Energy Pulse: in brief (30 June)

With Ed Crooks taking a well-deserved break, this week’s Energy Pulse brings you news and views in brief from some of our global energy specialists.  

Read on for our take on EQT’s latest sustainability report, a new floating storage regasification unit (FSRU) deal for Deutsche Regas and Civitas expanding to the Permian. 

EQT changes the table stakes on emissions reduction timelines 

EQT has just released its latest sustainability report, sharing how the Marcellus powerhouse has eliminated 100% of natural gas-powered pneumatic devices from its operations. Pneumatic devices are the greatest source of fugitive methane from US E&Ps, meaning these programmes are arguably one of the most effective ways to reduce Scope 1 emissions. And EQT has taken down 9,000 devices. 

The company’s accomplishment cuts EQT’s annual carbon footprint by more than 300,000 mtCO2e. Even more impressive, the initiative took less than two years and cost US$28 million. That represents about 2% of the company’s 2022 capital expenditures. Or, in development terms, about three new Marcellus wells. 

EQT’s not alone in its ambition. Most operators have ongoing initiatives to replace, retrofit or convert existing pneumatic devices: Chesapeake Energy has retrofitted 19,000 devices so far. Antero has removed or converted over 5,900. 

But EQT’s move deserves attention because of its transparency and aggressive implementation timeline. The company dedicated nearly 23,000 work hours to the effort and completed it a year ahead of schedule. Its success will push competing US E&Ps to accelerate their own emissions reduction projects.  

Deutsche Regas sublets Transgas Power FSRU from the German government 

On 21 June, Deutsche ReGas agreed with the German government to sub-charter the Transgas Power floating storage regasification unit (FSRU). As part of the agreement, Deutsche ReGas will assume all rights and costs from the current charter agreement between the German government and Dynagas. 

Transgas Power will be deployed at the Deutsche project site in Murkan, Northeastern Germany. It will form the second phase of the Deutsche Ostsee terminal, also referred to as the Mukran Energy Terminal. The FSRU associated with Deutsche Ostsee Phase 1 (Neptune) will relocate to Mukran from Lubmin during Winter 2023/24. 

Transgas Power will add an additional 7.5bcm/yr of send out capacity to the total terminal capacity (13.5 bcm/yr). Deutsche ReGas will launch a binding open season for the second phase capacity from 29 June. 

The Deutsche Ostsee import terminal is an important LNG infrastructure project. It is strategically located near offtake points for the OPAL and EUGAL pipelines, so can serve both East German and Eastern European gas markets. Gascade, a German transmission system operator (TSO), is overseeing the construction of a short pipeline that will connect Mukran to the broader European gas grid. By relocating to the deeper waters of the Mukran site, the ‘shuttle’ operational model that is currently in use at Lubmin for Phase 1 (Neptune FSRU) will no longer be necessary. This will generate significant operational cost savings for Deutsche ReGas.  

Both FSRUs are expected to be operational at Mukran during winter 2023-2024. However, the relocation of Neptune FSRU and the installation of the Transgas Power FSRU may present operational challenges, particularly given Europe's high demand for LNG over the winter. Additionally, progress on the connecting pipeline to Lubmin will crucial, as any delays would result in a postponed commissioning of both FSRUs. 

Civitas expands to the Permian 

Colorado pure-player Civitas is joining the ranks of Permian operators through two deals announced on 20 June. The company is picking up Delaware Basin assets (approximately 30,000 net acres) from Tap Rock Resources and Midland Basin assets (around 38,000 net acres) from Hibernia Energy for a combined US$4.7 billion. Both sellers are backed by NGP Capital. On completion, Civitas will increase its full-year 2023 production from 165 kboe/d (45% oil) to 210 kboe/d (48% oil).  

After an active run as the DJ Basin consolidator, this is the company’s first move towards basin diversification. We expect Civitas will approach Permian development like it has in the DJ Basin. Instead of pursuing new growth through the drill bit, the company will look to maintain production and maximise cash flow as it aims to continue increasing shareholder distributions.   

But whether Civitas remains an active consolidator or not is debatable. The company is reaching a size where additional bolt-ons of material scale will become exceedingly expensive. What might be more likely is Civitas becomes an attractive takeover target itself in due course. Chevron’s Lower 48 portfolio has considerable overlap. 

Other views 

• Simon Flowers, Greig Aitken and Scott Walker – Big Oil is back buying upstream assets 
• Yingchi Yang – Three reasons LFP cathode supply keeps expanding in an oversupplied market 
• Malcolm Forbes-Cable – The case for developing UK's oil and gas resources: Rosebank and Cambo fields 
• Nick Pickens – Why scrap metal is an opportunity too good to waste  
• Erin Carroll – How to manage renewables supply chain issues 

Thanks to Michelle Stivala, Sean Harrison, Lydia Walker, Jennifer McNally and Ryan Duman for this week’s Energy Pulse: in brief.