Major LNG Trends and the Possible Effects of

Technological Advancement in Global Natural

Gas Trade

MBA (Energy Trading)

Batch 2014-2015

University of Petroleum and Energy Studies

Dehradun

SUBMITTED TO:

Mr. Somya Sharma

College of Management Studies

University of Petroleum and Energy Studies

SUMITTED BY

Vindyanchal Kumar (R590213042)

MBA Energy Trading 2014-2015

Abstract

The aim of the research is to study the trends in

natural gas trading and to present in a structured

format the various factors and entities related with

natural gas trade. Natural gas plays a vital role in

becoming an important part of the future energy

mix globally. Natural gas is environment friendly

and its vast abundance gives it an edge to other

comparable energy commodities. The paper

includes a brief on new uses, economic drivers,

trade exchanges, competition from other fuel

sources, regulations, different pricing mechanisms,

global pipeline trade analysis, global liquefied

natural gas trade analysis, natural gas value chain,

and different forms of storage. The study also

includes identifying the latest advancements in

technologies which could influence global natural

gas trade. Steps have been taken to design a

consolidated global liquefied natural gas trade map

FY 2014 which includes the wellhead prices,

liquefaction costs and Free on Board (FOB) price of

major exporting nations and additionally the

transportation costs, Delivery Ex Ship (DES) price,

and re-gasification costs of major importing nations.

The objective is to analyse and present important

trends from the research conducted.

Keywords— Natural Gas Trade, Natural Gas

Technological Advancements, Global LNG

Trade, Gas Trading Challenges and Trends.

I. INTRODUCTION

Natural gas is becoming a highly important fuel in

the future of the world’s energy mix. In the era of

global warming and rising environment concerns –

the comparatively clean nature of natural gas in

producing energy gives it an edge over other

conventional fuels. There is widespread variance in

distribution of natural gas resources and it’s

consumption throughout the world. The existence

of concentrated demand and supply centres makes it

an internationally tradable commodity and highly

volatile in nature. Almost all costs involved in the

natural gas value chain vary from region to region.

They include cost of production, storage,

liquefaction, transportation and regasification.

II. LATEST TECHNOLOGICAL ADVANCEMENTS

Below are a brief on the latest advancements in

technology and its possible effects on natural gas

trade. In this paper we look at the following trends:

A. FSRU (Floating Storage and Regasification Unit)

B. Expansion of Panama Canal

C. Gas Hydrates

D. Gas to Liquid Plants

Details of each as follows:

A. FSRU

Floating storage and regasification unit (FSRU) is a

type of vessel which involves the storage and

regasification of liquefied natural gas (LNG). They

are the conventional LNG vessels which have an

ability to operate as well as trade cargoes. They

receive LNG on board from a liquefaction facility

thereby doing the storage and regasification activity

at a given location.

Advantages

In general FSRUs cost less than land based

schemes of similar size as it provides a faster return

on capital. Apart from this, construction of FSRU

take lesser time than any onshore terminal as

construction of land base terminal depends upon the

topography. They have an ability to move from one

demand centre to another thereby minimizing the

fluctuations due to seasonal demand.

Possible Effects on Natural Gas Trade:

Due to the above advantages since importing

countries which do not have regasification facilities

can opt for this technology. More new buyers

would enter into the market hence making it a

seller’s market. Eventually, this would lead to a

pressure to push gas prices up. This would also play

an influential role in United States of America’s

aspirations of exporting its natural gas resources

and adding to a significant new seller in the market.

This in-turn would have put pressure on gas prices

going down.

Challenges:

First of all mooring and stabilizing methane

freighter is a difficult task on top of that

optimization of imported methane freighter is

troublesome. Problem also arises during the

transfer- loading/unloading of LNG.LNG tanker

ships are required to meet international maritime

construction and operating standards as well as

rigorous Coast Guard safety and security

regulations.

B. Expansion of Panama Canal

As the name suggests Panama Canal expansion

project will double the capacity of the Panama

Canal by 2015. Under this project a new lane of

traffic will be created which allows more and larger

ships to transit. According to the prediction made

by Panama Canal authority every year the volume

of cargo transiting the canal will grow by an

average of 3% which will double the 2005 tonnage

by 2025.

Advantages

Expansion of the canal will enable the shippers to

bring their goods from western to eastern and gulf

coast for less money. This project will also make

panama one of the busiest transhipment centres for

much of centre and South America. Once the

expansion is completed, the canal will be able to

handle "Post-Panamax vessels," which can carry up

to 13,000 TEUs.

Challenges

the expansion project cost $5.25 billion.

Possible Effects on Natural Gas Trade:

In the present scenario vessels which transport

American petroleum and natural gas products have

to sail all the way around South America in order to

reach Asia. But once the expansion is complete,

shipping days will be cut to 25 from 41. That means

the time it takes to get from the East Coast to Asia

will now be comparable to the time it takes to get

there from the Middle East, resulting in freight cost

savings of up to 50%.

With the expansion, the cost of shipping LNG from

the U.S. to Asia will equal the cost of shipping it

from the Middle East also demand for US LNG will

increase sharply which will put downward pressure

to Middle East LNG export prices to make it’s LNG

more attractive compared to US LNG.

We will also see higher traffic movement in the

Panama Canal region hence increasing its global

trade gateway significance which may result in

higher “toll fares.

C. Gas Hydrates

Gas Hydrate is a solid (clathrate) composed of gas

molecules surrounded by a cage of water molecules.

These are the largest global sink for organic carbon.

Gas hydrates are expected to be the largest potential

sources of energy which can be aimed in fulfilling

the demands of cleaner and cheaper energy source.

These are available in abundance in the permafrost

regions and shallow arctic seas. The production

procedure that is being utilized is the

depressurization method-based approach.

Advantages

These are cleaner sources of energy which are

abundantly available in nature. A volume of gas

hydrate is equal to 164 volumes of methane gas and

the gas hydrates are expected to be more than all

other fossil fuels put together. This will let the

longer term supply and demand issues to be

addressed more cheaply and bringing into reality

‘energy for all’.

Possible Effects on Natural Gas Trade

With the advent of gas hydrates there will be a

surge in natural gas supply. Japan having huge

reserves off its coast may no longer become a

significant importer as it would capitalize on its

own resources. Obviously, a breakthrough in

feasible production of gas hydrates will spiral down

the gas prices globally and have a huge negative

impact on already established capital intensive

production facilities.

Commercial Viability

Japan is piloting the R&D in the field of Gas

Hydrates and their research effort exceeds all

national programs combined, with US$ 50 million

per year in the project. JNOC (Japan National Oil

Company) is currently drilling in the Pacific

offshore Tokyo (Nankai Trough) and is claiming

the commercial production of gas hydrates by 2016.

Challenges:

The challenges associated with Gas Hydrates

extraction and production are the Gas production

rate (Gas in the production testing of Mallik well in

Canada’s permafrost area have yielded very low

production rate and could not sustain more than 7

days of production using thermal and

depressurization methods), even more in off-shore.

Managing Water production rate (High amount of

water is expected to be produced along with the

dissociation of hydrates). Sand control as the

hydrate reservoirs exist at a very shallow depth

below sea bed (200-400 mbsf) the sands here would

not be consolidated due to absence of overburden

pressure. Reservoir subsidence and other

environmental hazards also exist.

D. Gas to Liquids (GTL) plants

Gas to liquids (GTL) is a refinery process used to

convert natural gas or other gaseous hydrocarbons

into longer-chain hydrocarbons such as gasoline or

diesel fuel. Methane-rich gases are converted into

liquid synthetic fuels either via direct conversion

using the new GasTechno non-catalytic gas-to-

liquids process that converts methane to methanol

in one step. Or via syngas as an intermediate, for

example using the Fischer Tropsch or Mobil

processes.

Advantages

The advantages of the GTL plants are that the

technology can be used by refining companies to

convert gaseous wastes like flare gases into

valuable oils, it can also be used at places where gas

is extracted but building a pipeline is not

economical as the gas can be converted to oils and

then transported. Using this technology, the oil

companies may take advantage of the price

differences between natural gas and diesel. The gas

oils generated by this process are also clean.

Possible Effects on Natural Gas Trade:

With the development of this technology there will

be an increased demand for natural gas. This would

have a positive effect on the price. It would also

challenge prices of the mid distillates such as diesel

in free markets since another process of production

would be in effect. Natural gas eventually will find

an increased number of uses as it can be moulded

into different end products.

Commercial Viability

The GTL plants have been established around the

world but the fischer-tropsch process allows it only

to be commercially viable on large scale production

of approximately 30000 barrels per day or more.

This reason owes to the fact that only 4 GTL plants

are in existence. To overcome the large scale of

economies, new technologies like micro-channel

reactors are emerging to shrink these economically

viable production levels up to 1000 to 1500 barrels

per day of liquid fuels. The micro-channel reactor

GTL plants are expected to be installed by the end

of 2015.

Challenges:

The challenges associated with conventional GTL

plants are being overcome by the Micro-channel

reactor plants. The research work on the micro-

channel reactors has been completed but is yet to be

implemented and the technology could also become

commercially viable with smaller deposits of gas.

III. LATEST TRENDS IN NATURAL GAS TRADE

Attached in Annexure is a global LNG Trade Map.

It shows the possible LNG value chain cost at each

stage for different countries. Width of Arrow shows

Volume of LNG trade and long with Arrow I have

written transportation cost.

Costs include:

1. Wellhead Cost

2. Liquefaction Cost

3. Transportation Cost

4. Cost of Importing

5. Regasification Cost

One can make several conclusions from the map

depending upon their depth of experience. Some

general conclusions are as follows:

Eastern countries are playing a major role in

LNG Trade and becoming significant buyers.

Huge demand spans over the eastern part of the

world and we see a strong competition for LNG.

US is planning to grab a share of the cake of

this demand and is setting up several

liquefaction plants to cash in on their huge shale

reserves by exporting them to intense Asian

demand centers such as Japan, Korea, China

and India.

Wellhead costs are significantly low in Qatar

(1BTU) – reasons for this may be due to vast

amounts of easily extractable reserves and also

presence of NGL’s in their natural gas

production. Transportation cost is .56 BTU.

And liquefaction and regasification cost is 2.54

BTU and .37 respectively. In addition to this

DES cost is 17.5 BTU in India. Wellhead costs

are significantly high in Australia – reasons for

this may be due to high capital costs and human

resources.

Even with high wellhead costs in Australia

which is 6.5BTU. It can compete with Qatari

LNG due to its close proximity to intense

demand centers such as China, Japan, S. Korea

and India thus saving on the transportation

costs.

IV. CONCLUSIONS

Natural gas is becoming a highly important fuel

in the future of the world’s energy mix and

witnessing a volatile period in terms of natural gas

trade. Latest technologies are changing the global

strategic trade patterns. Almost all costs involved in

the natural gas value chain vary from region to

region.

REFERENCES

[1] Australia Gas Trading Exchange Rules –

[2] BP Statistical Review - 2014

[3] David Jacobs - Global Market for LNG – 2014

[4] Energy Perspectives - Market Outlook - 2014

[5] EEX Natural Gas Product Brochure 2014

[6] House of commons - impact of shale on energy

markets - 2014

[7] IEA - China Gas Pricing & Regulation – 2012

[8] IEA Report - Natural Gas Trading Hub Asia –

2014

[9] OPEC- Monthly Oil Report – 2014

[10] University of Europe - Ensuring Energy

security in EU - 2014