a 276,000 b/d bite out of U.S. crude prices, interest was not strong in the sixth
reduced vertical wind shear, weaker trop- oil production in July, the largest decline in sale under the 2017-2022 Outer Continental
ical Atlantic trade winds, and an enhanced monthly production in more than a decade. Shelf Oil and Gas Leasing Program as it has
west African monsoon all increase the like- Since President Trump took office, the been in recent years.
lihood for an above-normal Atlantic hurri- Interior Department has tried opening more The 2020 Atlantic hurricane season
cane season.” of the offshore by pursuing a strategy of got an early start this week when Tropical
NOAA’s forecast dovetails with an offering every available unleased area in Storm Arthur brought squalls to the North
earlier prognostication by AccuWeather the Gulf of Mexico (GOM). However the Carolina Coast.
meteorologists, who also expect an above-
average season.
Fire at Elba Island
LNG Shuts Down
Three Units, Cuts
Feed Gas Deliveries
Kinder Morgan Inc. has confirmed that
a fire broke out May 11 in a mixed refrig-
erant compressor at its Elba Island lique-
fied natural gas (LNG) facility in Georgia,
forcing it to shut down three liquefaction
units that remain offline.
The fire erupted in a compressor of the
facility’s Unit 2 movable modular liquefac-
tion system (MMLS), one of six in opera-
tion at the plant. Spokesperson Melissa
Ruiz said the incident was isolated to Unit 2
and the fire was extinguished by equipment
on site. There were no injuries.
The company shut down Units 1 and
3, which are near Unit 2, Ruiz added. The
other three units remain in operation. “All
of the appropriate regulatory agencies have
been notified and an investigation into the
cause of the fire is underway,” she said.
“Restart plans are in development on these
units.”
Ruiz also said that Unit 8 was shut down
this week in order to complete maintenance
work commonly related to the commis-
sioning process. Feed gas was introduced
to the unit earlier this month, and it is one
of four remaining liquefaction units that are
expected to come online this summer.
The outages at Elba come at a time
when feed gas deliveries to U.S. export
facilities have dropped significantly to
levels below 6 Bcf (continued on page 3)
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in recent days. That’s down from
highs of 9 Bcf/d earlier in the year
as global gas prices plummet and
pressure the economics of ship-
ping U.S. LNG overseas.
NGI’s U.S. LNG Export
Tracker shows that feed gas deliv-
eries have declined significantly
at Elba this week, with pipeline
flows into the facility at just 84
Mcf on Friday. But Elba is unique
in that it uses Royal Dutch Shell
plc’s MMLS technology, smaller
units that can be disassembled
quickly and moved.
Each unit has a liquefaction
capacity of just 0.3 million metric
tons/year, compared to standard has the ability to fill about three cargoes per liquefaction capacity under its tolling agree-
liquefaction trains at other export facilities month. Elba’s first LNG cargo left late last ment with the terminal.
that typically have a 4 mmty capacity. year. “Damage to Elba Island is much less
NGI’s Patrick Rau, director of strategy By comparison, the largest U.S. export disruptive to the overall market,” Rau said,
and research, estimated that it takes Elba facility, Cheniere Energy Inc.’s Sabine Pass adding that fewer caroges, and only one
about 10 days with all units running at terminal in Louisiana, has enough capacity capacity holder aren’t likely to unsettle
100% capacity to produce enough LNG to to produce one cargo per day. things too much following any disruption to
fill a cargo, or in other words, the terminal Moreover, Shell holds 100% of Elba’s operations.
ICE Reports Steep Gains in Trading of Worldwide Natural Gas Contracts
The Intercontinental Exchange (ICE) (ICE) since 2008] gotten more involved in the market. That
said Wednesday that it continues to see In Europe and Asia, stronger liquefied has led to more short-term and spot buying
record levels of open interest across its natural gas (LNG) trading has led to jumps with gas hub-linked prices across the world
Asian, European and North American nat- in the Dutch Title Transfer Facility (TTF) versus the more traditional model of long-
ural gas benchmarks as worldwide trade of and Japan Korea Marker futures contracts. term contracts tied to oil prices.
the fuel has liberalized. Open interest in TTF, a leading virtual pipe- The Covid-19 pandemic has also
Open interest, or the number of out- line hub for the European gas market, for driven more volatility in recent months as
standing derivative contracts that serves as futures and options has increased by over demand has seesawed. For example, the
indication of trading activity, in total natural 70%. JKM futures and options open interest National Balancing Point, another virtual
gas futures hit a new record of more than has increased by more than 100% year/year. pipeline hub for the United Kingdom, and
18.5 million contracts this quarter, ICE said. JKM, a pure LNG indicator in North Asia, TTF prompt-month contracts hit historic
In North America, the exchange oper- also hit record open interest of more than lows on Tuesday given ample supplies and
ator said U.S. unconventional natural gas 100,000 contracts this month. limited consumption. Asian spot prices,
development has stimulated activity, with “The momentum behind the ICE TTF meanwhile, have risen sharply over the last
futures open interest so far up 30% year/ contract is driven by Europe’s unique role week or so as supply has tightened in the
year. Market share has increased as com- as the global balancing market for LNG, region and demand has slowly returned in
mercial traders return to Henry Hub-related which is cementing its utility as a risk man- the wake of restrictive lockdowns earlier in
hedging in response to increased volatility agement tool for customers to hedge their the year.
in the North American market. Meanwhile, natural gas price risk,” the exchange oper- “We are witnessing TTF evolve into
open interest in ICE’s U.S. basis contracts, ator said. “This is leading TTF to become the global benchmark for natural gas, sim-
those used to manage exposure to natural increasingly internationalized, while at the ilar to the critical role Brent plays in pricing
gas at different delivery points throughout same time, the record growth in the use of global oil markets,” said ICE President Ben
the continent, set a series of records during JKM futures reflects its increasing promi- Jackson. “The momentum behind ICE’s gas
April and May, and hit a new high of more nence as Asia’s natural gas benchmark.” benchmarks is attracting more and more
than 10.1 million contracts on May 1. The global gas market has grown more participants who are using these bench-
[NGI’s natural gas price indexes liquid over the last decade as more LNG marks to manage their exposure to risk at
have included trade data from both price producers, particularly those in the United this volatile time.”
reporters and the Intercontinental Exchange States, and large commodity traders have
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New York, New Jersey Again Reject Northeast Supply Enhancement Project
New York and New Jersey have again bottom-dwelling marine life. the clean energy needs in the areas in which
denied water quality permits for the North- “New York is not prepared to sacrifice we operate.”
east Supply Enhancement (NESE) project, the state’s water quality for a project that is As New York continues to favor
which would move more natural gas into not only environmentally harmful but also stronger climate goals it has declined to
New York City. unnecessary to meet New York’s energy issue permits for a series of other natural
Regulators in both states issued their needs,” DEC said late Friday. gas pipeline projects, including the Con-
denials on Friday. The New York State The New Jersey Department of Envi- stitution Pipeline, which was also partly
Department of Environmental Conserva- ronmental Protection (DEP), which also sponsored by Williams. That project was
tion (DEC) denied NESE’s water quality denied key authorizations for the project scrapped altogether in February after years
certification (WQC). The agency, which last year, quickly followed New York’s of regulatory and legal battles that began
denied the authorization for similar reasons decision and rejected Transcontinental Gas when the DEC rejectedits WQC in 2016.
in May 2019, said the project fails to meet Pipe Line Co. LLC’s (Transco) application NESE is fully subscribed by National
water quality standards and would signifi- for a WQC, coastal wetland, flood hazard Grid and has been billed as a way to fill
cantly impact the environment. area and waterfront development permits. natural gas supply shortages in the city
Part of NESE would cross the Rar- The DEP said that because New York denied and help reduce the use of dirtier fuels
itan and New York bays, which raised the the project a WQC there was no compelling for energy needs there. But after facing
most concern among environmentalists and need for the pipeline expansion. strong resistance from the state and battling
others opposed to the project. The DEC Transco parent Williams said it was through a new service moratorium that the
said construction would result in the re- “disappointed” by the decisions, adding state ordered lifted last year, National Grid
suspension of sediments and other contami- that it “remains committed to meeting the has been working on plans that don’t rely
nants, including mercury and copper. The demand for a clean alternative to heating oil on new fossil fuel infrastructure. Other
agency also said it would disturb sensitive and diesel, and we are prepared to deliver utilities serving the city, such as Consoli-
habitats, including shellfish beds and other reliable and affordable natural gas to meet dated Edison Co., (continued on page 5)
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have inked deals to expand other interstate projects like the PennEast Pipeline to court. natural gas pipeline means higher energy
systems. “Small businesses and underserved bills for working families in New York
More recently, New Jersey has taken communities are the ones who will be the and New Jersey. This decision was not
a stronger stance against natural gas infra- most harmed by the decision to deny this about science or water quality. It was about
structure projects as well, rejecting not only permit,” said the Interstate Natural Gas politics.”
NESE’s authorizations, but taking other Association of America. “Every blocked
Q&A with David Madero on Mexico’s Natural Gas Market Development
Mexico’s Central Bank. is happening in global oil as well.
Madero is an economist by trade and It probably would be best to try to con-
holds a PhD in Economics from the Univer- tain the supply using any measures avail-
sity of California at Los Angeles (UCLA). able, and I think a possible response would
He received his undergraduate degree in be to cease shale gas drilling and comple-
economics from the Instituto Tecnológico tions to try to reduce supply. Nevertheless,
Autónomo de México (ITAM). even as this happens it is not clear what the
NGI: What are your thoughts on the price effect will be and how long the market
impact of the coronavirus to the global and will hold up as it waits for an increase in
Mexican energy markets? demand.
Madero: Covid-19 is generating a This analysis also applies to liquid
decline in the supply of all the goods and and processed fuels, where we are seeing
services industries, and that generates a almost no storage options, which is gener-
strong decline in energy demand across ating problems and sending prices down-
the world. While it may be temporary, we ward. It is more feasible to stop or slow
have to try to understand what the optimal down the process of refining, but even if
responses should be to the provisional you do, given the sunken demand, you have
Editor’s Note: NGI’s Mexico Gas Price disruption. the same problem where you do not have
Index, a leader tracking Mexico natural What we have been seeing is a decline enough storage options available for crude
gas market reform, is offering the following in the demand of crude that has generated oil.
question-and-answer (Q&A) column as a collapse in prices for oil and natural gas, One thing to add is that with all that is
part of a regular interview series with because there is a physical limit for their going on, we cannot lose sight of the fact
experts in the Mexican natural gas market. storage, and that is generating negative that the energy sector – worldwide and in
This 30th Q&A in the series is with prices. Mexico – is in a transition. This process
David Madero, Director of Energy Solu- So, what should be the best response to means moving towards cleaner and more
tions, at Acclaim Energy in Mexico City. this situation? That is hard to know because, efficient energy. If we do not continue
Madero began his work at Acclaim Energy, as you can imagine, it is difficult to cut the moving towards that model, we are going
an energy consultancy in Mexico City, in supply of these types of goods. However, a to end up far behind in terms of competi-
2019, following 20+ years of public service temporary reduction in supply, if possible, tiveness as a country. Though currently the
within the Mexican government. would be an effective way to counter some long-term productivity of the country does
Madero was the first-ever director of of the lower demand and possibly limit not seem too relevant, it is important to keep
the Mexican pipeline operator Cenagas, the effect in the market. Not knowing how in mind how and when Mexico will return
which he led from 2014-2018 following the long the shock will be makes designing the to a period of sustained economic growth
passage of Mexico’s energy reform. Under optimal response more complicated. once this temporary shock is over.
his leadership, Mexico’s natural gas trans- We see similar circumstances in natural NGI: One thing that we’ve seen
mission system operator took over the pipe- gas. However, gas does not have a single emerge, as a significant issue during this
line assets from state oil company Petroleos worldwide market, but rather local markets, crisis, has been the availability of storage
Mexicanos (Pemex) and conducted the first determined by transportation infrastructure. options. How does Mexico stack up in the
open season for capacity. In these local markets, we are seeing the global industry in terms of storage capacity
Prior to joining Cenagas, Madero same phenomenon, though a little delayed. for natural gas?
worked at the Energy Ministry (Sener) and However, the impact has been strong in cer- Madero: Considering that my profes-
as the senior advisor to the energy minister tain geographic locations with stranded gas. sional focus has been largely in natural gas,
and in senior policymaking positions for oil In those places, there can be more supply and from that perspective, Mexico lacks
and gas in both downstream and upstream. than demand and there is no physical way to sufficient natural gas storage. Mexico his-
In addition, he has worked in the Finance send the gas to areas of high consumption. torically used natural gas line packing,
Ministry, in the infrastructure develop- This has generated negative prices in West increasing and decreasing the pressure in
ment bank, in the pension supervisor and in Texas, for example, which is similar to what national pipelines (continued on page 6)
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as a very short-term operative measure to a storage option. I think this project should commercial consumers in Mexico, given
deal with the daily fluctuations in demand. be revisited, as it could assist to assure that that there is more capacity for imports and
The pipelines’ pack cannot store much, but Mexico has natural gas storage available more production of cheap natural gas in the
this was the strategy utilized for a long time should there be some sort of interruption. U.S.
in our country. NGI: Currently, is there an opportu- NGI: Can the clients that have a natural
In recent decades, and with a long-term nity for commercial and industrial clients to gas contract in Mexico receive better price
vision in mind, we started to use liquified obtain natural gas in Mexico? and service conditions?
natural gas (LNG). With LNG terminals in Madero: I think the availability of Madero: What I am seeing in the
Altamira and Manzanillo, this allowed us to gas has increased substantially in several market are new and old vendors actively
have gas stored and to have better control regions of Mexico. It has also improved trying to reach more clients. These market
of the pipeline’s operational conditions by in places where historically there has been players are now moving quickly to com-
modifying the speed of the regasification natural gas and infrastructure but there was mercialize gas with the regulation that cur-
process. This, of course, provides more flex- no available capacity. The availability of rently exists, that allows them to compete
ibility when used together with packing and natural gas has experienced massive growth by offering gas at the best conditions to the
unpacking pipelines. That is what Mexico because of investments and pipelines in clients.
currently has in terms of storage options. recent years. Some of the pipelines are still Competition is always good for the
What has changed recently is that new to enter into operation, but the growth and client and the price and service options
natural gas pipelines have begun operations ramp up of natural gas infrastructure and are improving as a result. With increased
in Mexico. Those pipelines, on one hand, investment in Mexico has been significant. rivalry among vendors, consumers are able
increased the possibility to utilize packing The phenomenon has allowed more to make better decisions and achieve better
and unpacking, and this allowed for more capacity to be available for imports, which market conditions.
reliability of supply, which is helpful. At has coincided with a significant boost in I think the current market landscape in
the same time, these pipelines are now production of natural gas in the U.S., partic- Mexico allows the largest consumers of nat-
importing large quantities of natural gas, ularly in the southern region of the country, ural gas to find and work with large vendors,
reducing the dependency on imports following the development of shale gas. while smaller companies that use less nat-
through the LNG terminals. Using LNG This has resulted in a significant increased ural gas also have several smaller vendors
regasification with more flexibility allows supply and historically low prices for nat- to choose. The current and new entrants that
day-to-day operations of natural gas to be ural gas in the region. want to participate in the natural gas market
less hectic. Therefore, more supply from the U.S. are going to find a market that is continually
Nevertheless, Mexico needs under- and additional import capacity available to improving to become more efficient.
ground natural gas storage that has more Mexico, have increased natural gas avail- NGI: Given the current conditions in
capacity and can be strategic. Underground ability in Mexico. We still have not been Mexico, can any company that accesses
storage would provide for several days of able to take advantage of all of this natural natural gas receive the same treatment and
gas consumption to be in storage and allow gas, because we still have some physical conditions?
the country to deal with supply interrup- bottlenecks. Some pipelines and compres- Madero: I think that the conditions are
tions, and guarantee more flexibility should sors are yet to come online and some inter- still there for any interested party, and this
there be a natural disaster, such as the hur- connections are yet to be constructed. is because there have not been large-scale
ricanes in southern Texas in recent years, or As a country, we need to take advan- changes since the energy reform. I think
simply a major maintenance in one of our tage of this infrastructure to be able to equal access for all entrants remains intact
main import pipelines. import much more natural gas, to utilize as in the current laws, and regulations.
For years, Mexico has also needed much of the capacity as possible, and make In practice, the sector needs a very pro-
operative storage options for natural gas. it available to the market through open sea- fessional regulator. An economic regulator,
An underground storage facility that could sons. Recent developments and communi- that clearly understands the problems, and
not only serve as a strategic solution, but as cations from Cenagas and state utility CFE is interested in providing the best condi-
an operational one, but that would require are quite encouraging. tions to the consumer at all times. I think
less rules for natural gas to enter and exit In that sense, some persisting regu- that, with the change in administration and
storage. This would improve operational latory bottlenecks are being tackled; the change in some of the public policies,
flexibility and would be a more efficient capacity available for commercialization there was some confusion early on, but I am
solution than continuous use of LNG is increasing, and could be placed com- sure that the regulator, like any economic
regasification for this purpose. petitively. There are now new vendors in regulator, will ultimately act in the best
The previous administration ana- Mexico that are trying to compete in an interest of the consumer.
lyzed possibilities for underground storage industry historically controlled by a domi- NGI: Do natural gas consumers have
options and arrived at the conclusion that nant player. New conditions are currently service options that can be adjusted to fit
the best option was to locate one in Vera- developing to allow them to compete in the their individual needs?
cruz in a depleted field named Jaf. It is close industry. Madero: Yes. As I mentioned, the nat-
to the port of Veracruz and has the size and I am optimistic that there is and will be ural gas vendors are adjusting to offer those
location to be very useful and economical as enough gas available for the industrial and services. Not all of (continued on page 7)
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the natural gas vendors can attend to all cli- sized business consumers to offer them the I am seeing these services develop and
ents, for example some seek out larger con- quantities needed with less of a hassle. I have a lot of optimism that the industry
sumers such as electricity generators and The smaller clients typically want bun- that commercializes natural gas is making
industrial companies, others look for cli- dled service offerings. They do not want adjustments quickly to provide for all types
ents that need financial coverage or hedges, to worry every day about daily supply and of consumers.
while others look for middle and smaller capacity. They look for a hands-off service.
FERC Greenlighting Alaska LNG Export Project Called ‘Capstone Moment’
FERC has authorized Alaska Gasline Resources Committee. “A final FERC States has free trade agreements (FTA), and
Development Corp.’s (AGDC) plans to certificate and order are immensely valu- also granted conditional authorization for
liquefy and export natural gas produced able assets for the project and the state of exporting 20 mmty to non-FTA nations.
on Alaska’s North Slope from a plant at Alaska.” Alaska LNG has faced its share of
Nikiski. The Federal Energy Regulatory Com- hurdles. Last week it was reported that the
The liquefied natural gas (LNG) project mission approved the authorization motion $43.4 billion project is in search of a new
would consist of liquefaction facilities on by a 3-1 vote Thursday, with Commissioner sponsor. The AGDC board reportedly hopes
the Kenai Peninsula designed to produce Richard Glick voting against. The chances someone else can take over the project if an
up to 20 million metric tons/year (mmty) of LNG projects reaching fruition “are very economic analysis currently underway finds
for export, along with an 807-mile-long, slim” because of economic conditions, he it is still economically feasible. Without
42-inch-diameter pipeline capable of trans- said. another sponsor the state corporation would
porting up to 3.9 Bcf/d to the liquefaction “Although the Natural Gas Act does likely sell the project’s assets, such as per-
facilities, a gas treatment plant in Prudhoe not require the Commission to inquire into mits and engineering work, according to
Bay and two additional natural gas pipe- a proposed prospect’s financial prospects, it published reports.
lines connecting production units to the gas is impossible to ignore the fact that the eco- Last year, state-owned AGDC signed
treatment plant [CP17-178]. nomic fallout from the covid-19 pandemic an agreement with BP plc and ExxonMobil
“This is a capstone moment for Alaska has made a very difficult market for LNG Corp. to collaborate on ways to advance
LNG at the federal level, and it is the result exports far more challenging,” Glick said. the project, including identifying ways to
of a robust and comprehensive review The Department of Energy previ- improve the project’s competitiveness and
process,” said Lisa Murkowski (R-AK), ously authorized the project to export 20 secure FERC authorization to build the
chairman of the Senate Energy and Natural mmty to nations with which the United project.
NextDecade Delays Rio Grande LNG FID
to 2021, Cuts Costs to Reach Finish Line
NextDecade Corp. said Monday it now plans to cut leased office space and defer latest project on the Gulf Coast to get bumped
expects to make a final investment deci- other administrative spending. to next year and one of several planned liq-
sion (FID) on its Rio Grande liquefied nat- NextDecade has $58 million in cash. uefaction projects (continued on page 8)
ural gas (LNG) export project on the South It expects to pay or
Texas coast next year as the Covid-19 pan- accrue $72 million
demic continues to upend energy markets. of pre-FID develop-
The company was expected to make an ment expenses this
FID earlier this year on the project, which year, with $46 mil-
would be located at a 984-acre site in the lion incurred during
Port of Brownsville. The company said the first quarter.
it has enough capital to operate until the “Our balance
end of next year, but the delayed FID has sheet is strong, we
prompted additional steps to cut costs. have no debt out-
Since December, NextDecade said the standing and the
full-time headcount has decreased by 18% long-term funda-
and 14% of the remaining workforce was mentals for our Rio
furloughed this month “until it has better Grande LNG project
clarity on th Covid-19 pandemic’s impact remain firmly intact,”
on the current global LNG market.” Addi- said CEO Matt
tionally, the company has agreed with Schatzman.
Bechtel to limit engineering work, with Rio Grande is the
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worldwide impacted by the coronavirus. purchase agreement with Royal Dutch The company also earned $15 million
Most recently, Sempra Energy delayed Shell plc, the largest LNG trader in the from Enbridge Inc. in March when it sold
an FID on its proposed Port Arthur LNG world. NextDecade said it could reach FID stakes in the proposed Rio Bravo Pipeline.
project east of Houston. Tellurian Inc., with another 9 mmty of capacity sold under The 4.5 Bcf/d system would feed the LNG
another pre-FID company with a large long-term contracts. project. Enbridge is now responsible for
export project pending in Louisiana, also If sanctioned, Rio Grande would development and financing.
announced measures earlier this year to cut have the capacity to export 27 mmty, or The 137-mile Rio Bravo system would
costs. roughly 1.3 Tcf annually. The site is shovel consist of twin 42-inch diameter pipe-
Securing supply contracts with long- ready now, and NextDecade has received lines and run from the Agua Dulce supply
term buyers has been more difficult amid additional regulatory permits. It also has hub near Corpus Christi in South Texas to
the pandemic’s travel restrictions, while a extended the engineering contract with the liquefaction facility. NextDecade has
glut of cheap gas has made long-term deals Bechtel, has a federal notice to proceed with signed precedent agreements with Enbridge
less attractive for some offtakers. site preparation activities, and extended for firm transportation capacity on the
Rio Grande has already inked a 2 the start date of the lease with the Port of pipeline.
million metric tons/year (mmty) sale and Brownsville.
Stalled Louisiana LNG Project Revived After Founders Take Reins Again
The team behind a mid-scale lique- 3Q2020. A final investment decision is tar- virus outbreak and economic uncertainty.
fied natural gas (LNG) export project in geted for mid-2022, and commercial opera- As a result, a number of projects along the
Plaquemines Parish, LA, which failed to tion is scheduled for 2026. Gulf Coast and elsewhere that are further
gain traction years ago is trying to advance Pointe’s co-founders said the site’s fea- along in the development process have been
again with new investment capital and off- tures would help keep costs down, but the delayed or sold.
take agreements. revamp comes at a time when the world is Pointe stalled in 2015 when Parallax
Co-founders Tom Burgess and Jim awash in cheap gas supplies. The glut has Enterprises LLC acquired predecessor
Lindsay, who had previously secured only been exacerbated by the Covid-19 Louisiana LNG Energy LLC. Parallax
funding in 2014 for Louisiana LNG along pandemic, which has reduced demand for later partnered with the largest U.S. gas
600 acres of the Mississippi River’s east the fuel. exporter, Cheniere Energy Inc., to advance
bank, said they now need about $4 billion to The market has also made it more dif- the facility, but the relationship soured over
develop the project, renamed Pointe LNG. ficult for second wave U.S. LNG export projects in Louisiana in a broader dispute
Pointe LNG would consist of three projects to secure financing and long-term that involved other parties, including a pre-
liquefaction trains, each able to produce 2 supply agreements, given abundant sup- decessor to rival Tellurian Inc.
million metric tons/year (mmty). It would plies, travel restrictions imposed under the In late 2016, FERC terminated the
also include two gas supply project’s pre-filing review
pipeline laterals with seven because of inaction. The
miles of 36-inch diameter line U.S. Department of Energy
to tap the Tennessee Gas Pipe- subsequently rescinded
line and Southern Natural Gas Louisiana LNG’s authori-
Pipeline systems. zation to export natural gas.
The potential Pointe has Pointe said after Che-
more than 9,200 feet of river- niere and Parallax were
front, which could eventually unable to complete devel-
enable an expansion from 6-12 opment, the company was
mmty, in addition to a deep- able to return to the site
water port with a depth of 50 and resume development
feet-plus to accommodate the as Pointe LNG LLC. The
world’s largest LNG vessels. Federal Energy Regulatory
The company has enlisted Commission cleared the
Whitehall & Co. as its finan- company to again start the
cial adviser and said it expects pre-filing process in Sep-
to close on the initial $56 mil- tember 2018.
lion of development capital by
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FERC’s Kohout Named First Chief of LNG Division
FERC has tapped 14-year staffer the BEST place to work #FERC. Looking in Houston and in Washington, DC. The
Andrew Kohout to run the Commission’s forward to continuously improving the division is to be staffed with 20 current
liquefied natural gas (LNG) division, which program.” employees who work on LNG projects in
was created last year. Kohout has worked at the Federal the DC headquarters, as well as eight new
Kohout, now LNG Branch 1 chief, Energy Regulatory Commission since 2006, full-time employees based in a Houston
would be the first director of its Division when he was hired as a safety and reliability regional office, FERC said at the time.
of LNG Facility Reviews and Inspections engineer. Five years ago he became chief The staff’s work is “critical to com-
(DLNG). of FERC’s LNG Branch 1. He holds both pleting engineering reviews, coordinating
In a tweet, Kohout on Monday said bachelor’s and master’s degrees in fire pro- safety reviews with the Pipeline and Haz-
he was honored to be named the first divi- tection engineering from the University of ardous Materials Safety Administration at
sion director and to enter “Senior Execu- Maryland. the Department of Transportation, and pre-
tive Service. It has been a pleasure seeing FERC created the DLNG last July paring engineering analyses for inclusion in
the dramatic change & growth in #LNG @ to focus on LNG, with staff to be based environmental documents,” FERC said.
Goldboro LNG Hits Regulatory Snag in Alberta Related to Supply Acquisition
A second attempt is under way to ful-
fill environmental rules for a supply deal for
the Goldboro liquefied natural gas export
facility proposed for Canada’s east coast
after the Alberta Energy Regulator (AER)
rejected the first transaction plan.
Project sponsor Pieridae Energy Ltd.
said action would be launched “swiftly” to
adapt to AER requirements for its C$190
million ($142 million) takeover of southern
Alberta midstream and upstream natural
gas assets from Royal Dutch Shell plc that it
acquired last year. The assets would provide
the majority of natural gas needed to supply
Goldboro’s first liquefaction train.
The AER denied regulatory approval
for a proposed transfer of provincial
licenses for the gas properties to Pieridae
from Shell. The companies sought a split
of conservation and reclamation liabilities
that was unclear and conflicted with Alberta
law, according to AER.
The regulator said the firms are wel-
come to apply again for approval of a
revised license transfer formula. Mean- AER’s decision. “This current arrangement The company said in April that it
while, the asset deal is acceptable in its between Shell and Pieridae accords with the would delay a final investment decision on
present incomplete form, AER added. AER’s regulatory framework.” the eight-year-old Goldboro project on the
Pieridae runs the gas wells, pipelines Pieridae said, “Both companies are Atlantic coast of Nova Scotia until next year
and processing plants. Shell retains the moving swiftly to evaluate options on the due to the Covid-19 pandemic. The facility
provincial licenses and associated environ- transfer applications and will continue to would export up to 10 million metric tons/
mental liabilities. In Alberta, “the licensee attempt to seek clarity from the regulator to year.
and the operator can be different,” said define an appropriate path forward.”
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Using Coronavirus as ‘Excuse,’ Mexico Pushes Through
Power Rules Said Damaging to Private Sector
The business climate in Mexico has
been hurt by new laws favoring state power
company Comisión Federal de Electri-
cidad (CFE) over private sector genera-
tors, according to industry participants and
analysts.
Claiming coronavirus demand destruc-
tion has made the electric power system in
Mexico unstable, energy minister Rocío
Nahle defended new rules published Friday
in the Official Gazette that limit the entry of
new renewable energy plants into operation
and allow the grid operator Centro Nacional
de Control de Energía (Cenace) to nominate
power dispatch from plants based on reli-
ability and not cost.
“It’s about putting structure into the
electrical system,” Nahle said in an inter-
view on Mexican radio station Radio For-
mula on Monday.
The new agreement guaranteeing “reli-
ability, security, continuity and quality in
the national electric system” is beneficial
to the power system because it allows for
“effective planning” at a time of demand and the American Chamber Mexico agreed, and state oil company Petróleos Mexicanos
uncertainty, the energy ministry (Sener) saying in a joint statement that the rules (Pemex). He has also turned his nose up at
said in a statement. were a violation of the legal framework and private investors through the cancellation
Sector participants exploded against could potentially displace any kind of pri- of the already under-construction interna-
the rules. vate sector generation project, renewable or tional airport, along with other actions in
The Canadian ambassador to Mexico, not. the energy sector such as ending new oil
Graeme Clark, sent a letter to Nahle on “Declaring certain plants as strategic and power auctions and forcing the restruc-
Friday signaling his concern that cancelled kills competition,” Zárate said. “The elec- turing of natural gas pipeline contracts.
auctions, permitting delays, along with tric power system in Mexico operates with On Monday morning during his daily
new regulation in the energy sector put at an economic dispatch logic.” presser, López Obrador said that private
risk $450 million in Canadian investment Renewable power projects in Mexico companies in the renewable energy seg-
through companies such as Atco, Canadian won at public auctions during the previous ment could go to the courts if they felt it
Solar, Cubico Sustainable Investments and administration were deemed to be among necessary.
Northland Power. the most cost-competitive in the world. The news comes at a time of economic
Representatives from the European “These rules, if they are allowed, and hardship in Mexico as the country struggles
Union also sent a concerned letter to Nahle, we still have to see what happens in the with the impacts of the coronavirus. Even
in which they stated that the new rules courts, could lead to a change in the makeup before the virus, Mexico’s economy had
would threaten $6.4 billion of investments of energy in Mexico,” Zárate said. “It stagnated; now analysts see gross domestic
in clean energy projects. impacts all private sector energy in Mexico. product falling by as much as 10% in 2020.
Nahle, who has prioritized refineries This could lead to an important reshuffling Zárate said the new rules don’t bode
and the oil sector, said on Monday that she in the sector.” well for the economy in general. “When
would respond to their concerns this week. But the rules are also very much in you are talking about a change that is so
“The government is using corona- line with changes seen under the adminis- important in the regulatory system in a
virus to illegitimately regain market share, tration of Andrés Manuel López Obrador, country, that goes against the law, it just
without doubt,” Pablo Zárate of Mexico a firm opponent of the energy reform that generates a lot of doubt in the economy
City-based FTI Consulting told NGI’s opened up the sector to private participation in general,” he said. “The private sector
Mexico GPI. in 2013-14. right now is thinking what does this mean
Members of Mexican business groups López Obrador has blasted the pre- for them? How risky is it to do business in
Consejo Coordinador Empresarial (CCE) vious administration for weakening CFE Mexico?”
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Natural Gas Said Key To Colombia Energy Transition
as Fracking, Offshore Gather Momentum
Natural gas is set to play an increas-
ingly important role in Colombia, according
to two prominent energy sector partici-
pants who spoke via web at the Institute
of the Americas’ La Jolla Conference on
Wednesday.
“Natural gas has a key role to play
in Colombia’s energy security and in its
energy transition,” said Ana María Duque,
the president of Royal Dutch Shell plc’s
Colombia division. “We have been working
very closely with the government in a col-
laborative environment. We need to be sure
we don’t lose that long-term vision and that
we keep working together.”
In February, Shell Colombia acquired
a 50% operating stake in three ultra-deep-
water natural gas blocks from Colombian
national oil company Ecopetrol SA. The
blocks are part of a natural gas province
discovered via the Kronos (2015), Purple
Angel (2017) and Gorgon (2017) explora-
tion wells.
Duque said that in order for Colombia
to take advantage of its natural gas opportu-
nity, it needs to “massify the use of natural
gas in the country,” where 20-25% of its
residents still don’t have access and “still
have doubts about its use.”
Colombia produced 1.1 Bcf/d of gas in
the first quarter, up 5% year/year. production, not only due to prices but also in Colombia more efficient, especially as it
Work still needs to be done to improve logistical problems,” National Hydrocar- pertains to sanctioning hydraulic fracturing
competitiveness and increase pipeline con- bons Agency (ANH) president Armando (fracking) pilot projects in the country.
nections between markets, as well as in the Zamora said during the event. “But this is “Regarding the fracking opportunity,
commercialization of gas, Duque said. “We one sector that has not stopped. The govern- I would say that curiously enough, during
need a framework that is competitive com- ment has made sure that the rights to transit the lockdown, actually the process of reg-
pared to other markets in the world.” for key workers continue. It has been so ulation has sped up. Everything has con-
Colombia’s key oil and gas industry has far a success. We’ve had some fears about tinued with a faster pace so the timetable
been hit by low oil prices and the demand workers, and we’ve had isolated instances continues. And there is interest there from
consequences of Covid-19. of Covid, but that has been contained the companies.”
Crude production is projected to fall to successfully.” ExxonMobil and ConocoPhillips,
750,000-850,000 b/d this year based on a Zamora said that the ANH is working along with Ecopetrol, are among compa-
Brent crude oil price range of $25-45/bbl, on easing rules on operators, including nies that have expressed formal interest in
from a target of around 900,000 b/d at the introducing “some flexibility” and deferrals these pilot projects, which the ANH expects
start of the year, the government said at the of financial obligations. to start in the first half of next year.
end of April. “We believe that the energy sector is “There is a very comprehensive plan
Some estimates see foreign direct going to be in a good position in the recovery. to make the pilots a scientific endeavor,”
investment in Colombia falling by as much We believe that prices will recover, and we Zamora said. “The pilots are to show what
as 20% in 2020 as a result. will be among the first in line to receive the hydraulic fracturing is about and what the
Meanwhile, the country’s strict lock- next wave of investment.” impacts are.”
down has been extended yet again and now The head of the hydrocarbons regulator He also argued that bidding rounds
runs through the end of May. also argued that working from home has for the end of the year and next year are
“There has been some reduction in actually made the regulatory environment on track, and “all (continued on page 12)
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of our promotion will be online, digital... second, “there is a lot of potential for gas Duque said. “The entire world needs to
we are entering really fast into the new not only for the internal market but also for learn how to live in this reality, we need to
world, and that’s where we want to position export.” see how many things we can continue to do
ourselves.” “Gas is the source of energy for the remotely, and I think this is very positive.”
Proven natural gas reserves in transition,” he said. “We want our fair share Zamora said that, “Our remote working
Colombia were 3.1 Tcf at the end of2019, of the market.” situation will continue indefinitely even
equivalent to eight years of production, Both Zamora and Duque agreed that the post-Covid. In terms of efficiency, inside
but Zamora sees contingent gas reserves coronavirus has irrevocably changed how we have made tremendous progress in
as “eight times higher,” such that despite the energy sector, and the world, works. assessing the situation of the agency, of
plans for a Pacific Coast liquefied natural “These lockdowns are making us aware what must be done. The new world is here
gas terminal, which would be the country’s of things we take for granted, like energy,” to stay.”
U.S. Oil, Natural Gas Rig Count at Record Low as Demand Recovery Sputters
U.S. oil and natural gas drilling activity
has hit its lowest point since Baker Hughes
Co. began publishing rig count data in
1987, the Energy Information Administra-
tion (EIA) said Wednesday.
As of May 12, the combined rig count
had fallen by 56%, or 433 rigs, since March
17 amid a collapse in petroleum demand
caused by Covid-19.
Most of the drilling decline “was in
oil-focused geologic plays, but natural
gas-focused plays also saw significant
decreases,” EIA analysts led by Nicholas
Skarzynski said, citing that 71%, or 308,
of the laid down rigs came from the coun-
try’s top three oil-producing regions: the
Permian Basin, the Eagle Ford Shale and month. said in a note to clients, noting the contrast
the Bakken Shale. The sharp plunge in the rig count between last week’s flat demand growth
The three areas have seen their rig reflects a sudden loss of petroleum demand and the previous week’s strong gains.
counts decline by 57%, 64% and 69%, due to coronavirus mitigation efforts, WTI futures have strengthened this
respectively, since mid-March, analysts researchers said, noting that these efforts week amid a sputtering recovery in global
said. also led to dramatic oil storage builds. demand as Covid-19 mitigation measures
Drilling activity has declined in nat- The decline in natural gas drilling are relaxed.
ural gas-focused plays as well, they said, has occurred over a longer time period, The EIA report follows a Tuesday note
although these areas had fewer rigs to researchers said, as gas prices already were by Rystad Energy forecasting that U.S.
begin. There were about 125 gas-directed at multi-year lows in early 2020. natural gas production will decline every
rigs operating in January, versus nearly 700 “Record-high dry natural gas pro- month until November, when it will reach
rigs targeting oil. duction in November 2019, low demand a trough of 82.5 Bcf/d, down from 94 Bcf/d
Rig counts in the gassy Marcellus and because of warm weather and relatively in November 2019 due to Covid-19-related
Haynesville regions fell by 23% and 26%, small withdrawals from storage during the shut-ins and the falling rig count.
respectively, from mid-March to May 12, winter heating season (November 1-March The Rystad team expects most of the
researchers said, noting that while changes 31) have led to a sustained decrease in the 11.5 Bcf year/year decline to be driven by
in the rig count typically follow oil price natural gas price,” the analysts said. natural decline, with only about 1.7 Bcf/d
movements with a roughly four-month lag, Also on Wednesday, EIA’s Weekly due to shut-ins.
in this case the rig count decline followed Petroleum Status Report (WPSR) for The Rystad team said they expect
the price collapse much more rapidly. the week ending May 15 showed a 1% Henry Hub natural gas prices to be in the
Skarzynksi’s team highlighted that week/week decline in petroleum products $2.50-$3.00/MMBtu range in 2021, trig-
the West Texas Intermediate (WTI) spot supplies. gering a recovery in upstream activity in
oil price started March at $46.78/bbl and “Our main takeaway is that the U.S. dry gas basins.
ended the month at $20.51, with most of demand recovery may be hitting a plateau,”
the decline occurring in the first half of the Clearview Energy Partners, LLC analysts
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