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7/21/2019 LNG Industry December 2009
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- The
vention
A supplement to Hydrocarbon Engineering
Winter 2009
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03 Comment
05 LNG news
10 LNG in EuropeAndy Flower, Waterborne Energy, UK, explores industry developments in Europe
16 Australias energy futureNg Weng Hoong, LNG Industry Correspondent, discusses the potential of the
new Australian gas fields
21 Embracing e-tradingRoger Aitken, on behalf of Trayport Ltd, UK, and Dan Smith, Trayport, UK,
examine whether a more efficient and transparent method for price negotiation
of LNG could successfully evolve
28 Oil and gas development in AlgeriaLNG16 Executive Committee, Algeria, discusses the oil and gas potential of Africa, and
the upcoming LNG16 conference
31 LNG - the marine fuel of the futureHkan Werner and Kjetil Sjlie Strand, I.M. Skaugen, Norway, explore small scale
LNG supply chains and bunkering infrastructure
36 Delivering a new FSRUBlake Blackwell, Golar LNG Energy, UK, presents an insight into delivering the
worlds first FSRUs based on the conversion of an existing LNG carrier
44 LNG tandem offloadingLeen Poldevaart, Jean-Pierre Queau and Perry Adams, SBM Offshore, Monaco,
discuss the logistics of offshore LNG offloading
49 Standardising offshore transferLeiv Kallestad, TORP Technology AS, Norway, discusses a standardised approach
to offshore LNG transfer
53 Efficient operation at peak timesEric Frey, Brian Eisentrout and Jan Snyder, CB&I, USA, explain how solutions for
peak shaving facilities are required as gas composition continues to change
57 Going greenKamal Shah and Judy Wong, Aker Solutions US Inc., USA, and Bill Minton,
Advantage Fuels, USA, consider ambient air based technologies when building
LNG regasification terminals
65 A logistical challengeEmmanuelle Rauline, Franois Fvrier and Nicolas Bilbault,
GEA Batignolles Technologies Thermique, France, discuss logistical solutions for
remote LNG facilities
69 Its all in the design
Michael Cords, Ebara International Corp., USA, explores how NPSHR performancecan be affected by different inducer designs
The LNG Exhibition and Conference takes place everythree years with producer and consumer countriestaking turns to organise the event. In 2010, LNG16will be conducted in Oran, Algerias second largestcity. Oran has all the assets to host a world eventof this magnitude: strategic geographical location,modern services network, experience in organising
large events and its special hospitable character.For Reader Enquiries visit:www.lngindustry.com
ON THIS MONTHS COVER
- The
vention
A supplement to Hydrocarbon Engineering
Winter 2009
Winter 09 | LNGINDUSTRY.COM 1
Contents|WINTER 2009|
ISSN 1468-9340
CopyrightPalladian Publications Ltd 2009. All rightsreserved. No part of this publication may be reproduced,stored in a retrieval system, or transmitted in any formor by any means, electronic, mechanical, photocopying,recording or otherwise, without the prior permission ofthe copyright owner. All views expressed in this journal arethose of the respective contributors and are not necessarilythe opinions of the Publisher, neither does the Publisherendorse any of the claims made in the articles or theadvertisements. Printed in the UK.
LNG Industryis audited by theAudit Bureau of Circulations (ABC).An audit certificate is available onrequest from our sales department.
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Winter 09 | LNGINDUSTRY.COM 3
Comment
T
he world is now cautiously eyeing the
Arctic, anxiously noting incremental
degrees of thaws and freezes, and
deducing what this might mean for
future energy production in both
positive and negative terms. The shocking claimthat the Arctic sea will be completely ice-free
during the summer within 20 years illustrates
just how indeterminate the envi ronment that
we live in continues to be. On one hand, an
ice-free summer would spell easier oil and gas
exploration in the region. The Northwest Passage
could become a watery bridge for commercial
enterprises, potentially allowing us to tap into
vast swathes of previously inaccessible resources,
and turning back the clock on our inexorable
global fossil fuel decline. The downside to the loss
of the worlds most fragile region is a medley ofcatastrophic predictions that no one really wants to accept as possible.
And its not just the natural environment that holds uncertainty for us in the
near future. The global political climate can be just as ambiguous. With Asian LNG
traditionally linked to oil prices, and US LNG prices determined by the gas market,
global LNG pricing has been predicted to come closer in the future. The gap in
pricing will be bridged by countries like Qatar, which continues to be pivotal in
driving LNG exports around the world. Opportunities will continue to expand for
LNG strong in its advantage of being shippable to anywhere in the world, and a
comparatively carbon-friendly energy source.
Natural gas has been tipped as the bridge fuel to a more environmentally
stable future. In his speech at the World Gas Conference in Buenos Aires in
October, BPs Tony Hayward said, I dont think we can afford to wait. We need to
take carbon out of the energy mix today. [] I can see only one way of doing it
by increasing the use of natural gas. But as the Arctic polar bears finally steady
themselves on the thick ice in their ever-limited cold December days, the most
imminent bridge for us to cross this month towards a more stable future will be the
United Nations Climate Change Conference in Copenhagen.
Editorial/Advertisement Offices, Palladian Publications Ltd, 15 South Street,Farnham, Surrey GU9 7QU, ENGLAND, Tel: +44 (0) 1252 718 999Fax: +44 (0) 1252 718 992, Website: www.lngindustry.com
LNG Industry is a supplement to Hydrocarbon Engineering
Hydrocarbon EngineeringSubscription rates
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Advertisement Managers Chris [email protected]
John [email protected]
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Contributing Editors Nancy Yamaguchi David Hayes
Publisher Nigel Hardy
Hydrocarbon EngineeringSubscription rates:Annual subscription 105 UKincluding postage/125/E 190overseas (postage airmail)/US$200USA/Canada (postage airmail).Two year discounted rate 168 UKincluding postage/200/E 304overseas (postage airmail)/US$320USA/Canada (postage airmail).
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Applicable only to USA & Canada.Hydrocarbon Engineering(ISSN 1468 - 9340) is published monthly byPalladian Publications Ltd, 15 South Street,Farnham, Surrey, GU9 7QU, ENGLAND.US agent: Mercury International Ltd,365 Blair Road, Avenel, NJ 07001.Periodical postage paid at Rahway, NJ.Subscription rates in the US: US$200.POSTMASTER: Send address
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Editorial/Advertisement Offices, Palladian Publications Ltd, 15 South Street, Farnham,Surrey GU9 7QU, ENGLAND, Tel: +44 (0) 1252 718 999Fax: +44 (0) 1252 718 992, Website: www.lngindustry.com
LNG Industryis a supplement to Hydrocarbon EngineeringProduction Rachel Bayly
Website Editor Anna [email protected]
Subscriptions Laura Cowell
Reprints / Administration Vicki Crawshaw
Contributing Editors Nancy Yamaguchi
David Hayes
Publisher Nigel Hardy
Managing Editor James [email protected]
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Advertisement Director Rod [email protected]
Advertisement Manager, USA/CanadaChris Atkin
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C O N TA C T I N F O R M AT I O N
Anna ScordosEditor
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ChangingtheworldofLNGthroughinnovationwww.golarlng.com
Liquefaction
FieldFirstApproachPowerfulpartnerships
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*Diverseandbalancedportfolio* FullLNGchainparticipation* Cleargrowthopportunities* Capturingvalueforcustomers,investors,andpartners
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ExxonMobil has reached a preliminary deal to sell 2 million tpy
of LNG from its Papua New Guinea operation to Sinopec. This
is likely a precursor to a long term contract between the two
companies to supply Chinas long term energy needs, which are
set to triple in the next 10 years, potentially reaching
18 million ft3/d in 2020.
The imported LNG will feed the Quingdao terminal being
built in Shangdong province, which is scheduled to come online
in 2014. Sinopec is also planning a string of other terminals
along Chinas coastline, including one in the planning stages at
Huangmao island in Zhuhai, which will supply the neighbouring
market of Macao.
The deal represents an attempt by Sinopec to expand its
share of the domestic market, currently dominated by Petrochina
and China National Offshore Oil Corp., which previously had
been thwarted by a lack of LNG supplies. Although it still has
a way to go to catch its rivals, who already have two and three
LNG terminals respectively, in various stages of development.
As a result of slumping gas prices in the USA brought on
by the economic recession, Qatar is to start diverting LNG
supplies from the USA to China. In total it will amount to
10% of LNG shipments; approximately 5 million tpy. Qatar
plans to produce 77 million tpy of LNG by September 2010,
and is now looking to negotiate more long term supply
contracts with China.
Domestic gas prices in the USA are being pressured by
increased domestic supply, low demand and record high
inventories, which has deterred producers from shipping LNG to
America; gas prices there have dropped by more than 60%.
China on the other hand, is a very attractive market at the
moment, with economic growth this year of 8%, compared
with a US economy still struggling out of recession.
Indeed, China is likely to become one of the worlds largest
consumers of LNG in the future. This is likely to continue with
China National Offshore Oil Corp. negotiating a 25 year supply
deal with Qatargas.
Yemeni President Ali Abdullah Saleh and Yves Louis Darricarrere,
the Head of Exploration and Production at French oil company
Total SA, inaugurated the first shipment of LNG from Yemens
new US$ 4.5 billion LNG facility at the port of Balhaf, on
the Arabian sea. The project is part of plans by the Yemeni
government to expand oil and gas revenues in the impoverished
state.
The first processing train came online on 15 October and
a second train will come online once construction is finished.
When fully operational, the plant is expected to produce
approximately 6.7 million tpy of LNG, and will help Total
close the gap with larger European based LNG suppliers
Royal Dutch Shell plc, BP plc, and BG Group plc.
The Yemen LNG joint venture is owned by a group of
shareholders, with Total taking 40%. Other shareholders include
Korea Gas Corp., Dallas based Hunt Oil Co., Yemen Gas Co.,
South Koreas SK Corp., Hyundai Corp. and Yemens General
Authority for Social Security and Pensions.
PAPUA NEW GUINEA \\ Sinopec to buy LNG from ExxonMobil
CHINA \\ Qatar to divert LNG to China
YEMEN \\ First LNG exports leave country
Winter 09 | LNGINDUSTRY.COM 5
LNG News
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// DIARY DATES
BP Trinidad and Tobago (BPTT) has
announced the start of natural gas
production from the Savonette field,
offshore Trinidad. Savonette is located
in 290 ft (88 m) of water approximately
50 miles off Trinidads southeast coast.
BPTT holds a 100% interest in the field.
Production from the platform is
tied into BPTTs Mahogany B platform,
via a 26 in. diameter 5.3 mile subsea
pipeline, where the gas is processed
and then exported into BPTTs existing
infrastructure.
Gas from Savonette will supply
Atlantic LNGs liquefaction plant for
export as LNG to international markets,as well as the domestic market. With
Savonette, BPTT now has production
from 12 offshore platforms.
Production from Savonette is
expected to average 600 million ft3/d of
gas, plus associated condensate, from
four wells. Savonette production will
contribute to maintaining BPTTs
total production level at more than
450 000 bpd of oil.
The Savonette platform, installed in
February 2009, is the fourth in a series
of normally unmanned installations,designed and constructed locally in
Trinidad using a standardised clone
concept. The 1898 t jacket and the
871 t topsides were built at the
Trinidad Offshore Fabricators (TOFCO)
yard in La Brea, south Trinidad.
The Savonette platform has
high Trinidadian local content with
some 30% of its total engineering,
procurement and construction value
being spent in the country and with
T&T nationals being responsible for 55%
of the project management hours, and
98% of total fabrication hours.
TRINIDAD & TOBAGO \\Gas production starts atSavonette
GE Oil & Gas has been awarded a
competitive bid, worth over
US$ 400 million, to deploy advanced
LNG technology for the development
of Gorgon, one of the worlds largest
untapped natural gas fields, which
also features the worlds largest
ever CO2sequestration technology
project.
GE will supply Chevron with
equipment to fulfil Gorgons LNG
production and CO2sequestration.
This includes three main refrigerant
compression trains required for
Gorgons production of 15 million tpy
of LNG, and six compression trainsrequired to drive Gorgons pioneering
CO2sequestration project.
The demand for natural gas,
which plays a vital role in balancing
economic growth and environmental
responsibilities, is expected to grow
by more than 67% by 2030.
The Gorgon projects estimated
economic life is at least 40 years. In
addition to natural gas supply for
domestic Australian use, Gorgon is
critical to meeting Asias growing
need for cleaner energy.Globally, the net impact of
using Gorgon LNG will result
in approximately 45 million t
less greenhouse gas emissions,
when compared with coal. This is
equivalent to taking around
two-thirds of all Australian
vehicles off the road.
GEs main refrigerant
compression trains and compression
trains for CO2sequestration will be
manufactured and tested in Florence
and Massa, Italy, then shipped in
2011 and 2012.
ITALY \\ GE awardedGorgon contract
1 - 4 December 2009
10thAnnual World LNG Summit
Barcelona, Spain
www.cwclng.com/worldlng2009
t: +44 20 7978 0000
20 - 21 January 2010
Global Floating LNG Summit
London, UK
t: +44 20 7368 9300
26 - 27 January 2010
European Gas Conference
Vienna Marriott Hotel,
Vienna, Austriat: +44 207 067 1800
28 - 29 January 2010
Gas Transport and Storage Summit
Radisson BLU Scandinavia Hotel,
Dusseldorf, Germany
t: +44 20 7202 7511
17 - 19 February 2010
Meet The Buyer Oil and Gas
Marriott Courtyard,Dubai, UAE
t: +44 1276 682898
18 - 21 April 2010
16thInternational Conference & Exhibition
on LNG (LNG16)
Oran, Algeria
www.lng16.org
t: +44 20 7596 5000
f: +44 20 7596 5111
6 LNGINDUSTRY.COM | Winter 09
LNG News
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The Emerson logo is a trademark and service mark of Emerson Electric Co. 2009 Emerson Electric Co.
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You know you can live up to your contracts when you have a partner who can help
you meet, as well as beat, your schedules. Well design and install the industrys
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After startup, this network of predictive intelligence will watch your back by
improving availability and ensuring reliability. So not only are you on time, youre
on the money too. Learn more at EmersonProcess.com/LNG
7/21/2019 LNG Industry December 2009
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A joint venture between Linde North America and
Houston based Waste Management, is now producing clean
renewable vehicle fuel from its plant at the Altamont landfill
near Livermore in California.
The US$ 15.5 million plant purifies and liquefies gas that
Waste Management collects from decomposing organic
waste at the site, and is expected to be able to produce
13 000 gal./d of LNG when the plant reaches full capacity in two to
three months. This should enable the plant to provide fuel for 300
of the 485 waste hauling vehicles in 20 Californian communities.
The plant required a unique four step liquefaction process to
clean up the impurities in the liquefied gas, and remove all the
carbon, nitrogen, sulfur and alcohols. The environmental gains
are substantial though, and the project is expected to reduce CO 2
emissions by 30 000 tpy. The plant is also powered by electricity
generated by landfill gas, so the process is entirely renewable.
Better management of capacity could lead to a stabilisation
of the LPG shipping sector in 2010, however, dry bulk and
container shipping are still going to come under pressure
resulting from limited demand and oversupply.
This stabilisation in the LPG and LNG sector is expected
because fleet growth is decreasing in the sector for 2010 and
2011, and this decrease should help alleviate the oversupply
problem. The same cant be said for other shipping sectors, with
more ships being delivered and even more on the order books
at shipyards. This will not help an industry where approximately
10% of the global container fleet is idle and spot rates across
most shipping sectors are at a five year low.
The financial repercussions will be more long term; the
overhang of shipping assets requiring funding is valued at
approximately US$ 350 billion. A lot of the new vessels that
have been ordered and are being built have not been financed,
and the banking sector will have some difficulty financing all the
vessels coming onstream.
Chevron Corp. announced that it signed an agreement with
Apache Julimar Pty Ltd, a subsidiary of the Apache Corp.,
and KUFPEC Australia (Julimar) Pty Ltd, a subsidiary of the
Kuwait Foreign Petroleum Exploration Company k.s.c., to bring
them into Chevrons Wheatstone LNG project as natural gas
suppliers and 25% equity partners in the project facilities.
Under the agreement, Apache and KUFPEC will provide
natural gas from their Julimar and Brunello fields, located
in northwestern Australia, to supply 25% of the inlet gas
to Trains 1 and 2 of the Wheatstone project. Apache will
assume a 16.25% equity interest and KUFPEC an 8.75%
equity interest in the project. Chevron will remain the project
operator.
John Gass, President, Chevron Global Gas, added, Creating
the Wheatstone project as an LNG hub will continue to help
unlock natural gas resources in the Carnarvon Basin and
establish a new source of LNG from Australia for customers in
the Asia-Pacific market.
USA \\ Landfill waste LNG to power Waste Management haulage fleet
SINGAPORE \\ LPG shipping sector likely to stabilise in 2010
AUSTRALIA \\ Wheatstone project takes on two new partners
LNG News
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January 2009 marked the 50thanniversary of the first
LNG cargo transported by ship. The Methane Pioneer, a
bulk carrier built during the Second World War, which
had been converted to carry LNG by installing specially
designed tanks, transported approximately 5000 m3of LNG from
a small liquefaction plant at Lake Charles in Louisiana, USA, to
Canvey Island in the UK. Five years later, in October 1964, the
first regular commercial shipment of LNG commenced, with the
arrival of the purpose built Methane Princessat the Canvey Islandterminal, with a cargo from Arzew in Algeria.
Europe can therefore be said to be the birthplace of LNG
imports, but Asia became the focus for growth, following the
start of LNG imports from Kenai, Alaska, into Japan in 1969. As a
country with very limited natural gas reserves, and where pipeline
imports have not been technically or economically feasible, Japan
needed LNG imports to diversify from its dependence on oil, and
to provide a cleaner burning fuel. Downstream gas demand grew
rapidly and by the early 1980s Japan was importing over 75%
of global LNG production. The growth in Asian LNG imports was
boosted by the start of imports into Korea in 1986, and Taiwan in
1990, and more recently by the opening of receiving terminals in
India and China. Asia accounted for 68% of global LNG importsin 2008.
Growth of LNG importsIn contrast, the growth of LNG imports into Europe has been
more gradual because LNG has had to compete with pipeline gas
in most countries. The discovery of natural gas in large quantities
in the UK and Norwegian sectors of the North Sea from the
mid-1960s, together with the build-up of pipeline imports from
Russia, has meant that LNG has had to play a supplemental
role to pipeline gas in the eight countries that currently import
LNG (the UK, France, Spain, Italy, Belgium, Turkey, Greece and
Portugal). Only in Spain and Portugal does LNG account for more
than 50% of the total gas supply.
As Figure 1 shows, LNG accounted for 10.4% of Europes1
natural gas supply in 2008. Domestic production, mainly in
Norway, the UK and The Netherlands, but including more limited
contributions from other countries such as Germany and Italy,
provided just over half of Europes supply. Imports by pipeline
from North Africa, Algeria and Libya into Spain and Italy met
8.5% of Europes gas supply, but the main source of imports was
the former Soviet Union with a total share of 30.1%. Most of this
gas comes from Russia, but Turkmenistan, Azerbaijan and other
central Asian Republics are also sources of supply.
The role of LNG in Europes natural gas supply looks set
to increase in the future. Governments and buyers are
increasingly concerned about security of supply, as domestic
production declines and the dependence on imports
increases. In January 2009, the supply of gas from Russia was
interrupted by the dispute between Russia and the Ukraine
over the prices the latter pays for its natural gasimports. Approximately
80% of the gas that flows from
Russia to Europe passes through
the Ukraine, and while the dispute
did not involve Russias customers
in the rest of Europe, they saw
their supplies reduced in the
middle of one of the coldest
winters for many years. It is
the third time since 2005
that relations between Russia
and the Ukraine have led to
interruptions to supply, althoughin the past the disruption has
been for a much shorter
time and has had a lesser
impact.
A renewed interest in LNGimportsGas buyers and governments see LNG as providing access
to international sources of gas supply, potentially reducing
the dependence on Russian gas and thereby increasing the
security of supply. In some of the countries that now import
LNG, receiving terminal capacity is being increased, while several
countries are planning to become importers.
A second factor behind the renewed interest in LNG
imports has been the growth in the spot and short term
trading of LNG over the last decade. Companies involved in
this activity want access to the flexible gas markets in northwest
Europe, especially the UK, but also northern France, Belgium and
The Netherlands, since it positions them to take advantage of
price differences with the USA and other global markets, and add
value to their LNG portfolios.
LNG in
ANDY FLOWER, WATERBORNE ENERGY, UK,
EXPLORES INDUSTRY DEVELOPMENTS IN EUROPE.
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SpainFigure 2 shows the build-up of LNG imports into Europe over
the 44 years between the arrival of the first cargo into the UK
in 1964 and in 2008 when imports reached 43.3 million t,
equivalent to 58.5 billion m3of natural gas. Spain is Europes
largest and the worlds third largest importer of LNG, after Japan
and Korea. In 2008, its imports of 22.1 million t (29.8 billion m 3)
represented just over 50% of the European total. LNG met
73% of Spanish natural gas demand, making it the European
country most dependent on LNG. The reason for Spainsdependence on LNG lies in the geography of the country, with
the Pyrenees Mountains having been a barrier to the construction
of pipeline connections with the French and the wider European
gas grid. There are only two small pipelines at the western end
of the Pyrenees linking France and Spain, one of which is used to
carry gas contracted by the Spanish gas company, Gas Natural,
from Norway.
The lack of pipeline connections to the north means that
Spain has only two options to access natural gas imports, which
it needs, given its limited domestic reserves and production. It can
import gas from Algeria through the Pedro Duran Farrell
pipeline, which passes through Morocco and across the
Straits of Gibraltar, or it can import LNG. This pipeline was
commissioned in 1996, with an initial capacity of 8.5 billion m3
/y(equivalent to 6.3 million tpy of LNG), and was expanded to
11.5 billion m3/y (8.5 million tpy of LNG) in 2004. Approximately
2 billion m3/y of the pipelines capacity is used to supply gas to
Portugal. Spain was forced to turn to LNG to meet the rapid
growth of gas demand between 2000 and 2008, largely as a
result of its use for power generation, which increased at an
average rate of 44% per annum.
As the largest importer of LNG it is not surprising that Spain
has more LNG terminals than any other country in Europe.
Six facilities are currently in operation and a seventh, the
El Musel terminal near Gijon in the north of the country, is under
construction.
FranceFrance is Europes second largest market for LNG, with imports
of 9.5 million t (12.8 billion m3) in 2008. It is well connected to
the European gas grid, and has the option of increasing pipeline
imports into the north of the country and diverting LNG to
alternative, higher priced markets. This has resulted in the level of
LNG imports fluctuating over the last few years. France now has
two terminals in operation, Montoir at the mouth of the
River Loire on the Atlantic coast and Fos Tonkin near Marseille in
the Mediterranean. The latter facility can only receive ships of up
to 75 000 m3capacity, and is used mainly for the import of LNG
from Algeria. A second facility, Fos Cavaou, has been built close
by and will have the capacity to unload larger ships. It was due
to receive its first cargo in July but the local authority removed
its operating permit at the last minute after a court upheld an
appeal by a pressure group. Startup is now expected around the
end of 2009 or early 2010.
UK and ItalyThe UK and Italy were both early LNG importers and in both
countries LNG imports were interrupted for extended periods of
time. In the UK, the discovery of natural gas in the North Sea
less than a year after LNG imports commenced, resulted in the
country becoming self-sufficient in natural gas. LNG imports
stopped when the original contract with Algeria expired in theearly 1980s, and the terminal at Canvey Island was converted
to an LPG facility. However, the rapid decline in North Sea gas
production has resulted in the country turning once again to LNG
imports. It now has four LNG receiving terminals in operation,
two of which were commissioned at Milford Haven in
southwest Wales in 2009.
In Italy, the arrival of pipeline gas from Algeria through the
Enrico Mattei pipeline, which transits Tunisia and Sicily, meant that
LNG was no longer required and the single terminal at Panagalia
in the northwest of the country was largely unused from
1981 - 1996. Public opposition to LNG receiving terminals has
resulted in Panagalia remaining the countrys only import facility,
until August 2009, when the Adriatic LNG facility, a gravity basedstructure, located approximately 15 km (10 miles) off the Veneto
coastline in northeast Italy, received its first cargo from Qatar.Figure 3. Sources of European LNG imports 1980 - 2008.
Figure 2. European LNG imports 1964 - 2008.
Figure 1. European natural gas supply in 2008.
12 LNGINDUSTRY.COM | Winter 09
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Specialist servicesfor theLNG industry
PNS (UK) LtdUnit A2 Foxbridge WayNormanton, WakefieldUnited KingdonWF6 1TNTel: +44 (0)845 604 0281Email: [email protected]
PNS BVPhileas Foggstraat 65Emmen, DrentheThe Netherlands7825 ALTel: +31 591 668155
www.pns-services.com
Nitrogen Services
Pneumatic/Hydrostatic Testing
Bolt Tensioning
Critical Joint Management
LNG Tank - Testing/Commissioning
Helium Leak Testing
Process System Drying
Nitrogen Purging
Nitrogen Pre-Cooldown
Camera Inspection
Subsidiary offices in: Germany, France, Italy, Spain, Libya, Croatia, Middle East and China
7/21/2019 LNG Industry December 2009
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A second offshore terminal, this time using a ship as a floating
storage and regas unit (FSRU), is being developed off Livorno in
the northeast of the country. Construction of an onshore terminal
at Porto Empledocle in Sicily is scheduled to start in 2010. Overall,
Italy appears to be set for a significant increase in LNG imports,
some 40 years after its first cargo arrived.
BelgiumThe Zeebrugge terminal in Belgium was built to receive LNG
under the long term contract that the countrys main gas
company, Distrigas, had with Algeria. The contract was not
renewed when it expired in 2006 and the terminal has been used
since 2007 mainly to import LNG from Qatar under a long term
contract between Distrigas and RasGas, and a more flexible and
shorter term contract that RasGas has with French company
EdF Trading. The terminal has also received spot cargos from
Egypt, Nigeria, Norway, Trinidad and Tobago, and Malaysia in the
last three years. It now acts as a re-export facility with LNG being
reloaded onto ships. Cargos were delivered to Korea, India and
Spain in 2008.
TurkeyTurkey turned to LNG imports in 1994 to reduce its
dependence on pipeline imports, which come from Russia,
Iran and Azerbaijan. It has two terminals in operation, the
Marmara Eregelisi terminal, 95 km south of the capital Istanbul,
which is owned and operated by the countrys main gas company
Botas, and the Aliaga terminal near Izmir, which was built by
an entrepreneur and was idle for several years after completion,
before a growing need for imports led to its activation in
December 2006. Initially it was used to import cargos for Botas,
but in 2009 the terminals owner and operator, Egegaz, imported
two cargos directly from Qatar.
Portugal and GreecePortugal and Greece each have one LNG terminal, which was
built to diversify natural gas supply from dependence on pipeline
gas from Algeria and Russia respectively. Portugals main source of
LNG supply is Nigeria, while Greece receives most of its LNG from
Algeria.
Sources of supplyThe increase in Europes LNG imports in the last decade has
brought with it a diversification of the sources of supply as is
shown in Figure 3. From 1964 - 1998, Algeria supplied
over 90% of Europes LNG imports. Libyas Marsa-el-Brega
liquefaction plant, which has been operating at well below its
design capacity, was the only other significant source of supply.
A few cargos were imported on a spot basis from the Middle East
and Australia in the mid-1990s, when Algerias LNG output was
reduced as it revamped its liquefaction facilities.
As can be seen in Figure 4, Algerias share of Europes LNG
supply fell to just over a third in 2008. Nigeria is the second
largest supplier with a 28% share, while Qatar, which accounted
for 13.7% of the supply, is now the third largest followed by
Egypt and Trinidad. Oman, Libya and Norway were the other
suppliers in 2008.
European LNG terminalsEurope now has a well developed infrastructure of LNG import
facilities. In September 2009, 19 terminals were in operation
(see Table 1), including three that have started up in 2009:
South Hook and Dragon LNG in the UK, and Adriatic LNG in Italy.
The total capacity of the facilities now in operation is estimated
at 107 million tpy (144 billion m3/y), close to two and a half times
the actual level of imports in 2008.2Terminals were, on average,
operating at a load factor of just over 50%.
Terminals in the UK, Spain, Portugal and Greece are being
expanded, while four new terminals are under construction in
Spain (El Musel), France (Fos Cavaou), Italy (offshore Livorno) and
The Netherlands (the Gate terminal in Rotterdam). They will addan estimated 48.4 million tpy (75.3 billion m3/y) to Europes LNG
import capacity taking the total to approximately 155 million tpy
Figure 4. Europes LNG imports by source in 2008.
Table 1. LNG imports and terminal capacity in Europe
Country LNG
imports in
2008 in
million t
Number of
terminals
in
operation
LNG
import in
operation
Capacity
in million
tpy under
construction
Spain 22.1 6* 41.8 12.4
France 9.5 2 10.7 16.8
Portugal 2.0 1* 3.3 1.9
Turkey 4.1 2 8.3 -
Greece 0.7 1* 3.3 -
Italy 2.1 2 8.6 3.4
Belgium 2.1 1 6.7 -
UK 0.8 4* 35.0 5.0
The
Netherlands
- - - 8.9
Total 43.3 19 107.0 48.4
Note: *Capacity at operating terminals is being expanded.
Table 2. Estimated LNG imports into Europe from January toSeptember 2008 and 2009
Country Jan - Sept
2008 in
million tpy
Jan - Sept
2009 in
million tpy
Increase in
million tpy
% change
Spain 16.4 15.0 -1.4 -8.6%
France 6.9 7.1 0.2 3.1%
Portugal 1.5 1.7 0.2 13.8%
Turkey 3.2 3.0 -0.1 -4.4%
Greece 0.5 0.5 0.0 6.8%
Italy 1.6 1.4 -0.2 -10.4%
Belgium 1.4 3.9 2.5 175.8%
UK 0.3 4.4 4.1 1595.0%
Total 31.7 37.1 5.3 16.8%
14 LNGINDUSTRY.COM | Winter 09
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(209 billion m3/y) by 2012, when the construction work is
scheduled to be completed. The opening of the Gate terminal in
The Netherlands will bring the number of European LNG
importing countries to nine.
The expansion of Europes LNG receiving terminal
infrastructure is unlikely to stop there. A large number of new
facilities are at various stages of the planning process. There
are plans for Italy, France and the UK to add new terminals,
while countries seeking to start importing LNG include Poland,
Croatia, Albania, Cyprus, Germany, Bulgaria, Romania, Lithuania,Estonia, Sweden and Eire. In the unlikely event that all the
planned terminals are developed, they would add at least another
100 million tpy (135 billion m3/y) to capacity.
Trading patternsThe spare LNG import capacity in Europe, especially in the flexible
LNG markets of the UK and Belgium, proved to be an important
factor in balancing global LNG supply and demand in 2009, when
the economic crisis resulted in a large reduction in demand
in major markets, including Japan, Korea, Taiwan and Spain.
Waterborne Energys European LNG edition, which is published
every two weeks, tracks the movement of cargos into Europe.
Together with its sister publications covering Asia and the USAand the Americas, Waterborne LNG Europe has shown how
trading patterns have changed in the first nine months of 2009;
with Europe and the Americas increasing their imports while Asian
demand is falling.
In the first nine months of 2009, European LNG imports are
estimated by Waterborne to have increased by 5.3 million t, at a
time when Asian imports have fallen by over 7 million. As Table 2
shows, the main increases in imports have been in the UK, where
they have grown by 4.1 million t to over 15 times their level in
the same period of 2008, and in Belgium, where the increase
is 2.5 million t, or nearly three times the level in 2008. In both
Belgium and the UK, the main source of the additional imports
was Qatar but cargos were also received from other sources as
producers sought outlets for LNG cargos no longer required by
Asian buyers.
Elsewhere in Europe, the changes in the level of imports have
been much less dramatic. Spain reduced its imports by 1.4 million t(8.6%), as its economy entered recession. Imports were also down
marginally in Turkey and Italy. France increased its imports by
0.2 million t (3.1%) and Portugal by 0.2 million t (13.8%).
The futureThe trends that are being witnessed in Europe in 2009 look set
to continue over the medium term, as some 95 million tpy
(128 billion m3) of new liquefaction capacity comes onstream
between the beginning of 2009 - 2013. Beyond 2013, the
outlook is much less certain, with the progress of liquefaction
projects at the planning stage in the Atlantic Basin stalled by a
combination of low prices, high costs and some governments
prioritising domestic gas consumption over LNG exports.
NotesFor the purposes of this article Europe is defined as the 27 membercountries of the European Union plus Norway, Switzerland and Turkey.
Figures for the capacity of an LNG receiving terminal can varydepending on whether they are based on baseload or peak capacityand the source of the estimate. The data in Table 1 is the authorsestimates using information from a number of sources.
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NG WENG HOONG, LNG INDUSTRYCORRESPONDENT, DISCUSSES THEPOTENTIAL OF THE NEW AUSTRALIAN GAS FIELDS.
and Queensland. Some of these could start drawing in investment
funding worth tens of billions of dollars, over the next 18 months.
The Australian Petroleum Production and Exploration Association
has released its own forecast, for AU$ 220 billion worth of
new investments, that will create 50 000 jobs, and deliver
AU$ 10 billion/y in tax and government revenue. Merrill Lynch
agrees, putting the tab at more than AU$ 200 billion over the next
decade. In response to demand from Asia, Australia is in a strong
position to raise LNG production capacity from 20 - 50 million tpy by
2015, and possibly to 140 million t a decade from now.
Australia could capture 55% of the regions LNG demand of
164 million t by 2015, up from 13% last year, said Tony Regan, a
consultant at Singapore based Tri-Zen International. ConocoPhillips
Australia President, Joseph Marushack, said Australia could rise from
its current sixth position to displace Qatar as the worlds leading LNG
exporter by 2020.
PetroChina and Indias Petronet sign 20 yearsupply deals
In August, the local affiliate of ExxonMobil secured two recordbreaking 20 year deals to supply LNG to PetroChina and Indias
Petronet. The LNG supplies, worth a total of AU$ 60 billion, will be
sourced from ExxonMobils share of the Gorgon project. PetroChina
will import 2.25 million tpy of LNG, valued at approximately
AU$ 50 billion, making it the single largest trade agreement
between Australia and China.
ExxonMobils AU$ 10 billion agreement to supply Petronet,
represents Australias first LNG contract with India. The US major will
supply 1.5 million tpy of LNG to a new terminal under construction
at Kochi in southern India.
Describing it as an historic agreement, Luke Musgrave,
ExxonMobils Vice President for Australia LNG, said his company
regards Petronet LNG as a foundation customer for the Gorgon LNGproject. Petronet LNG Managing Director, Prosad Dasgupta, said the
deal will be supported by more than US$ 2 billion of related energy
infrastructure investment, in India. Energy consumers in Kerala state
will now have access to a clean burning base load fuel, which will
enhance the economic development of the region, and maintain the
pristine ecology of Kerala, he said.
ExxonMobils affiliate holds a 25% stake in the Gorgon
project, which include three 5 million tpy LNG processing trains.
Last November, Shell announced it had signed a 20 year agreement
to supply up to 2 million t of LNG to PetroChina, from its 25% share
of Gorgon.
Chevron to supply Japanese and KoreancompaniesNot to be outdone, Chevron Corp. says its Australian subsidiaries
have secured long term supply agreements with Japanese
and Korean customers, for its 50% share of LNG from the
Gorgon project. The agreements are for a total supply of nearly
4.5 million tpy of LNG to Japans Osaka Gas and Tokyo Gas, and
South Koreas GS Caltex and Korea Gas. Chevron said it will be
supplying Osaka Gas with 1.375 million tpy of LNG for 25 years, and
1.1 million tpy to Tokyo Gas for the same period, both starting in late2014. As part of the deal, Osaka Gas will acquire a 1.25% equity
stake in the project, while Tokyo Gas will purchase a 1% stake.
Separately, Chevron Australia Pty Ltd and Chevron International
Gas Inc., have signed agreements to supply 500 000 tpy to
GS Caltex Corp. for up to 20 years. The LNG will be supplied from
Gorgon and other fields within Chevrons global portfolio. Chevron
said the agreements with GS Caltex, a 50% owned subsidiary, have
paved the way for its entry into the South Korean LNG market. It will
also facilitate GS Caltexs expansion from refining, petrochemicals
and power, into the LNG business.
The Chevron subsidiaries later landed another agreement, to
deliver 1.5 million tpy to Korea Gas Corp. (Kogas) for 15 years
from the Gorgon project, with an option to extend the deal foranother five years. The parties are also discussing LNG sales, and
an equity purchase from Chevrons Wheatstone project, to be
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located in the western Pilbara region, approximately 200 km south
of the Wheatstone natural gas field. Chevron Australia Managing
Director, Roy Krzywosinski said, This agreement represents the
largest, long term LNG sale between Australia and Korea, and the
first long term sale between Kogas and an Australian supplier.
Korea is the worlds second largest importer of LNG, and is a
desirable market for LNG.
The sale of Gorgon LNG to Korea reflects Australias growing
reputation as an LNG supplier. We expect to build on this
relationship with Kogas, as we move forward with our AustralianLNG projects. Describing the Japanese and Korean companies as
Gorgons foundation partners, Chevron Global Gas President, John
Gass, said, securing sales agreements with major customers in
Japan and Korea is a significant milestone in Chevrons efforts to
commercialise our equity natural gas, and grow our LNG business.
Jim Blackwell, President of Chevron Asia Pacific Exploration
and Production Co., added that the participation of Osaka Gas
and Tokyo Gas as equity participants in Gorgon, will help ensure
the projects long term success.
Chevrons Wheatstone natural gas projectedges closer to commercialisationApart from Gorgon, Chevron Corp. is also developing its fullyowned Wheatstone natural gas project in northwest Australia. In
July, Chevron awarded a major front end engineering and design
(FEED) contract to Bechtel Oil, Gas & Chemicals Inc., to develop
the projects first phase, comprising two LNG trains each with
a capacity of approximately 4.3 million tpy, and a domestic gas
plant. The facility will be supplied initially from Wheatstone, and
the companys operated Iago field.
Chevron expects to make a final investment decision on the
Wheatstone project in 2011. Discovered in 2004, Wheatstone
is located in the WA-253-P and WA-17-R permit areas in water
depths of approximately 200 m, while the adjacent Iago field was
discovered in 2000 and spans two retention permits, WA-17-R
and WA-16-R. Together, these fields hold enough natural gas to
supply a two train LNG development, said Chevron.
Origin Energy and ConocoPhillipsannounce Australia Pacific LNG siteAustralia Pacific LNG said it has secured the Laird Point site on
Curtis Island, in the Port of Gladstone, from the Queensland state
government, as the site for its proposed LNG plant. The company,
an equal joint venture between Australias Origin Energy and
US ConocoPhillips, to convert coal seam gas (CSG) to LNG, also
released results from a study by KPMG Econtech, which highlights
the economic benefits and jobs the project would create.
Origin Managing Director Grant King said, Australia PacificLNG reported a 52% increase in reserves at a proved and
probable (2P) level, from 4.6 trillion ft3in 2008 to 6.9 trillion ft3in
2009. This reserves increase demonstrates the size and quality of
the CSG resource available to Australia Pacific LNG.
With the largest CSG reserves in the country, the
announcement of the site for the Australia Pacific LNG plant at
Laird Point is another significant milestone in the development
of the project, as we move towards the final investment decision
proposed for the end of 2010, and the first production train,
which is planned to be completed by the end of 2014.
Malaysia to import 2 million tpy of LNG
from AustraliaIn June, Malaysian state energy company Petronas signed
a contract with the Australian consortium GLNG, to import
2 million t of LNG for 20 years, starting in 2014. Petronas, which
owns a 40% stake In the GLNG consortium, has the option to
purchase an additional 1 million tpy, on the condition that a final
investment decision on the proposed GLNG project is reached,
sometime in the first half of next year.
The LNG will be consumed in gas rich Malaysia, reflecting
the countrys growing energy demand, and a likely shortfall in
its future energy balance. Led by the 60% owner, Santos of
Australia, the multibillion dollar GLNG project is expected to
become the worlds project to develop LNG from coal seam gas(CSG) or coalbed methane (CBM).
The consortium will extract gas from the Surat and
Bowen Basins, in the southwestern part of Queensland state, pipe
it 435 km to Gladstone where it will be chilled to -161 C, and
liquefied for transport by ship to overseas markets. In 2008,
Malaysia earned RM 40.7 billion from its record LNG export of
22.87 million t, according to Bank Negara Malaysia. Domestic gas
discoveries off Peninsular Malaysia, which supply more than 75%
of the countrys gas market, are dwindling.
David Knox, CEO of Santos, said the marketing agreement
confirms Petronas, a net gas exporter, as a foundation customer
of GLNG. He said, The development of the GLNG project will
bring long term benefits to the communities (in Queensland) inwhich we are working, from our coal seam gas fields around
Roma, to the site of the LNG plant in Gladstone. Up to 6000 jobs
would be created in the development of the three train LNG plant
outlined in the environmental impact statement recently
submitted to the Queensland state government.
Concern over rising costs and pooreconomicsThe implementation of these mega projects has not all been
smooth sailing though. The partners in the Browse LNG project
are squabbling over the initial, estimated AU$ 50 billion cost,
that would make it just as costly as the much larger Gorgon LNG
project. Gorgon, the countrys largest gas project, has almost
three times the amount of gas reserves as Browse, which includes
the Torosa, Brecknock and Calliance fields, with total reserves of
approximately 14 trillion ft3of gas.
However, Woodside Petroleum, the operator and 50%
owner of Browse, has disputed this estimate, leaked to the local
media, possibly by one or more of its partners, which include
Chevron, Shell, BHP Billiton and BP. The partners are also said to
be in disagreement with Woodside over the projects execution.
Woodside wanted to build a costly plant for Browse gas in
Kimberly, while its partners are seeking a lower cost option, which
would involve processing Browse gas at an existing Woodside
operated plant at Karratha. That facility currently processes gasfrom Australias Northwest shelf.
Poor economics may force developers to merge other coal
seam based LNG projects, amid weak energy prices and rising
costs. The alternative would be for some of the projects to be
cancelled. There are four major and three smaller LNG projects
in the northeastern state of Queensland. In the states Gladstone
region alone, there are four projects.
Analysts believe the developers will realise it is not viable for
them to undertake their projects separately, as they face high
construction costs and uncertain market conditions. One possible
option could be to merge the projects of Santos-Petronas with
either ConocoPhillips or Origin.
ReferencesUS$ 1 = AU$ 1.13.1.
18 LNGINDUSTRY.COM | Winter 09
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With the
spotlight
of the
LNG
markets attention
turning to the Australian
federal governments
decision to grant
environmental approval
for the AU$ 50 billion
(approximately
US$ 42 billion) Gorgon
project, one of the worlds
biggest LNG developments,
some experts are nowasking whether greater
pricing transparency can
come to a commodity that
has traded on a bilateral
basis and largely in secret.
The Gorgon
development, which should
have global significance
given that it is estimated to
have a resource base of over
40 000 billion ft3of gas and
an estimated economic life
of at least 40 years from thetime of startup, would be
a shot in the arm for LNG
supplies, particularly when
supplies had until recently
been limited.
When completed,
the project would be
an additional source of
LNG supply, especially
to Asia-Pacific buyers,
says Obindah Wagbara,
an expert in petroleum
economics at the University
of Dundees Centre for
Energy, Petroleum and
Mineral Law & Policy.
However, he adds that itsimpact on transparent LNG
pricing would depend on
the pricing regime used in
the export contracts.
Global LNGsupplyThe significance of the
Australian move should
also be in the context of
global LNG supply, which
according to estimates for
2008 (see Table 1) showedthat exports from the top
15 LNG exporting countries
EMBRACINGE-TRADINGROGER AITKEN, ON BEHALF OF TRAYPORT LTD, UK, AND DAN SMITH,
TRAYPORT, UK, EXAMINE WHETHER A MORE EFFICIENT AND TRANSPARENT
METHOD FOR PRICE NEGOTIATION OF LNG COULD SUCCESSFULLY EVOLVE.
Winter 09 | LNGINDUSTRY.COM 21
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stood at 226.51 billion m3. It should also help Australia in terms
of its contribution to global LNG exports (top five in 2008).
Today, Japan and South Korea are the two leading importers
of LNG, and in 2008, they collectively sucked in approximately
40% of supply. Topping the export table was Qatar, by some
10 billion m3(approximately 17% of global supply) from
the next largest producers; Malaysia at 29.40 billion m3, and
Indonesia with 26.85 billion m3.
Some of the geographic hotspots today in terms of where
LNG is traded can be found in the Pacific Basin, Atlantic Basin
markets (US East Coast, Spain and the UK), as well as China
and India. Headed by China, Asian countries have positionedthemselves to be major customers of Gorgon LNG. For example,
PetroChina, Chinas largest energy company, has reached a
deal to purchase US$ 41 billion worth of Gorgon LNG over
a 20 year period from ExxonMobil, which along with
Royal Dutch Shell, controls the rest of Gorgon.
A more efficient solution requiredWagbara, who has written a number of papers on the
structure of the LNG market and in particular what determines
investments in LNG liquefaction infrastructure1, noted at the
13thAnnual Middle East Gas Summit (Megas) in 2008, that
an effective and robust mechanism for determining prices was
necessary to attract players and achieve l iquidity.In short, LNG pricing was faulty. And, certainly it might
not be regarded as efficient in terms of how it is traded by
counterparties, as compared with other energy products where
electronic trading - either voice or hybrid (electronic/voice) - has
taken hold.
Today, electronic trading of LNG has failed to materialise,
despite some recent exchange initiatives in the Middle East.
However, competitive exchange based LNG trade could
generate efficient prices. Wagbara noted in one of his LNG
papers that although competitive exchange based LNG trade
could generate efficient prices, it is not sufficient to attract
investments in liquefaction infrastructure.However, enhanced investment in LNG infrastructures and
capacity could result if the spot e-trade generated price of LNG
via an electronic platform was considered reliable enough to be
the basis for contract price indexation (long term).
Typically, when energy markets have gone fully electronic
on exchanges, huge volume increases have tended to follow.
For example, take trading on the New York Mercantile
Exchange (Nymex), where since the advent of electronic
trading in 2006, between 75 - 80% of Nymex trades
(including crude oil products) were handled electronically just
two years later.
Elsewhere, after Atlanta based InterContinental Exchange
(ICE) Futures went fully electronic, its benchmarkIPE Brent Crude futures and IPE Gas Oil futures contracts, saw
explosive growth. Each of the top five months in exchange wide
volumes in ICE Futures history happened since the transition
to fully electronic trading. Traders, who arbitraged electronic
Brent on ICE Futures and the Nymex light, sweet crude contract
(WTI), got used to faster execution speeds and remarked on the
inefficiencies of the open outcry system.
The current state of playSo, what is the state of current play in the LNG trading market?
With the global economic recession, demand for LNG (energy)
has declined and there is an interim supply glut. A few experts
foresee the re-emergence of a buyers market, but Wagbara
cautions, saying he expects a tight LNG supply situation in
2010. And, that situation could remain so in the foreseeable
future.
Many energy economists agree that the evolution of LNG
trade has created the need for more transparent pricing. But
while some have argued that the secretive nature of LNG
trade is hampering liquidity, there is yet a generally accepted
replacement for existing price regimes. Spot trading of LNG, on
an electronic platform, could also help enhance investments in
liquefication infrastructure, since capacity is the weakest link in
the LNG supply chain.
In terms of the nature of LNG contracts and how it tradestoday, it is either traded through long term contracts
(five to 15 years) or spot contracts (once or over a year).
Long term contracts are negotiated and reviewed periodically,
depending on the price and volume terms, and a few master
spot contracts are used.
Clive Furness, founder of Contango Markets, who is
recognised as one of Europes leading commodity special ists,
says, As a market it [LNG] has got enough global reach, and
as a tradable market I think its perfect to go electronic, since
you are talking about something that is a known quantity. Its a
certain number of cubic metres of LNG.
He adds, The value of it is known at the end point. So,
therefore one could either price it from the shipment point, orthe delivery point. As such it has got all the opportunities of
trading it electronically.
Figure 1. Expected LNG export capacity by region.
Table 1. Trade movement - LNG (exporting countries, 2008)
Country Billion m3
Qatar 39.68
Malaysia 29.40
Indonesia 26.85
Algeria 21.87
Nigeria 20.54
Australia 20.24Trinidad & Tobago 17.36
Egypt 14.06
Oman 10.90
Brunei 9.20
Source: BP/Cedigaz (provisional).
Note: total global exports from 15 LNG exporting countriesequated to 226.51 billion m3. Asia-Pacific accounted forapproximately 154 billion m3of total imports, with Japansimports representing 92.13 billion m3and South Korea36.55 billion m3.
1.
2.
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A slow startRecent efforts to establish electronic trading platforms for
the commodity, e.g. listing LNG spot and futures contracts
on exchanges, have fallen short of expectations due to
insufficient transaction volumes and liquidity. But several
initiatives have been tried.
Back in March 2007, the International Mercantile Exchange
(IMEX), a new exchange in Qatar, designed a platform for
regular LNG cargo auctions to go live before the end of that
year. Specifically, it was designed for the contracts to be tradedin a similar manner to those of Brent crude oil contracts.
The planned flagship contract for IMEX was to be an
innovative LNG contract, touted as the first of its kind in the
energy exchange world. Jon ONeill, Vice President of
Hess Energy Trading UK (HETCO), an energy trading
company, used by IMEX as its main consultant on the project,
said at the time that, The nascent spot LNG arbitrage market
is anticipated to grow quickly in the coming years.
However, a defined LNG pipeline gas price relationship
that links Atlantic hubs and Asia-Pacific markets with a
potential Middle East hub, was viewed as essential. Indeed,
with the State of Qatar being the leading LNG producer
globally, it should be well positioned. Furthermore, Qatarwas recently estimated to have 15.2 billion bbls in petroleum
reserves and the worlds third largest reserves of natural gas
at approximately 14.9%. Collectively, the Middle East boasts
of some 40% of the worlds natural gas reserves.
The fact that to date LNG trading via electronic channels
has met with next to no takeup, can be attributed to the
historical evolution of the market, with secretive bilateral
agreements. Furthermore, the market has been changing
over time from a buyers market to a sellers market and back
again. At each point of the transition, either the sellers or the
buyers would have a negotiating leverage in respect of the
pricing mechanism.
Wagbara says, Besides this, with the emergence and
peculiarities of competitive gas markets in the Atlantic Basin
(Henry Hub, NBP and Zeebrugge), it has made the emergence
of a global LNG price marker difficult.
Challenges to overcomeA number of impediments remain to be overcome in respect
of e-trading takeup in the commodity and deployment of
screens in the space. According to Wagbara these include:
Few spot transactions (relative to long term transactions).
The varied basis of indexation used in spot transactions.
Exporters discomfort about price volatility in the
importing markets.
He also points out, There is no direct relationship
between long term and spot LNG contract prices. So, even if
e-trading starts, it may not be sustainable.
In addition, there are issues with other inherent
commercial interests relating to price mechanism and internal
dynamics in the importing markets, and fears that shale gas
production could constrain LNG demand in the USA.
That said, the Dundee based academic believes there
could be staged solutions in bringing more electronic/screen
based trading for the LNG market, but exporters would
have to be committed. Perhaps integrating/formulating
a relationship between crude oil price and e-trading LNGprice could help to stimulate exporters interest, Wagbara
contends.
l
l
l
He also thinks it could be a good idea to create a
scheme which in real time captures cross product spreads,
especially LNG price against benchmark crude and LNG
against gas. On that, he believes the key issue would be
how the changing dynamics in various LNG importing
markets are captured. Perhaps an easy solution would be to
start with a few markets, suggests Wagbara.
Contangos Furness thinks that trading of LNG
electronically would probably lend itself to being more an
arbitrage product than anything else. It might have onevalue going east and another value going west, he says. If
you have spot, you can then take advantage of the [price]
spikes, particularly in the North Atlantic winter. Youve got
opportunities for price spikes in some of the North Atlantic
gas markets.
Wagbara says, To some extent it could help with
arbitrage opportunities, if the process is perceived as
transparent and not susceptible to manipulation. Perhaps
one could try to determine the likely long term effects on
exporters (relative to the current situation).
Hybrid brokingTrayport, which is a supplier of trading systems to over thecounter (OTC) brokers and trading companies, and exchanges
trading energy commodities, has been closely following
developments in the LNG market with a view to potentially
rolling out its services.
Dan Smith, Head of Broker Services, Trayport, says, We
believe the adoption of Trayport hybrid broking technology
for OTC LNG trading will allow for greater transparency and
encourage more liquid markets.
Hybrid broking, a blend of voice and electronic trading,
is ideally suited to brokered OTC markets. And, with over
130 large energy companies and banks involved in LNG
trading already using the companys Trading Gateway product
for trading power, gas, emissions, coal and freight, adding
LNG products could well prove to be a natural extension
according to Smith.
He adds, Traders using the product will be able to trade
other related commodities such as gas and oil, and allow
them to calculate key cross product spreads, such as LNG
against benchmark crude and LNG against gas, in real time,
to uncover hidden trading opportunities.
Hybrid broking should also help to improve on the
current voice traded markets by allowing brokers to market
prices to a larger number of traders, allowing them to focus
on providing colour and perspective on the market, and voice
broking more complex products while more commoditisedproducts trade on screen.
If the primary LNG traders are comfortable trading in
voice and having those relationships, then using hybrid
technology will be the way the market will go, says Furness.
But it could just as easily go full electronic with a properly
constituted market, provided traders are equally comfortable
with that option.
ReferencesWhat are the Potential Implications of Exchange-based LNGAuctions for Investment in Liquefication Capacity, O. Wagbara(University of Dundee).
NoteRoger Aitken is a specialist writer on electronic trading platforms andalgorithmic trading across asset classes.
1.
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LNG16 Executive
Committee, Algeria,
discusses the oil and gas
potential of Africa, and
the upcoming LNG16
conference.
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Aregion rich in natural resources, the LNG
production capacity of the North African
countries Algeria, Egypt and Libya, will
reach 60 billion m3in 2014, compared to
42 million m3in 2008.
North Africas existing liquefaction
capacity is centred around Arzew (Algeria), Marsa El Brega
(Libya), and the Egyptian plants of Damiette and Idku. African gasproduction is concentrated in the north, with exports from leading
producer Algeria accounting for approximately half of overall
production. Nigeria has large gas reserves and exports most of
what it produces, whilst Angola, which until now reinjected gas
into its oilfields, and Equatorial Guinea, another producer of crude
oil, have established LNG projects. Gas discoveries have been made
in Mozambique and Tanzania, neither of which are oil producing
countries.
Market developmentThe Algerian company Sonatrach, the second largest gas supplier to
Europe after Russia and the largest gas producer on the continent, is
keen to consolidate its position and move forward in expanding anddeveloping its role within the LNG market by broadening its reach
overseas. The group currently conducts business in the countries
of Mauritania, Niger, Mali, Libya, Tunisia and Egypt with additional
operations in Peru. Notwithstanding, Algeria wishes to raise its gas
exports to 85 billion m3in 2014 compared to its current 62 billion.
Europes natural gas market development goes through the
expansion of the pipeline network. Its assets have an undeniable
weight on the geostrategic chessboard of the international oil
market. For all these considerations, many structural projects have
been initiated to supply oil directly to Europe, a market traditionallygranted to Algeria, and even beyond.
Included in this are the Transsaharien Gas Pipeline (TSGP), a
US$ 10 billion project; the Algeria-Sardinia (Galsi) and the Medgaz.
The TSGP is intended to transport natural gas from fields operating in
Nigeria to Europe, through Niger and Algeria. It is an intercontinental
project potentially spanning 4128 km or 2310 km across Algeria
to the Mediterranean coast at either Beni Saf or El Kala, through a
pipeline that will carry between 20 - 30 billion m3/y of gas to cover the
needs of the European market.
The Galsi, for its part, will open up a new gas outlet to Europe.
All these projects are part of the new dynamic of global demand for
gas; especially that of Europe, including 25 countries that consume
471 million m3/y, representing 17% of the global market. Europeimports more than half of its consumed gas, which is increasing by
3% per year; its traditional suppliers are Norway, Russia and Algeria.
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Currently, over 95% of Algerian gas exports are destined for
Europe and more particularly, to Italy, taking 40% of exports. A
quarter of Europes gas consumption comes from Russia. However,
since the crisis between Russia and the Ukraine, the EU seems
obsessed with its energy security and has made the diversity of
its sources of supply a priority, and a question of survival. It has
particularly expressed, on many occasions, its interest in establishing
a stronger energy partnership with Algeria. Thus, Algeria will
eventually become the second largest supplier of gas to the EU
after Russia.Libya, the third largest oil producer in Africa (after Nigeria and
Angola), currently produces 3.5 billion m3/d of natural gas and plans
to double its gas production by 2012 or 2013.
Fresh discoveriesIn Angola, the authorities expect strong growth of the gas field
with the implementation of Angolan LNG projects, and with the
construction of new refineries that will foster the creation of a
petrochemical industry. In Mozambique, the gas is exported by the
South African company SASOL, mainly for petrochemicals.
For its part, the Tanzanian government has announced several
discoveries of gas fields in the country without disclosing their reserve
potential. All these fields have been discovered along the coast of theIndian Ocean, between Dar-Es-Salaam and Mtwara. Algeria and Libya
are major European suppliers, unlike Egypt, which consumes the bulk
of its production. Over two thirds of oil exports from northern Africa
are destined for Europe.
Algeria as host of LNG16It is clear why Algeria is holding the 16 thEdition of the International
Conference and Exhibition of LNG. Indeed, Algeria is the first LNG
producer to reach 1 billion m3of cumulative LNG production in
mid-September 2008, since the entry into production of its first LNG
plant, GL4/Z (ex Camel) at Arzew, in 1964. In fact this was the first
LNG production plant in the world.
To export its LNG to Europe and to the USA, Algeria significantly
developed this industry in the 1980s. The plant currently has
four LNG liquefaction complexes of a combined capacity of
44 million m3/y, and three plants located in the industrial centre of
Arzew on the western side of the country. These are GL1Z, with
a production capacity of 17.563 million m3/y of LNG, GL2Z with
a production capacity of 17.820 million m3/y, and GL4Z with a
production capacity of 2 million m3/y. Finally, there is another plant
in the industrial centre of Skikda on the eastern side of the country;
GL1K has an LNG production capacity of 6.942 million m3/y.
This production capacity will increase significantly with the start
of production of a fifth plant, GL3/Z, currently under construction at
the industrial centre of Arzew. As a guide, the combined domesticproduction of all LNG plants has risen from 194.309 million m3in
1964 to approximately 1 billion m3in 2008. But this production,
exceptional as it may be, remains within the capabilities of national
reserves and leaves underground natural gas still untapped.
The 16thinternational conference on LNG, held in Algeria, will
provide an opportunity for visitors not only to discover a pioneer
in the gas industry and LNG, but also to discover an attractive and
welcoming country with a diverse history.
The Oran Convention Center (CCO) has been designed especially
to host the event. The venue will consist of the congress building,
which includes an auditorium with a capacity of 3000 seats, two
meeting rooms with 500 seats each, 20 meeting rooms with
50 - 100 eats each, a VIP space (a circular meeting room witha capacity of 50 seats), and a banquet hall with a capacity of
2000 places.
Figure 3. Cathedral in Oran, Algeria.
Figue 1. LNG train.
Figure 2. Part of LNG train.
Figure 4. Map of Algeria.
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LNG
- THE MARINEFUEL OF THE FUTURE
Winter 09 | LNGINDUSTRY.COM 31
The global focus on climate change and
emissions is increasing, and the maritime
industrys contribution to the problem claims
attention. Shipping is very efficient in terms of
fuel consumption per tonne x mile, compared
to other transport alternatives. Still, the shipping industry uses
approximately 330 million tpy of fuel, or approximately 3.3% of
the worlds fossil fuel oil consumption.
Shipping was not addressed at the Kyoto Climate
Conference. This, however, only bought the industry sometime, which is now running out. The IMO has already dictated
significant emissions reductions, and the upcoming
Climate Conference in Copenhagen is likely to point towards
shipping as a sector where dramatic improvements are needed.
HKAN WERNER AND
KJETIL SJLIE STRAND,
I.M. SKAUGEN, NORWAY,
EXPLORE SMALL SCALE
LNG SUPPLY CHAINS AND
BUNKERING INFRASTRUCTURE.
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IMO has established so called SECA zones (Sulfur Emission
Control Areas) in the Baltic Sea and the North Sea. More areas,
including US coastal waters, the Mediterranean and Japans
coastal areas are also expected to be established as such zones in
the near future. The Tier II limits for NOxemissions as per MARPOL
Annex VI, are valid for all new ships after 2011, and IMO Tier III
will come into force from the beginning of 2016 in designated
ECA zones. This means that SECAs will become ECAs (Emission
Control Areas) from 2016, with 0.1% sulfur limits and IMO Tier III
limits for NOx, which will imply approximately an 80% reductionfrom todays allowable NOxemissions.
In addition, Norway and Sweden have both already
implemented costly NOxand SOxtaxes and fairway dues in their
domestic waters, and more countries are expected to follow.
Furthermore, it is expected that the EU will implement a 0.1%
sulfur limit in all EU ports as soon as 2010.
The long term future of heavy fuel oil as bunkers is therefore
questioned, both in terms of dependency on oil, and not least
with regards to emissions. Natural gas in contrast gives a far more
environmentally friendly combustion, and in addition there appear
to be greater reserves available than for oil. Thus, LNG as marine
bunkers has the potential to be the solution for the shipping
industry to cope with its emission challenges in the years to come.
Propulsion plants and onboard fuel systems for LNG are
already available in the market, and development and expansions
of the product portfolios are ongoing. However, availability of
LNG as fuel in ports is currently not developed. Except for some
pioneering small LNG terminals and projects along the Norwegiancoast, marine LNG fuelling stations do not exist. Many large LNG
import terminals exist in Europe and elsewhere, but these will not
be suited for bunkering of LNG. They are in the wrong places and
not at all built for transferring smaller quantities of LNG. Thus,
the LNG has to be transported in smaller parcels to strategically
located hubs, close to where LNG fuelled vessels need to bunker.
To do this, new small scale LNG supply chains, making use of
smaller LNG carriers and storage facilities, need to be established.
Small scale LNGThe small scale LNG concept is an effective solution for making
natural gas available to energy users, currently not connected to
pipeline networks. The concept increases the market for naturalgas, by distributing LNG from either an LNG plant, LNG import
terminal, or directly from an LNG carrier using a combination
of both sea and land based transport, directly to the end user.
The concept is based on I.M. Skaugens Multigas LNG carriers of
10 000 m3or 12 000 m3, where the first vessel in a series of
six will be delivered in late 2009.
The small scale LNG concept shares much of the technology
with traditional large scale LNG, but that is where the similarities
end. Large scale is about intercontinental transport of millions
of tonnes of LNG, from a LNG production unit to an import
terminal, where the commodity product is fed into a national
pipeline grid system. Small scale LNG on the other hand is
more of a regional business, moving hundreds of thousands of
tonnes from the LNG source, using various modes of transport
ranging from ships to semi-trailers and ISO containers, directly to
end users - thus providing an attractive energy supply solution
previously not available. The objective is to make LNG, and
subsequently the gas, as easy to access and use as any other
liquid fossil fuels currently used.
Using smaller ships supplying a market with smaller demand,
the receiving terminals are small as well. A terminal the size of
20 - 30 000 m3will be more than enough to ensure efficient ships
logistics, allowing for full drops while at the same time maintaining
a sufficient stock level. Comparing this with the normal terminal
sizes of 150 - 300 000 m3
, not only will a smaller terminal tie up alot less capital, but it will also be faster to build and probably easier
to get through the local approval process.
Marine LNGLNG is by far the cleanest and most efficient fuel available for
vessels today. The overall economic picture may actually be
even brighter, as burning LNG can reduce the need for engine
maintenance. Therefore, the marine bunkers market is a large
market opportunity for LNG supplied in smaller parcels.
As already mentioned, legislation for emissions from ships will
become tighter and tighter, initially SOxand NOx, but later surely
also for CO2and particulate matters (PM). Natural gas is the only
fuel that can address these issues from the source, and avoidextra clean up equipment such as scrubbers and SCRs. If used as
a marine fuel, natural gas can reduce NOxemissions by 80 - 90%,Figure 3. Overview of new regulations as per MARPOL Annex VI(DNV).
Figure 2. SOxlimits: world, ECA and EU ports (Wrtsil).
Figure 1. NOxlimits as per Annex VI (DNV).
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SOxand particulates to effectively zero, and also reduce CO2by
20 - 25%.
This market is still embryonic and mainly developed in Norway,
but with NOxTier III and 0.1% sulfur limits coming into effect as
of 2016, there are an increasing number of ferries, RORO and
ROPAX ships destined for ECA zones being designed with gas or
dual fuel engines. Norway already has a number of coastal ferries
as well as offshore supply vessels, gas carriers and coast guard
vessels in operation on LNG, and as such the technology is well
proven. The first ferry was put into operation as early as 2000.
Both pure lean burn gas engines and dual fuel engines
are available in the market, and both concepts are proven in
operation. LNG bunker tanks and onboard fuel supply systems
are also available, and this is an area where development work is
ongoing for more cost-effective solutions that can also utilise the
hull spaces better.
The main challenge at this stage is to supply the fuel in the
form of LNG to the ships bunker flange in new areas and major
ports. Pipeline gas is not suitable for this need, as the volume
needed to store sufficient amounts of natural gas in gas phase
onboard would not be practicable. LNG and small scale LNG
infrastructure and supply chains are the solution.
AlternativesThe alternatives to comply with upcoming emissions limits would
be to use scrubbers for reduction of sulfur emissions and SCR for
cleaning of the NOxin the exhaust gases.
Modern scrubber systems work in closed loop with fresh
water and the exhaust gas system, to which caustic soda is added
for the neutralisation of SOx. Up to 97% cleaning efficiency can
be achieved. The drawbacks, however, include consumption and
price of caustic soda, which can be quite costly, space required forthe system onboard and the need for disposal of wastewater in
ports. In addition, the system takes some o