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GAME CHANGING LNG SOLUTIONSMHI H-100 AND COMPRESSORTECHNOLOGY
September 2019
Integrated, Modular, Scalable and Bankable PROVIDING RELIABLE LNG SOLUTIONS FROM CONCEPT TO EPCIC
Black & Veatch handles projects with a broad range of gas streams through pretreatment, liquefaction, and storage of LNG. We have been deploying proven PRICO® technology for small-scale, mid-scale, and baseload solution. Our PRICO® technology for offshore application is now well proven and in commercial operations since April 2018.
We use our design expertise, proven technology, EPC leadership and innovation to deliver clients reliable liquefaction wherever they need it. Black & Veatch PRICO® offers integrated solutions with no boundaries — onshore, near shore and offshore.
Visit bv.com/oil-gas to learn more or meet us in person at Gastech 2019.
Project : Hilli Episeyo FLNG | Credit : Golar LNGProject : Exmar Tango FLNG | Credit : Exmar
Visit us at booth #S180
Copyright © Palladian Publications Ltd 2019. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. All views expressed in this journal are those of the respective contributors and are not necessarily the opinions of the publisher, neither do the publishers endorse any of the claims made in the articles or the advertisements. Printed in the UK.
LNG Industry is audited by the Audit Bureau of Circulations (ABC). An audit certifi cate is available on request from our sales department.
ISSN 1747-1826
CONTENTSCONTENTS
ON THIS MONTH’S COVER
SEPTEMBER SEPTEMBER 20192019
Mitsubishi Heavy Industries (MHI) has an extensive supply record of gas turbines and compressors in the power generation and oil and gas markets. MHI’s LNG solution using the H-100 and compressor technology is compact while offering higher efficiency and reliability, as well as significant savings from reduced footprint. The best in class H-100 gas turbines and compressors are an innovative and optimum solution, especially for a large scale LNG liquefaction facility. Read more on page 25.
71 A revolution propelled by pumpsChristopher Campos, Elliott Group, USA, describes how multi-fluid cryogenic cargo pumps have revolutionised the transportation of liquefied gases.
77 Insulation: it’s about timeJohn Williams, Aspen Aerogels®, USA, discusses a recent case study in North America in which an LNG export terminal was insulated with flexible materials.
82 The next stationJorg Raven, LIQAL, the Netherlands, explains how technological developments, along with an increase in distribution infrastructure, are enabling the transition from diesel to more sustainable alternatives, such as LNG and bio-LNG.
88 Mid size LNG design in ChinaTania Simonetti, TechnipFMC, France; Timothy Truong and Fei Chen, Air Products, USA, present a case study on the Yangling LNG plant in China, focusing on the mid size design for robust and flexible operations.
97 Digitalisation: a running startJohn Nixon and Hermano Ferreira, Siemens, USA, discuss the benefits of digitalising LNG projects at the earliest possible stage.
101 Optimising gas management with simulationNobutaka Umeyama and Hiroki Minami, Japan Marine United Corp.; Koji Kikuchi and Kenichi Matsuoka, Azbil Corp.; and David Hill and Aaron Herrick, CHEMSTATIONS Corp., discuss the application of dynamic simulation for LNG vessel gas management systems.
107 LNG from unused energyMartin Köhler and Maximilian Köller, Technische Universität Dresden, Germany; and Ulrich Werner and Christian Schmidt, Cryotec Anlagenbau GmbH, Germany, discuss the conceptual design of an LNG plant connected to the natural gas high pressure grid using process simulation.
113 Gastech 2019 previewLNG Industry previews a selection of companies that will be exhibiting at this year’s Gastech in Houston, Texas, US (17 – 19 September 2019).
136 15 facts on... the USA
03 Comment
04 LNG news
14 Momentum, headwinds and opportunityGil Porter, Brad Richards and Chad Mills, Haynes and Boone, USA, discuss how the US will handle the next wave of LNG projects.
20 Braving the elementsJohn Rasmussen, Eilbeck Cranes, Australia, presents a detailed case study on the installation of jib cranes at the Yamal LNG facility in Russia.
25 Fit for purposeMike Sicker and Shunichi Kuba, Mitsubishi Heavy Industries America, USA, explain why the application of two-shaft industrial gas turbine technology is ideally suited for large scale mechanical drive applications.
29 A custom fitJörg Müller, TGE Marine Gas Engineering, Germany, discusses the importance of designing tailor-made LNG storage tanks onboard vessels.
33 Emergency response trainingAndrew Brown, Smit Lamnalco, the Netherlands, discusses emergency response training for floating LNG terminals.
38 Grow with the tideQatar’s Nakilat outlines how it is preparing for the upcoming shifts in LNG as fuel and shipping trends, and its plans for future growth and expansion in the industry.
43 Adapting to changeMartijn van Essen and Sander Gersen, DNV-GL; Tony Wimpenny, Orbital Gas Systems, UK; and Maurice van Erp, Shell, the Netherlands, highlight a new method of knocking characteristic determination for LNG-as-fuel, and discuss the benefits of real-time fuel adaptive engine control using a fast gas analyser.
47 Making the best use of BOGJohn Baguley and Richard Wheeler, LNG Limited, USA, outline the importance of optimising boil-off gas in LNG facilities.
52 Bringing Canadian LNG to the worldArvind Ramakrishnan, FortisBC, Canada, provides an update on the Canadian LNG industry.
58 Unlocking North America’s energy potentialJustin Bird, Sempra LNG, USA, looks at the burgeoning US LNG industry, with particular focus on the company’s various export facilities.
63 Practice makes perfectPhilipp von Breitenbuch and Feras Alhothali, Linde Engineering, Germany, outline the important role that virtual reality is playing in training the oil and gas workforce of tomorrow, today.
67 The ingredients of a good returnShaun Askew, Heatric, UK, outlines the best ways for investors to achieve a good return on investments in the midst of the LNG transition.
Copyright © Palladian Publications Ltd 2019. All rightsthis publication may be r
Mitsubishi Heavy Indushas an extensive suppltuturbines and compressoggeneration and oil and MHI’s LNG solution usinand compressor technolwhile offering higher effreliability, as well as signsavings from reduced foobest in class H-100 gas tcompressors are an innovoptimum solution, especialarge scale LNG liquefactiRead more on page 25.
t will be exhibiting at , Texas, US (17 – 19 September 2019).
136 15 facts on... the USAthe worldon the Canadian LNG
energy
G industry, with
g, Germany, ng the oil
Chart has a proven track record of delivering robust, reliable LNG solutions that integrate seamlessly with existing infrastructure.
• Liquefaction• Distribution & storage• Receiving terminals• Power generation
• Bunkering solutions• Virtual pipeline• Vehicle fueling stations• Fueling systems for road, maritime and rail
Powering theFuture Through LNG
www.ChartLNG.com [email protected]
COMMENTDAVID ROWLANDS
EDITOR
Editorial/Advertisement Offices, Palladian Publications Ltd
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LNG Industry (ISSN No: 1747-1826, USPS No: 006-760) is published monthly by Palladian Publications Ltd, GBR and distributed in the USA by Asendia USA, 17B S Middlesex Ave, Monroe NJ 08831. Periodicals postage paid New Brunswick, NJ and additional mailing offices. POSTMASTER: send address changes to LNG Industry, 701C Ashland Ave, Folcroft PA 19032.
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In 2005, YouTube went online, the dwarf planet Eris was discovered, and ‘Star Wars: Episode III – Revenge of the Sith’ hit the cinemas. Just as significantly (we believe), the first issue of LNG Industry magazine was
launched. 14 years later, and just in time for Gastech, we are celebrating our biggest ever issue.
Since our launch, we have observed both evolution and revolution in the industry, as new markets and technologies have emerged and others have faded away. In this sense, perhaps no market is more interesting to look back on than the US LNG market.
In our first ever issue, Rob Harvan, contributing editor, had this to say: “According to the EIA, the US imported 0.23 trillion ft3 of natural gas in the form of LNG in 2002. It is estimated that LNG imports rose to approximately 0.65 trillion ft3 in 2004 and are forecast to increase to 6.40 trillion ft3 in 2025.”1
It’s fair to say that the industry’s projections were slightly off the mark, but of course nobody could have predicted the shale revolution and the implications this would have for the US LNG industry and indeed the global LNG industry.
Fast-forward to 2019, and the US LNG industry could hardly be more different.
Rather than rushing to contruct LNG import terminals, today, the US is competing with established global LNG players to assert itself as a dominant LNG exporting nation. With vast reserves now accessible due to a revolution in drilling technologies, the US’ position in the LNG market has turned on its head in the blink of an eye.
As Porter, Richards and Mills of Haynes and Boone
discuss in their article starting on page 14 of this issue, “The ‘shale revolution’ has kicked off an ‘LNG revolution’ in the US. The phenomenon came to fruition in February 2016, when the first shipment of LNG departed for Brazil from the recently completed Sabine Pass terminal in Louisiana.
“US capacity additions could reach 215 million tpy by 2023, nearly eight times the estimated capacity in December 2018.”
Indeed, in August this year alone, Cameron LNG Train 1 officially started commercial operations at its site in Hackberry, Louisiana. Freeport LNG Train 1, meanwhile, commenced LNG production at its site in Freeport, Texas. In addition to this, in July, the US Department of Energy’s (DOE) Office of Fossil Energy issued an order to Gulf LNG Liquefaction Co. LLC approving exports of domestically produced LNG.
Clearly, the US LNG industry is looking up, with project final investment decisions (FIDs) rife, and Gastech returning to its spiritual home of Houston, Texas, for the third time in the event’s lifetime.
Of course, there are further challenges ahead for the US LNG industry, but it remains fascinating to see how far it has come even just in the last 14 years.
We hope you enjoy this latest issue of LNG Industry. Please feel free to pick up a copy at Tank Storage Asia, the 4th International Green & Smart Shipping Summit, and Gastech, where we will be exhibiting at stand number K402.
1. HARVAN, R., ‘The US LNG Conundrum’, LNG Industry, (Autumn 2005), pp. 10 – 16.
4 September 2019
LNGNEWSUSAUSA
Cameron LNG Train 1 starts commercial operations
Sempra LNG has announced that the first liquefaction train at the Cameron LNG project in Hackberry,
Louisiana, US, has started commercial operations under the project’s tolling agreements.
Carlos Ruiz Sacristan, Chairman and CEO of Sempra North American Infrastructure, said: “This is an exciting moment for Cameron LNG and for Sempra Energy.
“Cameron LNG is exporting LNG to customers in the largest world markets, helping to support economic growth in the US and abroad.”
According to the statement, Sempra Energy’s share of full-year run-rate earnings from the first three trains at Cameron LNG are projected to be between US$400 million and US$450 million per year when all three trains begin commercial operations under Cameron LNG’s tolling agreements.
Lisa Glatch, Chief Operating Officer of Sempra LNG and board chair for Cameron LNG, said: “We are proud that Cameron LNG has realised this key milestone with an excellent safety record and zero lost-time incidents.
“We remain focused on safely achieving commercial operations of Train 2 and Train 3.”
Train 1 is part of Phase 1 of the Cameron LNG project, which includes a projected export capacity of 12 million tpy of LNG (or approximately 1.7 billion ft3/d of natural gas). Phase 2 has already been authorised by the Federal Energy Regulatory Commission (FERC), and includes up to two additional liquefaction trains and up to two additional LNG storage tanks.
PolandPoland
PGNiG buys US LNG cargo and sells gas to Ukraine
Polish Oil and Gas Co. (PGNiG) has announced that it has purchased an LNG cargo from the US, and then –
following regasification – sold the gas to Energy Resources of Ukraine (ERU).
According to the statement, the contracted LNG tanker will arrive at the President Lech Kaczynski LNG Terminal in Świnoujście, Poland, at the beginning of November this year. LNG will be injected into the Polish transmission system after it is regasified. From here, it will reach Ukraine and ERU via the gas connection in Hermanowice. Supplies to the Ukrainian partner will be carried out until the end of this year.
PGNiG claims gas imports to Poland are increasing dynamically. While in 2016 LNG only accounted for approximately 8.5% in the entire import structure, last year it was over 20%. Since the terminal in Świnoujście began operating, PGNiG has already received nearly 70 LNG cargoes, totalling approximately 7.5 billion m3 after regasification. The company claims more and more supplies are travelling to Poland from the US. While last year PGNiG welcomed just one spot delivery of US LNG, by the end of August this year, it has already received four spot deliveries, as well as one under a medium-term contract and one under a long-term contract.
Yaroslav Mudryy, Director of the ERU TRADING LLC, said: “We contracted this volume for the purpose of injecting and storing it for further delivery to consumers in the winter season – this way we contribute to the country’s energy safety during uncertain and especially risky winter period 2019 – 2020.”
South KoreaSouth Korea
SHI receives orders for 10 LNG-fuelled vessels
Samsung Heavy Industries has announced that it has received orders for 10 Aframax 113 000 DWT
LNG-fuelled crude oil tankers from an Oceanian shipowner, valued at KRW751.3 billion.
According to the statement, these vessels will be delivered by January 2022 in consecutive order.
SHI claims that it has reached 54% of its annual target of US$7.8 billion by winning orders for 29 vessels, equivalent to US$4.2 billion so far including this contract. These orders consist of 11 LNG carriers, 14 crude oil tankers, two PCs, one special ship, one floating production, storage and offloading (FPSO) vessel, and more.
6 September 2019
News Highlights
Visit our website for more news: www.lngindustry.com
ExxonMobil signs charter for LNG-fuelled bunker barge
GTT reports record order intake and revenue
India to examine long-term LNG contract prices
LNGNEWSRussiaRussia
Yamal LNG successfully ships 20 millionth tonne of LNG
Yamal LNG has announced that it has successfully shipped its 20 millionth tonne of LNG since the
project started operating.According to the statement, the Vladimir Voronin
Arc7 ice-class tanker loaded the 273rd cargo as the project reached 20 million t of LNG produced since the startup of Train 1 in December 2017. Yamal claims that the Vladimir Voronin is the 12th Arc7 ice-class tanker built specifically for the Yamal LNG project.
There are three liquefaction trains currently operating at the project, with a cumulative nameplate production capacity of 16.5 million tpy. The first LNG train began production in 4Q17, whilst trains 2 and 3 started operating in July 2018 and November 2018, respectively. The project utilises the hydrocarbon resources of the South-Tambeyskoye field in the Russian Arctic.
Yamal LNG shareholders include PAO NOVATEK (50.1%), Total (20%), CNPC (20%), and the Silk Road Fund (9.9%).
South KoreaSouth Korea
Höegh LNG takes delivery of 10th FSRU
Höegh LNG Holdings Ltd has announced that it has taken delivery of its 10th floating storage and regasification
unit (FSRU) – Höegh Galleon.According to the statement, this high-specification
FSRU has been constructed at Samsung Heavy Industries in South Korea, and has a storage capacity of 170 000 m3 of LNG, as well as a regasification capacity of 750 million standard ft3/d.
This latest vessel features a GTT Mark III membrane containment system, and tri-fuel diesel-electric (TFDE) propulsion. The delivery of the FSRU marks the completion of the company’s current newbuilding programme.
According to the statement, Höegh Galleon has entered into an 18-month interim time charter (TCP) with Cheniere Marketing International LLP, which is scheduled to commence in September 2019.
After the TCP with Cheniere, the FSRU is scheduled to travel to Australia for AIE’s FSRU project in Port Kembla. Höegh LNG claims that it has been selected as the FSRU provider by AIE, and Höegh Galleon will serve the project from the end of 2020.
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8 September 2019
LNGNEWS
08 - 09 October 2019
4th International Green & Smart Shipping SummitRotterdam, the Netherlandshttps://www.gssummit.org/
21 - 22 October 2019
European LNGInfrastructure Development SummitBarcelona, Spainhttps://www.lngevent.com/
02 - 03 December 2019
2nd Gas & LNG Middle East SummitOmanhttps://www.gasoman.com/
03 - 06 December 2019
20th CWC World LNG Summit & Awards EveningRome, Italyhttps://world.cwclng.com/
USAUSA
BHGE to provide LNG technology solution for Calcasieu Pass project
Baker Hughes, a GE company (BHGE) has announced that it has won a contract and been granted notice to proceed on the
construction of its comprehensive LNG technology solution for Venture Global LNG’s Calcasieu Pass project.
The final notice to proceed (FNTP) follows Venture Global’s final investment decision (FID) and financial close for Calcasieu Pass, and is part of the companies’ previously-announced supply agreement. The agreement includes BHGE’s modular liquefaction trains, as well as power generation and electrical distribution equipment for the Calcasieu Pass Project.
Under the terms of the contract, BHGE claims that it will provide an LNG liquefaction train system (LTS) with 18 modularised compression trains across nine blocks, for a total nameplate capacity of 10 million tpy. According to the statement, the modularised system offers a ‘plug and play’ approach that allows for quicker installation, as well as lower construction and operational costs. These modules will be manufactured, assembled, tested and transported from BHGE’s facilities in Italy.
In addition to this, BHGE claims that it will utilise advanced technologies from across its portfolio to deliver a comprehensive power island system (PIS), which includes power generation and electrical distribution equipment for the facility. Equipment deliveries are expected to begin in 2H20. The company will also provide associated field support services to help with the oversight, installation and commissioning of the supplied equipment. These are reportedly the first contracts signed under the master equipment supply agreement between Venture Global LNG and BHGE for 60 million tpy of production capacity.
GlobalGlobal
AG&P signs MoU with Chart
A tlantic Gulf & Pacific Company (AG&P) has entered into a memorandum of understanding
(MoU) with Chart Industries, Inc., a leading manufacturer of highly engineered equipment for the energy and industrial gas sectors worldwide. Under the MoU, both companies will develop small scale LNG infrastructure to serve the growing number of countries seeking to import and distribute natural gas.
AG&P and Chart will serve the emerging markets’ increasing demand for LNG as a cleaner and cheaper alternative energy source for power generation, shipping fuel, ground transport and industrial use. Both companies will focus on developing LNG infrastructure for the global transport sector, including automotive, marine, bunkering, railways, and other related industries. Beyond transport, the companies will continue to develop flexible, cost-optimised LNG applications and logistics solutions to provide easier and more affordable access to gas for new and under-served customers.
The MoU covers the design and development of: LNG storage solutions; LNG regasification applications; modular liquefaction and regasification; LNG bunkering for marine vessels; LNG and CNG vehicle fuelling stations; LNG-fuelled vehicle tanks; LNG micro bulk systems and other alternative LNG mobile transportation, such as railcars and ISO containers.
21 - 23 October 2019
North American Gas ForumWashington, D.C.https://energy-dialogues.com/nagf/
05 - 07 November 2019
European Annual Gas ConferenceParis, Francehttps://www.theeagc.com/
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10 September 2019
LNGNEWSFinlandFinland
UPM designs new LNG-fuelled vessels with Spliethoff Group affiliates
UPM has announced that it has entered into a long-term charter agreement with Bore Ltd (Finland)
and Wijnne Barends (the Netherlands) to design and build seven state-of-the-art LNG-fuelled vessels for UPM’s European operations.
Bore Ltd and Wijnne Barends are both affiliates of Dutch company Spliethoff Group – one of the country’s largest shipping companies.
According to the statement, Bore Ltd will build three RoLo vessels, which will be used for transporting UPM’s paper products, while Wijnne Barends will build four LoLo vessels, which will be used for transporting UPM’s pulp and other forest products. All seven of the vessels will be built in China, with deliveries scheduled for 2021 – 2022.
All of the vessels are time chartered by UPM and hence will be fully operated by the company. They will be ice-strengthened and will meet the latest technological, operational and environmental standards.
Lauri Rikala, Director, Global Break Bulk Shipping, UPM Logistics, said: “The vessels will be fuelled with LNG, which results in a significant (approximately 25%) reduction of CO2 emissions compared with commonly used marine gas oil. In addition, nitrogen oxides (NOx) and sulfur oxides (SOx) emissions will decrease approximately 85% and 99%, respectively. The emissions of soot particles will also decrease by 99%.”
ChinaChina
Gloryholder to supply LNG fuel gas supply systems for chemical tankers
G loryholder Liquefied Gas Machinery (DL) Co. Ltd (LGM) has announced that it has signed a contract to design
and supply the LNG fuel gas supply systems for two 22 000 DWT chemical tankers with Wuhu Shipyard Co. Ltd.
According to the statement, the systems will be delivered to Wuhu shipyard next year. The shipowner is Swedish Rederi AB Donsötank; the design company is FKAB; and the classification society is DNV-GL.
Gloryholder claims that the ice class 1A, dual-fuelled, 22 000 DWT newbuilds will be designed by FKAB, and will include low resistance hulls. The LNG fuel gas system that will be delivered by Gloryholder LGM includes two sets of 300 m3 Type C LNG liquid cargo tanks with integrated tank connection space (TCS), LNG bunkering station modules, water glycol system, commissioning, crew training and onsite services.
GermanyGermany
AIDA LNG steel cutting held at Meyer Werft
W ith the symbolic steel cutting ceremony at Meyer Werft, work has begun on the next cruise ship
for AIDA Cruises.Like the AIDAnova that was delivered at the end of
2018, this ship will be fitted with an environmentally friendly LNG propulsion system.
The button to start the computer-controlled steel cutting machine was pressed by Sven Fahle, Project Manager at AIDA Cruises, together with the Meyer Werft team, thus starting production of the next LNG cruise ship. Delivery is planned for spring 2021. Meyer Werft will be delivering a third ship in this class to AIDA Cruises in 2023.
“We are very pleased to work with AIDA Cruises and Carnival Corp. at further establishing LNG as a fuel in the cruise industry. We will also be implementing other innovative technologies on board this ship”, says Stephan Schmees, Executive Board Member Project Management Ships at Meyer Werft.
This generation of ship for AIDA Cruises uses LNG engines by Caterpillar/MaK, which fulfil the strictest environmental regulations. This class of ships has been developed and designed with a focus on energy efficiency. The planning and design activities gave absolute priority to heat recovery, innovative electric motors, LED lighting, ship automation and glazing, all geared to energy efficiency, optimised underwater paintwork to reduce resistance, weight-optimised material selection and many other topics.
The new ships for AIDA Cruises have capacity for approximately 2600 cabins, with a rating of 183 900 GRT.
12 September 2019
LNGNEWSBeninBenin
MAN Energy Solutions inaugurates dual-fuel power plant in Benin
MAN Energy Solutions has inaugurated a new dual-fuel power plant in Benin.
The Maria Gleta power plant is located near the city of Cotonou, Benin. It is now fully operational and will supply the grid of Benin with 127 MW of electrical output. In future, it will be expanded to a total capacity of 400 MW.
The plant features seven MAN 18V51/60DF gensets, which will mainly run on low-emission natural gas. The plant was built by a consortium featuring MAN Energy Solutions and BWSC.
Dona Jean-Claude Houssou, Minister for Energy of Benin, said: “The Maria Gleta power plant increases Benin’s capacity for electricity generation by more than 50%. Our country now becomes more independent of energy imports.
“Thus Maria Gleta provides the conditions for positive economic prospects for Benin. It is an essential part of our action plan ‘Revealing Benin’, centered around 45 flagship projects aimed at strengthening macroeconomic development, consolidating democracy and improving living environment for the people of Benin.”
Recently, the government of Benin signed an agreement with TOTAL for the development of a floating storage and regasification unit (FSRU), which will ensure the supply of the Maria Gleta plant with LNG.
USAUSA
SEA\LNG grows US network with Stabilis Energy
SEA\LNG has expanded its membership network in the US as it welcomes Houston-based Stabilis Energy.To help fund growth plans and operating presence, as well
as investments in LNG production and distribution, Stabilis has recently completed a number of initiatives, including: a public listing on the Nasdaq stock exchange (ticker symbol: SLNG); investment from Chart Industries; and two strategic transactions in Mexico.
Peter Keller, Chairman, SEA\LNG, said: “Communication and collaboration across the LNG value chain is essential to breaking down barriers to the adoption of LNG as an important and economically viable marine fuel. It is encouraging to see Stabilis Energy engaging with its partners to strengthen the small scale LNG network. We look forward to working with them to expand LNG bunkering infrastructure in the Americas.”
ChinaChina
Silverstream signs MoU with Hudong-Zhonghua Shipbuilding
S ilverstream Technologies, an air lubrication manufacturer for the shipping industry, has announced
that it has signed a memorandum of understanding (MoU) with Hudong-Zhonghua, part of the CSSC Group.
The MoU will see Silverstream’s air lubrication technology – the Silverstream® System – integrated into Hudong-Zhonghua’s newbuild designs for its future LNG carriers in order to improve operational and fuel efficiencies, reducing fuel costs and emissions by between 6% and 8% for laden and ballast conditions.
Silverstream claims that this is a key milestone for the company, as it is its first LNG class newbuild project. It also reflects the Asian market’s growing interest in air lubrication systems, as well as its wider demand for greater efficiencies and sustainability in newbuild orders.
Lei Cullinan, Head of Marine China, Department for International Trade, said: “Asia is the world’s largest shipbuilding market, and combined with the UK’s pedigree for maritime innovation creates the foundation to create new technologies and ship designs that meet the sustainability challenges that the shipping industry faces. This agreement between Hudong-Zhonghua and Silverstream is evidence of this, and highlights the opportunity to continue to drive progressive and positive change.”
The ‘shale revolution’ has kicked off an ‘LNG revolution’ in the US. The phenomenon came to fruition in February 2016, when the first shipment of LNG departed for Brazil from the recently completed
Sabine Pass terminal in Louisiana. Since then, the US LNG supply market has grown exponentially.
The US Energy Information Administration (EIA) estimated in December 2018 that US LNG export capacity then was at 27.4 million tpy, and they expected then that the export capacity would more than double in 2019 and reach 67.6 million tpy.1 The rapid growth rate is likely to continue; when all planned and announced projects are considered, US capacity additions could reach 215 million tpy by 2023, nearly eight times the estimated capacity in December 2018.2
Gil Porter, Brad Richards and
Chad Mills, Haynes and Boone, USA,
discuss how the US will handle the next wave of LNG projects.
14
Momentum,Momentum,headwindsheadwinds
and andopportunityopportunity
15
16 September 2019
Moreover, the EIA continues to forecast ample natural gas supply in the US and relatively stable US pricing for domestic natural gas over the next few decades,3 making LNG priced against US markets a predictable market for end-users.
Project financing is available for this growth – but on what terms?The capital costs of LNG projects are quite large. Even with the sponsorship of major energy companies, the availability of project financing was key to funding construction and startup of the first wave of LNG projects in the US. Because of the willingness and experience of project finance lenders in assessing and managing construction risks, this remains the most appropriate form of financing for the next wave of projects as well.5
There is good news, in that the experience in engineering, procurement and construction (EPC) gained from the first wave of LNG projects should result in the next wave benefitting from lower costs of construction. Such lower costs can be derived not only from the modularised construction proposed in some of the next wave of projects, but also from accumulated knowledge and expertise that will reduce the need for ‘gold-plated’ engineering practices and will allow for more modest sizing of project contingencies and EPC guarantees.6 And, of course, scheduled expansions of the first-wave LNG
plants will benefit from the infrastructure that has already been constructed.
But construction costs are only one of the critical components of the overall calculus for a project financing. Another critical component is the offtake arrangement made with purchasers of the LNG. Following traditional project financing metrics, the first-wave projects leveraged long-term take-or-pay offtake contracts that minimised market-risk exposure to the vagaries of the energy markets. Such contracts did not, and do not, reflect a normal energy market practice. They were possible only due to the existence of strong demand for US LNG, priced against a domestic US natural gas market index.
Securing project financing for the next wave of projects requires that we update our analysis of the market demands to assess whether similar offtake contracts will be available to support the next wave of projects – or whether the financing markets will need to adapt to a different economic model in assessing some of the next-wave projects.
Headwinds
Proposed US LNG supply may be greater than available demandEarly in 2018, analysts were uncertain whether the demand for additional US LNG would be sufficient to support the next wave of LNG projects when they begin
production in 2023. Since that time, the market forecasts for LNG demand have improved, but the overall picture of supply and demand has grown more complicated.
Analysts continue to question whether there is sufficient demand for the proposed US capacity expansion. Poten and Partners, in one recent assessment, considered the proposed ramp-up of first-wave projects, loss of existing production internationally, worldwide production under construction, and the projected worldwide LNG demand through 2030. Their analysis suggested that there will be 56 million tpy of demand for additional capacity that is not yet under construction.
However, the aggregate project capacity of new LNG plants worldwide is
Figure 1. North American LNG projects update.4
Figure 2. LNG supply likely to exceed LNG demand by 2023.7
18 September 2019
estimated at over 230 million tpy, over four times the projected demand of 56 million tpy by 2023. The US alone, at over 120 million tpy of potential projects, may represent more than two times the unaddressed demand by 2023. These projections indicate that there will likely be challenges in obtaining firm long-term offtake arrangements for all of the LNG projects that are currently proposed as part of the next wave.
Challenges affect access to traditional markets for US LNGThus far, Asian markets have been the primary destination for US LNG, with South Korea, China, Japan and India consistently among the top six importers of US LNG since the creation of the US LNG market in 2016. In particular, China and India have taken on increasing importance in recent years as they are forecasted to drive LNG demand growth through 2030, accounting for approximately 110 million tpy (25%) of the worldwide forecasted demand of 440 million tpy in 2030. However, several challenges stand in the way of the continued sale of US LNG to the Asian markets:
First, aggressive American trade policies have had – and may continue to have – a chilling effect on American exports, as in the case of US LNG exports
to China. For example, in response to the trade war between the US and China, China imposed a 10% tariff on US LNG imports in September 2018 and has since threatened to raise the tariff to 25%.10 China, who was the third-largest purchaser of US LNG from 2016 to 2018, is no longer among the top 15 importers of US LNG gas. Additionally, Cheniere and Sinopec have yet to sign a 20-year LNG deal negotiated at the end of 2018.11 It remains unclear whether the aggressive approach to trade adopted by the US in recent years will negatively affect the willingness of trading parties to enter into long-term contracts for LNG, or whether the new contracts will include protections against such trade practices that may pose problems for lenders.
Second, the initial appeal of US LNG, as a means to lower LNG costs and/or diversify price and political risks in the LNG market, having been partially offset by the first-wave projects, may not be as strong today. Trade policies aside (which are relevant to this analysis as well), LNG markets have grown more competitive, particularly in Asian markets where the Japan Korea Marker dropped 60% in the beginning of this year.
Third, local policies and alternative fuel sources may reduce the demand for LNG in certain key Asian
markets. China’s overall demand for natural gas will be impacted by commencement of operation of the Siberian pipeline later this year. And especially in China and India, where much of the demand growth is driven by local policies that promote sustainability, a change in approach can significantly impact demand for natural gas. This scenario has played out in China this year as the Chinese government has slowed its proposed programs requiring the switch from coal to natural gas.
Opportunity
Shorter offtakes and alternate pricingIn a few cases, recent project announcements have underscored the role of majors and NOCs as offtakers willing to accept long-term offtake arrangements consistent with prior LNG projects as a means of maintaining a diversified LNG trading portfolio. Unsurprisingly, this has been accompanied by an equity interest in the overall project as well, since there are possibilities of projects taking advantage of domestic pricing opportunities (such as the currently-lower Permian prices as compared to Henry Hub) to maximise project economics. For example, Total is reported to have invested US$500 million in equity in Driftwood LNG in exchange for the right to purchase 1 million tpy and for a 15-year sales and purchase agreement (SPA) with a right to an additional 1.5 million tpy,12 and Saudi Aramco is reported to have acquired a 25% stake in the first phase of Port Arthur LNG.13
Figure 4. Asian markets are key destinations for US LNG.9
Figure 3. Asian markets are key destinations for US LNG.8
September 2019 19
But for most others, as a result of the uncertainty in demand, buyers have held the upper hand so far in 2019, demanding shorter tenors and alternate pricing schemes to take advantage of favourable spot markets. Announced offtake contracts in 2019 reflect these demands as Tellurian announced offtake arrangements with Total and Vitol priced against the JKM, and NextDecade reported an offtake arrangement with Shell indexed mostly to Brent crude and only partly to US gas price markers, including non-traditional US gas indices like Agua Dulce and Waha.14 The announced offtake contracts reflect a trend away from the prior norm of long term contracts priced on Henry Hub.
More-limited offtake arrangements, or offtake that is indexed to a market other than Henry Hub, will require project lenders to adapt to the requirement for the next wave of LNG projects.
Project finance will adaptThe absence of long-term offtake agreements that are ‘hedged’ against US natural gas supply means that one of the cornerstones of project financing – market risk – will need to be re-evaluated by project lenders. For bank lenders, this will be a challenge – most are not comfortable with unhedged energy market risk, and alternative hedging mechanics are not available for the lengthy term of project finance loans. Likewise, for bond investors (and rating agencies), such unhedged positions are equally problematic.
While these represent challenges for financing of the next wave of projects, they are not insurmountable challenges. To the extent that majors and NOCs step in and provide necessary offtake contracts, there may be little change in the financing of the next wave of projects. But in other cases, and while each project’s structure will no doubt be addressed to match its unique risks, but there are three general approaches we can expect to address these challenges:
Expansion facilities: the challenges of financing expansions to existing facilities may be offset by the economies and flexibilities afforded from the physical and contractual infrastructure of existing projects. The financing announced for Sabine Pass train 6 (a large capacity expansion project adding 4.7 million tpy – 5.0 million tpy), required only US$1.5 billion senior secured credit facilities and was provided by commercial banks and institutional investors.15 Sabine Pass train 6 was backed by long-term offtake contracts accounting for only 40% of production (as compared with 87% and 66% for earlier trains), and by plans to acquire an additional offtake contract or to assign offtake from other trains.16
High-yield lenders: while the scale of capital needed for an LNG project may make it challenging to finance an entire project with high-yield bonds, that will depend upon the particular project and its economics (most notably, its level of projected debt-service coverage). Where that is possible, such high-yield investors are more likely to accept some level of market risk in offtake (properly structured, perhaps with cash sweeps and other features commonly
found in market-risk projects from other industries). If such high-yield investors are not comfortable with construction risks, there may even be opportunities to structure some projects with traditional bank lenders during construction, supported by a firm take-out financing by high-yield lenders.
Risk-absorbing capital structures: the most cost-effective approach will likely represent a suite of solutions to introduce risk-absorbing capital structures. Lower costs of construction may add in producing lower debt service needs and lower delivered LNG costs and/or greater ability to fund and maintain market-risk reserves. Energy marketing contracts may be modified to provide some level of assurance as to market bandwidth. As well, the financial markets are well-experienced in introducing first-loss, allocated risk or mezzanine debt layers in order to provide greater resilience to highly-leveraged projects and maintain (at the most senior debt layer) higher credit quality for bank lenders and institutional investors.
ConclusionIn summary, while headwinds exist, the momentum of the US shale gas revolution and the tools and techniques for project financing will adapt to address the next wave of LNG projects.
References1. U.S. Energy Information Administration, ‘U.S. liquefied
natural gas export capacity to more than double by end of 2019’, (December 2018).
2. GlobalData, ‘North America is expected to add around 265 mtpa of LNG liquefaction capacity in 2023’, (March 2019).
3. US Energy Information Administration, ‘Annual Energy Outlook 2019’.
4. Poten and Partners, ‘LNG supply at a glance’, (May 2019).5. Only 10% of existing LNG projects have been constructed
under budget, and over 60% have encountered delays. Wood Mackenzie, ‘What will US$200 billion of investment do for the global LNG industry?’, (April 2019).
6. While logic and experience in other industries supports these conclusions over time, there continue to be notable construction delays even in recent modular efforts at Freeport LNG and Elba Island LNG. International Comparative Legal Guides and the International Business Reports, ‘Current Trends in LNG Development and Construction Project Finance 2019’, (May 2019).
7. Poten and Partners, ‘LNG supply at a glance’, (May 2019).8. Poten and Partners, ‘LNG in World Markets’,
(February 2019).9. Poten and Partners, ‘Spotlight on Chinese and Indian
LNG Demand – Opportunities and Risks’, (February 2019).10. Reuters, ‘U.S. liquified natural gas shipments to China
face mounting tariffs’, (May 2019).11. Reuters, ‘Sinopec may ink 20-year LNG deal with
Cheniere when trade spat end’, (March 2019).12. LNG World News, ‘Tellurian focused on finalizing
Driftwood LNG financing’, (May 2019).13. Reuters, ‘Saudi Aramco inks 20-year deal with Sempra for
LNG supply’, (May 2019).14. Reuters, ‘U.S. LNG producers offer alternative pricing to
woo buyers’, (April 2019).15. Reuters, ‘Cheniere to build Louisiana Sabine Pass 6 LNG
export train’, (June 2019).16. S&P Global Platts, ‘Cheniere makes positive FID on 6th
LNG train at Sabine Pass in Louisiana’, (June 2019).
THAT WAS A SAMPLE OF
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