Ireland Mulls LNG Afresh, As Brexit Looms [NGW Magazine]
The start-up of the Shell-operated Corrib gas field offshore northwest Ireland at the end of 2015 was meant to herald a relatively serene gas supply outlook, after a decade when the Republic had been almost wholly reliant on UK gas imports. At the extreme west of Europe’s gas network, it was vulnerable to supply shocks upstream.
Corrib reached full capacity of 3.6bn m³/yr by June 2016, according to Canada’s Vermilion Energy, the producer expected to take over as its operator from Shell. A complex $1.2bn deal bringing in Canadian fund CPPIB as the largest shareholder was formally approved earlier this month by Ireland’s competition regulator. Another big producer and gas marketer in Ireland, Norway’s Equinor, has 36.5%.
Corrib met about 60% of the republic’s 5bn m³/yr natural gas needs in 2016-17 and was the first Irish gas field to start up since Marathon launched the Kinsale Head fields off County Cork in southern Ireland almost 40 years ago. Those, now belonging to Malaysia’s Petronas, are now marginal producers, with one having been converted to an offshore gas storage facility.
Corrib was completely shut for a month during September-October 2017 and served as a stark reminder that, if things go wrong with the field or the related onshore network, gas has to come from Britain. The field is still expected to produce for another 12-18 years.
Imports come through three interconnectors: the Scotland-Northern Ireland Pipeline (Snip) and then over the border from the UK province of Northern Ireland; and two interconnectors that land north of Dublin. All three pipes begin at Moffat in southwest Scotland and one interconnector also serves the tiny (non-EU) Isle of Man gas market.
According to the 2017 Network Development Plan of Irish state transmission operator Gas Networks Ireland (GNI), Corrib was expected to meet up to 56% of annual Gas Networks Ireland system demands (72% of ROI demand) in 2016/17, with Inch (entry point from Kinsale Head) and Moffat providing the remaining 4.8% and 39.2% respectively.
Risks of disruption to gas trade
EU negotiators have set a tough stance that there should be no customs checks on inter-Irish trade – on the onshore border with Northern Ireland once the UK leaves the EU, which is due to happen on March 29 – but that is yet to be agreed.
The UK government, in its Chequers agreement of July 7 2018, says that “the UK and the EU should therefore focus on ensuring continued frictionless access at the border to each other’s markets for goods” and that ”to deliver this goal, the government is proposing the establishment of a free trade area for goods” and that it wants “continued co-operation on energy and transport – preserving the Single Electricity Market in Northern Ireland and Ireland, seeking broad co-operation on energy.”
LNG as a hedge?
Against this backdrop, having one LNG import terminal could be a useful hedge. The Irish Communications, Climate Action & Environment (CCAEN) ministry – which handles energy – told NGW that its current and former ministers “are on record as being supportive of an LNG terminal in Ireland which would provide direct access to gas and enhance Ireland’s energy security.”
But the costs to a relatively small market like Ireland’s could be heavy. Nor could either of the two planned projects be developed by March 30, 2019. Even the two years’ grace granted by the negotiated two-year transition period might be a very short period to get a project going, given the planning approvals and other processes to be gone through.
Direct imports of gas into Ireland – such as through an LNG import facility – would be possible but would only be viable if the tariff for such a facility were less than the pipeline transport cost between Britain and Ireland, argues the London-based think tank Energy Institute. The cost of transporting gas from Britain – entry at Moffat, plus GNI exit – is low, it adds, and fell by 0.4% during 2015. Tariffs for transporting gas in the Republic of Ireland are set by the Commission for Energy Regulation (CER), the Irish regulator, and onshore gas transmission and distribution account for 40% of final consumer prices.
CER is likely to be watchful about that ratio increasing, to the detriment of consumer prices.
Ireland’s CCAEN ministry told NGW that, in line with government and EU policy, it has been carrying out Brexit analysis across all energy sectors: “Ireland’s contingency and preparedness planning is well advanced. It was the subject of a major government discussion in July and the cabinet will continue its decision-making on further measures this month. Ireland will, of course, continue to be a full member of the EU after Brexit and will continue to benefit from the stability and protection of our EU membership.”
The LNG projects on offer
Two LNG import terminals are on the table: an onshore terminal, Shannon LNG, in the estuary of the river of that name, in the west; and the other would be a floating storage and regasification vessel in Cork harbour to the south.
Shannon LNG has been on the table far longer, but ownership of the project recently changed. The project has several planning approvals, and last month got a ringing endorsement from PM Leo Varadkar, who has often voiced his concerns about the impact on Ireland of Brexit.
US investors are backing both projects but neither will discuss costs with the press. But a secondary backer of the Cork project has recently backed out.
US privately-owned Hess Corporation owned the Shannon project for a decade up to 2015, originally as a 92.5%/7.5% joint venture with US consultancy Poten, then latterly alone before selling it on to a private Irish company, Sambolo Resources, in November 2015. It was announced August 24 that the project had been sold to New Fortress Energy (NFE).
Asked if the irish project might switch from a shore-based facility to a FSRU-based one, NFE said: “The Shannon LNG project specifics are set by the planning approvals it achieved and the rationale remains the same since it was first launched back in 2015.”
Whereas the Cork-based FSRU project is not on the EU’s list of Projects of Common Interest (PCIs), last updated April 2018, Shannon LNG, or ‘project 5.3’ is listed – but currently as an LNG import terminal with capacity of some 6.2bn m³/yr at commissioning and 10.3bn m³/yr at full, a nearby 500-MW high efficiency combined heat and power plant, and a 26-km gas pipeline eventually able to deliver up to 9.8bn m³/yr into Ireland’s national grid at Foynes, County Limerick. The terminal would have four tanks of 200,000 m³ each and a jetty able to handle the largest type of tankers afloat today: Q-Max.
But NFE has so far not been a major project developer and the chances it would want to proceed immediately with a 10.3bn m³/yr plant look slim. Irish ministers though have been fulsome in their messages of support.
Varadkar said NFE’s proposal was very welcome; and CCAEN minister Naughten added that an LNG terminal would be a very important contribution to the security and diversity of energy supply and provide direct access to gas from multiple sources."
NFE founding chairman Wes Edens described the project as “critical for Ireland's energy security” and said Ireland – a country that in the recent past has generated power from coal and peat – is “at the forefront of the integration of natural gas and renewables and strategically positioned for the growing global LNG market.”
One interesting point too. Whereas the EU’s latest PCIs list said Shannon LNG would be running only by 2022, NFE now says its project could start operations by the end of 2020.
Moreover, NFE’s August 24 statement omits any mention of that up to 10bn m³/yr import capacity, preferring simply to say that “LNG received from ocean-going tankers will be regasified and delivered as natural gas into the national gas network in Ireland via the connected 26 km pipeline to a connection at Foynes” and insisting that “the project has acquired all the necessary planning and permitting approvals for its development.”
"The project involves a major investment and is expected to support 400 jobs at peak construction and 100 jobs when operational," said Paddy Power, Shannon LNG managing director.
NextDecade loses partner Flex LNG
Texas-based developer NextDecade – the company looking to develop the 27mn mt/yr Rio Grande LNG export project in Brownsville, south Texas – announced in a big flourish in July 2017 that it was in talks with shipowner Flex LNG and the Port of Cork authority to develop an FSRU-based terminal.
The Texan firm said then that this would provide "competitively priced energy solutions to Ireland and its regional partners under long-term contracts and, if constructed… substantially increase and diversify Ireland’s supply of natural gas." But since then, one of its partners has backed out.
Late 2016 Flex and NextDecade signed a heads of agreement (HoA) aimed at joint development of a “full value chain infrastructure solution using FSRU and dockside regasification technology.” NextDecade has provided no update since July 2017 on this to NGW, but Flex has.
Flex LNG CEO Oystein Kalleklev told NGW September 10: “As we have discontinued our focus on FSRUs – due to the oversupply of FSRUs in the market – we have also terminated the HoA with NextDecade.”
Port of Cork, NextDecade’s other partner, signed a memo of understanding July 2017 to work exclusively on the planned installation of an FSRU, plus associated infrastructure, “capable of regasifying up to 3mn metric tons/yr into the Irish gas grid.”
It appears to be still onside, the port authority chair telling a parliamentary hearing in February 2018 that NextDecade had found Cork “an attractive location for an FSRU-based LNG import terminal” as an entry-point to the Irish gas market. Under 2 km from the GNI grid at the Bord Gais Energy [now Centrica] plant in Whitegate, it also has potential customers in the port itself.
Ireland’s CCAEN ministry says the current EU PCI list will run until the end of 2019: “Shannon LNG project is on the current PCI list and will need to apply to the EU Commission for consideration as a PCI on the next list. It is a decision for a project promoter to submit its project for consideration. Accordingly, whether NextDecade submits an application for its project to be considered for PCI status is a matter for the promoter of the project.”
The US investors
New Fortress Energy has some relevant experience: in 2016 it developed a small LNG import terminal in Jamaica’s Montego Bay along with gas-fired power plants to supply local industry. Since 2016 it has shipped in LNG from its own unit in Miami, Florida.
NFE’s Montego Bay terminal is not primarily shore-based. Instead it has used the Golar Arctic LNG carrier for two years as a floating storage unit (FSU) for the past two years, connected to the shore.
LNG imports by that Jamaican terminal in 2017 were just 0.22bn m³, according to the latest International Group of LNG Importers (GIIGNL) annual report; it adds that Golar LNG is said to have agreed with NFE for the 15-year charter of either Golar Spirit or Golar Freeze FSRUs to replace Golar Arctic from 4Q 2018. Shipments are shuttled to Jamaica from Miami by a relatively small LNG carrier.
Golar Spirit has capacity to regasify 2.5bn m³/yr using over-jetty transfer, while Golar Freeze can handle 4.9bn m³/yr and transfer LNG from a carrier moored alongside.
NextDecade has had a setback in the US, announcing in early September that it had been unable to finalise a lump-sum construction (EPC) contract with McDermott for the giant Rio Grande US LNG export project and has had to re-tender to two others and McDermott. NextDecade now hopes to finalise the Rio Grande EPC contract in 3Q 2019.