Q: Could you offer an overview of JERA’s operations in the Americas?
Kamran Javed: Firstly, we are one of the main off takers of Freeport LNG train 1 along with Osaka Gas. The company is organized into two divisions currently, JERA Energy America LLC and JERA Power U.S.A. Inc.JERA Energy America LLC manages Freeport tolling agreement and any relevant agreements like gas procurement and pipeline in the region. On the other side we have JERA Power, which looks at investment opportunities and manages all business development activities for the company’s power generation portfolio. That includes equity interests in multiple power plants which are non-operating. Some of the interests include:
In addition to being a Toller in Freeport LNG, JERA has a 25% equity interest in the project.
Q: Are you currently evaluating investments in the downstream sector in the region
Kamran Javed: We are closely looking at downstream opportunities and evaluating a few options. Latin America is definitely a very interesting market and we are also in conversation with a few relevant players in North America.
Q: Do you see JERA and other key Japanese players looking at long term agreements again in 2018?
Kamran Javed: As prudent operators and stewards to optimize shareholder returns, JERA is always assessing and looking for the right opportunities.
Q: Do you see potential synergies between gas and renewable energy for power generation in the Americas markets?
Kamran Javed: Gas could be a good back up fuel for renewables since it offers flexibility and it’s a cleaner alternative from burning coal and petroleum products.
Q: In March you will speak at the CWC LNG Americas Summit. What are you most looking forward to at the conference?
Kamran Javed: The conference is a very important platform to get updates and discuss the main market challenges and opportunities. JERA wants to be part of that conversation as the US and Latin America are a very important part of our portfolio.
México se ha convertido en uno de los principales importadores de gas americano. ¿Cuáles son las previsiones de compra de gas natural para el próximo año?
CFEnergía (“CFEn”) realiza importante compras de gas tanto continental como GNL a los Estados Unidos de Norteamérica. Para fines del año 2017 importaremos alrededor de 60 cargamentos. Estos han sido importados por CFEn para las terminales de Altamira y Manzanillo y han sido entregados como gas regasificado a las empresas de generación de la CFE, a empresas de generación de energía eléctrica privada y a industriales.
CFEn participa también de manera significativa en la importación de gas natural continental. Hoy en día México importa alrededor de 4.4 BPCD por los diferentes puntos de interconexión en la frontera.
Para el año 2018, no se esperan grandes cambios sino hasta fines del año cuando México podrá importar más gas continental.
¿Qué papel juega y jugará el GNL dentro de su estrategia comercial?
El GNL en el 2018 seguirá siendo parte de la bases del suministro de combustibles; sin embargo a partir del 2019, el GNL debe pasar a formar parte de los combustibles secundarios.
La última reforma energética permite a CFE comercializar gas natural y hace unos meses se firmó el primer acuerdo de venta del combustible de la compañía con un cliente privado ¿Continuará su estrategia comercial por esta línea?
Al día de hoy CFEn tiene alrededor de 20 clientes bajo diferentes modalidades y plazos de suministro. Efectivamente, la reforma energética permitió a CFE participar en el mercado de comercialización de combustibles. Ahora CFE maneja el 70-80% de sus costos de generación, los cuales provienen del costo de los combustibles. A partir del 1 de julio del 2017, CFEn comenzó a realizar operaciones con independencia de CFE, comercializando un promedio de 3.2BPCD. Este volumen pondría a CFEn en el lugar número de la lista de comercializadores en Norte América de acuerdo a la publicación de Natural Gas Intelligence (“NGI”).
¿Cuáles son los principales desafíos que afronta la empresa como comprador internacional de gas?
El problema más grande de CFEn es la escala del negocio con el que comenzó. Los recursos humanos, los sistemas y el conocimiento de esta nueva industria en México son escasos.
Próximamente estará de nuevo representando a CFE en las conferencias CWC de Lisboa y Houston. ¿Qué expectativas tiene puestas en ambas cumbres?
Espero expandir la red de CFEnergía´s y CFEInternational´s y también nuestro portfolio. Esperamos además conectar con las compañías que no conocen a CFE y explicar cómo han cambiado las cosas en México tras la reforma energética y la completa restructuración de la industria.
Click here for the English version: https://lngamericas.cwclng.com/wp-content/uploads/2018/03/QA-GUILLERMO-TURRENT-CFE-ENGLISH-26.10.17.pdf
¿Podría ofrecer una actualización sobre el estado de su proyecto y los principales desafíos que han enfrentado durante su desarrollo?
En esta fecha, Octubre 2017, el proyecto se encuentra en una avanzada etapa de desarrollo, con un gran porcentaje de permisos obtenidos. Además, se han firmado ya varios contratos claves ya firmados, entre los que destacan un acuerdo de suministro de GNL con Shell y el EPC de la planta de generación con Wartsila. Un proyecto de estas características en América Latina siempre representa grandes desafíos, pero la convicción de los accionistas y el permanente apoyo de las autoridades gubernamentales nos permiten superarlos de manera satisfactoria.
¿Por qué eligieron el Gas Natural Licuado como fuente de generación eléctrica frente a otras opciones?
Las bases de la licitación pública internacional convocada por las autoridades de El Salvador permitían gas natural y carbón, pero no Heavy Fuel Oil, que históricamente había sido el combustible utilizado en Centro América para la generación térmica. Nosotros desde un primer momento tomamos la decisión de participar con gas natural.
El objetivo del proyecto es suministrar GNL a la planta de generación térmica de la compañía. ¿Ven potencial en el país para el desarrollo de un mercado interno de comercio de GNL a partir del desarrollo de esta planta de regasificación?
Definitivamente existe un enorme potencial para el desarrollo de un mercado interno de gas natural, tanto para la industria como para el consumo doméstico o el sector del transporte. Además, existe un gran potencial para abastecer desde nuestra planta la costa pacífica del triángulo norte de Centro América (Guatemala, El Salvador, y Honduras), a través de un esquema de hub-and-spoke que pudiera tener a nuestra terminal de gas como eje central. Todas esas oportunidades de negocio serán desarrolladas inmediatamente tras iniciar operaciones en la planta generadora de Energía del Pacífico.
Latinoamérica se está consolidando como un mercado muy atractivo para el comercio de GNL. ¿Qué pueden hacer los desarrolladores y compañías internacionales para potenciar el desarrollo de la industria del Gas Natural Licuado en la región?
Tener la seguridad que el gas natural llegó a la región para quedarse, sacar provecho de la abundancia de GNL en el mundo, así como de la cercanía relativa de fuentes de abastecimiento. El gas natural es el complemento ideal para compensar la intermitencia de las energías renovables.
En Marzo del próximo año representare a Energía del Pacifico en la 16ª edición de la cumbre CWC World LNG & Gas Series Americas Summit. ¿Qué expectativas tiene puestas en la conferencia?
Como en todas las conferencias de CWC tendremos la oportunidad de aprender de experiencias de diversos proyectos, y escuchar a las voces más reconocidas de este mercado.
Click here for the English version: https://lngamericas.cwclng.com/wp-content/uploads/2018/03/QA-Alejandro-Alle-EDP-ENGLISH-26.10.2017.pdf
Pasifik Agra Energi has committed an investment of over Rp 6.5 trillion (US$550 million) to build the first cryogenic energy-integrated LNG terminal in South Sulawesi, can you tell us a little bit about how this project came about?
One of the best ways to distribute the primary energy source in an archipelago is by LNG, it is clean, safe and efficient and if it is managed properly it can be very affordable.
Compared to the western part of Indonesia, the infrastructure in central and eastern Indonesia is less developed or less efficient. The electricity integration is still under development, and many of the small-medium sized power plants are still running on diesel fuel.
we have studied this situation for a while and have been considering the possibility of developing an LNG receiving terminal.
After about 6 months of study, we came to Bantaeng and monitored the industrial demand. We found out that Bantaeng will be a smelters concentrated industrial park, with huge industrial power demand.
After analysis of the demand, the sea condition and permitting/licensing process, we engaged with Bantaend to discuss a potential project. In May 2016 and July 2016, we received the principal license for both the LNG Recieving Terminal and Power Plant. In February 2016, ENMP received the exclusivity letter to be exclusive developer within the industrial estate.
Why was the location site, Bantaeng-South Sulawesi, chosen for the project?
Bantaeng is developing an industrial estate, mainly for nickel smelters. Two of the smelters are nearly completed and the other one is under construction. The potential demand is huge, and the existing projection is about 600MW. The anchor buyers is already in place. Location is ideal, in the south tip of Sulawesi Island, about 120km from Makassar and the water depth is ideal for a big vessel.
What are the current immediate priorities for the company and the project?
We have a good strategy to secure the off taker and strengthen the PPA by involving the Chinese stakeholders in this project. We have started the discussion and will hopefully receive the first report within the next few weeks.
Who will be providing the LNG/gas for the project?
We have had discussions with several LNG suppliers, we have gone through some good discussions, but we have not committed to any LNG producers/suppliers.
You are speaking at the 15th CWC World LNG & Gas Series: Americas Summit – Have you participated in the past and what are your expectations of the Summit?
I have delivered papers in several events, and my expectation is to build my network, meet the gas producers and aggressive investors for future development.
Grupo Leros is trying to develop a regasification project to bring more LNG to Brazil. What is the demand outlook in the country?
Growth in Brazil has been, for various reasons, lackluster in the last five or so years and that has reduced (on the demand side), the consumption of Natural Gas. When we look at natural gas demand, it has two main drivers: economic activity, for obvious reasons, and, which to some extent is connected to the economic activity, power generation. Ourselves and many economists understand economic activity should pick up during 2018/2019 which in turn would bring back the direct link to gas consumption, and thus to LNG. On the power generation end, there is a big debate as to whether the natural gas fired power plants should run on a base load or not (many reasons here: preserve water as (i) natural battery and (ii) consumption water; to compensate for the intermittency arising from renewables, lack of possible large new dams), along those lines, the market believes there is room for 6-8GW newly installed capacity in the medium term. In sum, a need for newly installed capacity coupled with a need for base load generation. The Ministry of Energy and Mining and the related bodies appear to be more inclined to accepting that as a viable option. With those two factors together, we understand there is room for Natural Gas to reach a national consumption far above 100MM m3/day (which was touched in 2014), and for such a demand, we see a need for at least 30 MM m3/day of LNG imports, in five years max.
What are the main current challenges that you are facing?
The current market downturn has made our lives a little harder. As we have been in it for so long, some believe it is here to stay; and that is clearly not true. The project is, by nature, quite big and poses a number of challenges, from environmental viability to financial and technical viability. On the flip side and for the exact economic reason, we have been successful in engaging the best consulting and engineering firms in the street such that we have a very robust project. One key point of our project is the fact that it is located in São Paulo, the state with the most strict environmental agency, which, on one hand poses a challenge in terms of licensing the project, but on the other, it obliges us to deliver a state of the art project to be auctioned.
How can LNG suppliers better adapt to fit the needs of potential LNG buyers in Brazil and other Latin American countries?
That has been a big point of discussion at our firm. Brazil has no history of a competitive LNG landscape, neither a power plant running on LNG on a competitive basis (LNG imports have always been controlled by Petrobras, which added LNG as a part of their portfolio, supplying the existing NG Power Plants). That said, it is a brave new world for everyone. Rules on the power auction are tough on the power plant operators/owners and they try to translate that into LNG SPAs, which is something suppliers are not very fond of. With that in mind, we have been very vocal with all entities – suppliers, buyers, and specially regulators – that, in order to have competitive prices, we need base load power plants.
In June you will be speaking at the 15th CWC World LNG Series: Americas Summit. What are you most looking forward to at the conference?
We firmly believe there is tremendous potential in the country to surpass those 25 MM m/3day: in the short to medium term, new power plants running on natural gas and new and old industrial clients and in the long run, a growing residential and commercial demand. Our project will be connecting to the natural gas transportation grid and we should be able to deliver natural gas to any client in the country connected to the grid. We would like to reach out to firms that share this belief and that would help us build this newborn industry in Brazil, either as suppliers or eventually partners.
PROJECT DEVELOPMENT & FINANCE | LNG/Power/Renewable & Alternative Energy/Oil & Gas – Latin America
Vera de Gyarfas and Evan Korngold, King & Spalding
On September 29, 2016, King & Spalding hosted an Energy Forum titled “Winds of Change in Latin America.” The purpose of the event was to discuss how the political and regulatory changes in Latin America could have an impact on investments in energy. With the election of President Macri in Argentina, Pedro Pablo Kuczynski in Peru, the impeachment of Dilma Roussef, and the low price commodity environment, several countries are making regulatory changes to promote foreign investment. Additionally, Mexico’s Energy Reform is creating new oil and gas markets, upstream, midstream and downstream investments. Various panels of experts discussed emerging issues in Latin American energy. The conclusion was that there are numerous areas for investment in energy in Latin America. Below is a synopsis of each panel and the relevant conclusions.
LNG to Power – Energizing Latin America
Hosted by Dan Rogers, Senior Partner in the Global Transactions group at King & Spalding, this panel discussion featured four legal and engineering experts on LNG to power operations. The panelists universally agreed that the demand for LNG to power in Latin America, particularly Brazil, can be summarized as a demand for quality over quantity. With Brazil currently producing close to 85% of its power through hydroelectric sources, the demand for LNG as a source of power arises not because of a lack of alternatives, but because of its consistency and reliability as a better power source. Citizens that were once tolerant of brown outs and periodic service interruptions have become increasingly dissatisfied with these impairments. Further, the realities of climate change have also changed the supply structure of Latin America, as changes to water and wind levels shift, some previously established resources are less efficient. The main benefit of LNG is its flexibility and consistency. Large offshore floating LNG facilities that were divested by Petrobras are still considered viable opportunities by foreign investors for development to provide LNG to Brazil for use in power development.
The panelists discussed that some countries within Latin America have long-standing natural gas pipeline agreements, notably Bolivia and Brazil, where the quantities of natural gas being transported have declined. The decline is a result of failure to invest in domestic exploration after Bolivia expelled foreign energy companies. The panelists agree that LNG is a viable source to supplant the decline in pipeline production throughout Latin America.
Brandt Liebe, partner in the Special Matters group at King & Spalding, led a panel discussion about recent updates in the area of the Foreign Corrupt Practices Act (“FCPA”) and enforcement of corruption internationally. The panel uniformly agreed that a major shift in Latin America has occurred with increased enforcement of existing anti-corruption laws. Large scale crackdowns such as the Brazilian “Car Wash” scandal have garnered significant media attention. The increase in enforcement has been bolstered by “grass roots” efforts from local citizens. According to the panelists, the mentality of “that is just how it is done here” is no longer tolerable.
Implementing FCPA compliance within the company
The panelists noted that essential aspects of preventing FCPA violations are to understand the means in which violations occur and the motivations of the bad actors. Focusing on the methods that employees and government officials use to extract money from corporations is essential to prevent illegal payments in the future. Specifically, according to one panel expert, false external vendors and inaccurate sales invoices are methods most commonly used by corrupt officials and employees. To combat these tactics, it is essential to create and enforce strict company policies and procedures regarding vendor and accounts payable processes. Without strict enforcement, even the most robust procedures will not prevent illicit payments. Management must provide training to all of its employees, not just those that have direct access to company funds, as logistics managers, field operators, and others have day-to-day job pressures that might incentivize them to violate the FCPA. Third party agents may also create problems, and it is thus important to make anti-corruption part of agent agreements and apply the same protocols to third-party agents as company employees.
Anti-corruption law beyond FCPA
Mexico and Brazil have made changes to their anti-corruption laws. Specifically, Brazil has a law that affects companies at the entity level and not at the individual level. This law has been on the books since before the Car Wash scandal, but has only recently been enforced rigorously.
Also, there are key differences between local laws in Mexico and the FCPA. Specifically, Mexican anti-corruption law applies actively and passively, meaning that both the party bribing and the party receiving the bribe may be punished. Further, Mexican law applies both to foreign and local government officials. In addition, unlike the FCPA there is no exception for facilitation payments. In addition, to discourage recently-departed government officials from seeking favors from contacts still within the government, there is a one year “cool off” period where companies cannot hire a former government official for one year after their departure from government. The panelists noted that there is uncertainty about whether the one year period applies to hiring of consultants that were government officials.
Punishment under the Mexican anti-corruption laws is severe. According to the panelists, violations include disgorgement of two times the profits as well as possibly dissolution of the entity.
Energy Infrastructure – Mexico
Moderated by Ken Culotta, head of the Global Transactions group and partner at King & Spalding, the panel noted that as a result of the Energy Reform which included an amendment of the Mexican constitution to allow foreign investment in the energy sector, there will be tremendous growth in Mexico across the entire value chain. Mexico expects to double its cross-border natural gas pipeline capacity by 2020. In conjunction with constitutional and regulatory energy reforms, Mexico has significant and expansive renewable energy goals that it seeks to have completed by 2035.
While Mexico has taken large steps toward liberalizing its energy markets, many issues remain. The panelists discussed some of the uncertainties with the continuing regulatory environment. Large regulatory bodies such as the CFE and CENEGAS act as the regulatory bodies for their respective areas, yet are also market participants in the power and natural gas markets. Mexico has made transparency a priority and the panel commended Mexico for the successful oil and gas bid process that are currently in its fourth state of implementation. The panelists believe that Mexico has shown a willingness to address concerns with its cumbersome and inconsistent regulatory landscape. The panelists are also confident that the government will take necessary steps to clarify situations where regulatory bodies also act as market participants.
Emergence of Renewable Energy in Latin America
Jim Alford, Counsel in the Global Transactions group at King & Spalding, moderated this panel and noted that Latin America will be a leader in growth in the renewable energy industry in the near future. The panelists contend that two highly attractive growth areas are Argentina and Mexico. The former because of increased government incentives, the latter because the irradiation levels and high winds make both solar and wind energy viable options. In conjunction with acceptance of renewable energy sources, technological advances across the solar and wind power generation industries have significantly decreased the costs and capital expenditure requirements needed.
Argentina has made political reforms that have made all investments, not just renewable energy, more attractive. These reforms include removal of foreign exchange restrictions on capital repatriation, a free floating exchange rate, abrogation of tax on dividends and new prices and tariffs for power and natural gas. Further, Argentina has implemented legislation that contains “mandatory targets” for the electricity market, most notably the requirement to increase renewable sources of energy from 8% to 20% by 2025. These changes are expected to encourage and incentivize foreign investment in Argentina.
Mexico currently generates over 80% of its power from coal, gas and oil. As noted by the panelists, the decreased costs, increased efficiency, and prime geographical attributes of Mexico make it a growth area. The principle areas of development will be the Baja California, Oaxaca, the north central region and the Gulf of Mexico. High winds and sun exposure make these areas ideal for development. Government reforms implemented in 2014 have also encouraged foreign investment through clear and transparent energy auction processes. The Government’s stated goals for this process is to attract investment, make existing technologies compete with each other, and to ensure efficiency to the customer. As the panelists stated, an increase in renewable energy will improve efficiency for all Mexican power consumers and drive down costs as well.
Upstream – Betting on Latin America in a Low Price Environment
Led by Vera De Brito de Gyarfas, partner in the Global Transactions group at King & Spalding, three industry experts provided their insights about upstream operations in Latin America in a low price environment. For large international energy companies, low priced environments cause increased internal competition for capital. As capital investments are decreased, companies focus only on the best opportunities as lower return opportunities are even less attractive. The panelists agreed that the main considerations for assessing a new upstream project include: (1) the quality of the resource, (2) the contractual and political risks, (3) the fiscal terms of the agreement, (4) the bidding process, and (5) any parent company guarantees. None of the panelists listed current commodity prices in the main considerations for investment decisions, recognizing the cyclical nature of prices and focusing on longer term considerations for investments.
To help mitigate the risks in a low price environment, energy companies look to partner with other companies through Joint Operating Agreements (“JOAs”). As one panelist noted this can be problematic in Mexico which has restrictions on JOAs. In addition to partnering with others, energy companies are forward-looking in their contracts and anticipate that energy prices will rise again. By doing so, both the host government and the contractor can be adequately compensated in both high and low price environments.
The panelists noted that market participants are wary of potential future political challenges as current incentives that are offered to encourage exploration may come under scrutiny in the future if prices rise. In a higher price environment, if the governments collect less than they deem reasonable, some politicians might raise questions about the wisdom of the initial arrangements and may try to renegotiate the contractual terms.
Latin America has suffered waves of resource nationalism, beginning in the 1930s with the Bolivian and Mexican nationalization of the oil industry, followed by Peru in 1968 and ending with Venezuela’s nationalization of the oil industry in 1975. In the 1990’s there were oil and gas privatization programs throughout Latin America, only to be followed by new re-nationalization measures / re-negotiation of contracts in 2002-2012 in Venezuela, Bolivia, Ecuador and Argentina. It seems that a new pro-investment cycle is beginning now in Latin America and hopefully this new environment will mitigate the risk of future re-negotiations and expropriations.
King & Spalding will be be participating at the CWC World LNG & Gas Series: Americas Summit in Houston, TX on 20-23 June 2017.
Article courtesy of Susan L.Sakmar, Visiting Assistant Law Professor, University of Houston Law Center
Last week, US voters took the world by surprise by electing Donald Trump to be the next US President. As the dust settles, people are trying to sort out what President Trump might mean for US energy policy in general, and more specifically for LNG and natural gas.
Earlier this year, it was reported that a coal executive asked Mr. Trump whether he would allow more US LNG export terminals to be built. In response, Mr. Trump replied, “What’s LNG?” One can assume that Mr. Trump will quickly learn that shale gas has put the US on the path to becoming one of the world’s top three LNG exporters, with Cheniere’s Sabine Pass facility being the first LNG exporter to start up in February and more on the way in the coming years. Mr. Trump may also be surprised to learn that in recent years, the US has exported record amounts of natural gas via pipeline to Mexico.
While Mr. Trump has yet to release a detailed energy policy or any specifics on what he might do, he made several broad statements during the campaign trail indicating he thinks American businesses are over-regulated and the federal government should back off, especially when it comes to environmental regulations and climate change.
Mr. Trump has also voiced support for more US oil and gas production as a means of enhancing energy security and promoting middle-class jobs and has vowed to
“bring back the coal industry,” a promise that could also breath new life into clean coal technologies.
From what can be gleaned from Mr. Trump’s statements on the campaign trail, the energy industry as a whole stands to benefit from Mr. Trump’s pro-business, anti-regulation stance. While Mr. Trump’s support of coal could pose a challenge for the natural gas industry since both fuels compete for power generation market share, it’s also possible for both to win under Mr. Trump.
As LNG exports increase in the coming years and natural gas prices rise, there could be a shift to use more coal for power generation. Whether this would impact any planned coal retirements in the coming years is an open issue, as is Trump’s support for renewables. It is worth noting, however, that renewables often have bi-partisan support and many US states have already adopted renewable portfolio standards. Moreover, even traditional oil and gas producing states support renewables with Texas having the most installed wind capacity of any state.
In terms of whether Mr. Trump will allow more LNG export facilities to be built, for now, the current LNG export review process seems to be working and there appears to be no need to either expedite or slow-down the process. However, there are many planned LNG export projects so it’s possible that over time, the Trump administration will need to revisit the review process.
In the coming weeks, we are likely to get more details about Mr. Trump’s views on energy as he begins to make key cabinet positions, including a new Secretary of Energy.
For now, there seems to be renewed optimism on the part of US oil and gas producers that President Trump will be a pro-business leader who will try to roll back many of the Obama administration’s environmental regulations aimed at the oil and gas industry, such as the Clean Power Plan and methane emissions rules. While this won’t help the industry in terms of the price of oil, it will reduce the cost of business and likely open up more areas in the US to drilling.