We spotted a story that says India’s GAIL (formerly known as Gas Authority of India Limited) has put yet another one of its contracted LNG shipments of Marcellus Shale gas coming from Dominion’s Cove Point LNG export facility, up for sale. In fact, it’s already sold and on its way to be unloaded at a port in Belgium.
Between Japan and India, all of the Marcellus LNG produced at Cove Point is spoken for (i.e. contracted) for the next 20 years. However, that does not mean all of that LNG will end up in Japan or India. Far from it.
GAIL has a deal to buy 2.3 million tonnes (MT) per year from Cove Point. However, as we reported nearly a year ago, in April 2018, perhaps half of that volume will never reach India (see Half of India’s Contracted US LNG Won’t End Up in India). Both India and Japan often swap/sell their LNG cargoes to other countries. Why? Two reasons.
(1) India and Japan, located in the Far East, can get natgas cheaper closer to home because of new sources coming from countries like Australia and Qatar. Shipping LNG is not cheap. If you can save on the cost of shipping it across the globe, why not? So India (in this case) ends up swapping or selling the cargo to a country closer to the point of origin. In this case, India has sold its latest cargo to someone who wants to take delivery in Belgium.
(2) You have to have enough regasification operations to handle the incoming LNG. In India’s case, they are currently running out of capacity to regasify all of the shipments they’re contracted to accept. It does no good to have an LNG tanker show up on your shoreline and you can’t offload it because you can’t regasify it!
Full storage tanks of liquified natural gas (LNG) in India have prompted Gail India to sell a US cargo bound for the Asian nation to northwest Europe, industry sources said on Wednesday.
The sale of a cargo already on the water is the latest example of an oversupplied LNG market that has resulted in Asian spot LNG prices falling to an almost three-year low of around $4.30 per million British thermal units (mmBtu) this week.
It also signals that India’s LNG demand, considered substantial compared to northeast Asia, is weaker than expected.
Europe has become a top destination this year for cargoes that cannot find a home in Asia because of high stock levels and low delivery prices.
The cargo on board of the Meridian Spirit that loaded at the US Cove Point plant on March 20 was offered in a tender on March 25 when it was crossing the Atlantic Ocean.
It was sold at about $4.30 per mmBtu, three industry sources said. The cargo will be delivered to Belgium’s Zeebrugge terminal, one of them added.
The vessel turned to northwest Europe on March 26 when the tender was closed, Refinitiv Eikon data showed.
There is a tank top situation at India’s west coast terminals, meaning the storage facilities were full, the industry source said, adding that this had led to the cargo being sold to a European destination. Prices in the country are at a slight discount to those in northeast Asia. But sources said that, even if the prices were going down further, it did not mean that India would be able to buy significantly more LNG.
Gail has 20-year deals to buy 5.8 million tonnes a year of US LNG, split between Dominion Energy’s Cove Point plant and Cheniere Energy’s Sabine Pass site.
The Meridian Spirit is expected to be used by Gail to load a new cargo in the US Gulf in mid-May.
There are at least two tenders from other India’s companies, trade sources said. Indian Oil Corp (IOC) is looking to buy a mid-May delivery cargo. Petronet is looking for three cargoes for delivery between July and December.
Regasification capacity has constrained LNG imports in India in recent years.
India has four terminals receiving LNG on the west coast. India’s first east coast terminal in Ennore was commissioned by IOC this month. Two more terminals, GSPC’s Mundra and H Energ’s Jaigarh, are expected to start up this year. (1)
The Futility of U.S. FTA and non-FTA Permits
When building a multi-billion dollar LNG export plant like Cove Point, one of the key early steps in the process is to obtain a permit, an authorization, from the U.S. Dept. of Energy (DOE) to export the LNG to other countries–either to Free Trade Agreement (FTA) countries or non-FTA countries. Here’s a relevant bit of guidance from the DOE explaining:
Section 3 of the Natural Gas Act (NGA) (15 U.S.C. § 717b) prohibits the import or export of natural gas, including liquefied natural gas (LNG) from or to a foreign country without prior approval from the Department of Energy (DOE). Parties who want to enter into natural gas transactions with foreign sellers and buyers must file for an import and/or export authorization under the rules and procedures found in (10 CFR Part 590) of DOE’s regulations. (2)
With such a permit in hand, the builder can then proceed. And when the plant is up and running, they begin selling to previously-approved customers. In the case of Cove Point, the counter parties buying are GAIL from India, and ST Cove Point, a joint venture between units of Japanese trading company Sumitomo Corp and Tokyo Gas.
But here’s the thing. Once GAIL or ST Cove Point take possession of the gas and that tanker leaves port, they can turn around and sell it to whoever they want to–even to an enemy of the U.S.
As we’ve seen with Russian gas getting imported to Boston, you can further obscure the source of gas by unloading it at a terminal, and reloading it a few days later on a different ship. Whose to say the molecules came from a specific country?
So the ultimate question we ask, and the point of this entire post, is why bother with DOE FTA and non-FTA permission at all? Why not change the law and be done with it, if there’s no real, practical way to ensure our gas won’t end up in certain countries? Seems like an administrative waste of time.
(1) New Delhi (India) NDTV (Mar 27, 2019) – GAIL Sells India-Bound US Natural Gas Cargo To Europe Amid Oversupply: Report
(2) U.S. Dept. of Energy (accessed Mar 28, 2019) – How to Obtain Authorization to Import and/or Export Natural Gas and LNG
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