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Produced and published


by

The Petroleum Economist Ltd


ISBN: 1 86186 129 X
February 2004

The Petroleum Economist Ltd


Baird House
P.O.Box 105
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United Kingdom
Tel: +44 (0)20 7831 5588
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E-mail: marketing@petroleum-economist.com
www.petroleum-economist.com

BOOK CONTENTS

The Petroleum
Economist Ltd 2004

Managing Director : Crispian McCredie Managing Editor : Derek Bamber


Editor : Tom Nicholls Commissioning Editor : Justin Deaville Production Editor : Euan Soutar
Head of Design : Isabelle Lipprandt Cartography : Kevin Fuller, Peregrine Bush Director : Edouard de Guitaut
Consultant: John Bulmer Product Development : Tom Quinn Marketing Manager : Graham Newman

Foreword

Financing

Shipping

Trading, Marketing
and Power Generation

Return to Masthead

Introduction
General Usage
This CD-ROM is easy to use. Petroleum Economist has incorporated hot-links so that you can
move about the CD-ROM with ease. To access the contents of the Fundamentals of the Global
LNG Industry CD-ROM simply click the green tabs on the left-hand side of the page. This will
take you to contents of that section within the book. The green tabs stay constant throughout
so you can jump to any section at anytime.
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Design
and Technology
History of the
Worlds LNG Industry

World LNG Map

LNG Statistics

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This function allows you to search for particular words and names.

Usage within each section


Once in a section contents you will see a list of articles. Simply click on the name of the article
and it will take you directly to the article. Use the next and back buttons located at the bottom
of the pages to navigate through the article. To exit click the home button. This will return you
to the sections contents page. To return to the opening page click on the Return to Masthead
tab at the top right of the contents pages.

What is LNG 14?


Visit the LNG 14 website

www.lng14.com

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Fundamentals of the Global LNG Industry, 2004

Foreword

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Financing

LNG 14
Shipping

Web link
Trading, Marketing
and Power Generation

Exporters

Importers

Design
and Technology
History of the
Worlds LNG Industry

World LNG Map

LNG Statistics

view information

ADGAS
web link
Angola LNG
ANZ Investment Bank
web link
Black & Veatch
web link
BASF
web link
BG Group
web link
BP
web link
ChevronTexaco
web link
ConocoPhillips, Bechtel
web links 1 2
Consolidated Contractors Group
web link
ExxonMobil
web link
Fluor
web link
Gorgon Australian LNG
web link
Kaefer Isoliertechnik GmbH & Co. KG
web link
Nigeria LNG Ltd
Qatargas
web link
RasGas
web link
Sakhalin Energy Investment Company Ltd
web link
Shell
web link
Sonatrach
web link
Total
web link
Tractebel LNG
web link
Virgin Atlantic
web link
Wrtsil
web link

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Fundamentals of the Global LNG Industry, 2004

Foreword

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Foreword
Financing

1.1

Qatar: the future capital of the worlds gas industry


Abdullah Bin Hamad Al Attiyah, Qatars second deputy premier and minister of energy and industry

1.2

The LNG bonanza


Marie-Francoise Chabrelie, Cedigaz

Shipping
1.3

Working together
Lee Raymond, chairman and chief executive, ExxonMobil

Trading, Marketing
and Power Generation

1.4

Future trends in global LNG


Gavin Law, director, Global Gas, and Frank Harris, director, Gas & Power, Wood Mackenzie

1.5

Matching supply with demand


Roland Kupers, vice-president global LNG, Royal Dutch/Shell

Exporters

Importers

Design
and Technology
History of the
Worlds LNG Industry

World LNG Map

LNG Statistics

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Fundamentals of the Global LNG Industry, 2004

Foreword

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Financing
Financing

2.1

Current and future trends


Patrick Barr, director, head oil and gas, and Gaurav Seth, director, structured asset finance, at ANZ Investment Bank

2.2

Shipping

The only constant is change


Captain Saleem Alavi, senior industry analyst, research and strategic planning department, DVB Bank

Trading, Marketing
and Power Generation

Exporters

Importers

Design
and Technology
History of the
Worlds LNG Industry

World LNG Map

LNG Statistics

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Fundamentals of the Global LNG Industry, 2004

Foreword

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Shipping
Financing

3.1

Options for marine technology


Ian Harper, director, Wavespec

3.2

Shipbuilding spree imminent


Graham Marshall, vice-president marine business support, Lloyds Register Americas

Shipping
3.3

A ship in port is safe


Philip R Weems, partner, and Kevin D Keenan, senior associate, King & Spalding International

Trading, Marketing
and Power Generation

3.4

Contract challenges
Goh Mei Lin, of Watson, Farley & Williams

3.5

A brave new world


Takeshi Hashimoto, general manager, project group, LNG carrier division, Mitsui OSK Lines

Exporters

Importers

Design
and Technology
History of the
Worlds LNG Industry

World LNG Map

LNG Statistics
Tanker loading at
ALNG
BG Group

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Fundamentals of the Global LNG Industry, 2004

Foreword

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Trading, Marketing and Power Generation


Financing

4.1

Revival and growth in the Atlantic basin


Michael D Tusiani, chairman and chief executive officer, Poten & Partners

4.2

The merchant model emerges


Doug Rotenberg, president, BP Global LNG

Shipping
4.3

LNG to power: first among equals


Martha Carnes, Michael Hurley and Duncan Michie, global energy, utilities and mining group, PricewaterhouseCoopers

Trading, Marketing
and Power Generation

Exporters

Importers

Design
and Technology
History of the
Worlds LNG Industry

World LNG Map

LNG Statistics

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Fundamentals of the Global LNG Industry, 2004

Foreword

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Exporters
Financing

5.1

Qatar: Thinking big pays off


Tom Nicholls, editor, Petroleum Economist

5.2

Yemen: Securing a market


Jean-Francois Daganaud, general manager, Yemen LNG

Shipping
5.3

Iran: Realising the potential


R Javadi, managing director, National Iranian Gas Export Company

Trading, Marketing
and Power Generation

5.4

Oman: Sustainable provision of a new resource


Haitham A Al-Kharusi and Nasser Al Kindi, communications department, Oman LNG

5.5

Abu Dhabi: A pioneer producer


Adgas

Exporters

5.6

Indonesia: Leading the field


Fathor Rahman, general manager, gas and oil marketing development, BPMIGAS

Importers

5.7
5.8

Design
and Technology

Australia: The development of Gorgon gas


Peter Glass, vice-president, marketing, Gorgon Australian LNG

Brunei: Changing gear powering ahead


Ideris Haji Ali, head, external affairs & administration, Brunei LNG

5.9

Russia: A new source for Asia-Pacific


Andrew B Seck, general manager, commercial, Sakhalin Energy Investment Company

History of the
Worlds LNG Industry

5.10 Nigeria: Consolidating on amazing runs


Andrew Jamieson, managing director, Nigeria LNG

5.11 Egypt: Gaining momentum


Mohamed Farghaly, vice-president for gas exports, BP Egypt

World LNG Map

5.12 Egypt: Jewel of the Nile


Martin Houston, BG Group

5.13 Algeria and Libya: The North African connection

LNG Statistics

Justin Deaville, Petroleum Economist

5.14 Norway: Snhvit - gas from the far north


Sverre Kojedal, manager, public affairs, Statoil

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5.15 Americas: Gearing up to meet US demand


David Renwick, Petroleum Economist

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Fundamentals of the Global LNG Industry, 2004

Foreword

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Importers
Financing

6.1

US: A revitalised market


Damien Gaul, industry economist, Energy Information Administration

6.2

US: Regulations set to boost imports


Philip R Weems, partner, Lisa M Tonery, counsel, King & Spalding, and Kevin D Keenan, senior associate, King & Spalding International

Shipping
6.3

Europe: Fighting for a market


Kenneth McKellar, managing director, petroleum services, Deloitte

Trading, Marketing
and Power Generation

6.4

Spain: Increasing market share


Antonio Gonzlez-Adalid, chairman, Enagas

6.5

Belgium: Strategic gateway set to double LNG throughput


Walter Peeraer, chief executive officer and president of the board, Fluxys LNG

Exporters

6.6

UK: LNG makes a comeback


Mark Johnson and Ian Belmore, National Grid Transco

Importers

6.7
6.8

Design
and Technology

France: Plans for expansion


Pierre Clavel, vice-president, gas supply, Gaz de France

Portugal: Adapting to a changing market


Anibal Fernandes, managing director, and Miguel Martn, general manager, Galp Atlntico

6.9

Japan: Demand set to grow


Kazuya Fujime, senior adviser for research, chief economist, The Institute of Energy Economics, Japan

History of the
Worlds LNG Industry

6.10 Taiwan: Terminal expansions to meet rising demand


Jiuun-Chang Liou, technical department manager, Chinese Petroleum Corporation

6.11 India: Outlook for Indian LNG


Ashutosh Shastri, partner, Energy and Utilities Practice, Candesic

World LNG Map

Inside the
Sodegaura LNG
terminal, Japan
Shell

LNG Statistics

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Fundamentals of the Global LNG Industry, 2004

Foreword

Return to Masthead

Design and Technology


Financing

7.1

Larger is greener
Robert P Saunderson, Joseph M Petrowski and James C Bronfenbrenner, Air Products and Chemicals

7.2

Bigger trains, lower capital costs


Cas Groothuis and Barend Pek, Shell Global Solutions International BV

Shipping
7.3

Increased efficiency and economic enhancement


Brian C Price, vice-president, LNG Technology, Black & Veatch Pritchard

Trading, Marketing
and Power Generation

7.4

The offshore option


Al Kaplan, Foster Wheeler

7.5

Revitalising LNG plants


Roy Nap, general manager, gas engineering, and Jelle Kiesling, general manager gas operations, Shell Global Solutions International BV

Exporters

7.6

Application of steam ejector-type heat exchanger


Yoshifumi Numata, technical general manager, natural gas process engineering department, Chiyoda Corporation

Importers

Design
and Technology
History of the
Worlds LNG Industry

World LNG Map

LNG Statistics

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Fundamentals of the Global LNG Industry, 2004

Foreword

Return to Masthead

History of the Worlds LNG Industry


Financing

Shipping

Trading, Marketing
and Power Generation

Exporters

Importers

Design
and Technology
History of the
Worlds LNG Industry

World LNG Map

LNG Statistics

Advertisers

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Fundamentals of the Global LNG Industry, 2004

Foreword

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World LNG Map


Financing

Shipping

Trading, Marketing
and Power Generation
Yamal
Peninsula

Exporters

Design
and Technology
Arzew

Sfax

Tiaret

History of the
Worlds LNG Industry

Arzew

RABAT

Madeira
(Port.)

Skikda

Gabes

Mohammedia

TUNISIA

MOROCCO
ALGERIA

Tenerife
Canary I (Sp.)

In Amenas

In Salah

La Aiun

WESTERN SAHARA

Sahara
MAURITANIA
NIGER

MALI

NOUAKCHOTT
DE

World LNG Map

BANJUL

SENEGAL
THE GAMBIA

BAMAKO

BISSAU

GUINEA-BISSAU

NIAMEY

BURKINA FASO
OUAGADOUGOU

GUINEA

CONAKRY

SIERRA LEONE

YAMOUSSOUKRO

MONROVIA

LIBERIA

Abidjan

Kaduna

ABUJA

TOGO

COTE
D'IVOIRE

FREETOWN

BENI
N

DAKAR

PORTO NOVO
LOME
ACCRA

NIGERIA
Lagos

CAMERO

Warri

Limbe
Port Harcourt

YAOUN
NLNG (Bonny Island)

EQUATORIAL
EQUA
GUINEA
GUIN

LIBREVILLE
LIBRE
GULF OF GUINEA

SAO TOME & PRINCIPE

Port Gentil

GABON

LNG Statistics

World Image supplied by NPA Satellite Mapping. www.npagroup.com 2004

Importers

The Petroleum Economist Ltd, London. 2004

Advertisers

The information within this section is based upon or redrawn from various authoritative sources and
whilst all reasonable care has been taken in the preparation of this section no warranties can be
given as to its accuracy and/or no reliance should be placed upon the same without further detailed
inspection and survey. The publishers cannot therefore accept any liability or responsibility for any
loss or damage. The international and other boundaries in these maps are taken from authoritative
sources and believed to be accurate as at the date of publication. The representation of any pipelines
is no evidence of the existence of rights of passage or the use of the same.
No reproduction whatsoever of these maps or any part thereof is permitted without the prior consent
of the copyright owners.

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Fundamentals of the Global LNG Industry, 2004

Foreword

Return to Masthead

LNG Statistics
Financing

Shipping

Trading, Marketing
and Power Generation

Exporters

Importers

Design
and Technology
History of the
Worlds LNG Industry

World LNG Map

LNG Statistics

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Fundamentals of the Global LNG Industry, 2004

ADGAS

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Fundamentals of the Global LNG Industry, 2004

Angola LNG

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Angola is poised to expand its role as an


energy supplier and become one of the
newest nations to produce and export
Liquefied Natural Gas (LNG) to the rapidly
growing markets of the Atlantic Basin.
Angola enjoys an abundance of hydrocarbon
resources, a competitive cost of development
and is suitably located to supply markets in
Europe and the Americas.
The participants are working together to
demonstrate their continued commitment to
Angola and environmental protection while
meeting the needs of their customers.

Houston Area Office:

Luanda Office:

4800 Fournace Place, Bellaire,

Av. Lenine, No. 77, 2nd Floor

Texas 77401 - 2324, USA

Caixa Postal 2950, Luanda, Angola

Telephone : (1) 713 - 432 3691

Telephone: (244) 2 39 26 46

Facsimile : (1) 713 - 432 3350

Facsimile: (244) 2 39 43 48

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Fundamentals of the Global LNG Industry, 2004

ANZ Investment Bank

Petronet LNG project

Oman LNG project

Samsung Heavy
Industries

Greenfield Shipping
Co. Limited

Bonny Gas
Transportation Ltd

US$283,000,000

US$1,364,000,000

US$115,000,000

US$165,000,000

US$190,000,000

Project nancing for two LNG

Refinancing of the Oman LNG

Securitisation of LNG

Financing of an LNG carrier

Financing of two LNG carriers

carriers to transport LNG from

plant in Sur, Oman

shipbuilding receivables

for Greenfield Shipping to

Ras Laffan, Qatar to India

transport LNG to India

Financial Advisor
Co-ordinator

Lead Arranger

Structuring Bank

Mandated Lead Arranger

Structuring Bank

Global Co-ordinator

Mandated Lead Arranger

Underwriter

Bookrunner

Arranger

Documentation Bank

Bookrunner

Agent

Agent

Bookrunner

Australia LNG

Malaysia International
Shipping Corporation

Nigeria LNG

Kakinada LNG

Egypt LNG

US$300,000,000

US$ 820,000,000

US$800,000,000

Transportation advice for the

Financing for the construction

Project financing for the

Development of LNG import,

Project financing for the

winning bid for the Australian

and acquisition of six LNG

expansion of the Nigeria LNG

regassification and storage

construction of a single train

LNG supply to Guangdong

carriers

plant from three to five LNG

facilities and a 1,000MW

Greenfield LNG plant at Idku,

processing trains

power station at Kakinada,

Egypt

LNG, China

US$1,000,000,000

India

Mandated Lead Arranger

Mandated Lead Arranger


Financial Advisor

Bookrunner

Arranger

Joint Financial Advisor

Insurance Bank

One-stop solutions for LNG finance


ANZ Investment Bank has an unrivalled track record for project nance and advisory in LNG.
To nd out more about our range of specialist skills, contact:
London
Patrick Barr
Tel: +44 20 7378 2775
Email: barrp@anz.com

New York
Brian Knezeak
Tel: +1 212 801 9139
Email: bknezeak@anz.com

Bahrain
Jeremy Dixon
Tel: +973 17549292
Email: jrmdixon@batelco.com.bh

Gary Clarke
Tel: +44 20 7378 2223
Email: clarkeg@anz.com

Ken MacArthur
Tel: +1 212 801 9122
Email: kmacarth@anz.com

Singapore
Thy Dam
Tel: +65 6539 6073
Email: tdam@anz.com

Gaurav Seth
Tel: +44 20 7378 2461
Email: seth@anz.com

www.anz.com

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Fundamentals of the Global LNG Industry, 2004

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Bookrunner

Black & Veatch

L I Q U E F I E D
N A T U R A L
G A S

Out of the ordinary.

LNG Facility

For more information, contact Brian Price at 913-458-6151


or visit www.bv.com.

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Fundamentals of the Global LNG Industry, 2004

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There is nothing ordinary about the demand


for and challenges of cleaner fuels. LNG offers
a superior solution yet presents significant challenges, too. The Gas, Oil & Chemicals Division of
Black & Veatch has the experienced professionals
and patented technologies you need to deliver
extraordinary results from your LNG business or
terminal projects, big or small. Standing on nearly
50 years of LNG experience, Black & Veatch
delivers.
There are no limits to
the challenges you face
or the solutions we deliver. For energy, water and
information services, call
the infrastructure experts.
Black & Veatch. Every
project, every day, were
Building a World of
Difference.

BASF

problems with
trace sulfur?

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H2S
COS
Mercaptans

we solve them!
OmniSulf , the one stop-shop for natural gas treating, jointly
developed by Lurgi and BASF, recovers 99.3% of total sulfur
OmniSulf is based on
the following processes:
p BASFs aMDEA
p Lurgi Multi-Purpose Burner
p LTGT, AQUISULF (Lurgi)
p Purisol (Lurgi)
p 13X Mole-Sieve (Zeochem)

Lurgi OelGasChemie

OmniSulf engineered and


licensed by Lurgi allows for:
p Single source responsibility
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p LTGT, AQUISULF (Lurgi)
p Tailor-made configuration

BASF

Contact us to learn about our references at: info.amdea@basf-ag.de and/or www.lurgi-oel.de

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Fundamentals of the Global LNG Industry, 2004

BG Group

BG Group

Advertisers

Egyptian LNG is due to be operational in 2005.


Working with Government and industry partners,
we are on track to deliver just 6 years from
discovery to first LNG cargo. Whats more,
because we have capability right across the LNG
business, we can link upstream, liquefaction,
shipping and off-take. Egypt will be the 7th
biggest LNG exporter in the world from 2007.
And BG Group will have another international
gas success story.
Natural gas. Its our business

Our involvement?
We drill, produce,
liquefy, ship and
sell it.

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Fundamentals of the Global LNG Industry, 2004

BP

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Fundamentals of the Global LNG Industry, 2004

Consolidated Contractors Group

Half a Century of Continuous Growth


A Proud Past

An Active Present

A Promising Future

Combining Every Element of Civil, Power, Petrochemical, Industrial & Offshore


Contracting and Engineering
1970s EUROPE
1980s N. AMERICA

1990s ASIA

1980s AFRICA

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2000s CIS

1990s C. AMERICA

CONSOLIDATED CONTRACTORS GROUP


Corporate Headquarters
62B Kifissias Avenue Amaroussion 151 10 Athens, Greece
Tel: +(30) 210 - 6182 000, +(30) 210 - 6199 200 Fax: +(30) 210 - 6199 224
www.ccc.gr E-Mail: cccmoamail@ccc.gr

Offices of the Group and its Subsidiaries/Affiliates


Azerbaijan Bahrain Botswana Egypt Grenada Iraq Iran Italy Jordan Kazakhstan Kuwait
Lebanon Lesotho Malawi Malaysia Morocco Nigeria Oman Pakistan Palestine Qatar
Russia Saudia Arabia Thailand Tunisia U.A.E. United Kingdom U.S.A. Yemen
Zambia Mozambique South Africa

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Fundamentals of the Global LNG Industry, 2004

ChevronTexaco

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Fundamentals of the Global LNG Industry, 2004

ConocoPhillips, Bechtel

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Fundamentals of the Global LNG Industry, 2004

ExxonMobil

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Fundamentals of the Global LNG Industry, 2004

Fluor

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Fundamentals of the Global LNG Industry, 2004

Gorgon Australian LNG

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FIND OUT WHY


GORGON IS WORLD-CLASS AT LNG14
THE WORLD CLASS AUSTRALIAN RESOURCE.
The vast reservoirs of untapped natural gas found in the Greater Gorgon Area off
Western Australias Pilbara Coast contain in excess of 40 Tcf of gas. Using cutting-edge
sub-sea technology, innovative design, and leading edge approach to greenhouse gas
management, Gorgon is the world-class Australian Resource.
www.gorgon.com.au

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Fundamentals of the Global LNG Industry, 2004

Kaefer

More than good ideas

The skill and competence of


KAEFER in the fields of heat,
cold, cryogenic, noise, fire
protection, refractory and

extensive contracts performed


in the oil, power, petrochemical
and gas industries as well as for
shipbuilding.
Please visit us at the LNG 14,
Doha, Qatar

Cryogenic Insulation Systems for


LNG, LEG and LPG Safe and
Economical Transport and Storage
of Liquefied Gas
Cryogenic Insulation Systems for Onshore and
Offshore LNG Process Plants, LNG Receiving

March 21-24, Exhibition


Centre, Stand No. 109
KAEFER
Isoliertechnik GmbH & Co. KG
28195 Bremen, Germany
Tel.: +49 421 30 55-0
Fax: +49 421 1 82 51
info@kaefer.com
www.kaefer.com

Terminals and LPG Plants.

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Fundamentals of the Global LNG Industry, 2004

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scaffolding are demonstrated by

Nigeria LNG Ltd

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Fundamentals of the Global LNG Industry, 2004

Qatargas

Fuelling world energy through...

Customer Satisfaction

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Profitability

Efficiency & Reliability

High Safety, Health &


Environmental Standards

High Caliber Workforce

...to be the world's leading supplier of LNG

Qatargas pioneered LNG in Qatar, delivering its first cargo to Japan in 1997.
Over 650 cargoes have been delivered on specification and on time, mainly to our Japanese buyers.
Recent state-of-the-art expansion projects have uniquely positioned Qatargas at the forefront to be the
world's leading supplier.

www.qatargas.com

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Fundamentals of the Global LNG Industry, 2004

RasGas

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Fundamentals of the Global LNG Industry, 2004

Sakhalin Energy Investment Co. Ltd

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Fundamentals of the Global LNG Industry, 2004

Shell (1 of 2)

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WHAT DO WE

REALLY NEED

IN TODAYS

The Flower Gardens of the Gulf of


Mexico. Home to some of the most
spectacular banks of coral and sponges
to be found in this part of the world.
In fact, this National Marine
Sanctuary forms the most northerly reef
on the U.S. continental shelf.

ENERGY
HUNGRY WORLD?

MORE

GARDENERS.

Which is why, when Shell went looking for oil and natural gas
in this region, we looked for help from Jim Ray a marine biologist
and Shell employee.

Theyre providing a habitat for all


manner of marine life, so everyone from
ecologists to schoolteachers has the
opportunity to study this wonderful
world firsthand.

Because at Shell, we focus on energy but that s not our only focus.
To find out more, see the Shell Report at www.shell.com

For some thirty years now, Jim and others just like him have been

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working to protect this magnificent area


and other sensitive marine environments.

Waves of change

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Fundamentals of the Global LNG Industry, 2004

Shell (2 of 2)

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BEFORE EXTRACTING
WHATS UNDERGROUND,

WE LISTEN TO

EXPERTS
During exploration, problems can
arise that we cant solve on our own.

WHO KNOW HOW

TO RESTORE

At the Malampaya Deep Water Gas


to Power Project in the Philippines, for
example, the removal of trees (many
small scrub trees) to accommodate a temporary structure
proved unavoidable.

WHATS ABOVE.

Shell asked local botanists to look at the likely impact before


felling. And with the structure now gone, specialists then helped us
to replant 10 saplings for every tree removed. This is not just

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replenishing those removed, its also


providing a new habitat for endangered
Philippine Giant Fruit and Flying Fox bats.

By enlisting help like this, were


ensuring that the extraction of one natural
resource doesnt mean the destruction of another.
For details of this and similar projects, see the Shell Report at
www.shell.com
Waves of change

Fundamentals of the Global LNG Industry, 2004

Sonatrach

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Fundamentals of the Global LNG Industry, 2004

Total

Mobilising our energy to face


the energy challenge

With their expertise and creative thinking, our teams have


already pushed back the limits of the possible. Were
exploring in water depths of more than 2,000 metres offshore
West Africa, bringing high pressure, high temperature oil
and gas into production in the North Sea, operating long
distance, multi-phase pipelines in Iran and creating light oil
from heavy crude in Venezuela.
Weve put all our energies together to ensure the daily needs
of more and more people. We will keep on inventing and
developing energy solutions that work today without
compromising tomorrow.
For you, our energy is without limits.

Lefret - Scorpius

www.total.com

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Fundamentals of the Global LNG Industry, 2004

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We know that oil and natural gas will be the main sources
of world energy needs both now and in the foreseeable
future. Today, thanks to increasingly sophisticated
technologies, were finding new ways to produce energy.
We need new techniques to take us into a better future.

Tractebel LNG

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Infinite Potential on the North Atlantic today and worldwide tomorrow.


Tractebel LNG is a London-based operation set up to create the ideal
partner in upstream LNG supply. We can give you the flexibility that
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combine that with onward distribution to end-users in the North Eastern US,
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Fundamentals of the Global LNG Industry, 2004

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Fundamentals of the Global LNG Industry, 2004

Foreword

Qatar: the future capital of the


worlds gas industry
The target of becoming the capital of the worlds gas industry is within reach, as Qatar sets
about industry expansions in pipeline gas exports, GTL and, of course, LNG. By Abdullah
Bin Hamad Al Attiyah, Qatars second deputy premier and minister of energy and industry

T GIVES ME great pleasure to welcome you to the 14th


International Conference and Exhibition on Liquefied
Natural Gas. We are very proud that Qatar is hosting this
prestigious event. Doha is the perfect place to discuss the
increasing importance of gas as the worlds future source of
clean energy, as Qatar is one of the leading gas exporters.
With a growing awareness of the need for environmentally friendly energy supply and increasing demand for gas,
industry leaders are anxious to stay up to date on the latest
developments in the field, especially through specialised
conferences such as LNG 14. This week is an excellent
opportunity to exchange views, ideas and experience, and
to discuss the latest technologies and theories on gas.
The incredible number of participants, both in the conference and the exhibition, and the countries and companies
they represent, and noting the rank and experience of the
speakers, presentations and workshops indicate how
important and complex the LNG industry has become. I am
also pleased to see that the number of participants from
gas-importing countries has increased dramatically.
Under the leadership of His Highness, Sheikh Hamad Bin
Khalifa Al Thani, the Emir of Qatar, this country has been
transformed into an industrial powerhouse thanks to his
vision of our strategy for the optimal utilisation of Qatars
natural resources.
Despite, or perhaps thanks, to its size Qatar is a magnet
for international investment in the oil, gas and petrochemicals industries because of its economic and political stability, and a sound legal framework. Our development plan is
designed to meet the objectives of both revenue diversification and income stability for Qatar. The strategy behind utilising the enormous gas reserves in the North Field is to
pursue all market outlets, whether through LNG, piped
exports, gas to liquids (GTL), or the local gas market.
As for LNG, I can confidently say Qatar has gone a long
way in its endeavour to become a leading exporter of LNG.
With the blessing of His Highness, the Emir, we have succeeded in implementing the main elements of his strategy

by ensuring long-term security of supply, pursuing and


establishing new markets and, most importantly, constructing and managing giant plants to supply LNG to the world.
We have done all that and more. Our LNG term clients
now cover three continents and we expect more. In 2003,
we signed agreements to export LNG to the US, the worlds
largest gas market. We already have agreements with
Spain, the UK, Japan, South Korea and India.
Relying on the proved gas reserves of the North Field,
estimated at over 1,000 trillion cubic feet (cf), Qatars LNG
production is expected to reach around 65m tonnes a year
(t/y) by 2010, up from 14m tonnes in 2003.
Pipeline gas exports also took a giant step in December
2003, when Qatar signed the final agreement for the fielddevelopment plan for the Dolphin Project with Dolphin
Energy, of the UAE. This plan calls for the development of
facilities for the production and processing of gas from the
North Field and the transportation of 2bn cf/d of methanerich, lean, sweet gas through a 440-km subsea pipeline to
Taweelah, Abu Dhabi, and Jebel Ali, Dubai.
A gas pipeline to Kuwait and Bahrain is under discussion
and, hopefully, will be implemented in the near future.
Once all pipeline projects are completed, more than 4bn
cf/d of gas will be exported regionally.

Abdullah Bin
Hamad
Al Attiyah

1.1

Laying the foundations


Qatar is not only staking its claim as number one in LNG, but
also aims to be the world capital of GTL. One of the worlds
most promising industries was introduced to Qatar in
December 2003, when His Highness Sheikh Tamim Bin
Hamad Al Thani, the heir apparent, laid the foundation stone
for the worlds largest GTL plant, in Ras Laffan Industrial City.
It marked the start of a new era. The Oryx GTL project is a
joint venture between Qatar Petroleum and Sasol.
Oryx GTL is one of many GTL projects planned for Qatar
with international energy companies, such as Shell,
ConocoPhillips, ExxonMobil and Marathon. The estimated
total production of these projects is expected to exceed
0.8m barrels a day of environmentally friendly liquid fuels.
Natural gas is also used as a feedstock for petrochemicals industries in Mesaieed Industrial City, including producing fertilisers and refined products. Petrochemicals are
becoming one of the most important businesses in Qatar
Petroleums portfolio.
Meetings of this kind are vital for both producing and
consuming countries to review the issues that affect the
future of gas supply and demand, and to generate ideas
and plans to develop this industry. I hope that the conference will provide the opportunity for consultation, co-operation, exchange of information, and expertise and understanding of the various obstacles and incentives for the
progress of the gas industry.
Once again, welcome to Qatar. I wish you a pleasant stay
in our country and success for your conference.

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Fundamentals of the Global LNG Industry, 2004

Broog one of
Qatargas 10
dedicated LNG
vessels
Photo: Qatargas
13

Foreword

The LNG bonanza


The LNG industry is undergoing continuous mutation and is operating according to a new
business model. Irreversibly driven by pressures from traditional and emerging importers
and the repositioning of players along the LNG chain, trade is forecast to grow rapidly in
the coming decades and is destined to play a pivotal role in reshaping the gas market. By
Marie-Francoise Chabrelie, Cedigaz

N LESS THAN five years, intensified competition


caused by market deregulation procedures and improved
project economics, resulting from supply side cost reductions has reshaped the LNG business. Although 76.2% of
LNG flows are still produced and sold within the original two
regional markets the Atlantic/Mediterranean and Pacific
basins sweeping changes have been taking place in their
structure and the way they are run.

M-F Chabrelie

What has changed?

1.2

14

The panoply of supply sources has broadened substantially,


with 12 LNG producing countries (compared with nine in
1998) sharing a total liquefaction capacity of 141.5m
tonnes a year (t/y) (compared with 98m t/y in 1998). In
addition to plants built in the Atlantic basin (in Nigeria and
Trinidad and Tobago), the Middle East, positioned between
the two markets, has quickly developed huge production
capacities in Qatar and Oman. New importing countries
Portugal, Greece, Puerto Rico and the Dominican Republic
have also entered the LNG landscape. This growing diversity of supplies and markets sharpens competition for buyers and sellers alike.
In the recent past, tight shipping capacities represented
a stumbling block to developing short-term, spot transactions. This situation has been eased by the delivery of eight
uncommitted new tankers in the past two years, which are
now trading. In 2002, spot/short-term sales accounted for
7.6% of total LNG flows.
Inter-regional trade in the Atlantic basin has expanded
rapidly, driven by price arbitrage between the US and
European markets. This arbitrage initially emerged as a
result of winter price hikes caused by tight domestic supplies in the US market, compared with lower prices in
Europe. The 2003/2004 winter rise in gas prices at the
UKs National Balancing Point and at Zeebrugge, Belgium,
has reversed the situation, with cargoes being diverted from
the US to European terminals.

include arrangements among several buyers to swap LNG


cargoes, from one seller, in the winter season. Many sellers
in the region also signed a treaty of alliance to maintain
uninterrupted LNG supply. A few years ago, in the Atlantic
basin, deals were made between sellers (Trinidad and
Tobago, and Algeria) to supply their closest markets,
improving gains by shortening transportation distances.
New trends in LNG pricing have also emerged, exemplified by Chinas signing of one of the lowest-priced Asian
LNG contracts. The price was determined by a lower crude
oil indexation of around 30% of the crude oil price, compared with the traditional linkage of about 85% of the crude
price. Lowering the crude oil linkage substantially limits
price fluctuations over the price band, providing the buyer
with far greater security. The Chinese approach subsequently elicited inquiries from other Asian buyers willing to
renegotiate their contracts.

Atlantic/Pacific arbitrage

Positioning evolves

In 2002, nuclear plant problems and unusually cold


weather in Asia promoted sales arbitrage between the
Atlantic and Pacific markets, also providing an impetus to
new inter-regional routes. All of these transactions spread
because contractual terms have evolved and destination
clauses are now widely abandoned.
New trends have emerged in contractual arrangements.
Although the contract period tends to shorten in some
cases, long-term (20 years or more) take-or-pay contracts
still account for most of the transactions signed in recent
years, particularly when aimed at new greenfield project
developments. However, a number of developments have
arisen in response to the search for more flexibility. Fob
contracts have widely replaced cif contracts in a number of
commitments. Stimulated by market pressures, Asian buyers have also entered negotiations with producers,
demanding changes to traditional trading practices. These

Not only has the number of players in the LNG industry


increased, but the positioning of the traditional players has
also evolved. Electricity utilities are now playing an active
role in the business, investing in liquefaction plants and
receiving terminals (Spains Unin Fenosa holds an 8%
share in Omans planned third train and 50% in Spains
planned receiving terminal at Sagunto). In Japan, oil refiners are entering the LNG retail market (Nippon Oil and
Chugoku Electric have formed a company to market LNG in
Okayama Prefecture).
Producers are taking shares in receiving terminals (Qatar
Petroleum holds a 45% stake in Italys Rovigo terminal).
And traditional and emerging importers are positioning
themselves upstream (Gaz de France has a 12% stake in
the Norways Snhvit project and 5% in Egyptian ELNGs
first train, while Chinas CNOOC has entered Australias
North West Shelf supply project).

Fundamentals of the Global LNG Industry, 2004

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Snhvit construction
under way, Melkya
Island, Norway
Statoil

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Foreword

International energy majors are also becoming increasingly


active all along the chain, purchasing their own volumes of
LNG, setting-up their own tanker fleets for shipping and selling the volumes to markets they have already developed.
On the technological front, the industry has reinforced its
efforts to cut costs further. Although no major breakthrough
has yet occurred, gains from economies of scale are a
major watchword, with train capacity at some projects set
to reach 7.6m t/y by the end of the decade.

future. By 2010, traditional and new suppliers will supply


up to 52% of European consumption, or 330bn cm/y (high
scenario). LNG commitments by 2010 amount to 58.5m
t/y. However, the volume available on the European market
should fluctuate according to price-arbitrage opportunities
worldwide. By 2020, the gap between supply and demand
should exceed 65%. The remaining volume of gas to be
purchased is huge. Accordingly, LNG is likely to contribute
substantially, accounting for 90m-110m t/y of European
gas supplies. However, gas-to-gas competition between the
Demand-growth prospects
LNG alternative and pipelines will sharpen.
LNG trade has risen by 6.4% a year on average in the last
Recent improvements to several receiving terminals
10 years to a provisionally estimated 126m tonnes, or and the commissioning of new installations in Spain have
170bn cubic meters (cm), in 2003.
favoured the arrival of new sources
This could reach about 220m t/y
(Trinidad and Tobago, Nigeria and the
With an increasingly
(297bn cm) by 2010 and 320m t/y
Middle East) and boosted total
diversified portfolio of supply receiving capacity in the region to
(432bn cm) by 2020, representing
around 32% of global gas trade.
sources, the tanker trade will 41m t/y. Eighteen regasification terSubstantial developments on all marminals are being considered in Italy,
intensify in the Pacific basin
kets underlie the evident dynamism of
the UK, Spain and France. Although
the industry. This expansion of LNG
they will not all materialise, it can be
tanker trade should help intensify the growth of inter- estimated that additional capacity of 35m-50m t/y might
regional gas flows, which could triple by 2020 to reach be available by 2010-2015.
0.75 trillion cm, compared with 243bn cm in 2002.
Although all markets will likely require increasing volumes Diversified supply portfolio
of LNG to balance their gas requirements, the US and the Although an inter-regional network is being set up in the
UK, which face a growing domestic supply deficit, will proba- southern countries of the region, and the pipeline alternative from Russia might still have to be considered in the
bly lift the largest volumes in the Atlantic basin in the future.
In the US, the limits of domestic production, which has longer term, LNG remains the simplest option for Asia to
been running out of steam for some years, have height- implement.
With an increasingly diversified portfolio of supply
ened the need to develop more distant, and probably more
costly, resources. Canada, the major supplier to the US sources, the tanker trade will intensify in the Pacific basin.
market, should also reach the upper limit of its export Apart from the traditional buyer countries, India and China
capacities, as more gas will also be increasingly needed in will swell the ranks of LNG importers in the short to medium
term. In the longer term, receiving terminals could be built
its domestic market to produce extra-heavy crudes.
Construction of a pipeline from Alaska to markets in the in Singapore, Indonesia and the Philippines. Consequently,
lower-48 states also faces difficulties and is probably Asia-Pacific LNG demand could reach 111m t/y by 2010
inconceivable before 2015 or 2020. Confronting these (up from 77.1m tonnes in 2002) and could grow to about
supply challenges are the strong growth prospects of 165m t/y by 2020.
In Japan, under the ministry of economy, trade and indusdemand, which, according to the US governments Energy
Information Administration, could grow by 1.8% a year to trys latest long-term supply plan, the countrys reliance on
nuclear power is set to rise to 41.4% of total power genera2025, to reach about 0.99 trillion cm/y.
In the past, LNG has experienced ups and downs in the tion in financial-year 2012 (FY2012), up from 34.6% in
US market. Imports grew rapidly in the 1970s before col- FY2001. Efforts to achieve the countrys commitment to cut
lapsing, following market deregulation and rising oil prices. greenhouse gas emissions in 2008-2012 by 6% from 1990
As natural gas prices remained low for 20 years, it was not levels largely explain these plans. However, LNG will concommercially viable to develop LNG imports.

1.2

Capacity constraints
Production-capacity constraints and soaring prices recently
sparked the return of LNG in the US. Prospects of a sustainable and reasonably supported price of $3.50-4.00/m
Btu in the US gas market have spawned numerous receiving-terminal projects. In addition to existing regasification
capacity of about 24m t/y, more than 30 projects are on
the drawing board, most of them offshore the US,
Canadian and Mexican coasts in order to avoid stringent
onshore environmental constraints.
Despite the uncertainties surrounding the future level of
gas demand and gas competitiveness with other energies
(petroleum products, distillates or coal), LNG should again
boost its share of the North American market to reach
about 34m t/y in 2010 and 67m t/y in 2020.
With 39.5bn cm received in 2002, LNG accounts for only
8.1% of Europes gas supplies. A comparison of OECD
Europe production and demand prospects reveals that the
gas deficit will widen considerably. Consequently, LNG is
very likely to increase its market share substantially in the

BACK

The Lake Charles


receiving terminal
will be expanded to
help accomodate
rising US imports
Photo: CMS
Panhandle

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Fundamentals of the Global LNG Industry, 2004

15

NEXT

Foreword

Under construction and short-term projects (44m t/y).


Apart from new trains being added to Australias Burrup
plant, Nigerias NLNGPlus and Qatars RasGas Trains 3 and
4, three new greenfield projects, the ELNG (Idku) and
Segas (Damietta) projects in Egypt, and Norways Snhvit
LNG are set to start producing in late 2004, 2005 and
2006 respectively;
Decided extensions and probable projects likely to be
producing by 2010 (46m t/y). Construction of new trains
has been approved in Nigeria (NLNGSix) and in Trinidad
and Tobago (Atlantic LNG Train 4). And new grassroots
plants are planned in Qatar with ExxonMobil, in Algeria
(Gassi Touil), in Indonesia (Tangguh) and on Russias
Sakhalin Island;
Possible greenfield projects likely to be operational by
Privatisation plans
2020 (110m t/y) include, among others, Australias Gorgon
In South Korea, privatisation and plans to split Kogas into LNG venture, new schemes in Qatar, Iran (Iran LNG, Pars
four companies have been delayed.
LNG), Nigeria (Brass LNG), Venezuela
Although Kogas retains the supply
(Mariscal
Sucre),
Russia
Among the recent newcommonopoly in the country, private-sector
(Schtokmanovskoye field), Peru,
ers to the LNG business,
companies, such as Posco and SK,
Angola (Antelope) and Equatorial
have been allowed to buy LNG direct
Guinea (Bioko Island); and
Indias plans for LNG imports
from suppliers, provided they use the
Longer-term greenfield schemes
have come to fruition
volumes they import in their own power
(75m t/y). Additional potential proplants. In South Korea, a major share
jects being considered in Iran,
of imported LNG is used in the residential and tertiary sec- Yemen, Libya, Papua New Guinea, Indonesia, Egypt,
tor, which displays wide seasonality in gas demand. The lack Bolivia, Australia and Canada.
of storage capacity and a poor privatisation policy have
Although gas reserves suitable for development as part of
forced the country to rely on the purchase of spot cargoes LNG projects are widely scattered around the world, a large
to supply its winter gas needs.
share of new capacity will likely be built in the Middle East.
In Taiwan, LNG demand is forecast to grow significantly,
mainly because of Taipowers plans to build a 4.3 gigawatt Future trading trends
power plant at Ta-tan, in Northern Province, by 2008. The growing number of LNG projects and export destinaState-owned CPC will supply the plant with LNG received at tions will bring greater liquidity to all markets. Spot and
the Northern LNG Terminal starting in 2011. The Tung Ting short-term trade will grow, seizing opportunities on temGas consortium is also building a 3m t/y LNG receiving ter- porarily gas-short markets. However, the growth of spot
transactions might be somewhat limited as new long-term
minal in the northwest of the island.
Among the recent newcomers to the LNG business, commitments continue to take the lead. For instance,
Indias plans for LNG imports have come to fruition South Korea, which met its winter demand deficit through
deliveries from Qatars RasGas reached Petronets Dahej the purchase of up to about 40 cargoes in winter
receiving terminal on 30 January 2004. Apart from the 2002/2003, may resume signing long-term contracts as
Dhabol regasification plant, where construction is almost the regulatory situation clarifies. In the US, the availability
complete, many other receiving terminals are being of new import capacities, combined with players rising conplanned along the countrys coasts in Kerala, Andhra fidence in the potential for significant baseload LNG sales,
Pradesh and Gujarat (Hazira) provinces, representing a may have the same effect.
Producers and buyers alike will continue to search for betpotential regasification capacity of 20m-25m t/y.
However, Reliances recent gas discovery offshore the ter contractual and pricing terms. While arrangements to
Krishna-Godavari basin may defer the need to build share the benefits of deviating cargoes to a market offering
a better price have already been made between some sellreceiving terminals to the east of the country.
ers and buyers, new amendments to destination clauses are
Chinese imports
being considered, such as destination pricing, supported by
With two LNG regasification projects under way, China is Qatars sellers. Open-ended contracts, including the one
due to start importing in the second half of the decade. signed by Trinidad and Tobagos expansion project and
One plant is in Guangdong province (at Chengtoujiao, Spanish buyers, stipulate that the destination of 20% of the
Shenzen), and the second in Fujian province (Putian, volume will be determined by price and logistics.
Meizhou Bay). Both are led by CNOOC and are in areas of
This is a period of exciting developments for LNG.
southern China where, for now, little if any gas is con- Although more sophisticated and complex than pipeline
sumed. The Guangdong terminal will receive 3m t/y of transport, the LNG maritime route offers undeniable advanAustralian LNG over 25 years to be used in the power and tages of flexibility, adjusting more easily to market growth
industrial sectors. LNG from Indonesias Tangguh project and constraints. The plethora of activities taking place and
will be delivered to the Fujian terminal.
planned in the world LNG business attest to the rising interBy 2010 2015, additional regasification capacity of est in this transportation alternative, offering consumer
around 30m-40m t/y could be available in the Pacific basin.
countries access to a diversified portfolio of gas sources,
Under the impetus of these growth prospects, producers while providing numerous benefits to host countries.
and international companies are investing in liquefaction
Trade by LNG tanker is likely to emerge as the winner of
infrastructure and shipping capacity. With extensions of exist- the gas-growth dynamic. This is todays gamble of an indusing plants and new greenfield projects, around 255m-275m try that, driven by technological breakthroughs and market
t/y of new capacity is planned, broken down as follows:
potential, is investing massively in new infrastructures.
tinue to be a significant fuel source for power generation,
which accounts for 66% of Japans gas consumption.
Japan faces many energy issues, such as the nuclear crisis, energy security and diversification concerns, gas and
power sector deregulation and resulting market competition, weak demand growth outlook, and strict energy conservation regulations. In the long run, the nuclear crisis,
along with strong and active public opposition to nuclear
energy, as well as the move away from coal, will likely open
further potential for gas and LNG. While significant changes
are already taking place, full market liberalisation will be
effective in FY2007, giving residential customers the choice
to select utility suppliers. City gas use here harbours a significant growth potential.

1.2

BACK

16

Fundamentals of the Global LNG Industry, 2004

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Foreword

Working together
Mark Twain said there are two times in a mans life when he should not speculate when he
cannot afford it and when he can. In the spirit of that observation, Lee Raymond, chairman and
chief executive, ExxonMobil, examines some salient facts about energy markets and LNG

HILE A BROAD range of views exists concerning the


In North America, the growth in annual demand for gas is
future of LNG, it appears to be transforming the expected to average about 1%. However, multiple sources of
global energy landscape in ways yet to be fully new supply will be necessary to meet demand, as production
understood. But one thing is clear, the strong link between from mature North American supply sources continues to
economic growth and energy use shows that the worlds decline. Greater energy efficiency and conservation can help,
economies will continue to need reliable and affordable but neither will be sufficient to close the gap in the widening
energy supplies to sustain their growth.
supply/demand balance. Demand in the US will increasingly
Looking ahead, the global economy is expected to grow at be met by gas from distant sources, supplied by LNG and
an average rate of about 3% a year for the next 20 years. pipelines from Canada and, perhaps, Alaska.
Worldwide energy demand should grow at about 2% a year,
A recent US National Petroleum Council natural gas
and hydrocarbons oil, gas and coal will still account for study says there has been a fundamental shift in the North
80% of energy supply by 2020. Worldwide natural gas con- American natural gas supply/demand balance that has led
sumption, which 50 years ago stood at
to higher, more volatile prices.
about 10% of overall energy use, will
Gas will gain a growing share of the
The successful development
continue to rise until 2020, as gas
total global energy mix at a cost near
of energy projects depends
captures about one-third of all increparity with other fuels. But as developmental energy growth.
ments in the US market have shown, if
on co-operation along the
By 2020, gas will supply about 25%
gas prices rise above those of competwhole value chain
of global energy demand, second only
ing fuels, some consumers will seek
to oils 35-40% contribution.
alternatives. For others, however, the
Fortunately, abundant gas supplies exist to meet its share range of options is more limited. For example, because
of the expected demand. According to the US Geological power generators and industrial users are more dependent
Survey, nearly 14,000 trillion cubic feet (cf) of recoverable on gas-fired equipment, they have less flexibility to respond
gas reserves are available worldwide. Estimates from quickly to higher gas prices in the short term a condition
Cedigaz are even higher enough to satisfy global demand that could also affect their competitiveness.
for 175-200 years at todays consumption levels.
One industry observer describes the situation succinctly: If
North American natural gas markets are to function with the
Environmental benefits
flexibility exhibited by oil, unlimited access to the worlds vast
The environmental benefits of natural gas make it attractive gas reserves is required. Markets need to be able to adjust
for both the manufacturing sector and for power genera- effectively to unexpected shortfalls in domestic supply. Access
tion. To realise those benefits, however, new gas supplies to world gas supplies will require a major expansion of LNG
will be needed to satisfy growing world demand and to import terminal capacity. Without the flexibility such facilities
replace inevitable declines in existing production.
will impart, imbalances in supply and demand must inevitably
A significant share of these newer gas supplies is a great engender price volatility. The observer was the US Federal
distance from the major consuming regions, requiring large Reserve Board chairman, Alan Greenspan, who forcefully
investments in infrastructure to bring these remote underscored the importance of the natural gas supply issue in
resources to the markets where they will be used, with LNG testimony delivered to the US Congress in 2003. In my view,
poised to play a central role in that process.
Greenspans insightful comments about the North American
Historically, natural gas, including LNG, has been widely energy challenge were both timely and correct.
viewed as a regional supply resource in the worlds energy
landscape. But with a pace few thought possible until Reliable and affordable energy
recent years, economic growth, changing energy markets In a very real sense, the gas supply picture in North America
and advances in technology have combined to transform brings into sharper relief the larger issues of healthy
economies, the well-being of people, and the reliable and
LNG into an increasingly global energy option.
To fully appreciate this transformation, consider the pro- affordable energy supplies that remain essential to both.
Most of the gas we will be consuming in North America
jected role for LNG in the gas outlook for the three largest
six years from now is not yet in production. Across North
consuming areas: Asia-Pacific, Europe and North America.
Asia-Pacific gas demand is expected to rise on average by America, and especially in the US, consumers need all the
4-5% a year. Most supplies filling that demand will come gas they can get from all the sources they can. Meeting that
from an expansion of LNG imports from within the region and need requires economic development of diverse supplies.
In that context, harnessing LNGs full potential will
from the Middle East, where Asian markets will compete with
Europe and North America for supply. Major gas discoveries require that a number of important challenges are successoffshore Australia have also created new opportunities for fully managed. Foremost among these will be the need to
address operations integrity, transportation, technological
LNG that will expand supply options for the region.
In Europe, after significantly exceeding GDP growth in the and infrastructure issues, producer and host country relalast decade, gas demand growth has slowed, to 2-3% a year. tionships and regulatory requirements.
An important issue affecting the future of LNG in North
New gas supplies to the region will include pipelines and LNG
America is ensuring safe operations, just as we do in the
imports from the Middle East, North Africa, and west Africa.

Lee Raymond

1.3

18

Fundamentals of the Global LNG Industry, 2004

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Foreword

rest of our business. We recognise and appreciate that


some have concerns about the safety of LNG ships and terminals. We need to acknowledge and address those concerns and we must be unceasing in our efforts to improve
our safety performance further.
With anything new, there is a degree of uncertainty for
some people. This is understandable. Moreover, because
LNG technology is not well understood by most people outside our business, we must help to educate them about the
issues related to its increasing use throughout the world.
Nothing is more important to our industry than the safety
and health of our employees and the people with whom we
come into contact in the conduct of our business. We need
to communicate that message to the public, make clear our
commitment to operating safely and discuss the management systems we have in place to
ensure the highest standards are met.
Another issue of critical importance to
LNGs future is technology and, in particular, the efficiencies, cost savings and
other benefits it continues to generate.

The RasGas
facility
ExxonMobil

The worlds largest LNG plants


Our engineers, working closely with jointventure partners, have helped to build
some of the worlds largest LNG plants,
including two in Qatar, which will ship
nearly 10m tonnes a year (t/y) of LNG.
Contributing to these efficiency gains is
new gas technology designed to improve
the efficiency of liquefaction, transportation and regasification. The focus of
these efforts has been on scale, resulting in liquefaction trains
that have moved from slightly more than 2m t/y, to trains in
front-end engineering and design that exceed 7.5m t/y.
Together with dramatic increases in LNG ship size and
recent advances in terminal tank design, these innovations
have produced cost savings of more than 30% since the
late 1990s. These efficiencies will enable even wider distribution of gas produced from large, remote accumulations.
The need for a strong contractual link between end-users
and producers means the successful development of
energy projects depends on co-operation along the whole
value chain. Earlier this year, Qatar Petroleum (QP) and
ExxonMobil signed a heads-of-agreement for a $12bn project to supply LNG from Qatar to the US for an expected
25-year period. The agreement covers the development of
two large LNG trains, with combined capacity of 15.6m t/y.
The feed gas for these trains will be sourced from Qatars
giant North Field, which has proved natural gas reserves estimated at 900 trillion cf. Downstream of the plants, QP and
ExxonMobil will be working to acquire the necessary shipping
capacity and developing regasification facilities in the US.
The successful, multi-year joint effort between QP and
ExxonMobil is one notable example of the change manifested in todays global LNG markets. Another is
ExxonMobils long-standing activity in Indonesia, where
Arun and satellite fields produce more than 1.2bn cf/d of
gas and supply LNG to Asia-Pacific markets.
Beyond the technical benefits that such projects provide
for all participants, broader lessons touching international
relationships have also been beneficial and instructive.
Consuming countries need to recognise that they have an
important role to play in facilitating timely energy development. They can do this by creating reasonable regulatory
regimes that will allow facilities to be designed and built without undue delay or unnecessary cost, and relying on free
competition and market solutions to meet future demand.

1.3

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20

Fundamentals of the Global LNG Industry, 2004

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Host country governments can also facilitate development


by fostering an environment that encourages the very large,
long-term investments needed by the industry to build the
necessary upstream infrastructure for bringing LNG to the
US and other major consuming countries. Such an environment requires a stable legal framework and predictable tax
structure, sanctity of contracts, an impartial court system,
respect for intellectual property, elimination of duties, transparency in procurement and workforce security. Where governments do not adopt or enforce a stable framework of
laws and regulations, investments become difficult to justify.
Working together, governments and national oil companies
can play a constructive part by encouraging and facilitating
the growth in capacity that will be crucial to satisfying the
worlds demand for energy over the coming decades.
Governments that take the lead in
encouraging investment will reap the
substantial benefits that accrue from it.
Success will require a collaborative effort
and a co-operative relationship between
exporting and importing countries.
These are often expensive projects,
of 30 or 40 years in duration, so establishing solid, long-term relationships is
essential. Exporting countries must
have confidence of secure rules on
imports. And importing countries have
to have confidence in stability of supply
and predictability of terms from exporting countries.
We need to have a predictable and
efficient process for permitting facilities. And that requires a co-operative relationship between
project developers and local, state and federal government
entities in importing countries, particularly in the US.

Meet the challenge


Agencies at all levels of government must meet the challenge and facilitate terminal development. This means
making the regulatory process as efficient as possible and
adding the necessary resources to get the job done correctly. Delays have a negative effect on the competitiveness of gas, as when supply shocks cause price spikes that
destroy demand, or when customers use coal instead.
Adverse pressures on industrial demand would directly
affect the US economy and could lead to reduced economic
activity, job reductions and other undesirable consequences.
Having said that, however, we also must be cognisant that
our industry has filed a large number of proposals for new or
reconfigured terminals. We recognise and appreciate the
effort and dedication of all those whose job it is to review
and pass judgement on the particulars of each filing.
Over the last few months, ExxonMobil and other companies in the industry have begun working with government to
obtain the needed approvals to build new LNG infrastructure in the US. We know from long experience that the
development of greenfield facilities is often a significant
challenge, especially given the need to have them ready to
be receiving gas by 2008 or 2009.
We, including government at all levels, need to contemplate the consequences of failing to meet those needs for
consumers and customers. We must have consistent and
complete policies that, when encouraging the use of natural gas, must also address the need for additional gas
supplies, including LNG. We must work for a future in which
the immediate development of new resources and flexibility
in fuel choices provides more balance to the North
American natural gas supply/demand equation.

Foreword

Future trends in global LNG


In the last 10 years, the increase in the number of buyers and greater supply competition
has seen fundamental changes in the LNG industry. These trends will gain pace in the
coming decade and bring rapid expansion and further globalisation of LNG trade. By Gavin
Law, director, Global Gas, and Frank Harris, director, Gas & Power, Wood Mackenzie

ROM THE first commercial shipment of LNG in 1964


until the mid-1990s the LNG business was based
almost exclusively on rigid, long-term contracts.
Dominated by Asian states, the number of countries supplying and receiving LNG was limited and the trade defined
a fairly exclusive community of both countries and companies. Relationships between sellers and buyers were key,
particularly in the Pacific basin, and maintenance of longterm security of supply was of prime importance.
While no single event signalled the shift in the status quo
since the mid-1990s, the business has undergone more
change in the last five to 10 years than in the previous 30
years combined. Key developments were: the emergence of
new Atlantic basin supply projects (particularly Trinidad); the
emergence of non-traditional players (particularly BG); the
re-emergence of the US market and the development of
new markets; the rapid expansion of Middle East supply;
and more-flexible trading arrangements.
This evolutionary surge was induced by a variety of factors
related to both the requirements of the markets and the
competition to supply them. These factors will likely continue
to transform the business at an even greater pace in the
next decade in terms of volume, geography and complexity.

Rapid demand growth and new customers


Wood Mackenzie forecasts global demand for LNG will grow
at almost 8% a year over the period 2003 to 2015, with
possible double-digit growth rates in the near term. These
impressive rates are multiples of our projected growth rate
for overall global gas demand of about 2.5% a year. A key
implication of this forecast is that the LNG market is set to
double in size within 10 years.
This growth in the LNG market will be visible in geographic
as well as volumetric terms. By 2010, up to 14 additional
countries from small island states, such as Cyprus, to
huge gas consumers, such as the UK will be importing
LNG, in addition to the 13 countries that imported in 2003
(see Table 1).
The demand for gas, and, therefore, by extension LNG,
will continue to be driven, at least in part, by economic
growth. In the established LNG markets of Europe and
northeast Asia, economic growth will create a steady incremental increase in requirements to meet gas demand both
for direct consumption and for use in power generation.
However, significant LNG demand will also be generated in
new markets that are experiencing strong economic growth
and development. The coastal provinces of China, and to a
lesser extent India, will potentially be important sources of
demand. Environmental concerns will also help to drive the
requirement for additional gas and, therefore, LNG volumes.
Environmental pressure will be particularly important in
the European market, where a combination of national
and supra-national legislation will continue to require
power generators to switch from burning oil or coal to gas
to enhance their emissions performance. However, there
is also evidence that environmental considerations will
play a key role in the development of gas and LNG mar-

kets elsewhere in the world, for example in China.


A more significant driver will be the inability of some key
countries to maintain their self sufficiency in gas. These
countries face a mature production environment and will be
unable to maintain and/or bring sufficient new indigenous
gas production on stream to meet demand and, as a
result, will be forced to import significant volumes. This scenario is expected to rapidly become the reality in two of the
worlds largest gas markets the US and the UK as well
as in smaller markets, such as New Zealand.
In the case of the US, indigenous gas production will fail
to meet expected demand and although more distant
resources of gas, such as Alaska, are available, LNG is proving to be the economic choice for supply. In the UK, LNG
can be delivered on more economic terms than gas from a
number of competing pipeline projects originating in other
European countries, Russia, Africa or central Asia. As a
result, Wood Mackenzie forecasts the UK and North America
will have a combined LNG demand in excess of 80bn cubic
metres (cm) in 2010 (compared with about 13bn cm in
2003). This is comparable with Japans 2003 demand for
LNG accounting for over 40% of the global market. The
number of LNG regasification projects being proposed or
developed, particularly in North America, where LNG regasification capacity is expected to treble between 2003 and
2010, is evidence of growing demand for LNG.

Gavin Law

1.4
Frank Harris

Changing buyer requirements


As well as the volumetric growth in the global LNG market,
there will be significant changes in the characteristics of
LNG demand, most notably an increased requirement for
price and volume flexibility on the part of buyers.
Historically, one of the LNG buyers principal concerns was
security of supply, particularly in the
Table 1: LNG importers
absence of alternative sources of gas.
As a result, many buyers developed a
Atlantic basin
Pacific basin
Existing importers (2003)
portfolio of long-term, relatively inflexiBelgium
Japan
ble, contracts with suppliers that minDominican Republic
South Korea
imised their risk of physically falling
France
Taiwan
short of gas by covering most of their
Greece
Italy
annual gas demand.
Portugal
In addition, some buyers, such as
Puerto Rico
Kogas, used spot or short-term purSpain
chases to manage market vagaries such
Turkey
US (east coast)
as seasonal peaks, unexpected demand
Additional importers confirmed
growth or shrinkage. But the liberalisation
Mexico (east coast)
China
of gas markets around the world is forcUK
India
ing buyers to adopt more flexible conMexico (west coast)
tracting strategies as they face increased
US (west coast)
uncertainty about future requirements for
Additional importers possible
LNG and/or gas market prices.
Bahamas
Indonesia (Java)
Brazil
New Zealand
Buyers do not want to fall into a situCanada
Philippines
ation where they lose key customers to
Cyprus
competitors and have a significantly
Honduras
reduced requirement for LNG, but are
Jamaica
Lebanon
still required to pay for the volumes they
no longer need under the take-or-pay

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Fundamentals of the Global LNG Industry, 2004

21

NEXT

Foreword

provision of an inflexible, long-term LNG supply contract. As doned. The key question for developers is how to maximise
a result, major buyers are increasingly contracting for vol- the competitiveness of their own projects.
umes solely on a short to medium-term, rather than a longOne of the most obvious trends aimed at increasing comterm basis (for example, Kogas), or for a base level of long- petitiveness has been the focus on economies of scale
term volumes supplemented by optional volumes often with from expansions of existing facilities to the construction of
significant associated flexibility (for example, major bigger liquefaction trains and ships. In the early 1970s,
Japanese buyers). An interesting example was a contract typical liquefaction trains were around 1.3m tonnes a year
Tepco signed with Malaysias MLNG Tiga in 2003 that is (t/y) and ships were no larger than 75,000 cm, but the
renewable on an annual basis. The need for flexibility is near future will see trains in excess of 5m t/y and ships of
also driven by seasonality in gas demand, something that 200,000 cm. With such developments, companies concould be a requirement in the US and the UK, both of tinue to strive to reduce unit costs.
which experience a degree of seasonality.
Although significant scale developments in terms of train
Buyers are also attempting to manage price risk by seeking and ship size will be seen in the next five to 10 years, it is
new types of indexation in contracts that link LNG purchase not yet clear whether this momentum will continue at the
prices to factors other than the oil price, which was tradition- same rate thereafter. With increasing scale comes the chalally used. Examples include linking prices to spot-market gas lenge of marketing larger volumes of gas and potentially
prices, such as Nymex (where gas-to-gas competition is com- restricted flexibility, and it is possible that only large-scale
mon or anticipated), or to electricity
players, such as Qatar and Nigeria, will
prices, where the LNG is primarily used
see further scale developments in both
Buyers are adopting an
for power generation and the generator
train and ship size tied to long-term,
increasingly active position in point-to-point trades. In areas with sigdoes not want to be at a cost disadvantage relative to competitors. There have
nificant, relatively low-cost gas
the business, compared with
also been examples of contracts being
companies and governtheir historically passive stance resources,
linked to other competing fuels, for
ments will increasingly look at the
example to coal in the Iberian market. In
development of integrated gas comthe Pacific basin, the Guangdong contract signed between plexes incorporating LNG, GTL and other gas-monetisation
CNOOC and North West Shelf LNG in 2002 signalled a shift processes. Such complexes are being developed in Qatar
towards competitive tendering rather than bi-lateral negotia- and Equatorial Guinea.
tion and a lowering of absolute pricing levels.
In addition, suppliers have also identified the value of
The other major change on the demand side is that buyers integration in the LNG value chain. Historically, suppliers
are adopting an increasingly active position in the LNG busi- focused on supplying customers and building relationships,
ness, compared with their historically passive stance where but the rise in competition and greater market liquidity have
they just handled LNG from the discharge port onwards. Key meant that creation of market pull for proprietary LNG and
LNG purchasers, such as Gas Natural, Gaz de France, Tokyo exploitation/protection of margin across the value chain
Gas and Tepco have expanded along the LNG value chain, have become increasingly important. Companies such as
becoming involved in shipping, and in some cases trading Shell, BP and BG were the first to identify that access to
and even liquefaction and upstream. The motivations behind market and the ability to control each aspect of the value
this strategic change are diverse, ranging from the need to chain would assist in the monetisation of reserves and
develop greater proprietary operational flexibility (for exam- allow the level of flexibility required to exploit evolving
ple, through ownership of shipping) to cope with seasonality opportunities. In the last two years, many of the other key
and price/volume risks, to the requirement to diversify rev- players in LNG supply have followed suit.
enue streams and take advantage of increased buying power
Increasing supply flexibility
in light of the potential excess supply.
Technology developments and integration trends will influence
Commercialisation drives competition
the shape of the supply business, but pressure from the buyGas reserves across the world continue to increase and ers and the competition for those buyers will have the most
the commercialisation of stranded gas is becoming fundamental impact on trade. The shift by buyers towards
increasingly important to both international oil and gas portfolios of long- and shorter-term, more-flexible contracts is
firms and host governments. While this presents a signifi- forcing a greater requirement for supply flexibility. Historically,
cant challenge to the industry the potential rewards are projects required a high proportion of long-term offtake comimmense with over 113 trillion cm of discovered, but as mitments before a final investment decision was taken, but a
yet uncontracted, gas. While other monetisation routes, greater level of volume risk is being adopted by new supply
such as gas to liquids (GTL), dimethylether and com- projects. This risk can be attributed partly to buyer need and
pressed natural gas, are gaining momentum, LNG still partly to the effects of competition, and is being mitigated to
represents the most prominent and feasible option for some extent by the ability of firms to utilise their integrated
maximising the value of stranded gas and, as such, com- positions to transport and place additional, uncontracted volpetition in LNG supply is intensifying.
umes. The major players, with portfolios of LNG assets, are
In 1995, global LNG production amounted to 67m able to offer a much greater level of flexibility to buyers withtonnes from eight countries. By 2002, output had reached out compromising the commercial integrity of supply projects.
112m tonnes from 12 countries. Within the rest of this
However, the industry will continue to be underpinned by
decade, overall supply will at least double with five or more long-term offtake agreements between suppliers and buyers
countries including Egypt, Norway and Russia entering (even if buyer and supplier are different units of the same
the supply business. However, the number of proposed liq- company). But with increasing market liquidity and increasingly
uefaction projects has increased exponentially and Wood integrated portfolios, a greater proportion of the overall market
Mackenzie forecasts that by the end of the decade poten- will be traded on shorter-term or more flexible arrangements,
tial supply could significantly exceed demand. meeting the demands of the buyers. Companies with the
Consequently, not all projects will meet their proposed broadest portfolios throughout the value chain will be in a
timetables, with many being delayed, deferred or aban- position to capitalise on these evolving market trends.

1.4

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Fundamentals of the Global LNG Industry, 2004

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Foreword

Matching supply with demand


The gas industry is poised for substantial growth, with demand and supply forecasts
suggesting gas may overtake oil as the dominant fossil fuel between 2020 and 2030. Both
governments and the energy industry must work towards a smooth transition to the newworld energy economy. By Roland Kupers, vice-president global LNG, Royal Dutch/Shell

NG WILL PLAY a major role in the global growth in


gas consumption (see Figure 1). This article reviews
prospects for the future of LNG in the Atlantic Basin,
and focuses specifically on the contribution of the Royal
Dutch/Shell group of companies.
The focus on the Atlantic basin reflects its position as
the key strategic location where the medium-term future
for LNG will develop. One of the crucial features of
todays gas market is that there is a lot of supply, and
there is buoyant and growing demand, but these are not
in the same place. As Daniel Yergin, chairman of
Cambridge Energy Research Associates, said in June
2003: The world is awash in stranded gas.
One of the critical factors behind this growing imbalance
and one of the key drivers of trends over the next few
decades is growing tension in the US market. Here, gas
demand continues to grow strongly, while domestic production is reaching a plateau. The inevitable result will be a
need for substantial increases in gas imports, which, in
turn, will drive the increasing internationalisation of gas
markets. Technological trends, pre-eminently the potential
of LNG, will facilitate these developments and, over time,
contribute to a rebalanced world energy economy.
Hence industry forecasts that the Atlantic basin could
account for over half of the growth value of LNG over the
coming decades.
In response, the US government is moving rapidly to create
a regulatory regime and policy framework favourable to LNG.
But safety and environmental concerns are still a significant
constraint on many LNG projects, reflecting less than complete success in getting across the relatively benign environmental features of LNG. And, on a broader scale, the whole
industry faces the task of matching supply and demand,
developing the right resources at the right cost and creating
assured production, transport and supply agreements.

Roland Kupers

1.5

Substantial challenges
The challenges are substantial. The technology involved is
difficult, expensive and is still evolving. Compared with oil,
there are fewer capital assets in production; many more
are planned or under construction, with high requirements
for capital. This, in turn, calls for long-term partnerships
between governments, resource holders, developers and
the financial markets. Increasing environmental concerns
add real, if justified, pressures. We are learning that the
gas market is different from that of oil. The industries are
at different stages of maturity. More importantly, as the
global context has changed, this means the international
gas market has to develop in a very different environment
from the way oil developed.
The basic costs of producing, liquefying, transporting and
regasifying LNG are much higher than in the equivalent oil
chain. Transportation and distribution is a far higher proportion
of the delivered cost of gas a typical LNG tanker is about
four times the cost of a crude carrier of the same capacity.
During transport and storage, LNG cannot be perfectly insulated and some 0.15% a day is typically lost through boil off
24

Fundamentals of the Global LNG Industry, 2004

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Figure 1: Global gas growth to 2030


bn cf/d
300

200

LNG
Pipeline imports
Indigenous supply
% change over 2000

500

200

100
75

2010

2020

2030

Source: Shell

so, in a sense, unlike crude oil, the product deteriorates with


time. Gas is also much more expensive to store than oil.
As the world leader in LNG, and with our strong business
and sustainable development principles, Shell is well-placed to
play a key role in the transition to a more globalised gas economy note that globalisation for gas does not mean commoditisation as gas does not share many of the characteristics
of most commodities. Shell has helped to develop five major
LNG production projects globally and we are partners in five
LNG trains currently under construction, in Russia, Nigeria,
and Australia. We are also helping to develop new projects in
Venezuela which I focus on below Australia and elsewhere.
In the particular case of the US, some of the market
trends are not new. In the 1970s, Algeria, in particular, was
supplying increasing quantities of LNG to an eager US market. Four regasification terminals were built on the eastern
seaboard specifically for Algerian imports. Then deregulation opened the market to competition from cross-border
pipeline imports from Canada the base price of gas in the
US dropped, terminals were mothballed and LNG importing
firms filed for bankruptcy.

Maintaining US supply
What is different now is that there will be no equivalent of
Canadian gas or substantial new US domestic fields to
meet the continued increase in demand. The 25-year scenarios developed by the National Petroleum Council confirm
that maintaining US gas production at its current level will
take considerable effort. The contribution of Alaska is
already factored into supply projections.
In the past two years, the US has imported LNG from
Trinidad, Algeria, Australia, Nigeria, Oman, Qatar, Indonesia
and the UAE. In the five years to 2003, US LNG imports
doubled and these are only early days (see Figure 2). US
gas consumption is expected to increase by more than
50% by 2025. Behind these bare figures are fundamental
implications for economic prosperity and social cohesion.
As the US secretary of energy, Spencer Abraham, said at
the December 2003 Washington summit: This is not just
about low reserves or supply and demand imbalances. This
is about real people and the real problems they confront

NEXT

Foreword

when gas prices soar. Its about senior citizens, living on


fixed incomes, being forced to choose between skyrocketing heating bills or some other of lifes necessities.
Hence, LNG is set to play a vital role in US energy security by 2025, the US could be importing as much LNG as
the total world trade today.
The race is on to develop the necessary infrastructure.
There is already substantial installed capacity: worldwide,
there are 17 LNG export terminals, 40 import terminals,
and 136 specially designed tankers. Many of these are
concentrated on the main historic markets for LNG, in the
Asia-Pacific region, but plans are in place to build new
import terminals, particularly in the US. Our own massive
investment in the Sakhalin II project will primarily serve
the same region, however it also has the possibility of
serving the US market.
Shell has access rights to US east coast terminals and is
building a plant in Baja California, Mexico, which will supply
the US market. In the Gulf of Mexico, the companys Gulf
Landing project will break new ground as the first LNG terminal to use a gravity-base structure for an offshore LNG terminal. Off the coast of western Louisiana, this will be linked
to up to five major interstate pipelines serving consumers in
the US southeast, Midwest, northeast and mid-Atlantic
regions. When it comes on stream, in 2008-09, it will be
capable of delivering 1bn cubic feet a day (cf/d) of gas.

a first train of at least 4.7m t/y, based on Shell LNG technology, with potential for further expansion trains.
Refinement of these assumptions will inform the final
investment decision, scheduled for the end of 2005. The
first cargo shipment is due at the end of 2008.
The project is operating under a preliminary development
agreement, but is expected to move into a formal joint-venture agreement shortly. The partners are state-owned PdV
(60%), Shell (30%) and Mitsubishi (8%), with 2% reserved
for national capital investment.
MSLNG illustrates a number of the challenges facing LNG
developments. It will be a greenfield development, in moderately deep water, involving multiple production structures.
Once under way, construction will continue over several
decades requiring a constant stream of investment. More
significantly, the MSLNG project will be fully integrated, with
a new liquefaction plant at Cigma receiving the gas. This
means the whole development must be planned from the
outset across the entire value chain, right down to delivery
of the gas to consumers in export markets.
A key objective of the development plan is maximising
local content and fostering Venezuelan LNG project management capabilities as this capacity grows and more
industry positions are filled by Venezuelan nationals, the
transfer of technology and expertise will benefit the
MSLNG project, the Venezuelan economy, and the LNG
industry in general.

1.5

Secure and flexible supplies


The other key to Atlantic basin success is to have secure
and flexible LNG supplies. Nigeria LNG (NLNG), our joint
venture of Nigerian National Petroleum Corporation (NNPC),
Shell, Total and Agip, completed its first two trains in
August 1999. A third-train expansion started up in
November 2002 and development work on trains 4 and 5
began in 1999, with start-up planned for 2005 and train
6 is currently under review. NLNG provides 7% of the
worlds total LNG requirements. By the end of 2005, it will
be operating a five-train plant capable of producing 17m
tonnes a year (t/y) of LNG, 2.3m t/y of liquefied petroleum
gas and 1m t/y of condensate, making it the third-largest
LNG plant in the world.
On the other side of the Atlantic basin, the Mariscal
Sucre LNG (MSLNG) project marks the emergence of
Venezuela as a gas exporter. It will also provide the spearhead for the development of a new industrial area the
Gran Mariscal de Ayacucho industrial complex (Cigma) in
southwest Giria. The project is undertaking a preliminary
environmental, social and health impact assessment.
MSLNG will develop an initial 10 trillion cf of gas
resources in the Norte de Paria fields for export and
domestic use, opening up the considerable potential of
Venezuelan offshore hydrocarbons. The project plan is for
Figure 2: US LNG imports, 1970-2003
bn cm
8
7
6
5
4
3
2
1
0

1975

Source: Shell

BACK

1980

1985

1990

1995

2000

Meet growing demand


Elsewhere, just across the Gulf of Paria, at Port Fortin in
Trinidad and Tobago, Atlantic LNG involving BP and BG
is operating a three-train LNG plant with a capacity of 9m
t/y. Output is shipped to Enagas, in Spain, and Tractebel,
in the US, through the refurbished Elba Island terminal
near Savannah, Georgia. Proposals for a fourth train
received governmental approval in mid-2003. All these
developments, and more, will be needed to meet the
growing demand in the US market. In Shell, we believe
our technological expertise and the importance we place
on environmental and social concerns will continue to
make us one of the strongest players in LNG development
in the Atlantic Basin.
However, the industry as a whole has to take concerted
action, alongside government partners, to allay the concerns of local communities about future projects. LNG is an
inherently safe product and the industry has an exemplary
safety record. Japan, for example, is entirely dependent on
LNG for its gas consumption and has operated 23 terminals on its limited landmass for several decades without an
accident. Over the last 40 years, there have been 33,000
LNG carrier voyages worldwide, covering 60m miles, without a major accident.
Promotion of LNG must be accompanied by more
effective communication and awareness campaigns by all
parties. In the US, the department of energy is working
with the National Association of Regulatory Utility
Commissioners to help inform key decision-makers about
LNG. But the energy industry must play an equal part.
This is not principally an issue of technology. It has to
involve a strong commitment to contributing to sustainable development, ensuring that local communities in
both producing and consuming regions benefit from LNG
projects and that the environment is protected. As Shells
chief executive of gas & power, Malcolm Brinded, has
said: Its not just about having your heart in the right
place. It involves complex skills learned from experience.
Success in developing the Atlantic basin LNG market
depends on it.

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Fundamentals of the Global LNG Industry, 2004

25

Financing

Current and future trends


Patrick Barr, director, head oil and gas, and Gaurav Seth, director, structured asset
finance, at ANZ Investment Bank, explore the features in arranging limited-recourse
financing for LNG projects and the challenges that financiers must adapt to to continue
serving the markets requirements

INANCING PROJECTS within the LNG chain has proved


a popular business for the financial community. Its
popularity derives from the significant rise in global
LNG trade during the last few years and the high growth
expected in the future. The industry expects LNG trade to
grow from 130m tonnes a year (t/y) to reach some 200m
t/y, and perhaps even 250m t/y, by 2010. The investment
involved will be substantial, with forecasts ranging between
$30bn and $40bn. This growth involves new markets, suppliers and shippers, exposing the industry to greater diversity and some fundamental changes.
Historically, on the liquefaction (supply) side, Asia has
dominated. However, since the late 1990s Middle East
supply has established a significant market share. The geographic scope of new investment activity extends from
expansion projects by existing Asian and Middle East LNG
producers, such as Oman, Qatar and Malaysia, through to
more recent plants on stream in Nigeria and Trinidad, to
new projects under development in Egypt and Iran.
Similarly, on the regasification (buyer) side, Japan and
South Korea have been the major consumers, but new
investments will broaden LNGs geographic spread.
Increasing energy demand, deregulation and privatisation of
gas and power industries is bringing in new buyers, such as
India and China, and boosting LNG demand from Spain and
Italy. In the US, the changing dynamics of the energy business has prompted reactivation of existing LNG receiving
capacity and planned development of new capacity.

Patrick Barr

2.1
Gaurav Seth

Unique set of challenges


The changing shape of the LNG market and the volume of
investment required in facilities and shipping to service this
market present a unique set of challenges to the industry.
The investment in pursuing new opportunities represents a
substantial financial commitment, in some cases beyond
the financial capacity or business strategy of individual
sponsors to carry alone.
In addition, the new projects are unlike almost all existing LNG trades (such as in South Korea or Japan) where
the underlying counterparty was either a strong government offtaker or a financially robust company. The counterparties in a number of new market trades (for example
in India and China) are greenfield projects, which rely on
other start-up projects as their end-users to generate
cash. They, therefore, represent a counterparty risk previously unknown to the LNG community. These changes
have led to the introduction of more highly structured limited-recourse financing for projects to widen and extend
the sources of finance, but also to help to quantify and
manage the traditional and new risks involved.
Limited-recourse financing (or project financing) covers
a financing usually to a special purpose company (SPC)
where the lenders funding the building of a liquefaction
or regasification plant, or an LNG vessel, look to the contractual cash flow to the SPC as the primary security to
underpin their exposure. Cash is generated from gas
sales, under a gas-sales agreement (GSA), flowing
26

Fundamentals of the Global LNG Industry, 2004

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Figure 1: LNG supply


million t/y
500
Long-term contracts
400

Short-term/spot supply

300
200
100
0
1994

1998

2002

2006

2010

Source: ANZ Investment Bank

upstream to multiple investors under various contracts.


Lenders look at the overall baseload economics and contractual framework to ensure it locks in satisfactory economics for the gas suppliers, the liquefaction plant, LNG
transportation and regasification.

Facing change
Except where pre-completion support is justified, the
financing is not underpinned by sponsor-backed financial
guarantees. Traditionally, financiers have relied on a longterm GSA with a creditworthy gas offtaker before lending
the considerable sums involved. However, in the future,
some of this is set to change. The following are changes
being experienced by the LNG industry, particularly to the
gas-offtake market, and the challenges they present to the
financing of projects:
Competition on supply The success of the LNG business has encouraged the proving up of gas reserves when
in the past they were often regarded as of lower value.
Sponsors are, therefore, expanding LNG export schemes to
monetise the new-found value of gas. The actual and
potential LNG supply side has developed to the point where
potential supply exceeds the demand to take it. This is
leading to new supply contracts being aggressively bid on
pricing and contract terms favourable to the buyer;
Regulatory pressure Regulators are starting to have
an impact on both the gas and electricity markets in a number of end-user countries. In some markets (Japan, for
example), buyers are contracting shorter-term offtakes to
avoid long-term, market-price risk exposure. In Europe,
there is pressure to have less restrictive destination clauses.
Such pressures are leading to gas buyers taking a more
cautious approach to the pricing and duration of GSAs;
Growing short-term/spot market As the number of
export and receiving terminals grows, suppliers are required
to offer greater flexibility to meet demand fluctuations. For
example, buyers experiencing short-term demand change,
or energy majors spotting price arbitrage opportunities, are
requiring short-term cargoes at short notice;
Growing exposure to emerging-market risk Much of
the new supply and demand are in countries with lower coun-

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Financing

Figure 2: LNG import capacity


million t/y
Belgium (Aaa)

Existing

China (A2)

Planned

France (Aaa)

Construction

Greece (Aaa)
India (Baa3)
Importer (credit rating)

try ratings than the ratings of traditional suppliers and buyers.


There is also a growth in non-traditional buyers providing less
credit support. This increases the counterparty risk that must
be factored into lenders risk/reward equation, especially at a
time when pricing terms and tenor are under pressure;
US market The emergence of the US as a key LNG
market is evident by the sheer number of new import terminals being discussed, reinforced by a growing public concern over the potential for an energy shortage. Whilst the
proportion of LNG in the US energy mix is unlikely to
become large in the medium term, there is greater evidence of the potential for the market to provide a reliable,
albeit price-volatile, market; and
Greater project-on-project risk To date, there has
not been a liquefaction terminal project-financed at the
same time as a regasification terminal being projectfinanced. Some sponsors have less ability or willingness to
commit funds to new projects, resulting in more projects
seeking project finance at the same time. This will expose
the lenders to one project in the chain also being exposed
to the risks of another project that is also financed on limited-recourse terms. It also means that more than one deal
may come to the project-finance market at the same time.

Italy (Aaa)
Japan (Aaa)
South Korea (A3)
Puerto Rico (Aaa)
Spain (Aaa)
Taiwan (Aa3)
Turkey (Ba2)
UK (Aaa)
US (Aaa)

The changing landscape


Sponsors, project-finance banks and other institutions must
respond to the changing LNG market, as change is
inevitable. Lenders must adapt their ways of thinking,
understand the new risks, and provide new structures and
sufficient flexibility to accommodate them to meet the project sponsors requirements.

The shorter-term market


For new greenfield supply terminals, the requirement of
financing secured on long-term firm contracts is expected to
remain the general rule. Once start-up projects demonstrate
strong operations, the market is willing to reward them with
flexible and improved financing terms. A good example is
Oman LNGs $1.3bn financing in January 2002. This deal, a
refinancing facility provided by international and Middle
Eastern banks, replaced Oman LNGs existing export-credit
financing facilities with a 100% commercial bank loan, at
improved economics to Oman LNG in the form of a longer
debt maturity and lower pricing. The original facility, priced at a
margin in the range of 155-197.5 basis points per annum
(bp/y) for the post-completion period, was refinanced with a
post-completion margin down to a range of 95-140 bp/y.
There is room for flexible financing terms for expansion projects selling LNG on shorter tenors. Indeed, expansion projects will gain higher buyer credibility than greenfield plants to
sell LNG on shorter-term contracts. Existing plants will benefit
from: stronger economies of scale, derived from sharing predeveloped common facilities; demonstrated ability to develop
and run a business; existing offtake contracts that provide a
cushion against the risk of a shorter-term contract and, as
such, more robust economics. These reasons will give
financiers greater comfort to support an expansion facility
over a greenfield plant, which would be a greater challenge to
manage and finance if relying on shorter-term offtake.

Greater offtake price risk


Gas buyers in the US and certain European countries,
where there is a well-established local gas market, require
LNG to be sold at a price consistent with the benchmark
gas prices in these markets and not linked to any unrelated
index. On the US east coast, prices are linked to Henry Hub
and in the UK to the National Balancing Point. Suppliers
delivering LNG to the US and some markets in Europe as

BACK

20

40

60

80

100

120

2.1

Source: ANZ Investment Bank

their primary destination will be required to take the benchmark gas-price risk in these markets. In addition, the gas is
often sold to an intermediary buyer and the identity of the
ultimate gas buyer may not be known. Until now there has
not been an LNG project specifically project financed with
lenders taking such price risks.
For lenders, the key issue is how financially robust the
project is to generate cash flow, even when prices are at a
sustained low. In the traditional way of evaluating LNG projects, lenders will test a number of what if? downside scenarios and will compare such breakeven analysis with historical precedents in order to become comfortable. However, in
a world where LNG trades even more freely and where gas is
sold under shorter-term contracts, the competitiveness of
one project over another is key. Therefore, rather than just
taking a view as to the revenue of a project, lenders will
increasingly also wish to evaluate its competitive advantage.
Lenders are familiar with this type of analysis within the
petrochemicals sector and it is expected to become more
commonplace in the LNG sector. A couple of projects in
Qatar are already being structured with such price-risk structures and can be expected to prompt the development of
the financing market to take on such risks.

Increased political-risk exposure


With the emergence of countries in the developing world
either buying or selling LNG, lenders face greater political
risk. In many cases, such countries may not have a history
of gas usage or a fully functioning gas infrastructure to
diversify its fuel mix. For new buyers, lenders will assess the
ability and willingness of the offtakers and their end-users
to pay for gas used or to meet their take-or-pay obligation.
Furthermore, if LNG is a first-time import, lenders will
examine the strategic and economic importance of LNG for
the buyer country. For example, they may question whether
the buyer is importing LNG for its economic benefits compared with other competing fuels, to enhance its fuel diversity, or to switch to a more environmentally friendly fuel.
Over the last few years, some well-structured LNG projects in new countries which would otherwise prove a

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Fundamentals of the Global LNG Industry, 2004

27

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Financing

Figure 3: LNG export capacity


million t/y
Algeria

Existing

Angola

Planned
Construction

Australia (Aaa)
Bolivia (B3)
Brunei (NR)
Egypt (Ba1)
Indonesia (Caa1)

Exporter (credit rating)

Iran
Libya
Malaysia (Baa1)
Nigeria
Norway (Aaa)
Oman (Baa2)
Peru (Ba3)
Qatar (A3)

2.1

Russia (Baa3)
Trinidad & Tobago (Baa3)
UAE (A2)
US (Aaa)
Yemen
0

10

20

30

40

50

60

70

80

Source: ANZ Investment Bank

challenge have been financed. In such projects, multilateral agencies, export-credit agencies (ECA) and political-risk providers played a part in mitigating political risks.
An example is Nigeria LNGs $1bn financing in late 2002
for part-funding the construction of its trains 4 and 5. The
facility comprised a $0.62bn ECA facility, a $180m international, commercial bank loan facility and the balance of
$200m provided by African banks and the African
Development Bank.

Higher project-on-project risk


In the past, financing has involved one of the projects in the
chain being project financed, whilst the others have been
financed directly by the sponsors (or guaranteed by them).
With the expected increase in LNG activity and greater
investment requirement, more than one project within the
LNG chain will finance itself on project-finance terms. To
achieve this, the sponsors and lenders across the three projects (liquefaction, regasification and shipping) must cooperate to enable all projects to raise project financing:
Sharing project information To evaluate the overall
risk framework, lenders to any project will analyse the
risks within their project, and also the risk profile across
the upstream and downstream projects. This analysis will
be greater if more than one project represents a greenfield project. Often the sponsors resist information sharing or, if information were to be shared, it is limited to a
bare minimum;
Structuring the cash waterfall A well-refined cash
waterfall enables the separation of cash flow under the GSA

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28

Fundamentals of the Global LNG Industry, 2004

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into smaller, legally separate component parts, for payment


to each of the liquefaction, regasification and shipping projects. For example, under an fob LNG sales contract, the
supplier and the transporter (and their respective lenders)
would expect to see their payments constitute part of the
operating cost of the regasification project. Under a cif contract, the transporter and supplier (and their lenders) would
expect offtake revenues of the LNG buyer to the extent
attributable to supply and transportation to constitute part
of the buyers operating cost and be suitably separate from
the rest of the revenue stream.
Apart from improving financial discipline within the chain,
a well-designed, payment-security mechanism helps to
improve the bankability of, and optimise leveraging for,
each part of the LNG chain. However, the development of
an acceptable payment-security mechanism within a chain
is often subordinated to commercial negotiations, and
agreements are concluded without finalising this important
matter. Reopening or amending contracts post signing to
accommodate an acceptable payment-security mechanism
can be difficult. If multiple projects are to be financed on a
limited recourse basis, payment-security mechanism discussions must be brought up early and carefully developed;
Contract harmonisation If more projects of the gas
chain are to be financed on a project-finance basis, harmonising of the contractual framework across the chain
becomes a critical item to ensure bankability. As a minimum, this needs to include certain high-level issues,
such as common commissioning, permitted delays, force
majeure and termination. For example, the commissioning and delivery windows for the construction contracts
for liquefaction, shipbuilding and regasification facilities
will need to target a common start-up date and, in the
event of delays, follow a consistent regime to accommodate permitted delays. If the contracts are not harmonised, they can force one party within the chain into
financial difficulty and put the overall integrity of the
chain at risk; and
Co-ordination Co-ordinating the rights of each lending
group to the liquefaction, transportation and regasification
projects is another challenge. Financing default (even if not
a payment default) in one project can trigger default across
other parts of the chain and increase the risk of termination. To improve the chains integrity and minimise financing-default interruptions, a project co-ordination agreement
(PCA), similar to an inter-creditor arrangement across the
three projects, should be encouraged. The PCA can provide
an agreed framework for all lenders to share information,
provide mutual undertakings, and, in the event of default,
exercise their rights, after giving adequate cure and/or stepin opportunities to other lender groups within the chain to
remedy default.

Going forward
A greenfield LNG chain can involve $3bn of investment in
the three projects regasification, transportation and liquefaction. Based on even a conservative 2:1 debt:equity mix
to finance, a $2bn debt to be raised against a single
stream of cash flow is significant. Where the financing is to
fund a greenfield LNG trade and in a challenging country,
there is a limitation to investor capacity.
Maximisation of debt capacity across the three projects
requires refined and equitable risk allocation, careful coordination and sharing of project intelligence. In some
instances, parties resist market co-ordination and compartmentalise their own financing. With the interdependence of
the gas chain and, moreover, the expected investment
requirements, this must, inevitably, change.

Financing

The only constant is change


Because of the high LNG tanker order book and the number of top international banks
competing for vessel financing, covenants covering LNG financing will become more
aggressive and complex. To accept these risks, lenders must understand the technology,
economic and geopolitical risks involved in LNG shipping. By Captain Saleem Alavi, senior
industry analyst, research and strategic planning department, DVB Bank

VERY FORECAST reflects unprecedented gas consumption growth over next 30 years. The US Energy
Information Administration has revised its forecast for
total growth in US imports from 2.1 trillion to 4.8 trillion
cubic feet by 2025. This revision reflects the speed at
which changes are happening in the LNG industry.
Production capacity is projected to increase from 139m
tonnes a year (t/y) in April 2003, to up to 275m t/y by
end-2007. New production from Norway, Angola,
Equatorial Guinea and Venezuela will give rise to a more
dynamic LNG market in the Atlantic basin, bringing opportunities for cargo swaps and arbitrage. The development
of this spot market, which had an 8% share of the total
LNG market in 2002, is projected by some analysts to
grow to 20% by 2010. The availability of tanker capacity
is essential if the spot market is to develop.
Commercial development of LNG transportation began in
the late 1950s when a Liberty-Type, 1945-built tweendeck
SP vessel, Marlene Hitch, was converted to an LNG vessel
in Alabama, US, and renamed Methane Pioneer. Methane
Pioneer carried the first LNG cargo, of 5,000 cubic metres
(cm), in 1959 from the US to the UK. Methane Princess
and Methane Progress were the first two custom-built LNG
vessels, with capacities of 27,500 cm, built in 1964 to
carry cargo from Algeria to the UK. Since then, the basic
design of an LNG vessel, except for slight modifications,
has remained the same. The only significant development
has been in the size of the vessels.

Saleem Alavi

2.2

Capacity shift
In the first decade, cargo capacity increased from 27,500
cm to 125,000 cm. However, an increase in cargo capacity
to 140,000 cm has now been achieved and, recently, Gaz
de France placed an order for a 153,500 cm vessel with
the Alstom shipyard in France.
So far, the basic size of the vessels has been dictated by
the terminal restrictions in the two main LNG importing
countries, Japan and South Korea. However, with the
emergence of new gas markets and construction of new
terminals, further orders for larger vessel can be expected.
In future, the LNG fleet will have vessel sizes as small as
4,000-6,000 cm and as big as 250,000 cm.
During the 1980s, US and European shipyards saw a
decline in market share, losing ground to Japan and South
Korea (see Figure 1). There are now eight active yards, six
in Asia and two in Europe. Poised to enter the foray are
three Chinese yards at Hudong, Jiangnan and Dalian
and one Iranian yard.
The current fleet consist of 149 vessels, with total cargo
capacity of about 17.24m cm. The LNG sector has one of
the youngest fleets with over 50% less than 10 years old.
This is even more significant considering the average tanker
life span is 40 years, barring any new regulations. By 2007,
28% of the operational fleet will be more than 25 years
old, increasing to 32% by 2010.
Newbuild LNG vessel prices have fallen sharply, by nearly
30

Fundamentals of the Global LNG Industry, 2004

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Figure 1: Tanker fleet by country of build


%
100
80
60
40
20
0

1975

1980
Europe

1985
US

1990

1995
Japan

2000

2005

South Korea

Source: DVB Bank

45% during the last decade. The average cost of a 137,500


cm vessel is about $148m-153m, down from $270m in the
early 1990s. The tanker order book consists of 53 vessels,
totalling about 7.36m cm. Only eight of these 53 vessels
are available specifically for spot trade. Many owners are
building vessels with the flexibility to be utilised by different
projects, rather than be employed on one fixed project, as
has been the norm in LNG shipping so far.
Malaysian International Shipping is the largest national
flag carrier, owning 12 vessels with five on order. Golar
LNG, the largest independent shipowner, owns seven vessels with four on order. Shell is the biggest oil and gas
major in the LNG sector, with 10 vessels and one on order.
Mitsui OSK Lines is the biggest operator, with interest as an
owner, operator or manager in 38 vessels and it has an
interest in 13 newbuildings.

Conservative approach
Traditionally, conservative players dominate LNG shipping
and have not been receptive to new members. Rapid
expansion in the industry, however, has changed the
owner/vessel pattern. By 2006, the sector will be dominated by independent vessel-owners, with their share rising
from 14% in 1999, to 38% by 2006.
In addition to firm project requirements, another 50-60
vessels will be required for the projects that are close to
finalisation ExxonMobil recently tendered for 28 vessels,
China is contemplating four to six vessels and Iran is considering 15-18 vessels.
For oil majors, LNG potentially offers the largest business
returns. By 2007, the investment on capital infrastructure
and vessels is expected to be $39bn. Traditional LNG
financing structures have been relatively straightforward
and standardised. In general, LNG financing provides high
advance ratios, over long-term periods, with low costs to
the sponsors, because of the strength of the underlying
commitments, usually involving a government.
Recently, many of the proposed financing structures have
become significantly more aggressive, as the medium as

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Financing

Figure 2: Charter term and rate per day


%
30
25

22%

Equity IRR
Project IRR

25%

20
15
10
5
0

Long-term
$63,000

Short-term
$72,500

Short-term
$80,000

Short-term
$87,500

Source: DVB Bank

well as long-term forecast for LNG consumption has


become increasingly optimistic. This has led to a number of
owners such Golar LNG, John Angelicoussis, AP Moller
and Bergesen (acquired by Worldwide Shipping Group)
with vision, confidence and entrepreneurial spirit, to seek
and take a speculative position with LNG vessels, without
the support of long-term contracts. To accommodate these
potentially highly profitable transactions, lenders are being
asked to apply both corporate and asset-finance principals
to the LNG sector and, because of the enormous project
costs involved, these often include a consortium of sponsors and highly structured security packages.

Competitive debt terms


Figure 2 reflects the recently publicised expectations of
Golar LNG, one of the speculative LNG owners. The internal
rate of return (IRR) for equity assumption takes into
account that much more competitive debt terms will be
available to the traditional long-term, charter-backed LNG
operator. Because of the low cost of debt, this long-term
strategy yields almost as much for the equity investor (IRR
22%) as the best-case, short-term LNG trading strategy
(IRR 25%). This near-parity in returns for the equity investor
occurs despite investors forecasting that over the next 20
years, the spot vessel can consistently earn 40% higher
charter rates than the long-term chartered vessel.
Historically, there is no precedent for this assumption.

However it is argued that when all the proposed LNG projects are built, there will be a significant capacity requirement, which spot vessels can exploit.
Participating in future LNG financings will pose significant
challenges for conventional vessel-finance banks. The traditional LNG finance model, with its long-tenor, investmentgrade quality offtaker/sponsor, has attracted relatively fine
pricing in the finance market. Whilst, on a risk-adjusted
basis, fine pricing may be acceptable to banks, the emergence of non-investment grade counterparties is likely to
result in pressure to increase pricing.
In contrast, but similarly challenging, the new structures
being proposed are becoming unacceptably risky and seem
to be driven by over-competition among the top arranging
banks in this sector. To continue to win mandates that
banks understand and are comfortable with in this sector,
seems to be pushing the limits beyond what is a reasonable and justified risk, based on the proved asset values
and the strength of the balance sheets liquidity/cash flow
supporting the projects.

Understanding the sector


Banks need to be comfortable and to understand the sector, but if they place reliance on future values, which, at
best, are difficult to determine, they could face a larger
exposure than anticipated. For example, a 20-year-old LNG
vessel may have a second-hand theoretical value of $35m,
but the same vessel with a blue-chip contract has a considerably enhanced value. This is no different to other shipping
sectors, but given the thin market for second-hand LNG vessels and the limited spot trade this is a big leap of faith.
For the example above, the only difference between the
debt provided for in the long-term LNG strategy and the
short-term LNG strategy is the amount of equity. For a longterm LNG contract, lenders will provide 80% finance,
whereas to the short-term owner, lenders will provide 60%
finance. However, in both structures, lenders assume the
repayment of the loans will be over a 20-year profile.
Taking into account the current value of an LNG vessel,
financing a project with a life of 20 years, with no long-term
contract, should be scrutinised very closely, taking into
account technological obsolescence and the advancement
of competing gas-development technologies, such as gas
to liquids and compressed natural gas.

2.2

The Polar
Eagle
Photo: courtesy
ConocoPhillips

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Fundamentals of the Global LNG Industry, 2004

31

Shipping

Options for marine technology


After over 30 years of operation, the LNG shipping industry is finally preparing to take a
technological step forward to catch up with the advances made in other ship types over the
past 10-20 years. By Ian Harper, director, Wavespec

OMMERCIAL LNG shipping started in the late 1960s from production or gas sales and their income will rely on
and early 1970s with a series of ships constructed to the difference between the ship charter rate and their
carry up to 70,000 cubic metres (cm) of liquefied operating costs.
gas. At that time, ships of this size were powered by steam
The price attached to the consumption of boil-off gas
turbines, connected by a gear-reduction box to a single pro- has always been a controversial issue that, in the early
peller. Three kinds of tank and containment system were years, was assigned a value of zero dollars on the basis
used, two of the supported-membrane type and one of the that a seagoing reliquefaction plant was not available and
self-supporting spherical type.
the ship was effectively burning free gas that would otherDuring the 1970s, the next generation of LNG ships was wise be vented to the atmosphere and lost. Because, in
introduced, with their capacity almost doubled, but using these original contracts, the gas buyer was also part of the
the same propulsion and containment systems. One of the project consortium, the need to deliver as much LNG as
major advances of using steam propulsion was that boil-off possible was not as important as it is now. New projects
gas, created by thermal conductivity through the tank walls should consider the value of the gas burnt onboard at the
and movement of the liquid in a seamarket price to the customer and
way, could be readily burned in the
assess the relative benefits of using
In the early 21st century, an
ships boilers. This saved the conboil-off gas as fuel for propulsion, or of
sumption of fuel oil and avoided the unprecedented number of new reliquefying boil-off for delivery at the
need to consider installing a reliquedischarge port.
LNG ships are on order or
faction plant on board.
under construction
Cargo-containment designs
In the next 25 years, a regular numDuring the 40 years that LNG has
ber of ships have been built each year
for new projects, of almost exactly the same specification been transported by sea, only five or six cargo-tank
none has taken advantage of new propulsion means that designs have been put into international deep-sea serhave become available. Now, in the early 21st century, an vice. Of these, the Conch design was the first to be
unprecedented number of new LNG ships are on order or developed and constructed, but also the first to be abanunder construction almost all with the same 1970s tech- doned. Only six ships were ever built with this system.
The first membrane-tank ships were delivered in 1969
nology on board. Some of these ships will undoubtedly be
employed in short-term charters or spot-market trading, and 1970, two built to the Gaz Transport design (with two
where operating flexibility and day rates will play an impor- membrane linings of 36% invar steel only 0.5mm thick) and
the third built to the Technigaz design (with a waffle-type,
tant part in determining their economic viability.
stainless-steel primary membrane of 1.2mm). Since 1994,
Commercial considerations
these two companies have been merged into GTT, although
Until recently, the number of owners and operators of LNG both types of membrane system are still designed and
ships was limited, as was the number of shipyards capable licensed worldwide. They offer the GT No 96 and Technigaz
of constructing them. Shipping was usually a minor part of Mark III systems, and a new CS1 combined system.
the LNG chain, which required a major investment in gas
production, liquefaction plant and loading terminals, plus Increased cargo capacity
one or more discharge terminals and regasification plants, The Moss spherical tanks were developed from an existing
to be undertaken before the first cargo could be moved. liquefied petroleum gas ship design and were marketed
Therefore, project management and finance was normally and licensed so successfully (particularly to US and
controlled by a combination of the oil and gas company Japanese shipyards) that they quickly overtook the other
and the gas purchasers, who all wished to minimise the designs in terms of ships built during the 1970s. The
major changes since then have been a reduction in the
project risks throughout the gas delivery chain.
Once the original LNG ship designs had been proved reli- number of tanks for a 135,000-145,000 cm ship from six
able, there was little benefit seen in changing the shipping to five, and then to four. The membrane ships have simitechnology. Far more was at stake through a failure to larly reduced their number of tanks from five to four. This
deliver the cargoes on schedule than could be gained by has enabled an increase in cargo capacity of up to 10%
reducing fuel consumption or improving the shipping eco- within the same overall length.
Of the LNG ships trading, more than half are of the Moss
nomics. The shipping companies involved often had little
say in the overall project and contract strategies, and the spherical-tank design, with most of the others being of the
shipyards had no need to offer innovative designs to reduce membrane type (the Gaz Transport invar-tank design being
twice as prevalent as the Technigaz stainless-steel design).
operating costs and improve transportation efficiency.
Shipyard numbers are still limited, although Spain has Two ships have been built by Japans IHI shipyard to their
recently started to deliver LNG carriers, and China will own self-supporting prismatic tank design.
The spherical-tank design dominated new construction
become a producer in the near future. However, the market situation has changed significantly, with far more until the end of the 1990s, but the new order boom in
players interested in owning and operating LNG ships. the past few years has seen a shift towards the GTTMany of these will receive little or no part of the profits membrane systems.

Ian Harper

3.1

32

Fundamentals of the Global LNG Industry, 2004

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Shipping

A number of other systems have been mooted at various times, almost all being self-supporting. Most, but not
all, have been for refrigerated and non-pressurised tank
designs. The prime drivers for new systems are increasing
cargo capacity in a given hull size, reducing the capital
cost of tanks and insulation, and reducing the overall
construction time of ships. The limiting factor for all successful LNG shipbuilders is space in the shipyard. South
Koreas yards have been forced to increase their
berthing-quay space to boost the number of LNG ships
they can build each year, because designs need the ships
to sit alongside a berth for many months while tank
installation and outfitting are carried out.

Cargo-handling systems
In the early days of LNG shipping, boil-off gas from cargo
tanks was either burnt as fuel or vented, although the port
of Tokyo banned venting early in the 1970s. Potential reliquefaction plant designs are now available for LNG ships,
but, apart from an MHI prototype, have yet to be built or fitted. This may change as the commercial economics shift in
favour of reducing fuel consumption and conserving LNG.
Submerged electricity-driven cargo pumps have been
used on all LNG carriers to date and have proved their reliability. Gas compressors (either steam or electricity driven)
are used for returning boil-off gas to shore during loading
operations and for cooling, inerting, warming up and gasfreeing the tanks. Gas fuel for the ships boilers is generated either by natural boil-off pressure, or a low-duty gas
compressor. The cargo-handling systems on all LNG ships
are very similar and, therefore, there are few problems
experienced or changes foreseen.
Research and development into floating LNG (FLNG) production systems and floating storage and regasification
units (FSRU) will bring changes in the cargo-handling sys-

3.1

tems. At present, ships are not suitable for loading from


FLNG units, except in exceptionally benign environments,
nor are they designed to berth at FSRUs. New cargo-handling facilities may involve tandem shuttle-tanker solutions,
with pantograph loading arms, floating cryogenic hoses or
floating jetties, or alongside cargo-discharge or loading
equipment. All options require the ability to berth LNG carriers easily and safely adjacent to the floating unit.

Alternative propulsion options


Since the Methane Princess and Methane Progress were
built, in 1964, all LNG ships have generated most of their
power, for both propulsion and ship services, through
steam boilers. The steam has driven both the main
engines and the electrical generators as well as powering
many auxiliaries (such as compressors, pumps and fans),
and providing the heat source for fuel tanks and air conditioning. The ships always have either one or two diesel
generators, but these are only for backup when manoeuvring and in port, and for cold-starting purposes. A consequence of utilising steam power is the need to continue
resourcing experienced crew, familiar with the technical
challenges of maintaining a steam plant.
In the same period, dual-fuelled (oil and gas) diesel-electric power generation have been developed on many ship
types and gas turbines have been adopted as the firstchoice power generation prime mover on many offshore oil
and gas production facilities. These power-generation solutions have also been taken up and developed by the
worlds major naval fleets, to the exclusion of steam power.
LNG ships have become notorious for their conservatism of
design and reluctance to adopt and take advantage of
technology and are probably unique in retaining steam as a
main power source. Although this has probably suited the
existing LNG shipyards, which have not needed to invest

Although the present LNG carrier Methane Princess (above, delivered 2003) has more than 5 times the capacity of the
original Methane Princess (opposite, delivered 1964), and was constructed using the latest construction methods and
containment system technology, it retains much the same steam-turbine machinery system as its predecessor

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and compete with new technology, some of them are


studying alternative propulsion systems.
The conventional single main shaft and propeller arrangement (normally coupled with a bow thruster to improve the
handling of these high freeboard ships when manoeuvring
in port) could equally well be driven by geared gas turbines,
a slow-speed diesel engine, geared medium-speed diesel
engines or electric motors. But many operators see no
need to change the existing arrangement, even if the prime
mover changes. Nevertheless, there is an increasing likelihood that electric-motor propulsion will be adopted, as this
(like steam) allows a common power source of electricity to
be used for all main and auxiliary services on the ship.
In early 2002, the first diesel-electric-powered LNG ship
was ordered from the Alstom shipyard in France it is also
the first application of the new GTT composite cargo tank
system (CS1).
Any future propulsion-system designs, where the electrical power may be generated by dual-fuel gas turbines or
diesel engines, will be able to take advantage of the
advances in propulsion motors and thrusters that have
been applied in the offshore drillship and, more recently,
cruise-ship industries. These designs are characterised by
multiple-propulsion drives, enhancing redundancy and
improving manoeuvrability.

Control systems
Control and automation systems have probably been the
one area on LNG ships where continuous technical development has taken place and where the latest technology is
in use. It is also the one major area where retrofitting of
new systems is taking place on existing ships to take
advantage of the latest designs although the main reason
for this is the difficulty of finding spare parts and skilled
maintenance technicians.
The technology of automation, control and monitoring
has moved from the semi-automatic and predominantly
pneumatic controls of the 1960s and 1970s, through a
process of continuous development to integrated computer-based systems. In that time, the cargo control room
has moved from the midships compressor house into the
accommodation block and the engine control room has
been either in the engine room or combined with the cargo
control in the accommodation block. No one has yet combined all the controls for an LNG carrier on the wheelhouse,
although the Moss-type tanks normally result in the cargo
control room being only one or two decks below the bridge.
By contrast, many other vessels and types of vessel have
been doing this for a long time.
Although not all seagoing staff like the idea of monitoring
and controlling the ships systems from a single location,
there are a lot of potential advantages the most obvious
is the improved communication between the deck and the
engine room. This can particularly benefit the monitoring of
cargo systems, where both departments have joint responsibility for safe and efficient operation.
The recent development and application of integrated
automation systems (IAS) has the potential to link all systems on the vessel, which should bring with it the capability
to combine all systems on a single workstation display.
This, in turn, can allow control from one location and,
equally, make it available everywhere on the ship.
The potential need for redundancy in both control and
propulsion systems will result in the application of Failure
Mode and Effects Analysis (FMEA) techniques to the design
of these ships. FMEA is already being requested by owners
and classification societies in their specifications for the
integrated control system and its components, and it may

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Methane Princess
at Canvey Island
well spread to the overall machinery systems on the vessel.
As well as ensuring that unsafe conditions and situations
are avoided, this type of study also improves the availability
of the ship at all times and reduces the downtime and possible demurrage costs.
Dynamic positioning (DP) is another specialised control
system that may be specified for the enhanced manoeuvrability required for FLNG and FSRU facilities. This technique
has been around for nearly 40 years and in the last 20 it
has become proved and established in the offshore and
cruise-ship industries. The main manufacturers of DP systems also deliver IAS solutions, so that they can either be
stand-alone or integrated.
With the recent orders by Gaz de France of diesel-electric
propelled ships and the issue of tenders at the end of
2003 for bigger ships with alternative propulsion systems,
the industry is finally seeing some movement in the application of technology advances to future LNG ship designs.

3.1

Commercial priorities
The increase in the number of shipowners and operators
will introduce more commercial priorities to ship specifications and this will affect both the flexibility and the economic design of tankers. Inevitably, it will result in changes
to the power generation and propulsion systems installed
gas-turbine and diesel-engine manufacturers will eventually
see their products installed in LNG ships.
Developments of the existing containment systems, and
possibly alternative designs allowing cheaper and quicker
building of self-supporting tanks, should allow shipyards to
reduce the overall building time and, possibly, cost.
Because the tanks may be constructed off-site, this will
also expand the number of shipyards able to construct
LNG ships. Compared with the 28 shipyards that have
built LNG tankers since 1964, the 60-80 ships on order
between March 2004 and 2007 will be constructed by
less than 10 shipyards.
The technology in LNG ships will catch up with the
advances made in other ship types over the past 10-20
years and will probably move ahead in specific areas of
propulsion and cargo handling. It is also likely that more
diverse designs of LNG carrier will evolve, particularly as
floating production and reception facilities are developed.
Ian Harper has been involved in LNG ship design, construction
and operation for over 30 years. Wavespec is participating in
the construction of a number of new LNG ships worldwide,
including the development of the 200,000-cm, or larger, ships
under negotiation for Qatargas export projects.

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Fundamentals of the Global LNG Industry, 2004

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Shipbuilding spree imminent


With global LNG demand rising the need for new LNG tankers is set to follow. With an
increasing number of supply and import projects in progress worldwide, the world fleet
could almost double by 2012. By Graham Marshall, vice-president marine business
support, Lloyds Register Americas

NG SHIPBUILDING activity is set to boom, with over 20


At this point, by making a set of assumptions about the
ships at late stages of contract negotiation for deliveries transport chain, a simulation can be made of the number
in 2006-7 and many more options available to be of ships needed to satisfy demand. A view can be taken
secured. Set against a background of an excess of ships to over the commercial development of the import plant in
satisfy world demand for LNG this seems odd. The explana- terms of percentage of send-out sold and the time over
tion is that the newbuilding deliveries excess is short term. which this happens and, therefore, three scenarios develop
Four ships this year and another two in 2005 will be delivered optimistic, realistic and pessimistic.
without immediate contracts.
The realistic scenario takes the derived growth rate for
There is respite for the owners of this tonnage as there is internationally traded LNG. The other two scenarios are
time for contracts to be won and any
derived from assuming higher and
delay in winning long-term carriage
lower success in gas sales. The transThis is an interesting time for portation requirement can be derived
contracts will mean availability to
South Korean and Japanese
deliver spot cargoes a developing
from these demand assumptions,
trend in the global LNG business,
which in turn, gives the number of
shipyards, which have
especially to the US market, where
needed for new import
announced record order books ships
there is significant unused excess and
projects/contracts and for the take-up
new import capacity. (All 50 cargoes
of any excess send-out capacity availdelivered in 2002 to the Lake Charles, Louisiana, terminal able. The capacities resulting from this can be superimwere spot cargoes.) Additional confirmation in the confi- posed on the historical growth of internationally traded LNG
dence that this market is developing further is apparent supply and demand to create a capacity forecast (see
with Greek owners, traditional wet- and dry-bulk specialists, Figure 1). The historical growth rate of LNG since 1985 is
entering the LNG market and placing newbuilding orders 6.6% a year. The pessimistic scenario equates to about
without long-term shipping contracts.
12% growth. The other two scenarios assume higher rates.
These scenarios have been escalated to match the apparShips for new projects
ent ability of the market to absorb new ship capacity.
Meanwhile, many projects need new tonnage if they are to
meet supply contracts to new terminals expected in 2006- Replacement ships
7. Projecting forward to 2012, and assuming that a num- The other source of demand for ships is from retirements.
ber of the many projects planned will happen, the US may Looking at the world fleet, the average age is very young
well come close to overtaking Japan as the worlds largest and the older ships tend to be of much smaller capacity.
Consequently, retirements have a relatively small effect on
consumer of LNG.
These conclusions have been reached through assess- the world fleet, for now. Assuming LNG tankers will conment of new projects announced and in progress. Taking tinue trading to their current lifetimes of between 30 and
a view of the likelihood of their success, based on having 40 years enables the calculation of the number of new
all the links in the chain, permit applications in place and ships needed and the total number of ships required can
well-developed design projects, it is possible to shortlist be derived (see Figure 2).
This is an interesting time for South Korean and Japanese
those that are more likely than others. Knowing the project sponsors, the likely source of LNG becomes apparent shipyards, which are not only announcing record order books,
but also have the immediate prospect of renewing the world
(if not announced).

3.2

Figure 1: Growth of internationally traded LNG

Figure 2: Growth of world LNG fleet

million cm/y
800
700
600
500
400
300

Addition of 138,00 cm ships


300

Historic demand
Historic supply
Supply (all projects)
Optimistic (13.25%)
Realistic (11.9%)
Pessimistic (9.5%)
AAG (6.6%)

250
200

Optimistic (13.25%)
Realistic (11.9%)
Pessimistic (9.5%)
Newbuild deliveries*

150
100

200
50

100
19
7
19 0
80
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12

Source: Historical data, Cedigaz and Zeus Development.


Forecasts, Lloyd's Register Americas

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Fundamentals of the Global LNG Industry, 2004

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0
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
*Equivalent number of 138,000 cm ships

Source: Lloyd's Register Americas

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fleet of single-hull crude oil tankers within the next few years.
This may lead to an increase in price and a decrease in available building slots for LNG tankers. However, being highervalue ships, this may not develop to its fullest extent. The
best deals will be won by the first to secure building slots with
the shipbuilders capable of delivering these ships, although
this depends on the timing of each project.

Figure 3: Age distribution of world LNG fleet


Number of ships
60
50
40
30

Cargo swaps
One trend that has not been accounted for has a negative effect upon shipbuilding demand cargo swapping.
For example, a cargo bound for Zeebrugge, Belgium, from
Trinidad may be swapped with another from Algeria
bound for Lake Charles. This saves on a transatlantic
journey and effectively increases transportation capacity
by 100% so that if this tactic were followed consistently
over a year, the two ships would be available to carry
other cargoes for six months of the year and still satisfy
demand from the two cargo owners.
Not only is there the ship-availability advantage, but
also the potential for additional income when the cargo
swap occurs because of a price advantage. There are,
however, many factors restricting the ability of owners to
take advantage of this trend, including LNG prices, cargo
quality, timing, awareness of opportunities before others
become aware and logistics. Other potential cargo swaps
exist in Asian trades, although, at present, cargo swapping is a low-volume activity.
There are clouds on the horizon for older ships stemming
from the recent ban by India on crude tankers over 25
years of age (see Figure 3). Will other countries follow
Indias lead and could this affect LNG tankers? As yet,
most countries have not followed suit and shipowners associations worldwide are working hard to counter the image of
the oil tanker industry held by the public and politicians.
The European Union is implementing legislation that accelerates the phase-out dates of single-hull tankers carrying
crude or heavy grades of oil and extending this by requiring
other ship types to store bunker fuel in safe, double-hull
tanks. Given this action, these are difficult questions to
answer with any degree of confidence. The good fortune for

3.2

Inside an
LNG tank

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Fundamentals of the Global LNG Industry, 2004

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20
10
0
30+

25-29 20-24 15-19 10-14

5-9

0-4

On
order

Source: LR Fairplay, 2003

LNG shipping is its impressive safety record and, with a few


isolated exceptions the latest of which was the denial of
entry to Boston harbour for a tanker just after 11 September
2001 it has been out of the eye of the media. However, the
political and safety regime fall-out from the recent Skikda disaster the first in the 30 years since the Staten Island explosion has still to be understood. Given the public outcry and
political reaction to oil-tanker disasters, every effort to ensure
this successful safety record is essential.

World fleet
The worlds LNG tanker fleet is made up of 202 ships, with
a total capacity of 24.6m cubic metres (cm), including both
existing ships (151) and confirmed new constructions (51).
Looking forward to 2012, the world fleet is likely to
increase by between 40 and 180 ships (assuming a standard size of 138,000 cm) amounting to a capacity increase
of between 6m and 25m cm. Should the more likely import
projects be realised, this is an impressive growth rate.
There are three main technical developments in the
tanker-building industry:
Ship size new projects indicate large numbers of ships
may be needed for long transit distances and large volume
imports. Ship designs are being discussed in the region of
200,000-250,000 cm, which will probably be achieved
within existing draught limitations and using five-tank designs;
Propulsion diesel-electric ship technology is well developed and it has been indicated that such ships are economically more attractive throughout the life of the ship.
Two newbuilding orders have been placed at Chantiers de
LAtlantique for Gaz de France. One of the attractive economic characteristics is the ability to fit more cargo within
the same hull envelope for a membrane ship; and
Partial filling fundamental research indicates a tank
and pipe tower loading issue with restrictions imposed for
filling between 60% and 10% for certain approved configurations. There are no Lloyds Register-class LNG ships
approved for unrestricted partial filling.
Disclaimer
Lloyds Register, its affiliates and subsidiaries and their respective officers, employees or agents are, individually and collectively, referred to in this clause as Lloyds Register Group.
Lloyds Register Group assumes no responsibility and shall not
be liable to any person for any loss, damage or expense
caused by reliance on the information or advice in this document or howsoever provided, unless that person has signed a
contract with the relevant Lloyds Register Group entity for the
provision of this information or advice and in that case any
responsibility or liability is exclusively on the terms and conditions set out in that contract.

Shipping

A ship in port is safe


A number of limitation-of-liability regimes for shipping interests exist in jurisdictions with
existing or planned LNG infrastructure. As LNG business grows, an industry-wide effort may
be required to bring more uniformity and fairness to the system of compensation. By Philip R
Weems, partner, and Kevin D Keenan, senior associate, King & Spalding International

HEN I lost my rifle, the Army charged me $85.


That is why in the Navy the captain goes down
with the ship Dick Gregory (comedian, author
and political activist). Given the inherent perils of the sea,
losses resulting from maritime casualties can lead to substantial liabilities. Since the mid-1700s, vessel owners have
lobbied successfully to limit liability to third parties for damages to property and for injuries to, and death of, individuals.
Consequently, several regimes for limiting the liability of
shipowners (and, in some cases, charterers, operators,
salvors and insurers) have been developed some through
international conventions, others through local laws and
are implemented in various jurisdictions around the world.
However, these regimes represent a broad spectrum of
economic and legal frameworks and produce dramatically
different results.
In this article, the authors have assumed a scenario
involving a catastrophic marine casualty, involving thirdparty property damage and loss of life in Algeria, Belgium,
Norway, the US, Russia, Japan and Indonesia. These countries have been chosen only because their respective limitation-of-liability regimes offer interesting and informative
contrasts and because they have existing or proposed LNG
facilities within their jurisdiction. For the purposes of this
article, we have also assumed that the international conventions discussed below, except as otherwise noted, have
been ratified in the respective countries without reservation
and that such conventions are in full force and effect.

Enviable safety record


The nature and properties of LNG, advances in technology
and an industry-wide emphasis on safety have enabled the
industry to develop and maintain an enviable safety record.
Although there is little debate about LNG safety, it is in the
industrys best interest to ensure adequate funding is available to compensate victims of a potential LNG-related casualty. Unfortunately, depending on where the casualty occurs,
compensation available under prevailing legal regimes could
fall short of what might at the time be considered fair.
To illustrate this point, we present the Janus, a hypothetical 138,000 cubic metre LNG tanker (48,000 net tonnes;
96,000 gross tonnes), which suffers a catastrophic casualty
involving the partial breach of her containment system, the
ignition of boil-off gases, the partial loss of her cargo, significant collateral property damage and loss of life in each
of the locations and jurisdictions discussed below. In addition, the owner of the Janus has not acted in a manner that
would render inapplicable the liability regimes discussed.

Skikda, Algeria
International Convention Relating to the Limitation
of the Liability of Owners of Sea-Going Ships
(Brussels, 1957)
Algeria ratified the above-noted convention (the Brussels
Convention) in 1964. Under the Convention, the owner,
charterer, manager and operator of the Janus, as well as

her master, members of her crew and servants of her


owner, may limit their liability in regard to a casualty in
Algerian waters (including claims for both personal injury
and property damage) to a maximum of 3,100 francs (the
Brussels Convention defines a franc as equivalent to 65.5
milligrams of gold) for each tonne of the Janus net tonnage. While there are allocation rules within this limit that
deal with amounts available for personal injury versus
property damage, ultimately, the vessel owners liability is,
by law, capped at 3,100 francs per net tonne.
Although the 1979 Protocol to the Brussels Convention
introduced the Special Drawing Right (SDR), established by
the International Monetary Fund, to ease conversion of liability
limits to member-state currencies, Algeria has yet to ratify the
1979 Protocol. Therefore, limitations of liability for events
occurring in Algerian waters would be determined using the
franc as the unit of measure. At todays prevailing gold price,
this leads to a very interesting, and possibly unintended, twist.
Had the Janus suffered a casualty in 1978, the limitation
of liability in Algeria under the Brussels Convention would
have been about $10m (with gold priced at $34.95/troy
ounce, 1978 average). The next year, based on the value
of the SDR in 1979, the Janus limitation would have been
around $12.8m (SDR = $1.292, 1979 average) a significant increase in 1979 and one of the likely driving forces
behind the 1979 Protocol. However, while the currencies
comprising the SDR left the gold standard behind, Algerias
failure to ratify the 1979 Protocol kept the gold standard
alive, at least in this context, and effectively increased its
liability limits beyond those contemplated in the more
recent iteration of the Brussels Convention.
So while liability limits under the 1979 Protocol for the
Janus would be around $14.8m today (SDR =
$1.49207, January 2004), limitations under the Brussels
Convention, without the 1979 Protocol, would be somewhere around $130m (gold priced at $415.70/troy
ounce, January 2004).

Philip Weems

3.3
Kevin Keenan

Zeebrugge, Belgium
International Convention on Limitation of Liability for
Maritime Claims (London, 1976)
The London Convention, which serves as the basis for the
maritime liability laws of 40 countries, was ratified by
Belgium in 1989. Aside from liability limits that were
intended to be (and but for todays gold price would be)
higher than the Brussels Convention, one of the most
important changes brought about by the London
Convention is that liability limitations are extended not only
to shipowners, charterers, operators, managers and salvors
(and those persons for whose actions the shipowner or
salvor is responsible), but also to all of their insurers.
Limits of liability for claims governed by the London
Convention are also stated in SDR. Like the Brussels
Convention and its 1979 Protocol, limits of liability under
the London Convention are based on the ships tonnage
(gross rather than net tonnage) and, in particular, are

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dependent on whether the claim involves personal injury, or


property damage only.
Based on the current value of the SDR, the limitations of
liability applicable to the owner, charterer, operator, manager and salvor of the Janus (and each of their insurers)
would be about $55m in respect of combined claims for
personal injury and property damage. Like the Brussels
Convention, the London Convention also makes a clear distinction between claims for personal injury and claims for
property damage, with an allocation between the two categories taking place inside that $55m limit.

Melkya Island, Norway


1996 Protocol to the Convention on Limitation of
Liability for Maritime Claims (1976)
Like Belgium and 38 other nations, Norway ratified the
London Convention and made it a part of its Maritime
Code of 1994. However, Norway also ratified the 1996
Protocol to that Convention. Although not yet in effect, the
1996 Protocol raises the limits of liability for maritime
claims above those established by the London
Convention. Under the higher limits, a casualty involving
the Janus in Norwegian waters, following ratification of the
1996 Protocol, would result in liability limits of around
$88m for claims involving personal injury and $42m for
claims involving damage to property, for a total aggregate
limitation of liability of approximately $130m. It is widely
expected that the 1996 Protocol will come into force
within the next few years.

3.3

Lake Charles, Louisiana, US


Limitation of Vessel Owners Liability Act (1851)
The US is not a party to any of the international conventions governing limitation of liability for maritime casualties.
Instead, limitation of liability in the US is governed by the
Limitation of Vessel Owners Liability Act, 46 USC. 181
et seq. (2001). Originally passed in 1851, the Act provides
that a shipowner may be entitled to limit his liability to the
amount or value of the interest of such owner in such vessel and her freight then pending. The point in time where
the owners interest in the ship and freight pending is to be
determined is the termination of the voyage on which the
loss or damage occurs. The US Supreme Court has long
held that where a ship sinks following a collision, not only is
the sinking the termination of the voyage for purposes of
the Act, but the value of the vessel and, therefore, the
limitation of the shipowners liability is measured by the
value of whatever is saved prior to the sinking. Moreover,
the US Supreme Court has made clear that hull and
machinery insurance has no bearing on the determination
of value for limitation purposes.
While the master of the Janus may not have to go down
with his ship following a casualty in US waters, he may
have a pecuniary disincentive to ensure that she stays
afloat immediately thereafter. To the extent that she is
totally destroyed, the vessel owners potential liability for
third-party losses is severely limited. Paradoxically, following
a breach of her containment system causing a catastrophic
casualty, the Janus could, in theory, retain significant value
(for purposes of comparing limitation regimes, we have
assumed as much as $100m based on the present value
of newbuild LNG vessels and the potential cost to repair a
breached containment system).
So while the US may have the lowest liability limit among
those discussed, it could, theoretically, have one of the highest. Depending on the extent of the casualty, the owner of

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Fundamentals of the Global LNG Industry, 2004

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the Janus may be entitled to limit his liability to an amount


ranging from zero (following the Janus total destruction) up to
the Janus fair market value (assuming little damage to her
hull and machinery and the ability of her containment system
to be repaired), plus her pending freight.

Arun/Bontang, Indonesia
Omnibus & Waiver Agreements and Conditions of Use
Indonesia is not a party to any of the foregoing international
conventions and has adopted its own regime, set out in its
Commercial Code. However, that regime is largely academic
at Arun and Bontang, where LNG tanker owners find their liability governed by the Omnibus & Waiver Agreements and the
Conditions of Use (collectively, the Port Liability Agreements)
contractual documents entered into among the master of
the vessel, the vessel owner, the vessel operator, the terminal
owner, and the LNG buyer and seller.
The Port Liability Agreements provide a quid pro quo that
although not yet tested in any court of law because of
LNGs envious safety record appears to be an acceptable
allocation of liability to the shipping and insurance industries. In exchange for a strict liability regime that ascribes
liability to visiting LNG tankers and their owners regardless
of fault (except if damages arise from the terminal owners
gross negligence or wilful misconduct), the terminal owner
grants to the tankers and their owners a limitation of liability equal to $150m. In addition, the Port Liability
Agreements provide that the full $150m must be covered
by the vessels P & I Club and the certificate of entry must
include a specific reference to such agreements. Vessels
calling at Arun or Bontang also waive all rights to limit liability under international conventions. Personal injury claims
are handled on a knock-for-knock basis, with each party
responsible for damages incurred by its own personnel.
If the Janus were to suffer a catastrophic casualty at
Arun or Bontang, assuming the terminal owner is not
found grossly negligent or guilty of wilful misconduct, the
shipowner would be liable for all damages occasioned by
its use of the harbour, regardless of fault, up to a maximum of $150m.

Yanai, Japan
London Convention Augmented with Social
Responsibility Insurance
Japan ratified the London Convention in 1982. While limitations of liability for marine casualties in Japanese waters
would be governed by the London Convention, and while traditional P & I cover is procured on that basis, Social
Responsibility Insurance (SRI) evolved in the early 1980s in
response to a Japanese concept albeit unofficial and
legally non-binding that ascribes liability to persons thought
to be in breach of the social contract (the responsibility of
citizens to be socially responsible in the communities in
which they operate and to assume responsibility for their failure to exercise prudent judgment and reasonable care).
Where a breach of social responsibility occurs, the community affected by the breach may seek to impose sanctions on the person or entity they perceive to be the perpetrator. In most cases, the party perceived to be responsible
is the local company in its capacity as LNG buyer as the
community affected has little knowledge of the shipping
interests involved in transporting LNG, but significant knowledge, for obvious reasons, of the local company importing
it. Although sanctions may vary, sometimes consisting only
of an official request for a public apology, payment of
money to compensate individuals and public authorities

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Figure 1: Comparison of limits across selected jurisdictions


$ million
400
Base-case limitations

350

Additional/Potential limitations

300
250
200
150
100

Co H
nv NS
en
tio
n

SR

Co Bru
nv ss
en els
tio
n
Pr 197
ot 9
oc
ol
Co Lo
nv ndo
en n
tio
n
Pr 199
ot 6
oc
ol
US
La
w
In
do
PL nes
As ia
n

50

Source: Author's calculations

affected can be required. Such sanctions, if not complied


with, may be enforced by significant and concerted disruptive action against the non-complying business.
To insure against the potential financial costs associated
with such sanctions, Japanese LNG buyers have required that
shipowners procure policies covering non-legal liabilities.
SRI, therefore, provides coverage for potential payments
some have called them sympathy payments to victims of
marine casualties, without the need to admit or establish liability. Shipowners have been known to procure policies of SRI
covering non-legal liabilities in Japan up to $150m.
So, in addition to the limits set forth in the discussion of
the London Convention, the owner of the Janus would
likely be liable albeit unofficially, without the force of legislation and without admitting liability for compensating
victims of a catastrophic casualty. As a result, SRI is widely
procured by vessel owners whose LNG tankers trade in
Japanese waters.

Sakhalin-2, Russia
The International Convention on Liability and
Compensation for Damage in Connection with the
Carriage of Hazardous and Noxious Substances by Sea
The above-noted HNS Convention was ratified by Russia in
2000. Although not yet in force, it is the first liability convention to deal specifically with LNG. The HNS Convention
introduces strict liability for the shipowner, establishes
higher limits of liability, creates a fund for compensating
victims when damages exceed limitations and includes a
system of compulsory insurance.
Like the London Convention, the HNS Convention calculates the shipowners liability in SDRs. Unlike the London
Convention, limitations under the HNS Convention are the
same whether the claim is made in respect of property
damage or for personal injury. For the Janus, having a
gross tonnage equal to 96,000 tonnes, liability of the
shipowner under the HNS Convention would be capped at
SDR 98.56m ($147m). This is considered the first tier of
liability limitation under the HNS Convention. To help
ensure shipowners are capable of meeting their first-tier
obligations, the Convention makes mandatory for all vessels registered in a member state the procurement of
insurance coverage in amounts not less than the limitations provided.
The second tier under the HNS Convention offers a further layer of protection to victims of marine casualties. To
the extent that damages incurred in connection with the
Janus casualty exceed $147m, or if the shipowner is incapable of meeting that obligation (a risk that is significantly

BACK

mitigated by the compulsory insurance requirement discussed above), claimants may be entitled to compensation
from a fund established under the HNS Convention in an
amount up to a maximum of SDR 250m, inclusive of the
shipowners first-tier contribution, if any.
Contributions to a separate LNG Account established
under the HNS Fund are made annually by all persons
holding title to LNG immediately prior to its discharge. For
Fob sales of LNG, buyers will be liable for the annual contribution to the HNS Fund in the applicable member state.
For delivery ex ship (DES) sales of LNG, sellers will make
the applicable contribution.

Voluntary compensation
Limits of liability are far from uniform and lead ultimately to
a wide range of available compensation for third-party damages. The public image of the LNG industry will be adversely
affected by an accident following which victims are uncompensated because of what might, under the circumstances,
be perceived as unreasonably low limitations of liability
under existing regimes. Perhaps the time has come to
address the disparity and ensure the industry retains, even
in the face of a catastrophic accident, its record of responsible management and concern for public health and
safety. To maintain the status quo is to risk public outcry
and adverse governmental action following such an event,
either of which could be far more costly to the industry.
Concerns as to adequate levels of compensation for
LNG-related casualties have been voiced for at least 20
years. At an International Bar Association conference on
LNG in 1982, Dr. DW Abecassis, at the time head of LNG
shipping at Shell International Marine in London, presented
a paper arguing that legal regimes limiting shipowner liability are inadequate and that the LNG industry should club
together to create a scheme of voluntary acceptance of
strict liability, similar to Tovalop and Cristal (both of which
served as interim liability regimes pending the widespread
adoption of the 1969 Civil Liability Convention and the
1971 Fund Convention). Abecassis said that not only in
the interests of those who might suffer loss or damage from
an accident, but also in the long-term interests of the LNG
business, the LNG industry should [create a scheme of voluntary acceptance of strict liability].
The questions raised by Abecassis are as valid today as
they were in 1982. The limits that would be provided by
the 1996 Protocol to the London Convention are still
arguably too low in the LNG context and the HNS
Convention, while arguably on the horizon, is not a certainty. The LNG industry enjoys an excellent safety record,
but it is in everyones best interest to ensure victims are
adequately compensated in the event of a serious casualty. Failure to do so could lead to strict liability and/or
over-relaxation of liability limits (or even the abandonment
of limits altogether), among other things.
The Janus scenario illustrates the need for a more uniform system of compensation. Given the apparent reluctance of nations to adopt limitations regimes for various
political and economic reasons, accomplishing this design
through international conventions may never happen without a move by industry towards a voluntary system.
Looking forward, with LNG trades becoming more prolific, as new projects come on stream, the value of an
industry-wide effort to bring more uniformity and fairness
to bear is apparent. Although enviable and excellent,
LNGs record will one day be called into question. After
all, according to Grace Murray Hopper military leader,
mathematician and educator [a] ship in port is safe,
but thats not what ships are built for.

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Fundamentals of the Global LNG Industry, 2004

3.3

41

Shipping

Contract challenges
As global gas demand rises, LNG will play an increasing role in world gas trade. Increased
trade and volumes will require more tanker capacity and a shift from traditional long-term
supply contracts. Goh Mei Lin, of Watson, Farley & Williams, looks at the implications for
LNG shipping contracts

HE LNG industry is the fastest growing sector in the oil structured, traditional approach to long-term LNG contractand gas market although, globally, LNG is trading at ing. A rise in the number of LNG carriers being built, which
significantly lower levels than the more mature oil mar- are not dedicated to specific projects and which are, thereket. However, world LNG trade is set to grow at a rate of 6- fore, available to transport surplus production will assist the
8% a year over the next 20 years.
development of the spot market. As certain parties seek
Only a small percentage of world gas supply is trans- more flexibility in GSPCs, so, too, greater flexibility is being
ported as LNG. Nevertheless, given rising gas demand, the sought in LNG shipping contracts.
greater number of countries and companies developing and
For charter-parties, greater flexibility can be achieved
looking to develop remote gas reserves and the develop- through short-term contracts and the modification of certain
ment of new LNG producing and consuming regions, the provisions contained in traditional long-term time charters.
growth of the LNG industry and the increase in demand for The mortgagee of an LNG carrier would typically have the
LNG carriers should come as no surprise.
right to approve the charterer and the terms of the charterThe capacity of the LNG fleet stands at about 14.6m party (which would include the list of approved ports), where
cubic metres (cm). According to Ocean
the ship is on a long-term time charter,
Shipping Consultants, there are about
but not where it is on a spot charter.
The use of short-term, or spot
65 LNG carriers on order and, based
However, a short-term charterer is
charters could simplify the
on anticipated LNG trade growth, a furunlikely to be able to secure a right of
ther 33 new ships will be required by
quiet enjoyment against the mortgagee
drafting and negotiation
2010 to meet the forecast cargoof the ship. While, in long-term time
process of the charter-party
capacity requirements. However, given
charters, a great deal of time is spent
the delivery schedule of the ships
negotiating this right to achieve the
under construction (24 are due to be delivered in 2004), required balance between the charterers right of quiet
there will be an over-supply of carriers in the near term.
enjoyment and the mortgagees ability to protect, maintain
and enforce its security. In addition, the charter-hire proviGreater flexibility
sions in a short-term charter would be considerably simpler
Apart from the expansion of the global LNG fleet, it appears than in a long-term time charter, which usually comprise
likely that more LNG buyers and suppliers will seek spot- both a fixed and floating element.
trading opportunities and greater flexibility in their gas sales
Furthermore, a short-term charter is less vulnerable to
and purchase contracts (GSPC). There will be further regu- changes in terminal specifications that may require modifilatory changes in countries such as the US, regarding new cations to the ship. Therefore, in some ways, the use of
onshore and offshore terminals, and not only are there short-term, or spot charters could simplify the drafting and
more players entering the LNG shipping market, there are negotiation process of the charter-party.
also new types of players entering the markets.
The focus on environmental issues is likely to continue Nominated for service
and given the level of terrorist activity in recent years, secu- Contracts of affreightment (COA) would also provide greater
rity and safety issues remain of paramount importance. All flexibility than a long-term time charter. Unlike a long-term
these factors will affect the way shipping activities are time charter, under which the owner and charterer agree
that a specific ship be chartered for a period of 20-25
structured and the way LNG shipping contracts are drafted.
LNG shipping contracts typically comprise the shipbuild- years, certain ships would be nominated for service under a
ing contract, the charter-party (usually a long-term time COA on a periodic or cargo basis, but need not be specificharter) and the ship-management agreement, with ancil- cally dedicated to the COA. The shipper under a COA would
lary contracts, such as the performance bond and charter agree to ship a minimum amount of cargo, for an agreed
guarantee. A shipping contracts effectiveness should be basic freight rate, which would be payable regardless of
considered as: between the parties; one of the links in the whether or not cargo is available. A loading and discharge
LNG chain (particularly if the carrier is being constructed for schedule would be agreed between the parties and the
owner would be required to ensure ships are available at
a specific project); and a bankable contract.
When the Asian financial crisis in 1998 caused a dip in the load ports within the agreed time periods.
The owner, therefore, has the flexibility to decide which of
regional energy consumption, certain countries had to continue imports of LNG that they did not need, because of their the nominated ships is assigned to carry a particular cargo
long-term contracts. On the production side, political unrest and the shipper has the flexibility to obtain cargoes on the
in Indonesias Aceh province, which forced the temporary spot market. However, a shipper with a long-term GSPC
shutdown of the Arun LNG facility in 2001, necessitated the may prefer the comfort of having a dedicated ship. There
sourcing of alternative LNG supplies, while the shut-down of could be vessel-specific COAs, but in these cases, the disfive nuclear plants in Japan resulted in the need for an alter- tinction between a COA and time charter is less clear.
Similarly, shipbuilding contracts for tankers that will not be
native energy source (in this case, LNG) at short notice.
These are just some events that demonstrate how certain delivered for long-term time charters, would, in certain ways,
market demands are not adequately served by the highly be simpler than those for dedicated ships. For example,

Goh Mei Lin

3.4

42

Fundamentals of the Global LNG Industry, 2004

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Shipping

short-term charterers will not generally expect or be granted


the right to inspect the ship during construction. And the
owner of a project-specific ship should always avoid or minimise mismatches between provisions in the shipbuilding contract and the long-term time charter relating to, for example,
delivery, force majeure and liquidated damages payable, to
ensure, as far as possible, such risks are passed through to
the builder or the charterer. This would also be of concern to
the lender. The impact of such mismatches will be reduced
where a short-term time charter is entered on or around the
delivery date of the ship, although the owner would run the
risk of there being no charter for the ship on delivery.
The owner of a project-specific ship would usually pass
on terminal-compatibility risk (at least up to the date of
delivery) to the builder, by ensuring the builder undertakes
to build a ship that is able to trade to certain named ports.
However, where a long-term time charter has not been
entered and the owner wants the flexibility to take up any
employment opportunity, the owner may have to agree with
the builder that the ship is compatible with a greater number of named ports (increasing construction costs).
Although there will be an increased trend towards flexibility,
the high levels of investments required for LNG shipping is
likely to ensure the preference for long-term contracts will
dominate the market for the foreseeable future.
One of the main issues facing owners of ships without
committed long-term time charters will be the willingness of
lenders to finance an LNG carrier, in view of the narrowness
of the spot market and the lack of a guaranteed income
stream. Given the capital-intensive nature of LNG shipping
projects, lenders typically view and structure the financing
of carriers on a limited-recourse, project-finance basis,
rather than by way of asset or corporate finance. In the
case of undedicated ships, lenders would have to forgo a
significant amount of revenue security and, therefore, in
exchange, sponsors would be expected to provide a greater
amount of support for the financing.
Should a long-term time charterer want the flexibility to
increase the list of approved ports in the charter, to take
advantage of opportunities when they arise, it is possible to
build a mechanism for the addition of approved ports into the
charter. However, lenders want the right to approve additional
ports and, therefore, a consent mechanism will be required.
In practice, however, it is likely that the approval process will
take much longer than the time within which the owner has
to fix the charter. In relation to a particular port, for example,
lenders may want to assess the environmental law at the
time in relation to that jurisdiction before deciding whether
consent should be granted. To conduct this assessment,
lenders are likely to require legal opinions of that jurisdiction,
and it could take some time for these to be issued. It would,
therefore, be prudent that ports to which the ship may trade
(in addition to the ports relevant to the long-term GSPCs) are
agreed with lenders when the charter is entered into. An
owner should also ensure trade to such approved ports would
not breach trading limits set by the ships insurers.

3.4

repeated owner defaults, as well as the ability and reputation of the third-party ship-manager to ensure proper operation of the ship. A charterer may also find a performance
bond from a sponsor with little or no LNG shipping experience and expertise to be of limited value.

Environmental issues
The LNG industry has an admirable safety record and is
required to meet stringent safety standards set by countries
such as the US and Japan. Nevertheless, safety standards
continue to be raised and countries are adopting stricter
environmental policies. Certain lenders are increasingly
concerned about the potential liability of a mortgagee in
the event of an environmental incident and are seeking
greater restrictions in the charter-party, on an owners and
charterers ability to trade the ship to certain jurisdictions.
There will, therefore, be a conflict between an owners and
charterers need for flexibility to trade and a lenders wish to
minimise any contingent exposure. Some LNG ship owners
and operators are utilising finance schemes, such as UK tax
leases and Islamic Ijara leases, in which the lessor of the
ship is essentially a bank or leasing company entity. In these
situations, the lessor would have similar concerns about its
contingent exposure as registered owner or lessor of the
ship. For owner/operators, the lenders should be prepared to
accept the environmental law position at the date on which
the charter and the financing documents are entered into.
Thereafter, the owner/operator would have to be prepared to
take charge of environmental law risk.
The extent to which lenders seek to protect themselves
will have a significant effect on the charter-party and the
level of due diligence required in respect of the jurisdictions
to which the ship is likely to trade. Under US Federal Law,
for example, would due diligence be required in respect of
the Oil Pollution Act of 1990 only, or is the net to be
thrown wider to include issues such as potential liability for
ultra hazardous activity?
Gas is not regulated by the Comprehensive Environmental
Response, Compensation and Liability Act. As environmental regimes are tightened and lenders become more concerned about their contingent liability in such circumstances, it will become more challenging to document shipping contracts (particularly the charter-party) to ensure the
lenders position is protected but not so much so that the
operator is significantly hindered.

Safety and security


As with environmental issues, safety and security are of paramount importance. Given the increased focus on these
issues in countries such as the US, it is, and will become,
increasingly important to ensure a charter-party clearly allocates the responsibility for costs arising from compliance with
new security rules and regulations in jurisdictions to which the
LNG carrier will or may trade. There may also be a greater
demand for political-risk insurance in some countries.

Technology
New types of player
For a charterer, the provisions relating to the availability of
a substitute ship is important to secure its ability to fulfil
obligations under the GSPC. However, for new players,
these provisions are of little value in the event that the
owner or the sponsors do not have an existing LNG fleet
from which substitute ships may be drawn.
Additionally, a charterer may require tighter default provisions from new players and would, in such circumstances,
place greater reliance on the option to convert a long-term
time charter into a bareboat charter in the event of

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44

Fundamentals of the Global LNG Industry, 2004

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Technological developments in the LNG shipping field


such as propulsion, cargo containment, ship size and LNG
boil-off will affect the specifications to which a carrier is
constructed and, therefore, contracts will need to take
these into account. Of particular interest is the development of technology for transfer of LNG at sea and technology to enable ice-breaking capabilities on LNG carriers. And
the development of floating LNG technology will require
shipbuilding contracts more similar to those for a floating
production, storage and offloading vessel than a traditional
shipbuilding contract.

Shipping

A brave new world


The most important mission for LNG transportation has always been to carry designated
volumes from a loading port to a receiving terminal safely and punctually. There is,
however, a sign of tangible changes in contractual terms. By Takeshi Hashimoto, general
manager, project group, LNG carrier division, Mitsui OSK Lines

HE LNG transportation industry has seen its share of


innovations in recent years. Changes such as
increased flexibility in charter terms, growth in vessel
size and new propulsion systems are catalysts for change in
the existing framework of LNG transportation. And the pace
of change will increase further for the next few years.
Traditionally, LNG projects, whether they are Fob- or
Cif-based, have procured dedicated ships for their transportation requirements under sales and purchase agreements (SPA). Because ships were shuttling on pre-determined routes, over long periods (20-25 years) apart
from in emergencies the possibility of swap deals
occurring for those ships and cargoes inbetween trades
was hardly conceivable. Every LNG sellers producing
capacity was matched by its dedicated shipping capacity
and its SPA counterparts purchasing volumes.
Consequently, excess production capacity and excess
fleet capacity was rarely heard of.

An open market
However, because of increases in liquefaction capacity, it is
becoming commonplace for LNG sellers to be able to provide LNG to multiple buyers or projects. And buyers are also
more willing to purchase LNG from multiple sellers in order
to diversify their supply sources. In this way, one-to-one
correspondence between a sellers capacity and a buyers
purchase volume has been chipped away and, in the
future, excess production and fleet capacity will be available for an open market.
This situation has given rise to the three new types of
contracts: SPAs for smaller (less than 1m tonne) volumes;
SPAs for medium-, short-term or spot trades; and SPAs
allowing for cargo swaps or loan transactions. And for the
fledgling market to become more developed and sustainable, the following three prerequisites must be satisfied:
abundant and flexible supply from sellers; robust demand
from buyers; and flexible shipping capacity.
The LNG transportation market is moving towards a free
and open market, similar to its elder peers (such as crude
oil tankers or bulk carriers), as the number of aged, but
available, LNG tankers grows, as more tankers are owned
and operated by oil majors or utility companies for their
own use, and there is more speculative ordering by independent ship-owners.
Another important factor promoting a more market-oriented trend in LNG trade and shipping is the emergence of
the US market, which is very flexible and open to competition. Because the US markets potential is too huge to
ignore, even for quite conservative ship-owners, a pro-market approach is required.
The volumes of spot/short-term LNG cargoes traded in
2000, 2001 and 2002 increased rapidly from 5.4m
tonnes a year (t/y), 7.7m t/y and 9.9m t/y, respectively. In
2003, the volume of trade will rise again. With total world
LNG production capacity of more than 125m t/y at present,
growth of the open market will be even more dramatic if
the necessary market conditions can be achieved.

Stable freight and charter-hire rates are essential for an


open LNG transportation market to succeed. Highly volatile
freight/hire rates derail customers economic projections.
The market cannot fully develop in a world where the hire
rate of a 135,000 cubic metre (cm) LNG carrier can swing
from $30,000 a day to $100,000 a day over a short
period of time.
Takeshi
Hashimoto

Stable margins
Ship-owners would also prefer a market where they have
conservative, but stable, margins rather than considerable
upward or downward shifts in profit. Stable margin expectations make it easier for ship-owners to undertake new
investments. Such investments then increase market
capacity, which, in turn, serves customers needs.
It is also necessary to convince financiers of LNG carriers
that the open market is growing rapidly, which will give
lenders room to accept the asset-risk of the vessel.
Traditionally, SPA cash flow was almost the only gauge to
evaluate the credit quality of ship investment or finance.
However, now ship-owners and finance lenders must
assess the asset value of the vessel, which can be the core
security of any finance arrangement.
It is time for all interested parties to consolidate differing
interests and create an open LNG transportation market
that is based on the common interest. To engage in the
creation of an open LNG transportation market ship-owners
must increase their fleet capacity. They can also meet the
demands of the developing market by promoting standardisation of tanker specifications, through collaboration with
shipyards, while encouraging low-cost and speedy financing
in the financial markets.

3.5

Mitsui OSK Lines

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Fundamentals of the Global LNG Industry, 2004

45

Trading, Marketing and Power Generation

Revival and growth in the


Atlantic basin
The revival of the Atlantic basin LNG market started in the late 1990s and the fundamentals
are in place for significant growth over the next decade, with rising gas demand,
restructured markets, falling production costs. By Michael D Tusiani, chairman and chief
executive officer, Poten & Partners

NG TRADE IN the Atlantic basin has the potential to


quadruple over the first decade of this century, from
30m tonnes in 2000 to as much as 120m tonnes in
2010 (see Figure 1). Rapid growth is forecast in the western hemisphere, with markets expected to grow by 40m50m tonnes a year (t/y) in the 10-year period to 2010. By
late in the decade, the US and Iberia will challenge South
Koreas position as the worlds second-largest LNG
importer, although Japan will remain by far the global
leader. In 2002, Japan imported 53.9m tonnes, followed
by South Korea with 17.8m tonnes.
European firms have embarked on an LNG buying spree to
meet projected gas needs. Buyers have lined up LNG supplies under firm and preliminary contracts totalling 50m t/y
by 2005 a doubling of Europes LNG market (see Figure
2). Many of these purchases are being made by new
entrants seeking to challenge incumbent gas utilities as
national markets are opened to competition. Firms targeting
the Spanish market are leading this buying spree and Spain
replaced France as Europes largest LNG importer in 2003.
Declining UK North Sea gas production will transform the
UK, Europes largest gas market, into a large gas importer.
While most of this gas will be supplied by pipeline from
Norway, the Netherlands and Russia, it also opens up a
significant opportunity for LNG. A number of firms are positioning themselves to capture this opportunity.

Michael Tusiani

4.1

Supply glut
Despite demand optimism, several European countries
could face a gas/LNG supply glut by mid-decade. Some
incumbent gas suppliers may already have contracted supplies for markets being targeted by new competitors.
Oversupply could result, particularly if gas-fired power
plants are not built as planned and gas sales fall short of
expectations. Turkey is experiencing this problem, and
Spain and Italy could face a similar situation within a few
Figure 1: Atlantic basin LNG supply and demand
140

Demand
million t/y

120
100
80

140

Other Americas
US
Other Europe
Italy
France
Iberia

120
100
80

60

60

40

40

20

20

0
2000

2005

Contracted supply
million t/y

2010

0
2000

Uncovered demand
Other Middle East
Qatar
Equatorial Guinea
Norway
Egypt
Nigeria
Trinidad
Libya
Algeria

2005

Fundamentals of the Global LNG Industry, 2004

80

million t/y

70
60
50

80

Uncovered demand
Other Europe
Italy
France
Iberia

70
60
40

30

30

20

20

10

10
2005

Uncovered demand
Other Americas
US

50

40

0
2000

Americas
million t/y

2010

0
2000

2005

2010

Source: Poten & Partners

years. By 2005, buyers could be confronting this problem


and Europes LNG buying spree could cool considerably.
By contrast, contracted supplies for US and Latin
American markets are relatively small. US buyers, not as
concerned about security of supply as Europeans, have
relied more extensively on spot purchases. Although this is
changing as imports grow, US firms are likely to continue to
rely on a mix of supply arrangements. Moreover, as the
European buying spree moderates, export ventures seeking
new Atlantic basin sales are looking increasingly to buyers
in the Americas. The good news for sellers is the potential
size of the US LNG market. US gas demand is the equivalent of nearly 0.5bn t/y of LNG. If LNG captures even a
small share of this huge market, the US will soon overtake
France and Spain to become the largest destination for
LNG in the Atlantic basin.
However, the lack of firm supply arrangements presents a
near-term problem for US terminal operations. With major
expansion of Atlantic basin LNG production still a few years
away, terminal capacity holders are confronted with finding
interim supplies. One alternative is to import from the Middle
East and Asia-Pacific, but this requires more shipping capacity. Moreover, South Korea needs large spot-cargo volumes
during the winter months to meet heating load and often
bids these cargoes away from Western buyers.

Demand

2010

Source: Poten & Partners

46

Figure 2: Committed LNG supply


Europe

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Gas demand in the Atlantic basin is being driven by requirements of the power sector, where combined-cycle gas-turbine (CCGT) technology is increasingly preferred. Efficiency
improvements in gas-to-power conversion and third-party
access regimes for transmission systems have helped
underpin the construction of new gas-fired capacity. At the
same time, the dismantling of monopolies and the emergence of merchant power generators favour the short lead
times and low capital costs for gas-fired power plants.

NEXT

Trading, Marketing and Power Generation

In the US, 90% of the proposed new power plants are


slated to run on gas. However, many power generators are
re-evaluating investment programmes in the wake of the
financial collapse of Enron, which helped to undermine the
financial strength of many gas and power firms and has
shaken investor confidence. In an effort to strengthen balance sheets and improve liquidity, many power generators
have adopted cost-cutting measures and restructuring
plans that will temper plans for new power projects.
Elsewhere in the Americas, Puerto Ricos EcoElectrica
model has generated much attention and gas-fired power
plants are frequently providing the anchor demand for LNG
import projects. A similar project has been built in the
Dominican Republic and others are being evaluated elsewhere in the Caribbean and in Mexico. However, because
many US merchant power generators are actively involved
in these markets, their capital budget retrenchments could
also slow developments in Latin America.
Across the Atlantic, privatisation and restructuring at the
various incumbent utilities in Europe will mean an
enhanced focus on the bottom line and this is likely to
translate into an increased reliance on gas-fired technology
as companies strive to maintain competitiveness. Plans for
new gas-fired power generation are particularly robust on
the Iberian Peninsula and in Italy.
However, the failure of planned projects to materialise
has the potential to undermine LNG prospects, particularly
in Europe where buyers are committing to firm LNG sup-

plies. In the US, this is less likely, as LNG will still find a
ready market if it can compete with piped-gas prices.
Import capacity is a vital link in the LNG supply chain.
European capacity was only about 35m t/y in 2001 and
when the decade began there were only nine receiving terminals. By 2010, this number could double. The Iberian
Peninsula will be important in the future of European LNG
trade. Two new terminals were commissioned in 2003,
boosting the regions total to five, and there are another two
under construction. And in the UK an existing peak-shaving
facility is being converted for LNG delivery and two grassroots terminals, in Wales, are in the permitting process.

Import infrastructure
The potential expansion of import capacity in North America
is even more impressive. Until recently, only two terminals
operated in the US: at Everett, Massachusetts; and Lake
Charles, Louisiana. When US gas prices soared to $10/m
Btu in late 2000/early 2001, firms dusted off plans to reopen mothballed LNG terminals and expand existing facilities, and to build new terminals.
Capacity doubled to nearly 19m tonnes last year, as two
mothballed LNG import terminals were re-commissioned
Georgias Elba Island terminal re-opened in December
2001 and the Cove Point, Maryland, terminal in 2003.
After the completion of expansion plans in 2005/2006,
these four terminals serving the US market will be able to
import more than 26m t/y. Re-commissioning and expan-

4.1

US gas prices
During the 1980s and 1990s, US
benchmark gas prices at Henry Hub
ranged from $2.00-2.50/m Btu on an
annual average. During this period,
North American gas supplies were
ample to meet demand and gas traded
at a significant discount to oil on a Btubasis. Simplistically, gas sold at a 10:1
ratio to oil at a $25 a barrel oil price,
gas sold at about $2.50/m Btu. By contrast a Btu-basis would indicate a 6:1
ratio $25/b oil would equate to
$4.00/m Btu gas. This would be roughly
equivalent to present gas pricing in the
US. From 2000 to 2004, gas prices
have averaged $4.15/m Btu, with a low
of $3.05/m Btu in 2002 and an estimated high of $5.50/m Btu in 2003.
Declining productivity in mature North
American gas basins in the US and
Western Canada and the costs of
developing and delivering frontier gas to
market argue persuasively that the era
of $2.50/m Btu gas is at an end. While
gas prices promise to demonstrate considerable volatility based on short-term
supply/demand imbalances, gas supply
economics set the medium- and longterm theoretical floor price.
Available data indicate that drilling
activity tends to fall dramatically when
gas prices drop below $2.50/m Btu. At
the same time, low prices encourage
demand growth. A high level of drilling
activity is required to maintain gas production in the onshore lower-48 states
and in the shallow-water Gulf of Mexico
(GoM). History suggests the resulting

BACK

imbalance of gas supply and demand


provides upward pressure on pricing
Adding to this argument is our understanding that prices of at least $2.50/m
Btu are required to support the development of deep-water deposits in the
GoM. Reserves in the Arctic region,
including those in Canadas Mackenzie
Delta and on Alaskas North Slope,
require even greater price support. A
2003 National Petroleum Council report
argues strongly that Arctic gas along
with LNG will be required to fuel the
US economy and to generate an acceptable future price outlook for gas.
At the other end of the scale, the pull
from gas demand remains strong up to
about $4.00/m Btu, although some
demand is shed at even lower prices. A
study by the US General Accounting
Office concluded that some fertiliser manufacturers would shut down production at
even lower prices, warning that high
prices and extreme volatility could cause
them to close down and move their operations overseas. Some industrial demand
is lost to fuel oil when gas prices move
towards the $5.00/m Btu level and some
CCGT power plants with dual-fuel capability also switch at this level.
The impact of price on gas demand
for power generation was evident in
2003. Between January and July, when
the Henry Hub cash market for gas averaged just over $6/m Btu, use at the
nations power plants was down by 13%
from the same period of 2002, despite
a steady pace of electricity generation.

HOME

In its November 2003 Short-Term


Energy Outlook, the EIA predicted gasfired electricity production would fall by
about 4% in 2003 because of fuel substitution in response to high gas prices.
This would be the first annual decline
since 1996.
From a longer-term perspective,
power generators also start re-evaluating plans to invest in gas-fired capacity
at around $4.50/m Btu. Our analysis
supports the attractiveness of CCGT
power generation with gas at prices up
to this level. This figure is based on the
relative economics of CCGT units versus various types of generating units
using coal the primary competition in
the power market. After adjusting for
transportation costs to the power plant,
the Henry Hub price would be even
lower. However, price volatility could
undermine prospects for gas-fired
plants even if the annual average price
appears attractive.
A substantial amount of volatility
within the year is predicted. Prices
could be considerably higher than the
annual average during months of peak
demand in the winter heating season
and for air conditioning during the summer. How high prices go will depend on
weather conditions and the perceived
adequacy of gas supplies, including
stocks. At the same time, prices will
have the potential to fall sharply during
the months of weak demand in the
spring and autumn, largely depending
on the level of inventories.

Fundamentals of the Global LNG Industry, 2004

47

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Trading, Marketing and Power Generation

Figure 3: Atlantic basin LNG export capacity


million t/y
120
100
80

Proposed
Developing
Advanced planning
Under construction
Existing

60
40
20
0

2003

2004

2005

2006

2007

2008

2009

2010

Source: Poten & Partners

sions provide a cost-effective means of adding capacity to


absorb forecast increases in trade.
Washington has recognised the important role LNG could
play in meeting future gas needs, while moderating prices.
There are over two dozen LNG supply proposals for the
Atlantic and Caribbean coasts of North America. However, the
not-in-my-backyard (Nimby) mentality remains an obstacle to
import terminals and it is unclear how many of these projects
will be built. Opposition has been further marshalled by security concerns following the events of 11 September 2001.
Until a year ago, US regulatory policies required import
terminals to operate on an open-access basis, with capacity allocated to interested firms on the basis of a so-called
open-season bidding process. However, after intensive lobbying by a number of oil companies, Washington regulators
decided to also allow new projects to be built on a proprietary-access basis. This facilitated the building of import
capacity as part of an integrated LNG supply chain.
Since then, ExxonMobil and ConocoPhillips have
announced proposals to import LNG from Qatar. Everything
about these chains are super-sized, from the liquefaction
trains 50% larger than the 5m t/y trains now being built
to the LNG tankers 200,000-250,000 cubic metres (cm)

4.1

compared with todays 145,000 cm to the import and


regasification facility typically about 28m cm/d expandable to 57m cm/d. A similar sized supply chain is planned
for the UK, if European and UK regulators decide that
ExxonMobil and Qatar Petroleum can build their Milford
Haven import terminal for their own use.
There are over three dozen LNG import projects planned
for North America, about a quarter of which are offshore,
primarily in the Gulf of Mexico. Of the onshore terminals, 12
are planned for the east coast (including Canada and the
Bahamas), 11 are proposed for the Gulf coast and six are
planned for the west coast (including Mexico). And this list
is expected to grow. But not all of these will be realised,
given the extent of the Nimby sentiment that persists, which
is particularly strong in California and on the east coast.

Production capacity
Until 1999, only 25% of the worlds LNG production capacity
was in the Atlantic basin (including the Mediterranean). With
the exception of an occasional spot cargo from the Middle
East or Asia-Pacific, the region was the domain of Algeria.
The countrys oil and gas company, Sonatrach, supplied
European and US customers from plants on the
Mediterranean coast, which, since restoration in the 1990s,
produce around 23m t/y. The recent explosion at the Skikda
plant destroyed three trains with a total production capacity of
2.5m t/y. Libya provides another 0.8m t/y of production
capacity from an ageing complex at Brega.
Then, in 1999, two grassroots Atlantic basin LNG projects started production Trinidad and Tobagos Atlantic
LNG (ALNG) and Nigerias Bonny Island LNG facility (NLNG).
First was ALNGs single-train 3.0m t/y plant, in April 1999,
followed six months later by the first of NLNGs two 2.95m
t/y trains. These were the first new export projects in the
Atlantic basin in nearly two decades. They boosted regional
LNG production capacity to 33m t/y and provide the foundation for adding cost-competitive expansions.
Additional export capacity, either under construction or in
the advanced planning stage, is expected to more than

European gas prices


In contrast to the US, European prices
for both pipeline gas and LNG are, for
the most part, still linked to refined oil
products. At end-2003, high oil prices
were pulling up gas and LNG prices. For
example, at a Brent crude price of $2829/b, European border prices range
from a low of about $3.60/m Btu for
Russian supplies to over $4.00/m Btu
for Algerian LNG. If Opec demonstrates
adequate discipline in setting and
adhering to oil production quotas the
Brent price could settle in the mid$20s/b level, at which oil-linked border
prices would fall by about $0.50/m Btu.
This linkage to oil will dominate
European gas prices over the next few
years, providing opportunities for
transatlantic LNG arbitrage.
Market liberalisation and the formation of new trading hubs will mean more
gas-on-gas competition in Europe. This
will increasingly influence spot market
prices. Term contracts, which frequently
contain price re-opener clauses, will not
be immune from these pricing pressures. By mid-decade, prices could

BACK

48

decline, driven by growing gas-on-gas


competition. But as the surplus of delivery capacity is worked off, the cost of
new supplies should limit downside
potential. Pipelines from remote locations in Russia will require robust market prices and the development of new
gasfields in Norway will not proceed
with low prices.
Potential sources of supply in North
Africa are the most cost-competitive to
develop and could be delivered into
Mediterranean markets at significantly
lower prices. However, countries such
as Algeria have been reluctant to undercut prevailing crude oil-linked pricing formulae. At the same time, Norway
appears to be gearing up to capture UK
and northwest European demand and
Statoil has demonstrated a willingness
to link sales to the UK directly to gas
market prices. The Netherlands
Gasunie is following Statoils example.
A review of cost estimates for delivered gas from producing fields indicates
a notional floor price delivered across
central Europe of about $2.75/m Btu is

Fundamentals of the Global LNG Industry, 2004

HOME

needed to sustain developments. If supplies from more remote fields, such as


from Norway or Russia, need to be
tapped, this notional floor price may
need to be as high as $3.25/m Btu.
However, this does not appear likely
until late in the decade at the earliest.
As in the US, the requirements of
Europes power sector are expected to
dictate a ceiling price.
Prices, however, are location linked
and, theoretically, delivered costs
should be lower closer to a supply
source. Local factors will also have an
influence. For example, the potential
oversupply of LNG/pipeline gas to Iberia
and Italy could set off price cutting in
these key LNG markets. If LNG sellers
lowered their prices to secure market
share and Algeria responded by lowering
the price of its pipeline gas, price
prospects
in
these
important
Mediterranean markets could fall to the
$2.50/m Btu range, perhaps even lower.
However, prices would be unlikely to
remain this low for long, as LNG cargoes
could be diverted elsewhere.

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Trading, Marketing and Power Generation

double capacity by 2008 (see Figure 3). A large portion of


this capacity increase is expected to come from expansions
at ALNG and NLNG, the remainder will come from new
facilities in Norway and Egypt. Plans for new facilities in
west Africa (Nigeria and Angola) and, potentially, Venezuela
should ensure ample supply for the region.
Middle East export ventures are also emerging as important suppliers to Europe and the US, with Qatar, in particular, promising to become a major supplier. Qatar Petroleum
and its foreign partners are considering five mega-sized liquefaction trains, with an total capacity of about 39m t/y,
targeting the US and UK markets. Other Middle East
exporters are also targeting Atlantic basin buyers, under
both short- and long-term arrangements.

much more advanced, it has not yet been tested.


The move by a higher-cost supplier, such as Norways
Snhvit venture, to go forward appears to demonstrate
that some companies anticipate that robust gas prices will
continue. However, the hard bargaining between the
Snhvit partners and the Norwegian government over tax
breaks indicates just how sensitive project returns will be
to price levels.

Shipping

Shipping is a key strategic asset prized by LNG export ventures and importers alike. Control of shipping is a way to
minimise demand and price risks as well as to generate
trading profits (under the right commercial
Table 1: World LNG fleet
structure, cargoes can be diverted to markets
Price Implications
where their sale commands higher prices). All
Number of ships
Pacific
102
Market pricing in the US and in Europe
parties to the transaction can share the addiAtlantic
53
should support the growth of Atlantic basin
tional revenues.
Total
155
LNG trade as forecast. As costs for LNG
But these innovative deals are difficult to
Orders
54
infrastructure (both import and export) and
arrange in a tight shipping market. About 53
Options
26
Total H1 07
209-235
shipping have dropped in recent years, LNG
ships are employed in the Atlantic basin,
supply chains are increasingly cost competialthough the fleet is undergoing an unprecetive for gas supply. According to the forthcoming Poten & dented expansion and nearly twice this number will be
Partners study, LNG Cost and Competition: A Global Survey required by the end of the decade (see Table 1). Many of
of LNG Export and Import Projects, which analyses the these ships have already been ordered.
economics of over 60 LNG export and import facilities
Unlike in the past, when most LNG new-builds were
worldwide:
ordered to deliver cargoes to Asia-Pacific, many of the
At the low end of the forecast price range, say $2.50/m ships on order are dedicated to Atlantic basin trades.
Btu ex-ship, a number of projects (including most expan- Others have not been ordered for any specific trade and
sion trains) generate attractive returns to venture partners many of these are expected to trade in the Atlantic basin.
(for exports to the US GoM);
Moreover, there will be a tendency for ships to trade more
In the mid-range, about $3.00/m Btu, most Atlantic globally. For example, a few of the ships dedicated to delivbasin grassroots projects and new Middle Eastern trains are ering to South Korea and Japan are transporting cargoes to
competitive to this market; and
Europe and the US during the summer when there is less
At the upper end of the price range, or $3.50 to call on their services from Asia-Pacific destinations.
$3.75/m Btu, most Atlantic basin grassroots projects are
There will be ample shipping capacity to cater for a
feasible, although profitability for some could be slim.
tripling of Atlantic basin trades during the decade and the
However, firms operating in the gas and power busi- possibility of surplus tonnage cannot be discounted. This
nesses and the regulators governing their activities are could have adverse consequences for the truly speculative
only slowly beginning to understand the changing com- ships and owners may be forced to accept unattractive
mercial realities of the liberalising markets. What is charter-hire terms or risk lay-up.
unclear is whether commodity pricing, with its inherent
volatility and unpredictability will provide the incentives Commercial developments
required for massive investments in production and deliv- Atlantic basin LNG trade is predicted, largely, to continue to
ery infrastructure. In Europe, the incumbent gas utilities be project-based, tied to long-term, take-or-pay contracts,
argue it will not. Even in the US, where market opening is owing to the inherent operational complexities of the supply
chain and financing requirements. However, market growth
Figure 4: Projects ex-ship, COS to Lake Charles, US
will accompany and drive changes in the business structure
of LNG projects as well as in the industrys commercial
$(2003)/m Btu
framework to reflect the realities of liberalised gas markets.
Shipping to Lake Charles
Buyers confronted with the loss of national and regional
Sovereign take
market franchisess will seek to restructure their supply portSponsors' take
Opex
folios and diversify their market outlets. Mechanisms for
buyers to succeed in the Atlantic basin include:
Direct equity participation in export ventures;
Negotiation of flexible supply terms (including gas market-linked pricing, relaxation of destination restrictions and
Liquids
shorter-term contracts);
credits
Control of shipping;
A1* A2* A3 A4 A5 A6 A7 A8* A9 A10 A11 A12* A13* A14
Ownership of and/or third-party access rights to import
(2-T) (1-T) (1-T) (1-T) (1-T) (2-T) (1-T) (1-T) (1-T) (1-T) (1-T) (2-T) (1-T) (2-T)
terminals;
Cost of service is the real price per unit of LNG output that the project must
Multiple supply sources and market outlets; and
receive (net of condensate and LPG co-product credits) to provide: forward
capital and operating outlays; recovery of capital employed at start-up,
Strategic alliances.
including a required rate of return (hurdle rate); and sovereign resource and
Enhanced flexibility within this structure will lead to
income taxation on that return.
trading opportunities, or at the very least cargo swaps
* Expansions
that will generate substantial shipping cost savings. LNG
Source: Poten & Partners and Merlin Associates
export ventures that can accommodate these buyer
requirements will prosper.

4.1

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50

Fundamentals of the Global LNG Industry, 2004

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Trading, Marketing and Power Generation

The merchant model emerges


As world demand for natural gas continues to grow, LNG will take a greater role in
supplying the market. As the LNG business is becoming larger, more complex and more
flexible, the potential for inter-regional trade is enormous. By Doug Rotenberg,
president, BP Global LNG

ATURAL GAS is the most dynamic element in the


global energy mix. It has entered the supply portfolio
in many new markets and will make a major contribution to long-term security of supply. Natural gas also
offers the potential to contribute to the reduction in carbon
dioxide emissions required by the Kyoto Protocol. In 2002,
the world consumed 2.5 trillion cubic metres (cm) of gas
an increase of 2.8% over the previous year.
This level of consumption requires ever-increasing levels
of global gas movement, most of it through cross-border
pipelines. Yet the proportion transported by sea as LNG
cannot be ignored. LNG production has been growing at the
rapid rate of over 7% a year since 1995.

Expansion of the LNG market


This growth of the LNG market is illustrated by frequent
industry announcements of new import terminals, ships
and production capacity. The business is rapidly shifting
away from a model where a few large liquefaction plants
are dedicated, along rigid shipping routes, to single consumers. The LNG business is becoming larger, more complex and more flexible.
Take the geographical spread of new import terminals. In
Asia alone, there are seven new terminals under construction. Europe has also seen two terminals open since 2002
and a further five are under construction or in advanced
stages of development, amounting to a new LNG import
capacity of 25.5m tonnes a year (t/y) or 35.2bn cm/y. The
European Unions Gas Directive is slowly opening the market to competition. Spain offers the best example, with
open access to customers and a rapidly growing market
providing many opportunities for LNG.
In the US, until recently seen as a place where LNG
imports were stalled, old terminals are being refurbished
and plans for new terminals dusted off. The sheer size of
the US market and the countrys declining domestic gas
reserves have created a huge opportunity for LNG imports
on both coasts. Projections suggest that by the end of the
decade, the US could be importing up to 50m t/y of LNG.
These new terminals are matched by the growth of production and shipping capacity. Globally, new liquefaction
capacity either just finished, under construction or projected, amounts to 217m t/y. In shipping, by the end of
2006, some 60 new LNG carriers will be ready for trading.
Given this high level of activity, the share of LNG in global
gas markets is expected to shift from 6% of supply to 10%
by the end of this decade.

In addition to declining costs, the structure of the oil and


gas industry has changed radically over the past decade. It
has both grown and consolidated. To put this in perspective, for an oil and gas major in 1993, the development of
one major LNG supply chain would have represented
approximately 25% of its capitalisation. Just 10 years later,
such a collection of plant, ships and regasification facilities
represents only 2% of its market value. Costs have fallen
and BP and other companies have grown, making many
more projects viable.

Emergence of the merchant model


If LNG is to be relied on to contribute to the security of
energy supply, it has to be both reliable and flexible. Falling
infrastructure costs and the expansion of the LNG market
have led to a shift in the mode of operation in the industry
a new, more flexible merchant model is emerging.
This means there is a move away from the purchase of
fixed volumes for extended periods, to a greater flexibility of
supply volumes, contract lengths and prices. Long-term
contracts will remain an important sustaining feature of the
LNG business, but they must now exist alongside more
dynamic, competitive and liberalising markets.
The industry is developing a wide variety of contracts tailored to meet the needs of different markets, their requirements for security of supply and their degree of liberalisation. This varies across the world. The US, with its sophisticated commodity markets and derivatives, can act as a
clearinghouse that can take LNG spot volumes at competitive prices. Europe is becoming more receptive to shorter-

4.2

Falling costs
Reduced capital costs associated with LNG investments is
one of the enablers for new trains being developed without
full sales commitments for the capacity before construction. The cost of new liquefaction capacity has fallen from
$400 a tonne in the 1980s to $200/t. Over the same
period, the cost of new shipping capacity has fallen from
$1,900/cm to $1,200/cm. The costs of building a new terminal have fallen by over a quarter.

The first independent LNG


terminal in Spain at Bilbao
BP

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Fundamentals of the Global LNG Industry, 2004

51

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term contracts, as it develops gas-on-gas competition and


different pricing methods. In Asia, where Japan takes 60%
of LNG supplies, the preference is for longer contracts, for
energy-security reasons. Yet even here, customers have a
need for greater flexibility.
For example, in 2003, Tokyo Electric Power sought additional gas volumes at relatively short notice. BPs partner in
Abu Dhabi, Adgas, diverted a cargo bound for Spain, using
one of the three BP vessels, the British Innovator. BPs
Spanish obligations were supplied from its portfolio of supplies in the Atlantic. The supply linked the Atlantic with the
Pacific and the supply chain covered over 4,000 nautical
miles. The benefits provided by the flexibility in the supply
chain were shared between producer, shipper and customer.
However, it is not just the gas buyers who require flexibility. Producers are seeking its benefits too. They are increasingly more comfortable with shorter-term contracts. New
LNG projects often have spare gas to sell. Sometimes,
spare capacity results from liquefaction facilities performing
at above design capacity and at other times in the build-up
period as buyers increase their take to the full contracted
volumes. Often, more capacity becomes available from debottlenecking once the project is up and running. These
additional volumes encourage the development of spot and
shorter-term contracts, which enable producers to match
customer demands at the same time as maximising returns.

4.2

Flexible, short-term contracts


There are plenty of examples of short-term, more-flexible
contracts. BPs agreement with Oman for the purchase of
LNG from 2004 is a five-year deal. It is part of a growing
portfolio of flexible sources becoming available. Another
example is the supply to AES, in the Dominican Republic,
where there is no stipulated geographical source, although
Trinidad and Tobago is the obvious supplier.
Furthermore, although Trinidad and Tobago is the obvious source for BPs markets in Cove Point, in the US, the
Dominican Republic and Bilbao, Spain, flexibility requires
that there should be no direct supply allocated to these
terminals. In this way, with three buoyant markets in the
US, Asia-Pacific and Europe, the new flexibility means
there are potential cross-regional opportunities that will
not only maximise efficiency, but also advance supply
security in the consumer countries.

The LNG vessel British


Innovator off the coast of
Fujairah in the UAE
BP

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52

Fundamentals of the Global LNG Industry, 2004

HOME

The key to the new merchant model in LNG does not


just lie in increasing flexibility. It also involves a new
approach to risk management. With flexible supply contracts and flexible demand, the new model requires continual work to align the opportunities within the available
portfolio. As that portfolio expands, this becomes progressively less risky to everybody in the supply chain. The new
structure of the LNG industry allows rapid mitigation
against the failure of any part of that chain. It can also
respond to sudden shifts in demand, such as those that
arose recently following nuclear power issues in Japan and
a very cold winter in South Korea.
As in Japan and South Korea, customers around the
world can call on BP and other companies for incremental
supplies, as and when they need them. An essential
requirement of the model is access to reliable shipping,
fast reactions and good relationships between supplier and
customer. As the industry is shifting, all parties are becoming swifter on their feet.
.

An industry wide phenomenon


It must be emphasised that this is an industry-wide effect.
It is not just BP that has seen a combination of change
and growth in the past decade. As Shell, ExxonMobil, BG
and the state-owned companies such as Indonesias
Pertamina, Malaysias Petronas, Sonatrach, of Algeria,
and Qatar Petroleum expand their own capacities, the
range of potential sources of new LNG to take to market
also increases. Of course, many LNG contracts will still be
long-term and take-or-pay in accordance with investment
and producer requirements, but as the model develops, it
will become easier to complement take-or-pay contracts
with additional, more flexible arrangements. The new
model will co-exist with, rather than replace, the more traditional structure.

Consumption growth
The future looks bright for the LNG trade. Consumption is
growing steadily in the great primary importers of Japan
and South Korea South Koreas Posco and SK Power
have just signed for 1.35m t/y from BPs Tangguh project
in Indonesia. And there are attractive opportunities to
supply China and, potentially, India.
Europe has nine countries capable of supplying a continent increasingly concerned with security of energy supply. Even in the UK, aware of the decline of its North Sea
hydrocarbons reserves, at least two new terminals have
been announced, one of which is the converted Isle of
Grain facility, where Sonatrach and BP plan to import
LNG from early 2005.
Across the Atlantic, in the US, the sheer size of the
existing market, at 0.67 trillion cm in 2002 and with significant decreases in indigenous reserves, is an obvious
candidate for LNG imports as four terminals are reactivated and more are discussed. With the recent and continuing decrease in the cost of the LNG supply chain, LNG
has proved to be increasingly competitive in the US market. With all three major markets highly active, the potential for inter-regional trade is considerable.
This is the merchant model. It brings LNG into line with
global gas-market liberalisation and into a world of
increased energy security by diversifying supply, aligning
risks and phasing developments to suit the consumer.
The pioneering days are over. The sea-borne movement
of gas is not only going to increase more rapidly than
exported pipeline gas, but it will also become more flexible, more in tune with its risks and more and more an
everyday phenomenon.

Trading, Marketing and Power Generation

LNG to power: first among equals


LNG is projected to take a 10% share of the global gas market in five years time. A driver of
this expansion is the use of LNG for electricity generation. Martha Carnes, Michael Hurley
and Duncan Michie, global energy, utilities and mining group, PricewaterhouseCoopers,
demonstrate that the role of government and regulators in electricity and gas markets are
an important consideration for LNG project developers

NG HAS RECEIVED a good press in recent years. The


market has been growing during 2002, world LNG
trade increased by 5.9%, broadly in line with the 6.3%
a year growth rate achieved by LNG trade since the mid1980s. In addition, as gas is one of the more environmentally friendly hydrocarbons, it has proved attractive to policymakers committed to emissions-reduction targets.
An important driver of demand for natural gas has been
its use in electricity generation. Gas has been substituted
for coal and other fuels. This transformation is particularly
clear in the UK electricity market, where gas accounts for
about 40% of total generation (see Figure 1).
As gas demand for power generation has grown, so has
the need to source increased supply, and also to diversify
their sources of supply. This avoids over dependence on one
supplier and has been a driver for LNG gaining increasing
importance. Sourcing LNG can diversify risk for countries
with a high dependence on piped gas from a single source.
The world LNG community remains relatively small, with
about a dozen nations exporting and a similar number
importing (see pages 144-151). The main LNG purchasers
are usually the worlds richer countries, often with limited
indigenous gas reserves, high per-capita energy consumption and well-developed electricity generation sectors.
As the LNG market matures, LNG producers face two
major challenges: mature gas and electricity markets will
continue to develop their price and asset regulatory structures; and newer markets, such as Brazil, China and India,
will create new regulatory, institutional structures for the
gas industry and, specifically, for LNG.
The level and nature of regulation in different markets
affects the economics of market selection, which can have
implications throughout the LNG value chain. As a result of
government and regulatory intervention, LNG may be
favoured as a source of fuel for electricity generation. If this
is the case, developers need to understand how government intervention affects the market.
The choice of LNG is not just a function of the relative
economics of LNG over other fuel types. Developers need
to assess regulatory incentives, environmental policy, willingness of consumers to switch to gas and the costs
associated with doing so and, significantly, national policies regarding the diversity of gas supply.

Martha Carnes

4.3
Michael Hurley

Duncan Michie

Fuel for generation


At its simplest level, an electricity generators choice of
which fuel to use is based on an economic consideration.
Given that the utility faces a constraint on the price that it
can sell electricity either set by the wholesale market, or
the regulatory authorities the profitability of the utility will
be driven by its ability to generate electricity at the lowest
costs. The decision to use the least-cost option is taken on
an hourly, or half-hourly, basis in some electricity markets,
but also applies in the longer term when utilities assess
plant-development options.
54

Fundamentals of the Global LNG Industry, 2004

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Figure 1: Share of UK generation accounted for by fuel type


1991

August 2003

20.0%

Nuclear

24.2%

Nuclear

3.0%

Other

0.2%

Other

2.0%

Gas

40.9%

Gas

65.0%

Coal

1.2%

Net imports

10.0%

Oil

Source: DTi

32.9%

Coal

0.4%

Oil

0.2%

Hydro

Source: Platts UK Powerfocus


Issue 41, November 2003

In this simple economic model, the key to the successful


penetration of LNG would be to compete on price with alternative fuels for electricity generation. If the utility knows it
will need to add 50 gigawatts of capacity in the next five
years, it will assess the options for plant additions (considering that the plant meets system requirements), using the
lowest-cost option first. The economics of LNG mean it is
one of the more expensive options, which limits demand.

Beyond the economics


In practice, the choice utilities make between sources of fuel
for electricity generation is not based entirely on market signals. To differing degrees, policymakers retain a role in energy
markets around the world. Some prefer to use the market
and market signals to achieve their ends. For example, to
meet environmental targets the UK government is using taxsubsidy solutions, including renewables certificate trading.
Others prefer a more centrally planned approach, such as
where single, state-owned gas utilities remain.
Understanding the regulators approach is key to making
an effective market assessment for an LNG project, as it is
often these types of intervention that favour LNG projects.
The main drivers in favour of LNG are:
The environmental agenda national or sectoral limits
on emissions levels may mean utilities face restrictions on
the amount of generation of a particular type. For example,
a carbon limit, or a carbon tax, may reduce the amount of
coal-fired generating capacity that can be built;
Diversity of supply as has been clear from the recent
energy review in the UK, governments are aware of the
risks of over-dependence on energy from any one source.
A diversity of supply sources can mitigate some of the risk
of monopoly pricing by fuel sellers and also provide alternative capacity if a particular fuel source becomes
unavailable; and
Rigidities in the system electricity generation requires
considerable sunk investment. Consequently, substitutions
between fuel types are neither complete nor instantaneous.
The construction of LNG assets, or adjusting levels of coal
outputs, takes time and may require additional government
actions to ensure stakeholders follow the course of action
consistent with policy. For example, regional-development

NEXT

Trading, Marketing and Power Generation

subsidies for LNG facilities, or support for communities facing coal-mining cuts, may be necessary.
Once these three impacts are considered, Figure 2 could
appear more like Figure 3.
If policy were to result in the introduction of a carbon tax
on coal-fired generation, this could serve to increase the lifetime cost of coal-fired generation. In the same way, a moratorium on new coal build would limit the scope for coal-fired
generation, providing a market opportunity for LNG.
A situation with a similar effect to that shown in Figure 3
occurred in Japan during 2002. When a number of nuclear
power plants operated by Tokyo Electric Power were taken
out of operation for safety reasons, substantial increases in
LNG imports were required. In terms of Figure 3, LNG would
effectively make up for a substantial reduction in the size of
the block marked nuclear in this situation.

In practice
The importance of regulatory action in energy markets has
been demonstrated on a number of occasions in the past.
In the US, the Federal Energy Regulatory Commission
(Ferc) appears to have improved its approval times for LNG
developments. However, as a counter balance to this, a
continuing safety-regulation debate may affect LNG new
build. In the UK, the dash for gas was temporarily halted by
the moratorium on new gas-fired capacity that ran from late
1997 to 2000/01. The relaxation of the moratorium, combined with the UK energy review, which stressed diversity of
supplies as indigenous gas supplies run out, has provided a
spur to UK LNG projects.
Figure 2: The economics of alternative fuels for power generation
Lifetime cost of
generation option
(USc/Wh)

LNG capacity
that could be
built if required

50GW

GW of additional generation capacity required

Figure 3: The economics of alternative fuels for power generation


Government introduces a tax
on coal generation making it
more expensive and also puts
a direct limit on the amount of
new coal fired capacity that
can be built

Hydro
Nuclear
Piped gas
LNG
Coal

With the competitiveness of


coal changed by government
policy, LNG enters the
competitive generation options

The continued development of LNG as a competitive


source of energy for electricity generation is dependent
upon a combination of economics and regulatory policy.
This observation has a number of implications for LNG
project developers:
In assessing the economics of entering a particular
market, LNG sellers should factor into their market
assessment the actions of government and regulatory
authorities. This analysis should be more detailed than
pure country-risk analysis, including an assessment of
specific actions that could enhance, or hamper, the relative performance of LNG;
Putting appropriate contracts in place is essential for
project success, particularly given the large investments
required for long-lived assets such as LNG facilities. Having
identified project risks, the contracting structure allows an
LNG project participant to allocate and manage risks and
also identify where residual project risks lie; and
Government policy is not necessarily an external factor to
the development of LNG projects. There are a number of
issues that an LNG marketer may be able to engage a government on, including environmental targets, the impact of
LNG facilities on the local economy and the circumstances
in which it is better to exercise government policy through
market signals, rather than direct instruction.
Interaction with government on this broader agenda is
likely to be important to furthering the interests of LNG in
new and established markets. A focus on the regulatory
regime is key to ensuring LNG is first among equals as a
choice of fuel for electricity generation.
martha.z.carnes@us.pwc.com
michael.hurley@uk.pwc.com

50GW

GW of additional generation capacity required

BACK

4.3

Implications for developers

Total additional
generating
capacity required

Hydro
Coal
Nuclear
Piped gas
LNG

Lifetime cost of
generation option
(USc/Wh)

In the European Union (EU), member states regulatory


regimes are likely to face adjustments as they adopt
Directive 2003/55/EC, which imposes common rules for the
internal gas market. The directive extends the regulation of
the sector by stressing the development of regulatory
authorities and access conditions to assets. This has important implications for LNG facility developers, which face substantial capital investments in regasification facilities.
The preferred approach to LNG project development is to
contract capacity, as this reduces revenue risk to the project. Third-party access (TPA) rules tend to increase project
risk, as they do not provide the revenue stability associated
with a contract. However, the new directive does provide for
derogation from TPA conditions. By lobbying for the derogation approach, project developers may be able to come up
with hybrid solutions as used by the Brindisi LNG project
in Italy, in which 80% of capacity is subject to contract and
20% is subject to TPA.
Policy governing other sources of generation also affects
LNG. Regulation of nuclear generation will be an important
input into a market assessment. Finland, for instance, has
embarked on a new nuclear build programme, while in the
UK and central Europe, the issue of whether new nuclear
build will be promoted remains uncertain.
In the newer markets, such as China, Brazil and India,
the role of government and contracting has also been well
demonstrated. In India, the Dabhol plant developers had
electricity off-take agreements in place, but counterparty
risk remained and manifested itself as a refusal by the
State Electricity Board to pay an electricity tariff it regarded
as too high. This had catastrophic implications for the project economics.

HOME

Fundamentals of the Global LNG Industry, 2004

55

Exporters: Qatar

Thinking big pays off


If the various proposals for expansions are carried out, Qatar will be the worlds biggest
LNG exporter within the next few years, with huge, long-term supply contracts with the US
and Europe, as well as with traditional and emerging Asian markets. With the support of
the worlds largest energy firms and ownership of the worlds largest gasfield, Doha is in a
strong position, Tom Nicholls, editor, Petroleum Economist, writes

ITH MASSIVE, low-cost gas reserves and an ambitious, yet pragmatic, approach to business, Doha
has established thriving LNG and petrochemicals
industries and is attracting widespread interest in the fledgling gas-to-liquids (GTL) sector.
In the next few years, the gas industry of this small Middle
East country, which has a population of around 600,000, is
set for a significant expansion. Several GTL projects involving the worlds largest private oil and gas companies have
been proposed. Royal Dutch/Shell is leading the way late
last year, the company announced plans for a $5bn,
140,000 barrels a day (b/d) GTL plant, which it expects will
come on stream before the end of the decade.

5.1

Quadrupling capacity
Meanwhile, the countrys two LNG plants, Qatargas and
RasGas, are in expansion mode and further bold capacity
increases are planned. If all plans were to proceed, on
schedule, the countrys liquefaction capacity about 14m
t/y would more than quadruple by the end of the decade.
Thinking big is one of the secrets of Qatars success,
says Paul Sankey, an oil and gas analyst at Deutsche Bank.
The Qataris have been extremely smart. They had a vision
from a very early stage that they wanted to become the
biggest LNG producer in the world and they have not taken
their eye off that long-term aim. High initial spending on
Ras Laffans port facilities has meant that future expan-

Table 1: Qatars LNG projects


Project
Start-up
Shareholders
Operator
Capacity (million t/y)
Number of trains
Process method
Gasfields
Storage (000 cm)
Exports to

Qatargas 1 T1-3
RasGas 1 (Ras Laffan)
1997
1999
QP 65%; Total 10%;
QP 63%; ExxonMobil
ExxonMobil 10%; Mitsui 25%; Itochu 4%; Japan
7.5%; Marubeni 7.5%
LNG 3%; Kogas 5%
Qatargas
RasGas
8.0
6.6
3
2
APCI
APCI
North Field
North Field
340
420
Italy; Japan; South
India; Italy; South Korea
Korea; Spain; Turkey; US

sions can be accommodated at a relatively low cost. That,


combined with natural gas that is abundant and cheap to
produce, and falling liquefaction costs, make RasGas and
Qatargas competitive in any market, Sankey says.
Huge capital investments by the biggest names in the
global oil and gas business attest to the attractiveness of
Qatars rapidly expanding gas industry. In addition, says
Jerry Walter, head of international energy and utilities at
law firm Simmons & Simmons, there is huge interest
among banks in Qatari projects. LNG projects to date have
been successful and there is no reason to think future ones
will not be as well. People are very enthusiastic about
Qatar, including the banks. There is a real appetite to get
involved and not just in energy, but also in the economic
diversification that is happening.
RasGas has two operating LNG trains, producing over 6m
tonnes a year (t/y).
Two additional trains, each with a capacity of 4.7m t/y
are under construction. A fifth train, also of 4.7m t/y, is
planned, plus a further two, with a combined capacity of
15.6m t/y. Train 3 will supply India, trains 4 and 5 are targeting Europe and LNG from trains 6 and 7 is being targeted at US markets. Total capacity from all seven trains
would be over 36m t/y.

Qatargas expansion
Three-train Qatargas 8m t/y nameplate capacity is being
expanded to over 9m t/y by 2005 through de-bottlenecking.
Plans are to add a further 7.5m t/y of capacity by 2009
(Qatargas III) and discussions are under way for Qatargas II,
which would see the addition of two 7.8m t/y trains in a
similar time-frame. Total output capacity would amount to
about 33m t/y if all proposed expansions proceed.
The feed gas for the two plants, both in Ras Laffan
Industrial City, is produced from the nearby North Field
the largest known non-associated gasfield in the world.
Discovered in 1971, the 6,000-square-km fields proved
reserves, according to Qatar Petroleum (QP), are over 900
trillion cubic feet (cf). The BP Statistical Review of World
Energys more conservative estimate of total Qatari proved
natural gas reserves 509 trillion cf at end-2002 would
still place Qatar third in the world in terms of size of gas

Qatargas
LNG plant
at night
56

Fundamentals of the Global LNG Industry, 2004

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Exporters: Qatar

reserves, after Russia and Iran. As Andy Flower, an indeA second company, RasGas II, was established in 2001
pendent consultant specialising in LNG and gas, puts it: by QP (70%) and ExxonMobil (30%) to construct and own
Qatars reserves arent an issue not for the next 200- the offshore and onshore facilities required to supply LNG
300 years, anyway.
to Petronet, of India, Edison Gas and future customers. A
Low-cost and plentiful supplies of gas are Qatars great- third train at the plant, with a capacity of 4.7m t/y began
est strengths in the LNG trade, enabling the projects to production on 1 February, boosting RasGas offshore gas
offer competitive terms, even in remote markets. In addi- production capabilities to almost 2bn cf/d and onshore
tion, the Qatari LNG business is well established, costly production from 6.6m t/y to 11.3m t/y. The third train,
infrastructure is in place and North Field gas is rich in con- coupled with incremental volumes from the first two trains,
densate an important additional revwill meet Petronets requirements of
enue stream. Qatars geographical
5m t/y for 25 years.
US gas prices have risen
location also means that Asia, Europe
In 2001, RasGas II agreed to supand are likely to remain at
and the US are within its range, giving
ply Italys Edison with 3.5m t/y, for 25
it access to a wider choice of markets
years starting in 2005. The contract
levels that can justify largethan that available to most LNG prorequires the construction of a fourth
scale LNG investments
jects. This positions them well to
train, which will have a capacity of
exploit some interesting commercial
some 4.7m t/y, bringing the plants
opportunities, says Patrick Barr, head of oil and gas at overall output to 16m t/y. Start-up is expected in
ANZ Investment Bank.
September 2005. Last year, RasGas broadened its links
Evidence of that advantage has already emerged. Last with Europe when it signed a 0.8m t/y, 20-year sales and
year, RasGas signed a Heads of Agreement (HOA) with purchase agreement with Spains Endesa, with deliveries
Taiwans Chinese Petroleum Corporation for the supply of due to start in April 2005. The company is also examining
3m t/y for 25 years to the Ta-Tan power plant, a 4.2 the possibility of sales to Belgium.
gigawatt combined-cycle gas-turbine facility. Further market
In October, considerable new prospects for RasGas
opportunities are likely to come from India and China, in opened up. QP and ExxonMobil said they had signed an
addition to the established Asia-Pacific markets. In the HOA to supply the US for 25 years. The HOA involves the
opposite direction, huge export deals are planned to the US. development by RasGas II of two trains, with combined
capacity of 15.6m t/y (about 2bn cf/d). Total estimated
Distance to market
investment, including ships, is $12bn, with start-up of
Nonetheless, the distances to these markets are consider- deliveries scheduled for 2008/09.
able. Qatargas and RasGas plan to offset high shipping
costs partly through economies of scale. If they are built, Investment justified
the trains whose output is aimed at the US and UK with In the past, gas prices in the US have been too low and
capacities of up to 7.8m t/y each will be the largest in the trading patterns too short-term in nature to support multiworld. Significant increases in the size of LNG vessels are billion dollar investments in liquefaction facilities. Without
the luxury of long-term pricing contracts, the US was far too
expected to result in further cost savings.
Set up in 1993 to produce LNG and other hydrocarbons risky a market to serve as the anchor for an LNG plant.
products from the plants first two trains, Ras Laffan However, with domestic US gas production reaching a
Liquefied Natural Gas (RasGas) is owned by Qatar plateau, demand rising and Canadian imports unable to fill
Petroleum (QP) (63%), ExxonMobil (25%), South Koreas the gap, US gas prices have risen and are likely to remain
Kogas (5%), Itochu (4%) and Japan LNG (3%). The two at levels that can justify large-scale LNG investments.
According to Flower, US gas prices averaged $1.80/m
trains have a nameplate production capacity of 6.6m t/y of
LNG, 45,000 b/d of stabilised condensate and 300 t/d of Btu from 1990 to 1994, $2.26/m Btu from 1995 to 1999
solid sulphur. Gas supplies from 15 offshore wells, pro- and $4.31/m Btu from 2000 to 2003. From Qatar to the
US, shipping and regasification costs are probably of the
duced through three platforms, amount to over 1.1bn cf/d.

5.1

Table 2: Qatar LNG export contracts

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58

Purchaser
Chubu Electric Power
Tokyo Gas
Osaka Gas
Tohoku Electric Power
Kansai Electric Power
Tokyo Electric Power
Chugoku Electric Power
Toho Gas
Kogas
Gas Natural
Gas Natural

Destination
Amount
Contract
country
(million t/y) length (years)
Japan
4.00
25
Japan
0.35
24
Japan
0.35
24
Japan
0.52
23
Japan
0.29
23
Japan
0.20
23
Japan
0.12
23
Japan
0.17
22
South Korea
4.92
25
Spain
1.50
8
Spain
0.58
5

Start
1997
1998
1998
1999
1999
1999
1999
2000
1999
2001
2002

Signed
1992
1994
1994
1994
1994
1994
1994
1994
1995/1997
2001
2001

Petronet LNG
Edison Gas
Kogas
Eni
Endesa Generacion
Taipower (CPC)
ExxonMobil
ExxonMobil
ConocoPhillips
ExxonMobil

India
Italy
South Korea
Italy
Spain
Taiwan
UK
UK
US
US

2003
2007
2003
2004
2005
2008
2007
2007
2010
2009

1998
2001
2003
2003
2003
2003
2003
2003
2003
2003

7.50
4.70
2.00
0.90
0.80
1.70
7.80
7.80
7.50
15.60

Fundamentals of the Global LNG Industry, 2004

25
25
1
20
20
20
25

HOME

Remarks
Qatargas, plus option 2m t/y; 2-4m t/y 1997-2000
Qatargas
Qatargas
Qatargas
Qatargas
Qatargas
Qatargas
RasGas, Fob
Qatargas
Qatargas, option to convert to medium-term
contract 3-5 years
RasGas, final agreement 1999; SPA 2003
RasGas, Amended 2003
HOA
RasGas, SPA
RasGas, HOA
Qatargas, HOA
Qatargas, HOA
Qatargas, HOA
RasGas, HOA

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Exporters: Qatar

order of $2/m Btu, he says. If you are selling into a market where prices are averaging $2.26/m Btu, there will not
be much left to pay for liquefaction and production. But the
expectation is that prices will remain relatively strong over
the longer term.
Rising end-user prices accounts for only part of the
improvement in the economics of long-range exports to the
US. Costs have also come down and continue to do so. Rex
Tillerson, senior vice-president of ExxonMobil, says unit
costs for the third LNG train at RasGas were about 33%
lower than for the first trains. Unit costs of the 7.8m t/y
trains will, at $150/t per year, be 16% lower than for the
third train. Additionally, says ExxonMobil, larger LNG ships,
with capacities of 200,000 cubic metres (cm) or 250,000
cm, will cut costs by $0.20-0.40/m Btu for gas delivered to
the US Gulf coast from Qatar.

Cutting supply costs


The result, says Tillerson, is that RasGas can cut supply
costs to the US to below $3/m Btu. This advantage is
one of the reasons we expect our LNG business to grow
faster than the overall industry growth rate, he says.
The overall LNG market is expected to grow four-fold,
between now and 2020. Our LNG volumes are expected
to grow six-fold.
Some analysts suggest costs to the Qatari projects of liquefying and shipping gas to the US could be even lower,
possibly as low as $2.30/m Btu. With some forecasts suggesting US gas prices could be in the order of $7/m Btu
over the long term, the competitiveness of Qatari LNG as a
supply source to gas-hungry US market seems assured.
If its plans proceed, about 40% of RasGas LNG-sales

BACK

Figure 1: Qatar exports history


bn cm
20
15
10
5
0
1997

1998

1999

2000

2001

2002

Source: Cedigaz

revenues will come from the US within a few years time.


But, says Jerry Wolahan, RasGas managing director, additional sales to the US are a possibility. Already the largest
gas market in the world, with consumption of about 65bn
cf/d (roughly a quarter of the world total), US gas demand
is set to grow steadily, reaching an estimated 34 trillion cf/y
by 2025. Initiatives are under way to make it easier to
import LNG to the US. And proposals outlined in a report in
September by the US National Petroleum Council involve
increasing LNGs share of US gas demand from 1% to 1417%, by 2025. As the market grows, it will be feasible to
develop additional trains, says Wolahan. There is certainly
potential to move further into the US market.

5.1

Spot-market activity
Meanwhile, RasGas has also remained active on the spot
market. In September, it signed its sixth spot sales agreement with South Koreas Kogas, for nine LNG cargoes to be
delivered from October through March 2004. Since first
production in 1999, RasGas has delivered over 290 cargoes to Kogas, including base-contract volumes of 4.9m t/y
and spot purchases.
Qatargas, the countrys first LNG company, founded in
1984, is also in expansion mode and obviously benefits
from the same geographical and cost advantages as
RasGas. Qatargas offshore production facilities are
designed to produce 1.45bn cf/d of gas and 55,000 b/d of
condensate. Production capacity is about 8m t/y, but could
quadruple in the next few years.
The LNG plant is owned by QP (65%), Total (10%),
ExxonMobil (10%), Mitsui (7.5%) and Marubeni (7.5%).
Shareholders of the upstream operations (including the offshore production facilities and the onshore receiving facilities) are QP (65%), Total (20%), ExxonMobil (10%), Mitsui
(2.5%) and Marubeni (2.5%).
In July 2003, QP and ConocoPhillips signed an HOA for
the development of Qatargas III, which will involve the
construction of a 7.5m t/y LNG train. ConocoPhillips will
purchase the LNG and be responsible for regasification
and marketing within the US. Average sales volumes are
expected to be about 1bn cf/d, with start-up expected in
2008 or 2009.
In the same month a year earlier, QP and ExxonMobil
announced another HOA for two 7.8m t/y LNG trains at
Qatargas (Qatargas II), with supplies targeted at the UK.
LNG shipments to the UK are scheduled to begin in
2006/07 and extend over 25 years.
Like the US, the UK is facing an imminent gas shortage.
Self-sufficient in gas for well over a decade, the maturity
of the UK sector of the North Sea and declining exploration rates mean the UK will soon have to import gas
possibly as early as next year. Transco, the UK pipelines

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Fundamentals of the Global LNG Industry, 2004

Drilling
at Qatars
North Field
59

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Exporters: Qatar

operator, estimates the UK will be reliant on imports for


The quantity of financing involved for the various projects
about half of its gas by the end of the decade probably on the drawing board including not just LNG expansions,
in the order of 60bn-65bn cm/y, with local production but additions to refining capacity and GTL plants is signifiamounting to a similar total.
cant. But I think QP recognises this and is looking to tap
A large amount of imported gas is likely to come by into alternative forms of financing other than banks
pipeline from Norway, but three separate LNG regasification export-credit agencies and the bond market, for example.
terminals have been proposed. The QP/ExxonMobil plant,
QP also will not allow more than one project to hit the
which would probably be sited at Milford Haven, in Wales, debt market at the same time. This sequential approach to
is easily the largest. Whether or not there will be sufficient financing reflects good discipline. In addition, Qatars cultidemand in the UK for such large volumes of Qatari gas vation of various gas-based industries LNG, GTL and petrowithin the proposed timeframe is uncertain and depends chemicals in addition to its established oil industry (Qatar
largely on how successful rival projects
is a member of Opec, with an oil proare in snapping up UK buyers. But as
duction quota of 0.635m b/d, and the
If both projects expansion
time goes on, the UKs import requireQP refinery has a capacity of 137,000
plans proceed, Qatar will be
ment will rise. The UK has a further
b/d) has resulted in income diversificaadvantage the Interconnector, the exporting about 23m t/y of LNG tion, mitigating risk.
pipeline between the UKs Bacton and
Among recent initiatives was last
to the US in a few years time years
Belgiums Zeebrugge, can transport
move into the lucrative helium
gas in either direction, so short-term
business. A $115m, 0.65bn cf/y helium
oversupplies of gas in the UK can be dealt with by re- plant at Ras Laffan, supplied by Qatargas, RasGas I and
exporting excess gas to continental Europe.
RasGas II, is expected to open for business in July 2005.
The involvement of the worlds largest and richest
Practical hurdles
energy companies and a wide range of services compaHowever, even if the economics of exporting gas to the US nies in LNG and other segments of the energy sector are
and the UK work, there are several practical hurdles that further signs of a maturing market.
must be overcome before Dohas ambitious plans can be
Other problems which analysts say are surmountable
put into effect. Chief among these is securing financing. include successfully marketing very large volumes of gas in
While not underplaying the manoeuvring that Qatargas and the US and UK, sticking to onerous construction schedules
RasGas will need to undertake to fund their expansions, and ensuring sufficient shipping capacity is available to
Barr claims both projects are on a sound footing. They have transport the LNG to market once production begins.
shown themselves to be adept and disciplined at arranging
Marketing skill
financing in the past.
Qatar has experience and a track record. It has had If all expansion plans at the two projects proceed, Qatar will
great success in developing and financing a number of be exporting around 23m t/y of LNG to the US in a few
projects in the past and there is no reason to think this years time. A key skill is going to be marketing that gas,
says Flower. It is a lot of gas to put into the market at one
wont continue.
time. It can have an effect on local prices. The same
applies to the UK, but to a greater degree 15.6m t/y is, at
present, equivalent to around 20% of the entire market.
Transportation is another complicated issue. The projects managers are considering 200,000 cm or even
250,000 cm vessels for long-range sales significantly
larger than the tankers in use at present, which typically
have capacities of up to 145,000 cm. Given the distance
from Qatar to the US about 16,000 km each vessel
would probably be able to manage about seven round-trips
a year, with each journey taking around 50 days, including
loading and unloading. Even if 200,000 cm vessels are
used, almost 40 ships would be required to service the proposed US supply contracts of ExxonMobil and
ConocoPhillips, which amount to 23.1m t/y. ExxonMobils
UK deal would probably take the total number of ships
required to service the two projects proposed expansions
to over 50 ships.

5.1

A question of timing

LNG loading facilities


at Ras Laffan port

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60

Fundamentals of the Global LNG Industry, 2004

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Shipping sources say the total requirement for new vessels


of the two projects for expansions that are under way as
well as planned or proposed could be in the order of 60
(depending on vessel size). The key question is timing,
says one shipping broker. That many ships by 2010 would
not be a big issue, but, by 2007, it would be tough.
Flower says: Technically, there is no problem in building
the larger ships, but it may be difficult to secure all the
ships needed in the projects desired timeframe. Shipyards
have the capacity required, but they have to take into
account the demands for other types of ships, so in practice it could be a different matter.

Exporters: Yemen

Securing a market
Yemen LNG intends to market 6.2m t/y of LNG from its future plant in the country. The
project will be launched as soon as an anchor buyer is secured, hopefully in 2004.
Engineering studies have been completed and the first LNG deliveries may begin in 2008.
By Jean-Francois Daganaud, general manager, Yemen LNG

HE YEMEN LNG project was restructured and granted


an extension of its agreements by the government of
Yemen in 2002. Yemen LNGs shareholders, through
its marketing committee, are actively marketing in South
Korea and India, while remaining open to opportunities
elsewhere.
The shareholders are Frances Total (project leader with
42.9%), state-owned Yemen Gas (23.1%), US independent
Hunt (18.0%), and South Koreas SK (10.0%) and Hyundai
(6.0%). Hunt and SK are also participating in the Marib
fields development, from which the gas will be extracted,
and where Hunt is the operator.
Since reunification, more than 10 years ago, Yemens
population of 18 million has stabilised its democratic institutions and promoted the development of its oil and gas
industry. Between the Strait of Hormuz and the Red Sea,
Yemen is an oil- and gas-rich country. Oil production began
in 1986, reaching more than 450,000 barrels a day by
2003. During these 17 years, production has been reliable
and exports have grown steadily.
Yemen LNG, with an investment, excluding ships, in
excess of $2bn, is the largest projected investment in the
country and will have spillover benefits for the Yemeni community and industry. For Total, Hunt and SK, which already
have long-standing oil production operations in Yemen,
together with Yemen Gas and Hyundai, the project implementation will represent a new and significant step in their
commitment to the countrys development.

Well-defined project
The government has granted Yemen LNG the exclusive use
of the gas reserves of the Marib area fields, which have
been producing oil since 1986. The fields reserves, dedicated to Yemen LNG, include 10.2 trillion cubic feet (cf) of
proved and 1 trillion cf of probable gas reserves, with 1 trillion cf being reserved by Yemen LNG for domestic use.
Therefore, there are sufficient reserves to produce and

Table 1: Yemen LNG facts


Project:
Shareholders:
Operator:
Capacity (million t/y)::
Number of trains:
Process method:
Gasfields:
Storage capacity (000 cm)::
Exports to:
Planned first delivery:

Yemen LNG, Bal-Haf


Total, 42.9%; Yemen Gas, 23.1%; Hunt Oil,
18%; SK, 10%; Hyundai, 5.9%
Yemen LNG
6.2
2
APCI
Marib area fields
250
In negotiation with India and South Korea
2008

Jean-Francois
Daganaud

export 6.2m tonnes a year (t/y) of LNG over more than 25


years. In addition, Yemen LNG has rights to explore for gas
for future project development.
Gas production and processing facilities are already in
place. Gas is produced, along with oil, through 360 active
wells, with a potential production capacity of 2.8bn cf/d.
Produced gas is collected and treated through two main
gas processing centres, of 1.6bn cf/d total capacity.
Liquefied petroleum gas is extracted and the resulting dry
gas is re-injected into the reservoirs. The long production
history of the reservoirs means there is little production
uncertainty.
Upstream operations are performed by a joint venture,
led by Hunt, in which SK is a participant. However, when
the LNG project is developed, the gasfields operator will
submit its work programme and budget, detailing its
upstream operations and exploration activities, for Yemen
LNGs review and approval. Consequently, Yemen LNG will
control the whole LNG production chain.

5.2

Project investment
The extraction of the needed 1bn cf/d of gas requires
mostly tie-ins to the existing facilities. Some additional
wells and compression will be needed later in the life of the
project. Project investment to access the gas is, therefore,
relatively limited. The project plans to build and operate a
25-km line to connect the two gas processing centres. A
175-km, 14-inch spur line will bring gas from the fields to
Sanaa, and a 320-km, 36-inch pipeline will connect the
processing centres to the liquefaction plant, at Bal-Haf,
160-km along the coast, west of Mukalla.
The LNG plant is designed with two trains and a production capacity of 6.2m t/y. The plant could be debottlenecked to produce 6.9m t/y with minor additional investment. A two-tank storage facility and a dedicated terminal
with harbour services will be built near the LNG plant. The
terminal has been planned at a site that does not raise
environmental concerns, with the least possible impact on
the coastline, the lowest geotechnical risks and the least
downtime because of winds. There is a natural protection
against the main eastern waves of the monsoon and a
deep harbour, so the terminal can be developed with one
jetty and without a breakwater. It will allow 24-hours-a-day
operation, weather and visibility permitting.

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Fundamentals of the Global LNG Industry, 2004

Sanaa, the
capital of
Yemen
61

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Exporters: Yemen

With access to existing production facilities and access to


an exceptional port site, Yemen LNG benefits from competitive technical advantages. In addition, the control and
operation of the whole chain by Yemen LNG provides additional support for reliable and safe production and export.

and India. Yemens geographical location, near India, and


half-way between Asia-Pacific and Europe, makes it a
potential competitive producer for any market. Further,
the specifications of its LNG make it acceptable to almost
any market. Yemen LNG remains open to opportunities
elsewhere
First delivery for 2008
Yemen LNG is focused on the core requirements of
The Initial Gas development agreement was signed in todays LNG buyers: price is still important, but reliability
September 1995. In 1997, it was amended and ratified of supply and flexibility/seasonality are becoming equally
by the Yemeni parliament, with a presidential decree important. Additionally, Yemen LNG would welcome buyissued in March of that year. A series of agreements were ers as partners, as such partnerships will increase underentered into at the same time
standing and mutual co-operation,
between the government and the
necessary for successful long-term
The project was careful in
Yemen LNG shareholders to cover all
contracts.
selecting its pipeline routes,
future relationships related to the
Yemen LNG is targeting the South
project. After some changes in the
plant and terminal location, so Korean market, where an opportunity
shareholding structure, and after
materialise in 2004, as:
as not to affect Yemeni treasures may
weathering the Asian economic crisis,
SK and Hyundai are participating in
Yemen LNG reached a major milethe project and an additional share
stone on 17 June 2002, when the government extended, offering could also be made to a potential buyer;
until 16 June 2006, the date before which the project South Korean companies are well placed to benefit from
has to reach the final investment decision.
potential participation in the $3bn of EPC tenders for the
Yemen LNG has fully developed the projects engineering liquefaction plant and shipping facilities; and
design. Bechtel and Technip were selected to carry out Yemen LNG can offer flexibility of supply and competifront-end engineering and design. Tenders for engineering, tive pricing.
procurement and construction (EPC) contracts were
launched, but not awarded, in 2002. Upon the signing of a Indian target
contract with an anchor buyer, the EPC tenders will be re- India is on the verge of rapid development of an LNG marlaunched and awarded, and financing will be arranged. ket. Two receiving terminals, in the state of Gujarat, in the
Construction to first commercial delivery is anticipated to north of the country, are due to be operational before the
take 43 months and Yemen LNG is scheduled to start LNG end of 2004. This growing market provides attractive
opportunities to Yemen LNG because of its proximity.
production in 2008.
Additionally, industrial consumers are in the process of tenSustainable development
dering their gas demand. Yemen LNG has been pre-qualiYemen has an historic civilization and a landscape unique fied for the tender launched by National Thermal Power
in its richness. The project was careful in selecting its (NTPC) to supply its combined-cycle power stations at
pipeline routes, plant and terminal location, so as not to Kawas and Gandhar on a Cif basis. NTPC plans to expand
affect the countrys treasures. Yemen LNG has already each Gujarat-based plant by 1.3 gigawatts (GW) and
completed its Impact On Public and Environmental Impact demand will be for 3m t/y.
Assessment studies.
Yemen LNG has also filed a pre-qualification dossier
When fully operational, the project will provide jobs for for another tender launched by NTPC to supply, on a Cif
some 500 employees. Specific training programmes will be basis, NTPCs combined-cycle power station and the
set up to ensure the transfer of the necessary skills to planned 1.95 GW expansion at Kayamkulam, in the
Yemenis so that their participation in the project is max- south of India. Demand is for 2m t/y, with first delivery in
imised without compromising quality and standards, provid- 2008-2010.
ing long-term development for the
population. The Yemenization programme will have specified objectives and its progress will be
reviewed annually.
Living facilities will be constructed at the plant site, with
communication links to main city
centres in Yemen. The plant will
require many technical and support services where domestic
companies will have to play their
role, contributing to the development of local industry.

5.2

Marketing in the spotlight


With markets returning to the
growth path after the Asian economic crisis, marketing activities
are entering a new era and are
focused on two core markets,
where Yemen LNG believes it has
specific advantages: South Korea

Artists
impression of
the Yemen
LNG plant and
terminal

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62

Fundamentals of the Global LNG Industry, 2004

HOME

Exporters: Iran

Realising the potential


Around 65% of Irans gas reserves the worlds second-largest are in non-associated
gasfields. And there is the potential to discover even more reserves for export by pipeline
and as LNG. By R Javadi, managing director, National Iranian Gas Export Company (NIGEC)

RAN HOLDS 26.6 trillion cubic metres (cm) of proven


gas reserves, which is sufficient to meet growing domestic gas demand, injection needs for producing oilfields
and exports, either by pipeline or as LNG. With this high
potential for gas production and growing world demand for
natural gas, National Iranian Gas Export Company (NIGEC)
was formed in 2002 to manage marketing and investment
in, and the export of, Iranian gas.
Iran became a gas exporter in 1970, when Iranian Gas
Trunkline 1 (IGAT 1) was built to export gas to the Soviet
Union and to supply Shiraz, Esfahan, Tehran, Qazvin and
other cities along its route. Exports peaked at 9.6bn cubic
metres a year (cm/y) in 1975-76 and increased deliveries
of 27bn cm/y were agreed. However, in 1980 exports
halted because of problems between the countries.
Domestic gas consumption is forecast to rise from 70bn
cm in 2002, to near 155bn cm in 2009. Production comes
in the form of associated gas from oilfields, such as Ahwaz,
Marun and Aghajari, and gasfields such as Kangan, Aghar,
Dalan, Khangiran, Gonbadli, Sarkhun, Qeshm and Gavarzin.
There are extensive plans to expand production capacity
from non-associated gasfields, which will be dominated by
the South Pars development (see Table 1).

Field development
The offshore South Pars gasfield, the largest non-associated gasfield in the world, is being developed in phases.
Each phase will provide nearly 10bn cm/y. Phases 1-3 are
on stream, Phases 4-10 are under development and negotiations are under way for Phases 11-14. Meanwhile, tender procedure for Phases 15-16 has begun and Phases
17-20 should be developed during the countrys fourth fiveyear plan, which runs from 2005. The winner of the Phases
15 and 16 tender will be announced in 2004.
The development of the onshore, 20bn cm/y Tabnak gasfield has been completed and the development of other
onshore fields in the same region (Assaluyeh, Zireh, Varavi,
Shanul, Homa, Gardan and Day) are under consideration.
The Khuff reservoir of the Salman oilfield, at which National
Iranian Oil Company (NIOC) plans to produce 4.5bn cm/y of
gas, is under development. The North Pars gasfield has a
potential production capability of about 40bn cm/y.
Considering this huge potential and its geographical location, Iran could play an important role in supplying Western,
as well as Eastern markets, through gas export projects.

Table 1: Irans largest non-associated gasfields


Field
South Pars
North Pars
G Structure
Kangan
Tabnak
Khangiran
Nar
Aghar
B Structure
Shanul
Sarkhun
F Structure
Dalan
Assaluyeh

Location
Persian Gulf
Persian Gulf
Persian Gulf
Bushehr Province
Fars Province
Khurasan Province
Bushehr Province
Fars Province
Persian Gulf
Fars Province
Hormouzgan Province
Persian Gulf
Fars Province
Bushehr province

Gas in place
Situation
(trillion cm)
Under development
14.000
Undeveloped
1.671
Undeveloped
0.954
Developed
0.945
Developed
0.857
Developed
0.697
Developed
0.505
Developed
0.412
Undeveloped
0.354
Undeveloped
0.328
Developed
0.317
Undeveloped
0.294
Developed
0.293
Undeveloped
0.265

R Javadi

5.3

There are extensive plans to export natural gas both by


pipeline and as LNG. In December 2001, Iran began
exports to Turkey and negotiations are under way to supply
piped gas to Europe, Armenia, Azerbaijan, Kuwait, the UAE,
Oman, Pakistan and India.
Irans first LNG plan was the Kalingas (Kangan Liquefied
Natural Gas Company) project. Based on a 1972 agreement between NIGC and a group of US, Japanese and
European companies, the project aimed to produce and
export 2m-3m t/y of LNG to Japan and the US west coast
from reserves at Kangan. Kalingas was expected to start up
in the early 1980s, but technical problems caused the project to be abandoned.
However, following ratification of implementation of four
LNG schemes by Parliament and the High Economic Council,
South Pars Phases 11, 12 and 13 have been allocated to
LNG projects. The master plan for each LNG plant, including
debottlenecking and expansion phases, is for the installation
of enough capacity to produce 12m-15m t/y (see Table 2).
Agreements over upstream and downstream interdependency is the most challenging issue in Iranian LNG deals.
On the basis of buy-back contracts, the operator must
transfer the operation of the field to NIOC after the period
of cost recovery and remuneration. However, an LNG project needs interdependency during its lifetime to secure gas
flow to the plant vital for both financing and marketing. To
counter this, an Operating Advisory service agreement is
under consideration to align the upstream and downstream
sections of projects.

Table 2: Planned LNG projects


Project
Start-Up
Shareholders
Operator
Capacity (million t/y)
Number of trains
Process method
Gasfields
Exports to

NIOC LNG
Iran LNG
Persian LNG
Pars LNG*
2008
2009
TBD
TBD
NIOC 100%
NIOC 40%; BP 36%; Reliance 24% NIOC 50%; Repsol YPF 25%; Shell 25% NIOC 50%; Total 30%; Petronas 20%
TBD
TBD
TBD
TBD
10.0
8.8
10.6
8.0
2
2
2
2
Linde or Axens Axens
Shell DMR
Axens
South Pars 12 South Pars
South Pars 13
South Pars 11
Asia, Europe,
Europe; India
Europe; India
Asia; Europe
India
* Feasibility study completed. Consortium partners have reportedly agreed the principal terms of the joint-venture agreement and hope to finalise the terms
of the deal by early 2004. Socit Gnrale has won the financial advisory mandate; the deal is at its final stages. Comprises two 5m t/y trains.
Feasibility and Feed study have been completed, pre-qualification for EPC contractors has been finalised and tender documents have been issued.

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Fundamentals of the Global LNG Industry, 2004

63

Exporters: Oman

Sustainable provision of a
new resource
Three years on from making its first delivery, Oman LNG has established itself as a reliable
gas supplier to world markets. Now it is looking to the future. By Haitham A Al-Kharusi and
Nasser Al Kindi, communications department, Oman LNG

MAN LNG (OLNG) brings together the expertise of


the government of Oman and a number of worldclass private-sector companies, working in partnership to utilise the Sultanates valuable natural gas reserves
to help meet the world demand for energy.
It undertakes, directly or indirectly, projects, operations
and activities necessary to liquefy, store, transport and
market Omani natural gas and to deliver LNG to customers
notably in South Korea, Japan, Europe and the US. The
two-train liquefaction plant, with a nameplate capacity of
6.6m tonnes a year (t/y), is on the coast at Qalhat, near
Sur, in the Sharqiah region, an area targeted by the government for economic development.

5.4

Last year, was very successful for OLNG. The company delivered over 100 cargoes, reaffirming its pledge to customer
service and further enhancing its status as a reliable LNG
producer. An unwavering focus on cost-effectiveness and
budget control, coupled with increased sales and underpinned by high market prices made 2003 the best financial
year for OLNG so far. The companys significant progress in
ensuring sustainable debottlenecking has resulted in a
noticeably smoother operation of the two trains.
In 2003, the Sultanate signed an engineering and procurement contract with Chiyoda Foster-Wheeler to build a
third liquefaction train (Qalhat LNG). This move will consolidate Omans production of LNG, which is set to exceed 10m
t/y the train should produce its first shipment in 2006.
The companys Omanisation drive is in full swing and
Omanis now make up over 68% of its workforce. To consolidate this drive, a Leadership Competency Programme has
been launched, which will give every member of staff the
chance to have a structured development plan.
In 2003, OLNG completed 10m man-hours (4 years of

Social contributions
Omanisation plan and training scheme to ensure the
company is run mainly by Omanis by 2008.
Training and educational assistance.
External trainees put through a technical trade training
programme.
120 trainees sponsored for a contractors training
scheme.
Sponsorship for small-business training scheme, which
has trained 230 students.
Community aid.
Funded the construction of a general hospital.
Funded local infrastructure projects.
Established a Community Fund for the development of
local communities.
Grants and donations programme.

Fundamentals of the Global LNG Industry, 2004

2000
State of Oman, 51%; Shell, 30%; Total, 5.54%;
Korea LNG, 5%; Partex, 2%; Mitsubishi,
2.77%; Mitsui, 2.77%, Itochu, 0.92%
Operator:
Oman LNG
Capacity (million t/y)::
6.60
Number of trains
2
Process method
APCI
Gasfields
Barik; Saih Nihayda; Saih Rawl; Central
Oman gasfields
Storage capacity (000 cm):: 240
Exports to:
Kogas, Osaka Gas, BP, Shell Western, Unin
Fenosa, Total, GdF, Tractebel and others

Table 2: Oman LNG sales contracts

A very successful year

64

Table 1: Oman LNG project


Start-up:
Shareholders:

HOME

Amount
Purchaser
(million t/y)
Kogas
4.10
Osaka Gas
0.70
Shell Western LNG
0.88
Unin Fenosa
0.75 & 0.60
BP
0.70*

Contract
length
25
25
5
2
6

Start
2000
2000
2002
2004
2004

Signed
1996
1998
2001
2002
2003

*At plateau

operation) without a lost-time injury incident. This is a


world-class record, demonstrating the companys track
record of safety, and further consolidating its reputation as
a reliable producer.
Partnership between the government and the companies
that own OLNG extends beyond the considerable task of
building and operating the plant. It also brings together
people from many nations to work alongside Omanis to
ensure a sustainable future. OLNGs business is part of the
sustainable development of the Sultanate.
The company has made great strides in fulfilling its
commitment to the sustainable development drive in the
Sultanate. Significant changes have been made to
enhance the effectiveness of the companys Social
Investment Programme. The move comes in line with the
companys continuous efforts to accelerate the sustainable development endeavour.

Protecting the environment


Full Environment Impact Assessment conducted as part
of overall project plan with environmental baseline report
and environmental statement.
Environmental controls built into plant design.
ISO 14001 certification.
Actions taken to minimise adverse effects.
Commitment by the company to report on environmental
performance.
Support given to local environmental projects, including a
comprehensive waste plan.

NEXT

Exporters: Oman

Some, of course, argue that a fossil-fuel energy business


is inherently unsustainable and, therefore, cannot be part
of the sustainable-development equation. In one sense,
they are right gas resources are finite. At OLNG, however,
sustainable development is more about balance and integration integrating the economic, social and environmental aspects of what the company does to ensure development takes place in a way that will not compromise future
generations in a rapidly changing world.
The increasing supply of gas to world markets is part of
the many progressive shifts that have occurred over time in
fulfilling energy requirements. These changes have been
associated with reducing environmental impact. The
resources used for energy production technical, financial
and material are, therefore, continuously being redefined
by the development of new technologies. That process of
redefinition, of progress, must be the most important element in the strategy of developing dependable, safe and
environmentally sound energy of the future. Indeed a transition to renewables solar, wind, and biomass is already
happening through the normal process of commercial development. The challenge is to contribute to the long-term and
stable transition to new energy sources, by operating the
business of supplying LNG in a responsible and efficient way.

Sustainable development
OLNG considers its commitment to contribute to sustainable development as a key to its overall success as a
business. It conducts its business responsibly, being sensitive to the needs of all involved and meeting the triple

OLNGs competitive advantages


Strong global shareholding formation with the support
of its shareholders, OLNG has access to resources and
advisory services, and is financially secure.
Geographical advantage OLNGs unique position outside
the Strait of Hormuz provides it with a strategic advantage,
whereby it can successfully access both Asia-Pacific and
European markets, as well as being unaffected by political
unrest in the Middle East.
Political, economic and financial stability the stability of
Oman means buyers can be assured of contract continuance and delivery.
Safe harbour Qalhat port is well protected, with weather
conditions allowing loading of vessels to occur every day
throughout the year.
Reliable technology technology is state-of-the-art and
buyers can be comfortable knowing that production and
delivery is reliable.
Track record since commencing operations, over 350
cargoes have been delivered on time without any problems.
Increase shareholder and buyer value OLNG optimises opportunities to increase the value of trade for all
stakeholders.
ISO certified the following departments at OLNG are ISO
certified: manufacturing and supply of LNG and condensate;
engineering services support; human resources; marketing
and shipping; manufacturing complex; administration;
finance; and the laboratory.
Unprecedented credit ratings a rating of A3/A- has been
obtained and reconfirmed by the two leading ratings agencies, Moodys Investors Service and Standard & Poors.
Assisted buyers during emergency situations OLNG
believes in developing strong and mutually beneficial relationships with buyers and has provided support to those
requiring assistance.

BACK

demands of economic and social development, and of


protecting the environment. The companys responsible
conduct finds its roots in its belief that to neglect one is
to jeopardise the whole.
These concepts are embodied in the companys
Statement of General Business Principles and Health,
Safety and Environment Commitment and Policy that form
the foundation for everything it is and everything it does.
Its first contribution extends to the economic development
of the Sultanate. The companys activities contribute to the
governments objective of diversifying the economy away
from dependency on oil and will continue to provide Oman
with a major source of new income for more than a quarter
of a century. As one of the cornerstones of Omans Vision
2020 for the economy, the governments total revenue from
oil and gas operations is projected to increase, and OLNG
makes a significant contribution to GNP. This contribution to
the economy can be used by the Sultanate to develop the
nation and its people towards a sustainable future.

Benefits to the country


The benefits to the wider industrial development of the
country are significant, thanks to the large technology
transfer to Oman, the employment of new management
and work skills and the introduction of new training opportunities for the young. Complementing this is the companys commitment to contributing to the social development of the country and to the local communities.
Furthermore, the company strives to ensure that any
adverse environmental impacts of its operations are limited
and to strive for continuous improvement in its environmental performance.
OLNG has been able to achieve its goals through its strategic partnership with its suppliers and contractors. The
achievements of 2003 were the result of all of members of
staff working collectively as a team. They were also the result
of the enterprise of each member of staff and the companys
suppliers and contractors working diligently with care, loyalty,
fairness and respect in a work environment that enjoys transparency. These are OLNGs core values and its driving force.
They are the premises on which the company stands.

5.4

Tanker sailing
from OLNG
Photo: Foster
Wheeler

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Fundamentals of the Global LNG Industry, 2004

65

Exporters: Abu Dhabi

A pioneer producer
Adgas has built a reputation as one of the safest, most reliable and experienced
suppliers of LNG and LPG world markets. To maintain its reputation and commitment to
its customers, Adgas has embarked on a number of major initiatives to enhance the
longevity and reliability of its plant.

BU DHABI Gas Liquefaction Company (Adgas), a member of the Adnoc group of companies, has been producing and exporting LNG and liquefied petroleum gas
(LPG) since 1977, mainly to Asia-Pacific markets. Adgas,
the first LNG facility in the Middle East, was envisaged and
established thanks to the foresightedness of the president of
the United Arab Emirates (UAE), His Highness Sheikh Zayed
Bin Sultan Al-Nahyan.
Adgas has been a pioneer in the production of clean
energy and protection of the environment through processing the gas separated during the process of oil production,
which would otherwise be flared.
The Adgas facility consists of three processing trains.
Each of trains 1 and 2, which were commissioned in April
1977, has a production capacity of 170 tonnes an hour.
Train 3, the largest LNG train in the world when constructed, was commissioned in July 1994 and has a production capacity of 320 tonnes an hour.
Feed gas for the LNG facility is made up of both associated and non-associated gas. The associated gas is separated at Abu Dhabis offshore oilfields under various pressures. The non-associated gasfields include Abu Al Bukoosh
Khuff, Uweinat, Areaj, and Umm Shaif Khuff.

5.5

Markets and customers


Adgas produces and exports around 8m tonnes a year
(t/y) of LNG, as well as LPG, pentanes and sulphur. LNG
represents around 65% of total sales revenues. In 1972,
an agreement was signed with Tokyo Electric Power
(Tepco), as sole buyer of around 2m t/y of LNG over a
20-year contract period. The first LNG shipment left
Adgas for Tepco in April 1977. The relationship between
the two companies was further expanded and consolidated, resulting in the signing of an agreement, in
October 1990, under which Adgas doubled its production
as from 1994, and Tepco agreed to purchase the additional volumes for a 25-year period.
Since 1995, surplus production has been successfully
sold to LNG buyers in Europe, Asia and the US.
Adgas has always had a strong commitment to health,
safety and environmental (HSE) issues, together with the
Figure 1: Abu Dhabi LNG export history
million tonnes
8
7

LNG
C3, C4 and C5+

Train 3
start-up
(1994)

6
5

De-bottlenecking of
Trains 1 and 2 (1984-85)

4
2
1
1978

1982

1986

1990

1994

1998

2002

Source: Adgas

66

Adgas (Das Island I & II)


1977/1994
Adnoc, 70%; Mitsui, 15%; BP, 10%; Total, 5%
Adgas
8.0
3
APCI
El Bunduq; Umm Shaif; Zakum
240
Europe, Asia, US

Table 2: Abu Dhabi sales contracts


Purchaser:
Amount (million t/y)::
Contract length:
Start:
Signed:
Remarks:

Tepco
BP Gas Marketing
4.70
0.75
To 2019
4 years
1977
2002
1972
2001
Renewed 1994 +2m t/y; 25-years

satisfaction of its employees and contractors. Procedures


and systems have always been seen as the key to providing
assurance and consistency in all aspects of the business.
Adgas treats HSE issues on a par with other key business
objectives and has developed key performance measures
for year-on-year HSE improvements.
The companys safety performance record speaks for
itself. Its first major milestone, in safety terms, was
achieved in July 1993, when it was accredited with the
three-star level of the International Safety Rating System
evaluated by external auditors of the International Loss
Control Institute. The award moved Adgas to an independently verified level comparable with many of the best performing multinational companies in the industry. A landmark achievement of 8m man-hours worked without a lost
time injury was reached in January 2004.

Environmental initiatives
Since Adgas early days, numerous initiatives have been
undertaken to improve the environment, including the commissioning of sulphur-recovery plants and reducing sulphur
dioxide emissions. All have resulted in significant environmental improvement and new projects are planned, including the installation of a third boil-off gas compressor, to
reduce flaring further, and the upgrading of the sulphurrecovery unit, to reduce emissions. Adgas is moving
towards ISO14001 certification during 2004 to register its
success in the area of environmental management.

Human resources

Table 1: Abu Dhabi LNG project


Project:
Start-up:
Shareholders:
Operator:
Capacity (million t/y)::
Number of trains:
Process method:
Gasfields:
Storage capacity (000 cm)::
Exports to:

Fundamentals of the Global LNG Industry, 2004

HOME

The workforce the companys most precious asset has


also developed over the years. Employing some 1,000 highly
trained professionals, Adgas is proud that the number of UAE
nationals has steadily increased, from 16 in 1977, or 3% of
the workforce, to 483 by 2003, nearly 46% of the workforce.
In recent years, a comprehensive programme of continuous
development of the workforce has begun to ensure business
continuity and future success.

Exporters: Indonesia

Leading the field


After nearly 30 years of supplying LNG, Indonesia is the largest exporter in the world,
holding the lions share of the lucrative Asian market. Over the next few years, the country
aims to re-assert itself in its traditional markets, as well as entering new ones. By Fathor
Rahman, general manager, gas and oil marketing development, BPMIGAS

NDONESIA HAS undergone oil-and-gas sector restructuring with the establishment of the new Oil and Gas
Law. The main intent of the Law is to streamline government supervision, and ensure internationally competitive terms and conditions.
The Law also establishes BPMIGAS prominent role in
LNG marketing. Future marketing will be structured on the
basis that the appointment of a Seller of Record is done by
BPMIGAS concurrently with the operator of the source of
supply, allowing BPMIGAS oversight responsibility for marketing while having direct access to the source of supply.
When BPMIGAS or the Seller of Record markets the LNG to
potential customers it has the authority of the state, which
has title to the resources.

Figure 1: Indonesia LNG exports


million t/y
30
Taiwan

25

South Korea

20

Japan

Fathor Rahman

15
10
5
0
1980

1985

1990

1995

2000

Source: BPMIGAS

5.6

LNG business
Indonesias LNG sector began with the discovery of two
large fields in the early 1970s Arun, in Nanggroe Aceh
Darusalam province (in north Sumatra), and Badak, in East
Kalimantan province. Arun operates only four of its six
trains because of declining gas reserves, but has installed
capacity of 12.3m tonnes a year (t/y). Arun still has a dual
supply contract with Bontang - the LNG project based on
the Badak gasfield to South Korea and single-source contracts to Japan and South Korea.
The development of the industry was unique, as both the
Arun project and the Badak project started up simultaneously, promoting synergies between them. The early LNG
development was a dual system, featuring two widely dispersed gas sources, two LNG plants, two loading harbours
and two separate shipping routes. Only five and a half years
after the gas was discovered, the countrys first LNG shipment was delivered from Bontang to Japan in August 1977,
followed by the first supply from Arun three months later.

Launch success
The success in launching both projects was followed by the
successful completion of several additional sales contracts
in Japan and by the pioneering of LNG sales to both South
Korea and Taiwan, after concluding long-term sales contracts with Kogas and Chinese Petroleum, respectively. This
substantial expansion of Indonesian LNG exports was supported by large gas discoveries made by Total, in East
Kalimantan, and by associated gas from neighbouring
Unocal fields. In the 1990s, when Indonesias original,
large sales contracts with Japanese customers were
approaching expiry, the country was able to extend those
contracts for 10 years.
More than three decades after the first gas discoveries,
Indonesia is the largest LNG producer in the world, with a
total commitment of 27m t/y produced from 12 LNG
trains in the original two LNG projects, Arun and Bontang
(see Figure 1). And the country is well placed to maintain
this position. Although gas reserves supplying Arun LNG
are in decline, there have been several new discoveries: in
deep water off East Kalimantan; in Central Sulawesi by
Pertamina and Exspan; at the offshore Massela fields by

Inpex; large undeveloped resources operated by


ExxonMobil in the Natuna Sea; and the large untapped
gas reserves in Papua province, discovered by BP, which
will supply the new Tangguh LNG Project. Indonesia is also
aggressively pursuing new markets, such as the North
American west coast, and is in serious discussions with
two potential projects.

Competitive terms
Bontang has expanded to be the worlds largest producing LNG facility at a single location, with capacity of
22.3m t/y. With commitments to all existing north Asian
markets (Japan, South Korea and Taiwan), Bontang has
proved its capability to create and capture market share
and intends to maintain this hard-earned supply position
by meeting buyers requirements. Like some other LNG
suppliers, Bontang is beginning to approach the end of a
number of existing contracts and will aggressively offer
competitive terms.
The large gas discoveries in Papua province will supply
the Tangguh project, which has been promoted as a
national priority project. Tangguh has successfully signed a
sales-and-purchase agreement with CNOOCs Fujian LNG
import project, in China, and a heads-of-agreement with
SK/Posco in South Korea. Indonesias third LNG project,
Tangguh LNG is on schedule to start up in 2007 with two
trains producing 7m t/y. Tangguh is now working for a sales
purchase agreement to the US West Coast.
Despite tight competition in international LNG markets,
Table 1: Indonesias LNG plants
Project
Start-up
Shareholders
Operator
Capacity (million t/y)
Number of trains
Process method
Gasfields
Storage capacity (000 cm)
Exports to

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Arun Phase I-VI


1978/1983/1986
Pertamina
PT Arun NGL (Exxonmobil)
6.80
6 (4 in operation)
APCI
Arun
636
Japan; South Korea

Bontang A-H
1977/1983/1989/1993/1997/1999
Pertamina
PT Badak NGL
22.10
8
APCI
East Kalimantan Basin
634
Japan; South Korea; Taiwan

Fundamentals of the Global LNG Industry, 2004

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Exporters: Indonesia

efforts to strengthen Indonesias position in traditional markets (Japan, South Korea and Taiwan) and reach new markets in China, on the US west coast and the Philippines are
continuous. LNG production capacity will continue to rise
through the expansion of the Bontang plant and the development of new sites at Tangguh and Donggi. This will
strengthen Indonesias position as a reliable supplier under
the strategy of one contract, multiple sources.

Arun LNG
With the continuing decline of gas reserves, supplies have
been prioritised for domestic use, particularly in the fertiliser industry. Some LNG export volumes will be transferred to Bontang to avoid shortages of supply for committed customers. The plant has a capacity of 6.6m t/y
from four trains.
The plant has one sales contract with Japan, for 3.51m
t/y, one with South Korea, for 2.28m t/y, and a joint-supply
contract with Bontang to South Korea for 1.02m t/y.

Bontang
Certified gas reserves in East Kalimantan are up to 51.8
trillion cubic feet (cf). Adding new, not yet certified,
reserves of 6-12 trillion cf from recent discoveries in the
Makassar Straits deep waters raises total reserves to
around 60 trillion cf. Sales commitments amount to 33.3
trillion cf, leaving uncommitted reserves of 18.5 trillion cf,
or around 27 trillion cf if the new discoveries are included.

5.6

Table 3: Bontang LNG plant capacity, 2002


million t/y
Trains A/B
Trains C/D
Train E
Train F
Train G
Train H
Total capacity

On-line
1977
1983
1989
1993
1997
1999

Capacity
5.377
5.377
2.875
2.912
2.912
3.136
22.589

Debottlenecking of trains A-D in 1993/94 and Trains E-F in 1998/99

Taking the areas domestic projects and extensions into


account, substantial reserves still remain to be marketed
(over 15 trillion cf). These reserves can be developed
quickly and at minimum cost by expanding the Bontang
plant capacity. A new train requires only minimum addi-

tional plant investment (very few utilities, no additional


loading jetty or storage).
Bontang has four sales contracts to Japan, totalling
14.75m t/y; two to South Korea (including a joint supply contract with Arun), for 2.05m t/y; and two to Taiwan, 3.41m t/y.

Tangguh LNG project


The development, at Tangguh, of Indonesias third LNG
plant is necessary to ensure uninterrupted deliveries in the
future. The plant is expected to be operational in 2007,
with two trains producing 7m t/y. An additional 7m t/y of
capacity could be added around 2015.
Table 4: Tangguh LNG distance to markets
Market
Japan
Taiwan
Korea
China
Java
US West Coast

Nautical miles
2,200
1,600
2,250
1,900
1,600
7,100

The position of Indonesia as the biggest LNG producer


could be continued following the start-up of Tangguh.
Papua provinces 14.4 trillion cf of proved gas reserves in
the Berau, Wiriagar and Muturi production-sharing contracts are more than sufficient to supply a three-train,
10m t/y LNG plant for 20 years. The Tangguh gas wells are
prolific and the production conditions favourable. Moreover,
the Tangguh gas province remains relatively unexplored.
Once LNG exports are established, it is confidently expected
that large additional gas reserves will be discovered.

Donggi
Indonesia is proposing a fourth LNG project, Donggi, in
Central Sulawesi province. Large gas discoveries the
Matindok and Senoro gasfields that would supply the project are undergoing further appraisals, but potential
reserves have been estimated about 9.2 trillion cf. Donggi,
which would be the first LNG venture led by the national
companies, Pertamina and Exspan, would have an initial
capacity of between 3.5m and 7m t/y with two trains. The
first shipment is expected in 2010 targeting the US west
coast and Asia.
There is also an option to send LNG from Donggi to Java.
For now, gas supplies to the island are limited to those
from nearby gasfields, but Javas gas market, which consumes close to 1bn cf/d of pipeline gas, is expected to
grow significantly.

Advantages and opportunities


With nearly three decades of LNG sales experience,
Indonesia is recognised as a large, reliable and credible
supplier. The countrys long-term relationships with buyers
in northern Asia will be fundamental to continuing and
improving established customer relationships, and to establishing new ones. Although the emerging Mexican and US
west coast markets are further away, Indonesia is closer
than most competitors.
As the worlds largest LNG exporter, Indonesia maintains
a leading market share in the existing north Asian markets
(Japan, 34 %; South Korea, 31 %; and Taiwan, 60 %).
With the start-up of Tangguh LNG, the extension of Bontang
LNG and the potential of the Donggi and Massela projects,
and Indonesias entry into new LNG markets, such as
China, Mexico and the US west coast, the country will
extend its leading position.

Arun LNG,
north Sumatra

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68

Fundamentals of the Global LNG Industry, 2004

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Exporters: Australia

The development of Gorgon gas


Australias Gorgon LNG development has access to certified hydrocarbons reserves of 12.9
trillion cubic feet. A unique concept is being considered for development of the reserves.
By Peter Glass, vice-president, marketing, Gorgon Australian LNG

HE DEVELOPMENT of the Gorgon offshore gasfields is


poised to become one of Australias most significant
resource projects. The Gorgon development is based
on one of the largest gasfields discovered in Australia and
one of the worlds premier hydrocarbons resources.
In 1998, development plans were based on a two-train
development onshore on the Burrup Peninsula, fed with gas
from offshore facilities, comprising subsea wells tied back
through a remote hub platform with a concrete gravity
base. However, the LNG market contracted with the Asian
economic crisis and work was suspended pending a market
revival, which is now occurring.
During the intervening period, studies continued on how
to develop the Gorgon field economically, in quantities tailored to potential market opportunities. As a result, the
Gorgon development is able to meet the increasing
demand of industrial gas users in Australia and, more significantly, the larger requirements of an LNG export development. The project will supply gas to power Western
Australias next wave of industrial growth while delivering
economic returns to the Australian economy.
The Gorgon development has the capacity to ensure
Australias position as a regional leader in clean energy,
both as an LNG exporter and a gas producer, for the next
generation of gas-based fuels. The ingredients are already
there: vast and growing reserves of natural gas; access to
expanding energy-hungry markets in the Asia-Pacific region;
a stable political environment; a world demanding cleaner
energy; and experience and skill in the development and
execution of large resource projects.
The Gorgon development is owned by an unincorporated
joint venture (the Gorgon Venture) made up of three large
international energy companies (ChevronTexaco, 4/7; Shell
2/7; and ExxonMobil 1/7). ChevronTexaco is the operator
and is leading the marketing and development activities.

Table 1: Gorgon LNG project


Start-up:
Shareholders:

2008
ChevronTexaco, 57.14%; Shell, 28.57%;
ExxonMobil, 14.29%
Operator:
ChevronTexaco
Capacity (million t/y)::
10.00
Number of trains:
2
Process method:
TBD
Gasfields:
Gorgon; Chrysaor; Dionysus; W Tryal Rocks;
Spar
Storage capacity (000 cm):: Exports to:
China; Mexico; US

Peter Glass

Table 2: Gorgon LNG export contracts


Purchaser:
Amount (million t/y)::
Contract length:
Start:
Signed:
Remarks:

Shell Gas
and Power
2
20
2008
2003
Gorgon LNG,
MOU

ChevronTexaco
2
20
2008
2003
Gorgon LNG,
MOU

China
4
25
2008
2003
CNOOC-Gorgon
Australian LNG
Agreement

5.7

The major bounding faults, which have throws of several


kilometres, provide closure to the gas-charged Mungaroo
sand, which are juxtaposed across the faults with Barrow
Group shales, above the IJU, and the Early Jurassic Murat
and Athol Siltstone, below the IJU. The northern end of the
closure is defined by the north plunge of the Triassic and
the sealing Jurassic claystone and Brigadier Formation,
which are preserved below the IJU at the northern end of
the structure. Floodplain shales of the fluvial Mungaroo
Formation also act as inter-formational seals, resulting in

Reserves
The Greater Gorgon Area has estimated gas reserves,
including the deep-water exploration drilling successes over
the last three years, in excess of 40 trillion cubic feet (cf).
The development is based on proved gas reserves of 12.9
trillion cf in the Gorgon fields, about 130 km offshore
Western Australia, in water depths of slightly over 200
metres. The 10 wells drilled in the Gorgon field, and full 3D seismic coverage, have enabled completion of a full-field
3-D-simulation model. This high-quality data has delivered
a very detailed understanding of the geology and characteristics of the Gorgon reservoir.
The Gorgon structure is a fault-bounded Triassic horst
block, some 45 km long and ranging in width from 5 km in
the south to 10 km in the north, where subsidiary shoulder
blocks form the bounding structural elements. The top is
defined by the Intra Jurassic Unconformity (IJU), a relatively
flat surface over the horst, which has steep fault escarpments to the east and smaller fault escarpments to the
west. The Triassic beds within the horst dip to the northwest, along the southern and central areas, and plunge to
the north, in the northern areas.

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Fundamentals of the Global LNG Industry, 2004

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Exporters: Australia

vertical compartmentalisation of the reservoirs and multiple


gas-water contacts.
The Triassic Mungaroo Formation contains good-toexcellent quality gas reservoirs, whose grain size ranges
from fine to coarse-grained quartz sandstones, with varying amounts of kaolinite. Average porosity is about 16%
and associated average permeability is 700 millidarcy
(md) (range 1,000-2,000 md). Water saturation is generally low, averaging 24%.

5.7

20
15
10
5

Independent reserves certification traditionally a


requirement of LNG sales and purchase agreements
was completed for the Gorgon development in 1998 as
part of the initial Gorgon development plan. Netherland,
Sewell & Associates, a firm of international petroleum
consultants, based in Dallas, Texas, carried out the certification. Total certified proved hydrocarbons reserves for
the Gorgon area fields stand at 12.9 trillion cf, with certified proved plus probable reserves at 17.5 trillion cf and
certified proved plus probable plus possible reserves at
22.3 trillion cf.
The Gorgon development plan is based on the concept
of utilising Barrow Island, the nearest landfall. Barrow
Island is a strategic location not only for the Gorgon field,
but also for the Greater Gorgon Area assets in the deep
water to the northwest. The existing oilfield operations on
Barrow Island will be expanded to include the Gorgon gasprocessing facilities.
The island will serve as the initial gas landing point and
location for the processing facilities. An all-subsea production concept will be used to deliver gas to the island. The
concept is simple and is based on subsea wells arranged in
several production centres at the Gorgon field, in 220
metres of water, directly tied back to the gas-processing
facilities on Barrow Island through a 70-km pipeline.

The field will be developed sequentially, with initial production from a single production centre (fed by up to five wells)
in the northern part of the field. A further three production
centres and associated wells will be added as customer
demand increases and reservoir depletion requires. This
enables a fit-for-purpose approach with minimum preinvestment needed for later growth. Eventually, four production centres and up to 18 wells will be constructed to
access the Gorgon reservoir completely.
Once gas lands on Barrow Island, it will be treated and
processed by the facilities on the island, which will most
likely comprise an LNG plant. LNG is the most mature market opportunity and LNG facilities are being progressed as
the initial foundation project for Gorgon. This will underwrite
the initial development infrastructure to bring the Gorgon gas
to the island and will serve as an important first step in
opening up all the gas resources in the Greater Gorgon Area.
Once a foundation project is established on Barrow
Island, or soon thereafter, Gorgon intends to construct a
pipeline connection to the mainland to enable gas to be
delivered to the existing gas pipeline network servicing
Western Australia.

GHG efficiency
In line with global and national efforts to reduce greenhouse gas (GHG) emissions, the Gorgon LNG facilities will
be one of the most GHG-efficient projects in the world.
Gorgon has a range of GHG mitigation/sink options, including the sequestration of reservoir carbon dioxide (CO2) for
the first time in Australia. Barrow Island offers the unique
70

25

Reserves certification

Sequential development

BACK

Figure 1: Gorgon field reserves


trillion cf

Fundamentals of the Global LNG Industry, 2004

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Certified proved

Certified proved
plus probable

Certified proved
plus probable
plus possible

Source: Gorgon Australian LNG

opportunity to reinject Gorgon reservoir CO2 into a deep


saline aquifer beneath the island. Research is being conducted into the technical and economic feasibility.

Subsea development
The use of a subsea gas-gathering concept is a key feature
of the Gorgon field-development plan, along with a 70-km
tieback to land-based gas receiving facilities on Barrow
Island. The plan has been continuously refined and optimised in recent years to improve the developments cost
structure, enabling it to deliver both domestic gas supply
and LNG at a competitive unit cost.
The use of a subsea solution has a number of benefits:
G It is more cost effective, investing in facilities only as
they are needed and not before. It avoids the large, upfront, pre-investment in a platform, along with the attendant problems in fixing it to the seafloor and considerable
operating cost;
G It presents less safety risk, with no personnel working offshore, except during well maintenance from a diver-support
vessel and no regular helicopter transport of personnel or
concerns over cyclones; and
G It is more reliable, not being subject to nuisance shutdowns that can occur with the myriad of safety systems
necessary on manned platforms.
G However, this will be one of the first applications of an all
subsea system to feed an LNG train. It will require a highquality approach to procurement and engineering to ensure
the installed system works effectively and reliably throughout the projects life.

Gas processing
Central to the commercial viability of the development of
the Gorgon Area gasfields is the siting of gas processing
facilities on Barrow Island. Barrow contains one of
Australias most important onshore oilfields, which has
operated since 1967. It is also a Class A nature reserve,
particularly important as a refuge for rare wildlife species.
Barrow is Western Australias second-largest island 65
km off the coast 23,000 hectares in area. ChevronTexaco
(previously Western Australia Petroleum) is the operator on
Barrow Island, with responsibilities for producing crude oil
and protecting its native flora and fauna. Environmental
activities on the island have been internationally recognised
for achieving sustainable development alongside oil production for almost 40 years and is an excellent example of
development coexisting with bio-diversity protection.
As operator of the facilities, ChevronTexacos commitment to the environment, and its worldwide reputation for
leadership in environmental management and safety, will
be dedicated to ensuring the conservation values of

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Exporters: Australia

Barrow Island continue to be maintained and protected.


During 2003, the Gorgon joint venture prepared an environmental, social and economic review of its development proposal on the island. This review was released for
public consultation in February 2003 and in September
2003, the Gorgon venture was granted in-principle
access to Barrow Island for use of up to 300 hectares for
gas development.
This significant milestone provides the venture with the
certainty required to progress commercial, engineering and
environmental work necessary to develop markets for
Gorgon gas and to allow a detailed development proposal
to be assessed before a final investment decision, expected
around mid-2005.
The Gorgon joint venture is committed to sustainable
development and has established a set of specific sustainability principles and assessment criteria for the Gorgon
development. It will be the first resource development subjected to a sustainability review process in Western Australia.

Market focus
Gas from the Gorgon development is being actively marketed to customers worldwide, as well as to potential
domestic industrial consumers. The reserves are sufficiently
large to support both LNG export markets over the longterm and Western Australias industrial gas markets, meaning there is potential for an integrated LNG/domestic
pipeline gas development.
Australia is well-positioned to secure a significant share
of the growing global LNG trade. It offers a stable investment environment, significantly reducing the investment
risk for a long-term international LNG export development.
And LNG projects in the country receive strong government
support at all levels. The country is internationally established as a reliable gas supplier. This reputation is based on
its political and economic stability as a nation and the

industrys 12-year record as an established, secure and


reliable LNG exporter.
This reputation will be enhanced by the addition of
another major gas supplier for both the export and domestic markets. Just as the North West Shelf was Australias
debut in the global LNG trade, Gorgon will further
strengthen the countrys LNG capability leading the nations
transition to a gas-based economy.
For Gorgon, opportunities for sales are emerging throughout the region, most notably in China, South Korea, Japan
and on the US west coast. The venture has signed preliminary supply agreements with ChevronTexaco and Shell to
supply proposed regasification terminals serving markets in
Mexico and the US west coast. In addition, an agreement
was signed in October 2003 with Chinas CNOOC Ltd,
which, subject to formal contracts, will see the company
buy a substantial equity stake in the Gorgon gas development. Its parent, CNOOC, will arrange to purchase foundation volumes of LNG from Gorgon for use in China. CNOOC
Ltd will also assist Gorgon to secure markets in China for a
further designated amount of LNG.

Impact on the economy


The initial development of Gorgon and a foundation development are expected to attract a total combined initial
investment of nearly A$6bn. During the three-year construction period, there would be an average of about 3,000
jobs created in Western Australia. Once in operation, the
workforce would total about 600 for an initial development.
The initial development is expected to provide export
income of A$1,000m-1,500m a year, depending on the
type of foundation development.
The current development schedule will see Gorgon able
to deliver first LNG in late 2008. The Gorgon development
is well placed to capture a significant share of the fast
growing international market for LNG and natural gas.

5.7

Gorgon
project
upstream
layout

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Fundamentals of the Global LNG Industry, 2004

71

Exporters: Brunei

Changing gear powering ahead


Brunei LNG celebrated its 30th year of commercial operations in 2003 by setting new
records. And the plant is looking to the future with planned upgrades and a sixth train. By
Ideris Haji Ali, head, external affairs & administration, Brunei LNG

ONTINUING ITS record-setting performance since


1999, the Brunei LNG (BLNG) plant achieved a
record-breaking delivery of 214 B-class cargoes, or
7.2m tonnes of LNG, in 2003. This was the plants best
performance since the delivery of the first cargo to Japan,
in December 1972, and represents a continuous improvement in LNG deliveries for the past five years. All contractual deliveries have been met on time with no missed cargoes, positioning BLNG as a first-choice supplier.
Another cause for celebration in 2003 was the 30th
anniversary of a successful partnership between Brunei
Darussalam and Japan, a valued LNG buyer since 1972.
BLNGs three Japanese customers Tokyo Electric Power,
which buys 4.03m tonnes a year (t/y), Tokyo Gas (1.24m
t/y) and Osaka Gas (0.74m t/y) attended the anniversarys double celebrations, first in Tokyo in June, coinciding
with the World Gas Conference, and in Bandar Seri
Begawan in December 2003.
This year will see the 10th anniversary of BLNGs supply
agreement to another long-term buyer, Korea Gas (Kogas),
which has been purchasing LNG from Brunei since 1995.
Maintaining relationships with its customers is a cornerstone of BLNGs plans, even beyond the expiry of existing
contracts.

5.8

Global challenges
Trading globally presents challenges, given the different drivers of regionally segmented LNG and natural gas markets.
Although the traditional northeast Asian markets Japan,
South Korea and Taiwan are relatively mature, growth
potential will depend largely on the evolution of policies to
deregulate the energy industry and their effect on the competitiveness of natural gas.
New projects will have to compete with existing suppliers to
secure market entry. With the growing number of aspiring
suppliers and the rapid expansion of emerging markets, such
as China and India, adjustment to the evolving LNG market is
one of the greatest challenges facing BLNG. However, politi-

Table 1: Brunei LNG project


Project:
Start-up:
Shareholders:
Operator:
Capacity (million t/y)::
Number of trains:
Process method:
Gasfields:
Storage capacity (000 cm)::
Exports to:

Lumut
1972
Brunei State, 50%; Shell, 25%; Mitsubishi, 25%
Brunei LNG
7.20
5
APCI
SW Ampa; Fairley; Gannet; Champion
130
Japan; South Korea

Table 2: Brunei LNG export contracts


Purchaser
Tokyo Electric Power
Tokyo Gas
Osaka Gas
Kogas

Amount
(million t/y)
4.03
1.24
0.74
0.7

Contract
length (years)
To 2013
To 2013
To 2013
16

Start
1973
1973
1973
1997

cal and economic stability between trading nations remains


vital to any kind of trade and the LNG business is no exception. This is one of BLNGs greatest strengths in taking on the
new challenges of the LNG market.
BLNG is also developing opportunities to sell to new customers outside the Asia-Pacific market. In April 2002, the
first cargo destined for the US was loaded onto the Aries
LNG tanker and was discharged at the Lake Charles terminal. The second and third cargoes destined for Spain were
delivered to Barcelona and Huelva, respectively. These
additional sales were realised during a low demand period
from existing buyers and with the availability of existing
plant and spare shipping capacity in co-operation with our
upstream gas suppliers.

Reaching milestones
Another milestone was reached in April 2002, when BLNG
became one of the first of Shells LNG facilities to receive
the ISO 9001:2000 series certification. This achievement
places the Quality Management System firmly at the heart
of the plants aim to become more customer-focused. The
ISO 9001:2000 series promotes customer communication,
essential to the success of any organisation, and emphasises performance results and requires demonstration of
continuous improvement.
In the same year, BLNGs laboratory became the first
testing laboratory in Brunei Darussalam to be accredited to
ISO 17025:1999 in the fields of chemical and biological
testing (for petroleum and natural gas) and the field of
environmental testing (for water). All these are in addition
to the achievement of the ISO 14001 standard for its environment-management system in July 2000, making BLNG
the first Shell-advised LNG plant in the world to attain that
recognition.

Gasex 2002 powering sustainable growth


BLNG, as one of the active members of the steering committee of Gasex, an organisation of Asian national associations and state-run gas companies, successfully hosted the
seventh bi-annual Gasex conference and exhibition in

Brunei LNG
control room
Shell
72

Fundamentals of the Global LNG Industry, 2004

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Exporters: Brunei

2002. The hosting of the conference reflected Bruneis


strong support for the gas industry in the region. It also
demonstrated its efforts to attract new investment capital
to encourage co-operation and strengthen regional ties.
In addition to its fleet of seven B-class, 75,000 cubic
metre (cm) LNG tankers, chartered from Brunei Shell
Tankers (BST), jointly owned by the state and Shell, a newly
built 135,000 cm capacity LNG carrier named Abadi,
owned by Brunei Gas Carriers, joined the fleet in July 2002.

Maintaining the supply of gas


BLNGs major gas supplier, Brunei Shell Petroleum (BSP),
has successfully commissioned its Ampa Fairley rationalisation project. BSP has rejuvenated and modernised its western offshore fields to help compensate for reduction in field
reservoir pressures, installed higher-capacity gas compression facilities offshore and onshore and has undertaken a
vent-to flare conversion to improve environmental operating
practices. In addition, a 40-inch, 33-km pipeline has been
laid to carry larger volumes of high-pressure gas to a new
onshore compression plant (OCP) at BLNG.
A fast-track, high-pressure, gas-expansion project has
also been completed, involving the installation of a 28inch, 67-km pipeline to carry gas from the eastern offshore
production complex to the OCP facility. The offshore Egret
field development was also completed in 2003. These projects are designed to maximise the productivity and reliability of the companys assets, which are expected to be operational for at least the next 30 years.

New reserves
Supporting upstream companies in their efforts to find new
gas reserves, Brunei National Petroleum Company
(Petroleum Brunei) has awarded two blocks, J and K, under
a production-sharing contract, in the deep waters of the
Brunei Exclusive Economic Zone to consortia led by Total
and Shell, respectively. Blocks J and K are about 5,000
square km each, while onshore Block L is about 2,500
square km. This exciting development offers three vast
areas of significant potential and attractive prospects for
commercial petroleum discoveries.
The venture is part of the governments commitment to
future exploration and development of Brunei Darussalams
oil and gas industry, not only to support the expansion and
further extension of the countrys LNG business, but also in
an effort to develop indigenous downstream industries.
Being one of the first LNG plants to start up, BLNG is one

Figure 1: Brunei LNG export history


bn cm
10
8
6
4
2
0

1975

1980

1985

1990

1995

2000

Source: Cedigaz

of the first to require the replacement of major parts. To


extend the life of the existing plant well beyond 2013, BLNG
is embarking on its so-called Asset Reference Plan (ARP).
The first major activity will be the replacement of four of
the five main cryogenic heat exchangers (MCHE), to introduce the latest design and fabrication methods. The new
MCHEs will minimise internal leaks and improve reliability.
The first two MCHEs will be installed in 2004, the other two
will be installed in 2005. A replacement of MCHE equipment has never been undertaken in an LNG plant and
BLNG is pioneering this type of rejuvenation.
The replacement activity will be undertaken while the rest
of the LNG plant remains in full production to maintain
delivery commitments. Other projects under the ARP are
the construction of new cooling towers and replacement of
over 2,000 valves. In total, there are nearly 20 major activities to be carried out within 10 years, all without interrupting LNG production.

5.8

Expansion plan
The Brunei government plans to build a new world-scale
production train Train 6, with a capacity of 4m t/y. The
project will require additional gas reserves, for which exploration efforts are under way.
When the programme of engineering activities is completed, BLNG will be in a stronger position for growth from
2006, and beyond the expiry of the existing sales contracts
in 2013. BLNG is leading the industry and demonstrating
that a technical life of 60 years without major interruption
to its production profile is indeed possible.

Aerial view of
the Brunei
LNG plant,
Lumut

BACK

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Fundamentals of the Global LNG Industry, 2004

73

Exporters: Russia

A new source for Asia-Pacific


The world is witnessing the birth of a new oil and gas province off Sakhalin Island, in
Russias far east, whose reserves will alter the energy dynamics of Asia-Pacific with far
reaching geopolitical implications for Russias relations with its northeast Asian neighbours.
By Andrew B Seck, general manager, commercial, Sakhalin Energy Investment Company

USSIA HAS A long history of being a stable supplier


of oil and gas to Europe. Although Russian policymakers recognise the importance of the Asian energy
market as reflected in the governments Energy Strategy
for Russia to 2020 this coveted market has, until now,
remained beyond its reach. If there were any doubts of
Russias ambitions towards the East, these were put to rest
when President Vladimir Putin articulated Russias aspirations at the APEC Summit in Bangkok, in October 2003.
Putin said: Russia is prepared to make its contribution to creating a new energy configuration in the Asian and
Pacific region. This will allow consumers of energy
resources, which are widely represented in APEC, also
bearing in mind the prospects of economic growth of these
countries, to diversify deliveries, and, which is especially
important, to ensure their safety. In 2007 it is planned to
build an LNG factory on Sakhalin one of the largest factories in the world.
Not only will the Sakhalin II project extend Russias role
in the Asia-Pacific region, it will also transform the islands
economy (and to some extent the Russian far east as a
whole) for the betterment of its local population.

Andrew Seck

5.9

Long lead time


Typical of most large-scale upstream oil and gas ventures,
the Sakhalin II project has had a long lead time. It was
back in May 1991 that the government of the then Soviet
Union invited international oil companies to tender to conduct a feasibility study for the development of the PiltunAstokhskoye and Lunskoye licence blocks. The combined
recoverable reserves of these two fields are around 1bn
barrels of oil and 0.5 trillion cubic metres (cm) of natural
gas. Marathon, McDermott and Mitsui signed an agreement with the new Russian Federation government, and the
Sakhalin II project was born.
The feasibility study was completed at the end of 1992,
and it was during that year that Shell and Mitsubishi joined
the development consortium. In 1993, Russia approved the

Signing
ceremony
with Tokyo
Gas, 2003
74

Fundamentals of the Global LNG Industry, 2004

HOME

Table 1: Sakhalin II LNG facts


Start-up:
Shareholders:
Operator:
Capacity (million t/y)::
Number of trains:
Process method:
Gasfields:
Storage capacity (000 cm)::
Exports to:

2007
Sakhalin Energy (Shell 55%;
Mitsui 25%; Mitsubishi 20%)
Sakhalin Energy
9.60
2
SDMR
Lunskoye; Piltun-Astokhskoye
200
Japan, with plans for Korea, China,
US west coast, and Mexico

feasibility study and in the following year the consortium


formed a company called Sakhalin Energy. It went on to
sign Russias first production-sharing agreement (PSA) in
June 1994, which guarantees a long-term stable legal and
fiscal framework.
In 2000, Shell acquired Marathons interest, as well as
assuming the position of majority shareholder and project
operator. The shareholders Shell (55%), Mitsui (25%)
and Mitsubishi (20%) have an unrivalled track record in
developing LNG projects.
Sakhalin Energy, together with representatives of the
Russian federal government and the Sakhalin Oblast
administration, oversee the development of Sakhalin II
through a supervisory board that reviews and approves all
the projects annual work plans and budgets. The supervisory board also approves any long-term gas-sales agreements. One of the strengths of Sakhalin II is the strong
support of the government.

Phase 1
The Sakhalin II project has rightly become known as the
project of many firsts. Not only did Sakhalin Energy sign
Russias first PSA, but under Phase 1 it also concluded the
first non-recourse project financing in Russia and achieved
the countrys first offshore oil production, when the PiltunAstokhskoye field came on stream in 1999.
Oil production of about 70,000 barrels a day (b/d) is carried-out on a seasonal basis, during the ice-free period
between May and December, at the Vityaz production complex, built around the Molikpaq platform. Molikpaq was previously based in the Beaufort Sea as an ice-class drilling
rig, before being converted by Sakhalin Energy for use as a
production and drilling platform. Oil is transported by subsea pipeline to a single anchor-leg mooring buoy and a
floating storage and offloading unit, from where it is transferred to shuttle tankers.
December 2003 saw the completion of the fifth production season, with a total 10.3m barrels of crude produced.
Oil production is forecast to increase following commissioning of a $300m pressure-maintenance project in 2004,
which will deliver an incremental oil recovery of 260m barrels. To date, almost 50m barrels of sweet, high-quality,
high-yield, crude has been sold to customers mainly in
Japan, Korea and China. And in 2003, first sales were
made to Taiwan, the Philippines and the US west coast.

NEXT

Exporters: Russia

While only a niche player in the Asia-Pacific crude marThe first contract was signed with Tokyo Gas, on 12
ket, because of the seasonal production, Phase 1 has May for 1.1m t/y from 2007, for a period of 24 years.
brought great value to the project as a whole. Apart from
Then, on 19 May, the second contract was signed, with
the obvious revenue generated from sales, Phase 1 has Tokyo Electric, for 1.2m t/y from 2007 for 22 years. This
demonstrated that Sakhalin Energy could develop a world- was then followed by a third heads-of-agreement with
class project in Russias far east.
Kyushu Electric, on 24 July, for 0.5m t/y from 2010 for 21
Despite the many uncertainties of Russia, Sakhalin years. The sales contracts with Tokyo Gas and Tokyo
Energy produced the countrys first offshore oil under a PSA Electric are on a Fob basis, while the contract with Kyushu
regime and sales of crude oil have built energy bridges with Electric is on a delivery ex-ship basis. These deals will
customers throughout Asia-Pacific increasing the brand strengthen economic ties between Russia and Japan,
awareness of Sakhalin Energy and the companys credibility which will significantly enhance the political dialogue
in the market place.
between the countries. Japan, for the first time, believed
Potential and existing LNG customers for Phase 2 pro- in and trusted Russia to play an active long-term role in
duction including most of the major LNG customers in its energy security. A true accolade for the progress
the Asia-Pacific have travelled to Sakhalin to see the Russia has made since the break-up of the former Soviet
projects progress. As year-round oil production under Union, in 1991. Sakhalin Energy expects to sign further
Phase 2 of the project rises to
LNG sales contracts in the very near
170,000 b/d in 2006, Sakhalin
future, as well as selling more than
Energy will move from being a niche LNG is inherently more flexible one train into the Japanese market.
than pipelines for Sakhalin II,
player to significant crude supplier.
The other significant aspect of the
as it allows us to reach more Japanese firms decisions was their
Phase 2
commitment to buy gas in the form of
markets in more countries
The highlight of 2003 for Sakhalin
LNG from Russia. Sakhalin Energy
Energy and its shareholders was the
believes LNG is a better choice for the
announcement of the Declaration of Development Date customers than a pipeline to Japan because from the
for the Lunskoye field, on 15 May. This $10bn decision customers perspective they have over 30 years experito move ahead with Phase 2 of the project will make ence of importing LNG and none for pipelines.
Sakhalin II the largest single foreign investment project
It is easy for Japan to continue its diversification of
in Russia. It is Russias first LNG project and will have a energy by importing LNG through its well-established
capacity of 9.6m tonnes a year (t/y).
infrastructure, while time is still required to resolve a
The key features of Phase 2 are:
number of critical issues regarding potential pipeline gas
A second platform on the Piltun-Astokhskoye field;
imports.
Conversion of the existing seasonal operations of the
Sakhalin Energys shareholders have long recognised that
Molikpaq platform to year-round production through a LNG is inherently more flexible than pipelines as it allows us
tie-in to the Phase-2 pipeline infrastructure;
to reach more markets in more countries.
A platform on Lunskoye to produce up to 17bn cm/y of
Customer value proposition
non-associated gas;
An onshore processing facility to take the gas and Although Asian gas demand is forecast to grow strongly
over the next two decades, there is no doubt the Asiacondensate from Lunskoye;
Parallel gas and oil pipelines laid down the spine of Pacific gas market is very competitive. Nevertheless,
Sakhalin Energy has been and will continue to be successthe island to Prigorodnoye, at Aniva Bay, in the south;
An oil-export facility capable of year-round operation; ful in securing LNG customers, as it develops individual
customer-value propositions. Specific benefits include:
and
A two-train LNG plant, capable of year-round opera- The proximity to the market. Sakhalin is the closest
tion, which will have the largest liquefaction trains in the source of LNG to key northeast Asian markets (the sailing
time to Japan is only one to three days and only two-three
world, at 4.8m t/y each, when completed.
Aniva Bay is relatively ice-free, driving the decision to days to South Korea or China);
locate the LNG plant in the far south of the island, pro- Winter-biased seasonality, particularly important for
viding assurance to customers of a stable LNG supply, markets that experience a high degree of seasonality
even during the winter months. LNG tankers loading car- because of city gas usage in the winter (for example,
goes at Prigorodnoye will require only some minor ice South Korea); and
strengthening. On 12 December 2003, Sakhalin Energy Security of supply. Sakhalin LNG represents a new
announced a tender for the supply of one LNG tanker source of energy diversification for Asia.
Sakhalin Energy is looking forward to further extending
(plus the option for one more) by the third quarter of
its progress in the markets of Japan, South Korea, China,
2007 to supply delivery ex-ship customers.
Additionally, Phase 2 requires major upgrades to the Taiwan and even the US west coast and Mexico. In 2004,
islands infrastructure, including roads, bridges, railways, it hopes to announce the conclusion of additional LNGNogliki airport and Kholmsk port, to support project con- sales contracts, and expects to close non-recourse prostruction activities. Sakhalin Energy will fund some ject financing for Phase 2 with a consortium of interna$300m-worth of island infrastructure upgrade projects, tional lenders.
which, when completed, will also provide lasting benefits
Table 2: Sakhalin II supply contracts
to the islands inhabitants.

Breakthrough LNG sales


A breakthrough marketing success, with the signing of three
LNG sales contracts with customers in Japan, gave the
shareholders the confidence to move ahead with an additional $10bn investment in May 2003.

BACK

Purchaser
Amount (million t/y)
Contract length
Start
Signed
Remarks

HOME

Tokyo Gas
1.10
24
2007
2003
Sakhalin Energy, HOA

Tokyo Electric Power


1.20
22
2007
2003
Sakhalin Energy, HOA

Fundamentals of the Global LNG Industry, 2004

5.9

Kyushu Electric Power


0.50
21
2010
2003
Sakhalin Energy, HOA

75

Exporters: Nigeria

Consolidating on amazing runs


The world LNG market is changing dramatically and Nigeria LNG is positioning itself,
through expansions and human-resources programmes, to increase its market share. By
Andrew Jamieson, managing director, Nigeria LNG

OT EVEN the most ambitious LNG marketer would have


contemplated some of the profound changes taking
place in the industry. In the past year, Gaz de France
has taken a cargo from Bonny, Nigeria, to Yung An, Taiwan,
and, similarly, producers in Australia and the Middle East have
supplied cargoes to the US. Traditionally, the LNG market has
been polarised into the Atlantic/Mediterranean and the AsiaPacific divides, and it was merely an academic exercise for
producers in the Atlantic basin to plot scenarios for supplying
LNG to Asia-Pacific markets. But there are signs that these
boundaries, which a few years ago seemed mutually exclusive,
are gradually being erased.
There are also strong indicators that LNG-market dynamics will experience even more changes because of the
forces of liberalisation, deregulation, new technologies, and
bigger trains and shipping capacities with their associated
economies of scale destination flexibility demands and
pressure to reduce take-or-pay clause levels. In this fastchanging market, where good commercial incentives
engender creative technical solutions and approaches,
what should a producer do to remain a major player?

A Jamieson

5.10

total 80m cubic metres a day (cm/d) of gas feedstock.


Scouting studies for Train 6, also known as NLNGSix is at
an advanced stage, with all the volumes already sold. Train
6 will be a replica of Trains 4 and 5 and a final investment
decision is expected soon.
Feed gas is supplied from the onshore concession areas of
the eastern part of the Niger Delta, where about 50% of the
countrys proved and probable gas reserves are held. The
NNPC/SPDC/NAOC/EPNL joint venture supplies gas from the
Soku field, later to be supplemented by mainly associated
gas from other fields. The NNPC/EPNL joint-venture gas is
derived from the Ibewa and Ubeta fields, while the Obagi field
is available for back-up supply. The NNPC/NAOC/Philips joint
venture is supplying gas mainly from the Idu, Mbede and
Obiafu-Obrikom fields, with Omoku, Ebegoro, Ogbogene and
Ebocha as back up.
For the expansion trains, all three suppliers have committed to gas supplies and supply agreements have been
secured concerning both volume and quality. NLNGSix will
require an additional 19m cm/d of feed gas, bringing the
total gas requirement of the six-train complex to 99m cm/d,
up from 42m cm/d for the three-train complex.

Early beginnings
Nigeria LNG (NLNG) was incorporated as a limited liability
company on 17 May 1989 to harness the countrys vast
gas resources and produce LNG for export. Much of
Nigerias gas has been, and is still being, flared, although
the volume has been significantly reduced over the past
four years and is projected to be eliminated by 2008.
In November 1995, a final investment decision was taken
by the shareholders Nigerian National Petroleum Corporation
(NNPC), Shell Gas BV, Total and Eni to build an LNG plant at
Finima, on Bonny Island, Rivers State. Construction began in
February 1996 and today the site houses three production
trains with a combined capacity of 9m tonnes a year (t/y) and
1.2m t/y of natural gas liquids (NGLs). All three trains have the
flexibility to use 100% associated-gas feedstock.
NLNGPlus will further expand the NLNG complex through
the addition of Trains 4 and 5, producing a further 8.0m t/y
of LNG and 1.5m t/y of NGLs. Train 4 is expected to start up
in June 2005, while Train 5 will start up in December that
year. On completion of the NLNGPlus project, the NLNG
plant will have an overall capacity of 17m t/y of LNG, 3.4m
t/y of LPG and 5.31m barrels of condensate, requiring a

Shipping
Ten ships, with cargo capacities of between 120,000 and
135,000 cm, carry LNG from Bonny Island to buyers, principally in Europe, but also in the US. Nine are owned by NLNG
through its wholly owned subsidiary Bonny Gas Transport
(BGT) while the tenth, LNG Delta, is chartered on a longterm basis from Shell Bermuda Overseas. Eight more vessels will be required for NLNGPlus. Four of these ships will
be chartered from Norways Bergesen under a 20.5-year,
long-term charter agreement, the rest will be chartered from
BGT. The first of the vessels will be delivered in November
2004. For Train 6, NLNG will charter six more vessels four
from Bergesen; and two from NYK, of Japan.

Community relations
NLNG is implementing a community-relations policy based
on stakeholding for sustainability. The company supports
projects that communities need and are able to sustain
viably. This concept ensures a long-lasting partnership
between the company and the community with results that
are mutually beneficial.

Table 1: Nigerian LNG export projects

76

Project
Start-up
Shareholders

NLNG T1 & T2
1999
NNPC 49%; Shell Gas 25.6%;
Total 15%; Agip 10.4%

NLNG T3
2002
NNPC 49%; Shell Gas 25.6%;
Total 15%; Agip 10.4%

NLNG T4/5: NLNGPlus


2005
NNPC 49%; Shell 25.6%;
Total 15%; Agip 10.4%

NLNGSix
2007
NNPC 49%; Shell Gas 25.6%;
Total 15%; Agip 10.4%

Operator
Capacity (million t/y)
Number of trains
Process method
Gasfields

Nigeria LNG
5.90
2
APCI
Niger Delta

Nigeria LNG
2.95
1
APCI
Niger Delta

Storage ('000 cm)


Exports to

240
France; Italy; Portugal;
Spain; Turkey; US

See T1&2
France; Italy; Portugal;
Spain; Turkey; US

Nigeria LNG
8.20
2
APCI
Bomu; Ibewa; Idu; Obagi;
Oshi; Soku; Ubeta (SPDC,
EPNL NAOC fields)
See T1&2
France; Italy; Portugal;
Spain; Turkey; US

Nigeria LNG
4.10
1
Bomu; Ibewa; Idu; Obagi;
Oshi; Soku; Ubeta (SPDC,
EPNL NAOC fields)
See T1&2
Europe; Mexico; North
America

Fundamentals of the Global LNG Industry, 2004

HOME

Brass LNG
2008
ConocoPhillips 20%;
Agip 20%; NNPC 40%;
ChevronTexaco 20%
ConocoPhillips; Agip
10.00
2
Agip/ChevronTexaco JVs

US

NEXT

Exporters: Nigeria

With a dedicated 201-km pipeline route passing through


over 110 contiguous communities, the company sees itself
as a corporate citizen of these communities. All its projects
are community driven and people oriented. In pursuing its
policy, the company provides support to local communities
in two broad areas: business and human development; and
the provision of infrastructure.
The business and human-development programme
involves: encouragement of indigenous contractors;
employment of skilled and unskilled labour; provision of
micro-credit; and the award of scholarships.
NLNG is the driver and major contributor to the infrastructure programme, which it is implementing in conjunction with the two multinational companies on the island
Shell and ExxonMobil. The programme is mainly concerned
with road construction, the provision of potable water and
power generation, distribution and maintenance.
To maintain close contact with the communities, community-relations officers are assigned to specific settlements, especially Bonny and Finima, while others work as
development officers, specialising in key areas such as
health, education, youth and sports. These officers meet
regularly with representatives of the host communities to
maintain good relationships for effective operations.

Nigerianisation

5.10

A Nigerianisation scheme was agreed on 1 September


1997 between NLNG and its shareholders the ultimate
objective is to Nigerianise the companys workforce. NLNG
has adopted a bottom-up approach to the implementation
of the scheme. Consequently, young OND/HND graduates
have been recruited and are being trained as technicians
and operators, while young graduate engineers have also
been employed.
This policy is based on the need to enable the relatively
young minds to imbibe the culture of work and discipline
that the business demands. NLNG has mounted staff training and development programmes for the different levels of
technical staff so they can acquire the skills and competencies required for the different management, supervisory and
operational positions in the production division and the
shipping department.
The NLNG project provides opportunities for productioncapability build-up in at least two areas: capability to operate and manage LNG plant; and capability to handle transportation of LNG to different market outlets. Significant
progress has been made with the employment of Nigerians
in various officer and management positions within the corporate and production organisation.

The importance of local content


The company considers the issue of local content as an
important feature of the project. In line with this commitment,
NLNG has established a sub-committee for Nigerianisation
and Nigerian content. It has also enunciated a Nigerian-content policy for local, regional, indigenous Nigerian and international contractors, and set up an implementation committee
with the project manager as chairman.
NLNG made a concerted effort to ensure maximum application and use of indigenous contractors and suppliers during
construction. It surveyed local contractors and equipment
manufacturers, suppliers and services providers to determine
capabilities and constraints before contract award.
In developing the additional trains, efforts were made to
ensure Nigerian and local manpower, suppliers of materials
and equipment and contractors were given the opportunity
to participate. As a result, potential Nigerian suppliers of
equipment, materials and services were identified in the

BACK

78

Fundamentals of the Global LNG Industry, 2004

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Table 2: Nigerian LNG export contracts


Purchaser
Enel
Enagas

Amount Contract
(million t/y) length
2.59
20
1.19
20

Start
1999
1999

Gaz de France
Botas
Transgas
Enagas
Transgas
Iberdrola
Eni
Shell Western LNG
Transgas
BG LNG

0.37
0.89
0.26
2.00
0.74
0.36
1.10
1.10
1.50
2.50

20
20
19
20
20
20
20
20
20

1999
1999
2000
2002
2002
2005
2005
2005
2005

Total Gas & Power


Endesa Generacion

0.86
0.75

20
10

2007
-

Shell Western LNG

1.40

20

Signed Remarks
1992 Option 252,000 t/y
1992 Plus 432,000 t/y
in 1996
1992 1995 1997 Up to 360,000 t/y
1999 T3
1999 T3
- SPA (T4)
2001 SPA (T4)
2001 SPA (T4)
2002 SPA (T4 & T5)
2003 SPA (T4 & T5); plus
excess from T1-3
2003 SPA (T4 & T5)
2003 Agreement in
principle
2003 SPA (T6)

engineering, procurement and construction, and targets


were set wherever possible.
In the foreseeable future, long-term sales-and-purchase
agreements will remain the major anchor for NLNGs business. Securing firm commitments from buyers for its six
trains puts the company at a huge advantage over its
competitors in the Atlantic basin, most of which will
become operational after 2007 when NLNGs sixth train is
expected to come on stream. Its plans for further expansion look good, based on its strong reputation in the market, geographical location, abundant gas reserves and
comparative cost advantage arising from economies of
scale from its six trains.
After the Train 6 expansion, NLNGs top priority will be to
consolidate its operations and phenomenal growth the
fastest yet in the industry. With Train 6, NLNG will have
capacity to produce 22m t/y of LNG and 4.6m t/y of NGLs.
The six-train plant will send out an average of 351 cargoes
a year requiring a fleet of 24 ships. Add to this number the
NGLs and yearly cargoes rise to 420.
This will call for deepening and widening of the Bonny
channel to handle the expected increase in traffic. The
existing channel is about 17.4 km long, with a navigational
depth of 12.5 metres and a bottom width of 215 metres.
Expanding the channel as well as lifting restrictions on
night-time navigation are in progress.

Quality workforce
But the most important of the challenges is developing the
right quality and calibre of workers to discharge the enormous responsibilities a six-train operation will demand.
NLNG is implementing one of the fastest expansion programmes in the industry. The successful implementation
and management of this growth will depend largely on the
quality and commitment of the organisations personnel.
The continued success of the company will hinge more
on the ability to source, train and retain quality and highly
motivated staff at the right time. To achieve this, the company recently carried out a Human Resource (HR) Master
Plan to review its HR structures and put in place the people
who will implement the expansion plans and future business requirements of the organisation. The main thrust of
this programme is to design and implement the right architecture to support the companys aggressive growth across
the LNG value chain, maximise its capacity and reduce
operating costs.
NLNG has achieved its vision of creating a balanced portfolio within the Atlantic basin. It is a vision that will guide its
future expansion, which may be embarked upon when
management concludes its consolidation programmes.

Exporters: Egypt

Gaining momentum
With two major LNG projects set to begin production in the next two years, Egypt is looking
to monetise its substantial gas reserves with the help of international players. By Mohamed
Farghaly, vice-president for gas exports, BP Egypt

HE LNG INDUSTRY gained significant momentum in


Egypt three years ago, when Egyptian General Petroleum
Corporation (EGPC), signed three agreements, each with
different partners and different structures. In 2004, first LNG
production, from the Damietta project, will sail to Spain and a
year later, Gaz de France will carry Egyptian LNG, from the
countrys second LNG project, to France.
Egypts oil and gas industry has been through major
transformation cycles, starting with the early oil-development phase, through the domestic gas-market era, to
todays era of gas exports. In the late 1980s and in the
1990s, exploration and production escalated after the government agreed with upstream investors to purchase their
share of gas at a price linked to fuel oil and Gulf of Suez
Mixed crude under attractive concession-agreement terms.
The government continued to facilitate domestic gas
demand by extending the national gas grid and successfully
converting around 85% of power plants to natural gas.
During the domestic-market phase, EGPC provided the
market and the traditional challenges of marketing gas did
not exist for the contractors. As a result, Egyptian proved
reserves increased from 12 trillion cubic feet (cf) in the late
1980s to nearly 62 trillion cf today. Most of the early gas
was discovered in shallow waters, with more recent discoveries in the deep-water Nile Delta basin. Output reached
3.3bn cf/d, with consumption around 3bn cf/d, in 2003.
The Egyptian Petroleum Authority has signed gas contracts
for 20 trillion cf, from concession areas, on an agreed-price
formula. Additional potential reserves in the Nile Delta
basin may reach 60 trillion cf, mostly in deep water.

PSC terms
The development of all of BPs discovered gas is so far
based on gas-sales agreements signed with upstream partners (including Eni, BG/Edison, Shell and Apache) and
EGPC. All gas is sold to the domestic market, with the operator of each concession leading negotiations with EGPC to
secure the daily contract rate to be produced. Other terms
(price formula, cost-recovery mechanism and profit split)
are all previously agreed in the production-sharing contract.
During the 1990s, there was no pressure to create an
alternative market for Egyptian gas, or to seek any integration or enhancement of the economy of scale of individual
upstream concession developments. These factors may
have been instrumental in the development of the standalone projects. In the late 1990s, the domestic market
began to be saturated, leading upstream investors to pursue separate initiatives to export excess gas by pipeline to
the eastern region and as LNG to Turkey.
As producers focus on the LNG option increased, their
attention turned to new markets, motivated by cost reductions realised in shipping and liquefaction technology and
the soaring US gas price. These factors were accompanied
by the governments desire to maintain the pace of exploration activity and, specifically, to promote exploration in
the deep-water Nile Delta.
Additionally, and more importantly, the government
wanted to enhance hard-currency income from the oil sec-

tor. In 2000, Egypt announced its support for the development of gas exports and underlined this by visits to a number of European markets to confirm governmental and institutional support. The interest has been mutual, as the
western buyers responded positively to the Egyptian LNG
invitation. Buyers could see two advantages of Egyptian
LNG it provides diversification of supply; and it is competitive because of its proximity to European markets.
The role of the countrys government and state-owned
energy companies in creating the conditions in which an LNG
export scheme can emerge is vital. And so too is their ability
to make commercial deals happen and at pace. In June
2000, Egypt signed a 25-year LNG deal with Unin Fenosa
for EGPC to supply 450m cf/d to the Spanish firms LNG project. The project plans to deliver its first production by the
end of 2004 to Spain. Unin Fenosa has no upstream position in Egypt EGPC will supply gas from the national grid.
This breakthrough in the Egyptian LNG industry triggered
other LNG deals with gas producers, namely BG and Edison
(Petronas later bought Edisons share in the Idku LNG project). BP is focusing on exploration. Total production from
fields operated by BP and its partners is 1.2bn cf/d. In
addition to producing fields and those scheduled for development, recent discoveries on Western Delta acreage
and a strong acreage position with a yet-to-find potential of
more than 15 trillion cf confirm BP and its partners will
have significant quantities of Egyptian gas available for
development and supply by 2008-10. BP plans to be a
main gas supplier to future LNG expansions in Egypt. BPs
strategy in the country is to develop its business to become
the main provider of Egyptian gas to the domestic and
export markets.

Mohamed
Farghaly

5.11

The integrated solution


The key LNG players in Egypt are pursuing grassroots projects competing in the global market with both grassroots
and expansion projects. Nevertheless, Egypt has been successful in capturing prime markets for nearly 495bn cf/y of
its LNG in a very challenging business environment. Egypt,
with its strategic position on the Mediterranean and its
political stability, can offer security of supply to the Atlantic
basin at competitive prices. The success of Egyptian LNG
will depend on three main factors:
Long-term institutional support for export projects, which
Egypt ensured by offering gas at a competitive price to facilitate exportation, with a deal that includes sharing the risk
and reward of developing deep-water gas reserves and
building an LNG project for the Atlantic basin against a
background of highly volatile energy prices;
The necessity to optimise the utilisation of different-quality gases at different costs. There is low-cost, rich gas in
the shallow waters of the Nile Delta, while most of the gas
to be discovered is in deep water; and
The co-operation between gas producers, EGPC and
Egyptian Gas Holding Company to optimise the gas-supply
options and the cost of the development of LNG facilities
optimised facilities increase the netback to gas producers
and reduce the cost of financing the LNG facilities.

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Fundamentals of the Global LNG Industry, 2004

79

Exporters: Egypt

Jewel of the Nile


Its advantageous geographical location, healthy business environment and abundant gas
reserves have made Egypt a core country in BG Groups portfolio. As well as providing local
markets with new supplies of gas, the country is set to become an LNG exporter next year,
when Egyptian LNG enters service. By Martin Houston, BG Group

NG EXPORTS from Egyptian LNG (ELNG) are on track


to start in the third quarter of next year. If the project
continues according to schedule, the first cargo will
load within six years of the initial gas discovery a worldclass achievement. ELNG will make Egypt the worlds seventh-largest LNG exporter, as well as the first new
Mediterranean LNG supplier to emerge since 1970.
Major gas discoveries in recent years have generated a
significant source of economic growth in Egypt. Sufficient
reserves have been found to supply the expanding domestic market and export markets. By 2006, it will be delivering
an average of 2bn cf/d to domestic and export markets.
With two trains already under construction, ELNG is leading the way in the LNG business in Egypt. In addition, significant expansions are possible. In total, six trains can be
accommodated at the site, at Idku, 50 km east of
Alexandria, on Egypts Mediterranean coast. Exploration is
under way to find reserves for future trains.

Martin Houston

5.12

Significant investment
The project is of major significance to BG. The plant will
form a strong component of the companys Atlantic Basin
LNG portfolio (see Box). So far, BG Egypt and its partners
have invested $1bn and investment is expected to amount
to $2.7bn over the 1997-2006 period.
Construction of Train 1 and the common facilities started
in September 2002 and, in June 2003, the projects partners authorised the start of the engineering, procurement
and construction programme for Train 2. LNG production
from Train 1 is scheduled to start in the third quarter of
2005, with Train 2 coming on stream about nine months
later. Both trains will use Phillips liquefaction technology
and will share storage and marine facilities.
The gas supply for Trains 1 and 2 will come from the
West Delta Deep Marine (WDDM) concession, offshore the
Nile Delta. BG has a 100% exploration and appraisal success rate, with 16 wells drilled to date on the WDDM area
now established, under BGs operatorship, as the most prolific concession area in the country.

Table 1: Egypt LNG projects


Damietta LNG
Project
(Segas)
Start-up
2004 (T2 2006/7)
Shareholders
Union Fenosa
Gas (Union
Fenosa 50%; Eni
50%); Egas; EGPC
Operator
Segas
Capacity (million t/y) 5.00
Number of trains
1
Process method
APCI
Gasfields
Eastern Nile Delta
Storage ('000 cm)
300
Exports to
Spain

ELNG T1
2005
BG 35.5%;
Petronas 35.5%;
Egas 12%; GdF
5%; EGPC 12%
Egyptian LNG
3.60
1
POCP
Simian; Sienna
France

ELNG T2
2006
BG 38%; Petronas
38%; Egas 12%;
EGPC 12%
Egyptian LNG
3.60
1
POCP
Sapphire
Italy, US

Table 2: Egypt sales contracts


Purchaser
Union Fenosa
Amount (million t/y) 3.00
Contract length (year) Start
2004
Signed
2001
Remarks
Damietta

GdF
3.60
20
2005
2002
ELNG T1

BG Gas
Marketing
3.60
2006
2003
ELNG T2, SPA

In early 2002, two appraisal wells, Sapphire-4 and


Sienna-2, confirmed that the concession would be able not
only to supply local markets, but that sufficient reserves
exist for a two-train LNG project. The first two fields under
development in WDDM Scarab Saffron have supplied
the domestic market since the first quarter of 2003.
Scarab Saffron is the largest gasfield development project
in Egypt and the first to use deep-water technology (water
depths are in excess of 700 metres). Skills and technology
from the project are expected to be transferred to other
areas of Egypts oil and gas industry. Development costs
are estimated at around $0.7bn.
The Simian Sienna fields are being developed for the first
phase of the ELNG export project. Development of the
Simian Sienna fields will be integrated with the Scarab
Saffron fields to maximise synergies and reduce development costs through standardisation of equipment and optimising the capacity of facilities. Like the Scarab Saffron
project, it will use sub-sea completion technology, but, due
to the increased step-out from the shore, the project will
utilise a controls platform located in shallow water to
reduce controls system risks and maintain plant availability.

LNG export agreement


The LNG Export Project Agreement (LEPA) was signed on 5
April 2001 and laid the commercial foundations for ELNG.
The key objectives of the LEPA were:
To amend the WDDM Concession and Gas Sales
Agreements, to allow for the export of WDDM gas;
To allow pooling of gas from different fields within the
Concession to supply both export and domestic markets;
To agree the key principles of development of the LNG
project to outline the various roles and expectations of the
partners in the project development stage; and
To provide a description of the export project structure,

LNG tank
under
construction
80

Fundamentals of the Global LNG Industry, 2004

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Exporters: Egypt

specifically that the plant would be a tolling facility and that


ELNG will be located in its own tax-free zone at Idku.
The LEPA recognised the need for shared infrastructure
between the domestic and the export markets and put in
place an innovative gas-pooling arrangement, allowing flexibility in the development of upstream facilities. Integrating the
gas developments helped optimise capital spending. Careful
phasing of the development activity expected to take place
over the next 20 years to supply the plant and the domestic
market has significantly improved upstream economics.
Following the LEPA, the amended WDDM Concession
Agreement, including provisions allowing the export of natural
gas, was signed in July 2002. So far, WDDM is the only concession in Egypt where gas exports are permitted, making BG
and Petronas the only concession holders with the legal right
to export natural gas in the form of LNG. Most importantly,
BG is the only upstream company in Egypt with a definitive
export agreement. Standard Egyptian Concession Agreements
do not provide commercial terms for the export of gas.

ELNG commercial structure


The ELNG project will act as a tolling facility for gas producers. In the case of Trains 1 and 2, this will be for the WDDM
partners, who will sell the gas. The projects partners have
adopted an innovative commercial structure for the ELNG
project to ensure maximum flexibility and to facilitate expansion. The structure also allows new entrants to invest in subsequent trains without having to invest in the whole project.
To allow such new entrants clarity and transparency it was
necessary to set up the project with three key companies:
The ELNG Holding Company (ELNG Company) will own
the ELNG site and common facilities. This company will
control the overall development of the project, will own the
site and the common facilities and, importantly, will control
any future expansions. The actual infrastructure owned by

the ELNG Company will consist of any facilities not specifically dedicated to a particular liquefaction unit or train.
This will include, among other things, the marine facilities,
power generation and storage tanks;
A separate train company (Train Company) will own each
individual train and will lease the land from the ELNG
Company and pay for use of the common facilities. The liquefaction trains will be owned by individual train companies. Up to six train companies are envisaged at the site.
Each train company is responsible for its own marketing
and gas sales contracts; and
An operating company will operate all trains on behalf of
the train companies and the common facilities.
This structure means the shareholding of the train companies does not have to be the same as the holding company. Each train company could also have a different
shareholding structure. For example, Gaz de France (GdF),
the customer for all of the Train 1 output has a 5% stake in
Train 1, but is not participating in Train 2.
BG will be conducting further exploration activities in
WDDM in 2004 in an effort to identify reserves for future
trains. BG and its partners are seeking offers from suppliers
for gas to feed a possible third train, which, depending on
market demand, could be operational by mid-2007. This
third train would also be designed with 3.6m tonnes a year
(t/y) of capacity. Construction would require some expansion
of the supporting facilities, such as an additional storage
tank. However, because of the commercial structure,
entrants would not bear the cost of the existing facilities.
Comparison with contemporary projects shows ELNG is
extremely cost-competitive. Furthermore, it is being completed quickly. Speed-to-market has been an important competitive advantage. ELNG has also set a benchmark in Egypt
for its environmental impact assessment, with extensive public consultations and continuing dialogue with communities.

5.12

BG Groups Atlantic Basin portfolio


LNG demand is set to grow three times
as fast as global natural gas demand
some projections envisage demand doubling over the next decade.
Although exploration and production
remains at the centre of BGs activities,
LNG offers a valuable opportunity for
growth. The company already has projects in the US, Trinidad, Egypt, Italy and
others are in development.
Since the beginning of the international LNG trade in 1964, BG has been
working throughout the chain of the
business activities export and import
facilities, and the purchase, shipping
and marketing of LNG. The company
owns or charters six vessels, with delivery of two new vessels in 2004 and
three scheduled for 2006.

Atlantic LNG, Trinidad


Trinidad and Tobagos Atlantic LNG project has helped to change the way the
industry perceives LNG by resetting the
industry cost structure and paving the
way for LNG to become a more costeffective supply of natural gas to the US.
BG was involved across the chain of
LNG activities, from discovery to deliv-

BACK

ery. BG maximised efficiencies by taking its own equity gas and converting it
to LNG at Atlantic LNG (in which it
owns equity). This LNG was then
transported to US terminals, including
Lake Charles, on BG-owned or chartered ships.
ALNG Trains 1, 2 and 3 are already
operational, with Train 4 expected to be
operational in early 2006. Once Train 4
is operational, ALNG will have 15.1m t/y
of liquefaction capacity.

bringing in gas from Europe, the Middle


East, west Africa and the Caribbean.
In 2003, over 100 cargoes came
into Lake Charles, making it the busiest
LNG terminal in the US and one of the
busiest in the world, supplying 1-1.5%
of US natural gas demand. Peak sendout after expansion of Lake Charles in
2006 will be 1.5bn cf/d. BG LNG
Services has the right to 100% of
capacity service at the Lake Charles
terminal.

Lake Charles, US

Brindisi, Italy

The demand outlook for natural gas in


the US is strong, but domestic production is in decline. The US needs to find
secure, reliable and cost-effective supplies of natural gas.
BG has driven the revitalisation of the
US LNG market and its wholly owned
subsidiary, BG LNG Services, is now the
largest importer of LNG into the US.
In 2002, BG took around 80% of
capacity at Lake Charles, Louisiana, one
of only four regasification terminals in
the US, and now has 100% capacity.
By 2006, Lake Charles will be the
largest LNG receiving terminal in the US,

With increasing demand for natural gas,


Italy needs an energy partner that can
deliver secure and cost-effective
sources of natural gas.
In 2003, BG was granted permission
to build Italys first LNG terminal for more
than 30 years. Working in partnership
with local governments and Enel, the
Brindisi terminal is a gateway to Italian
and southern European gas markets.
The equal shareholders are BG and
Enel. LNG will be supplied from ELNG
Train 2. Construction is scheduled to
commence in second-quarter 2004,
with start-up envisaged in 2006.

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Fundamentals of the Global LNG Industry, 2004

81

Exporters: Algeria and Libya

The North African connection


Algeria, the worlds second-largest LNG producer, is looking to enlarge output through a
new integrated gas project at Gassi Touil. Along the coast, Libya continues to export small
volumes. By Justin Deaville, Petroleum Economist

OLLOWING a refurbishment programme completed in


1999, Algerias LNG export capacity amounts to
29.1bn cubic metres a year (cm/y). Two facilities at
Arzew (GL1Z and GL2Z), each have a capacity of 10.7bn
cm/y. A facility at Skikda (GL1K), with a capacity of 6.5bn
cm/y, is only able to supply smaller ships, usually bound for
France, Spain and Italy. The old Camel plant at Arzew
(GL4Z) continues in operation with a capacity of 1.2bn
cm/y. In 2002, Algeria delivered 26.89bn cm of LNG;
France was its largest customer, lifting 10.2bn cm of gas.
The governments plan for the development of reserves
at Gassi Touil, for which bids were invited in 2002, includes
the construction of an LNG plant with a capacity of about
5.5bn cm/y, probably at Arzew. The bidding process was
due to be completed by mid-2003, but has been delayed.
The authorities are targeting the US to which Algeria was,
until 1995, the sole supplier. Algeria has already ordered
two LNG tankers (138,000 cm and 145,000 cm), which
are due to be delivered in 2004.
Reserves included in the Gassi Touil project total 255bn
cm, according to Sonatrach. Production capacity is likely to
be substantially greater than the envisaged 5.5bn cm/y
capacity of the new LNG facility; additional gas could be
available for export through other routes. A dozen consortia
have filed technical papers expressing interest, according to
the ministry, including Total, Statoil, Shell, Gaz de France,
ConocoPhillips, Anadarko Petroleum and Amerada Hess.

5.13

In Salah
Three other upstream projects Ohanet, In Salah and In
Amenas should increase gas output by over 22bn cm/y. A
cluster of seven fields in the In Salah area, in the centre of
the country, will be exploited by BP and Sonatrach. They
will produce at a plateau rate of 9bn cm/y, with first gas
expected in the third quarter of 2004. Gas will be treated
and piped 460 km north through a new 48-inch line to the
Hassi RMel hub.

In Amenas
BP and Sonatrach are also implementing the In Amenas
wet-gas development, in the deep east of the country. The
first of four fields in the Illizi basin Tiguentourine, Hassi
Farida, Hassi Ouan Abech and Ouan Taredert is due to
start flowing in late-2005. The development will produce
9bn cm/y at plateau.

Figure 1: Algeria export history


bn cm
30
25
20
15
10
5
0

82

1975

1980

1985

1990

1995

2000

Ohanet
Also in the Illizi basin, a BHP-headed group (comprising
BHP, 45%, three Japanese companies, with 30%,
Woodside, 15%, and Petrofac, 10%), in association with
Sonatrach, is working on the Ohanet development. Four
gas/condensate reservoirs will produce at a plateau rate of
6.8bn cm/y of gas with 26,000 b/d of condensate and
21,000 b/d of liquefied petroleum gas.

Pipelines
Algeria also plans to increase pipeline exports. The recently
renamed Enrico Mattei line has a capacity of 15bn cm/y. It
carries gas from Hassi RMel, across Tunisia, subsea to
Sicily and then subsea to the Italian mainland.
The Maghreb-Europe line, renamed Pedro Durn Farrell,
takes a westerly route from Hassi RMel, crossing Morocco
and the Strait of Gibraltar to enter Spain. Capacity has
been increased to 11bn cm/y with the construction of a
third compression station.
The countrys third export pipeline on which construction is due to commence in 2004 will follow a more
direct route to Spain, from Beni Saf to Almera. The
$1.5bn line, named Medgaz, will be owned by a group
made up of state-owned Sonatrach (20%), Cepsa (20%),
BP (12%), Endesa (12%), Eni (12%), Gaz de France
(12%) and Total (12%).
Purchase contracts have been signed with Gas Natural,
3bn cm/y; Cepsa, 1bn cm/y; Distrigas, 1bn cm/y; Iberdrola,
1bn cm/y; and Total, 1bn cm/y. The capacity of the system
Table 2: Algeria export projects

Volume
(bn cm)
3.20
10.20
0.50
2.20
5.95
4.08
0.76
26.89

Source: Cedigaz

1970

Source: Cedigaz

Table 1: Algeria LNG exports, 2002


Destination
Belgium
France
Greece
Italy
Spain
Turkey
US
Total

1965

Project
Start-up
Shareholders
Operator
Capacity (m t/y)
Number of trains
Process method

Arzew GL1Z
1977
Sonatrach
Sonatrach
7.95
6
APCI

Arzew GL2Z
1981
Sonatrach
Sonatrach
8.40
6
APCI

Arzew GL4Z
(Camel)
1964
Sonatrach
Sonatrach
0.90
3
Classic cascade

Gasfields
Storage capacity ('000 cm)
Exports to

Hassi-R'Mel
900
Europe; US

Hassi-R'Mel
900
Europe; US

Hassi-R'Mel
71
Europe

Fundamentals of the Global LNG Industry, 2004

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Skikda GL1K
Phase I&II
1972
Sonatrach
Sonatrach
4.70
6
Teal (1-3),
Prico (4-6)
Hassi-R'Mel
1,540
Europe

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Exporters: Algeria and Libya

through the facility, equivalent to about 5% of UK demand,


from the In Amenas and In Salah developments.

Figure 2: Libya export history


bn cm
4.0

Spain

3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0

1970

1975

1980

1985

1990

1995

2000

Source: Cedigaz

Table 3: Libya export project


Project:
Start up:
Shareholders:
Operator:
Capacity (million t/y):
Number of trains:
Process method:
Gasfields:
Storage capacity (000 cm)::
Exports to:

Marsa El Brega
1970
NOC
NOC (Sirte Oil)
2.30
3
APCI
Meghil, Rabuga, Zelten
96
Enagas, Spain

could be doubled, from 8bn cm/y, by the construction of


additional compression stations.

UK
Sonatrach is also investing in European gas infrastructure.
From 2005, it will be supplying LNG to the UK again.
Sonatrach provided the worlds first shipment of LNG to the
UK in 1964 and has signed a 20-year agreement with BP
to supply the Isle of Grain terminal, 32 km east of London.
Together, the firms intend to supply 5.2bn cm/y of gas

Sonatrach has also bought a 15% share in Spains Ferrol


terminal, in the Galicia region. The other shareholders in
Reganosa the company that will build and operate the
regasification plant are the Spanish power generators,
Endesa and Unin Fenosa (with 20% each), industrial
group Tojeiro (18%), the regional government (10%) and
three banks (17%).
The 2.5bn-cm/y terminal will have two 150,000-cm
storage tanks and will be able to berth 135,000-cm
tankers. Sonatrach will supply the terminal for 10 years
following its expected commissioning in 2004.

Swap deals
In 2003, Sonatrach was involved in a spot deal, with
Qatargas buying two cargoes of Algerian LNG for delivery to
Gas Natural. Two cargoes were then despatched from Qatar
to Chubu Electric to meet increased demand in Japan.

Libya
Libya exports small volumes of LNG from its plant at Marsa
el-Brega brought on stream in 1970, when the country
became the worlds second LNG exporter. The three-train
plant has a capacity of 2.3m t/y and the authorities have
long-standing plans to upgrade and refurbish the facility.
There is a 96,000-cm storage facility.
The facility has technical limitations because, unusually, it
was designed to liquefy natural gas liquids together with the
feed gas, and the resulting product has to be regasified at a
terminal with a fractionation column. So, the only buyer of
Libyan LNG for many years has been Spains Enagas, which
has mostly been taking less than 1bn cm/y. Gas is supplied
from the Meghil, Rabuga and Zelten fields.

5.13

Gas utilisation
plant, Jakhira,
Libya
Wintershall

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Fundamentals of the Global LNG Industry, 2004

83

Exporters: Norway

Snhvit gas from the far north


The Snhvit project will be the first LNG export facility in Norway and Europe. Huge
volumes of gas, deep beneath the Barents Sea, will be piped ashore, cooled and shipped by
special carrier to Spain and the US. Shipments will start in 2006 and will continue for more
than 20 years. By Sverre Kojedal, manager, public affairs, Statoil

HE SNHVIT area comprises the Snhvit, Albatross


and Askeladd fields, which lie in the Hammerfest basin
of the Barents Sea, about 140 km northwest of
Hammerfest, in northern Norway. All the fields primarily
contain natural gas with small quantities of condensate.
Production will be piped to a receiving and liquefaction
plant on Melkya island, outside Hammerfest. After processing and liquefaction, around 70 consignments a year
of LNG will be shipped in special carriers to markets in
Europe and the US over almost 25 years.
Total investment in the Snhvit project is put at
NKr45bn, making this the largest industrial development in
north Norwegian history. In addition, there is the cost of
four new Japanese-built LNG carriers.
Some 1,400 people will be employed on Melkya during
the peak construction phase. And about 350-400 new jobs
will be created in Hammerfest in the production period,
including 175 at the gas liquefaction facility.

Sverre Kojedal

5.14

High environmental standards


Snhvit is the first offshore project in the Barents Sea and,
as operator, Statoil has incorporated high environmental
standards in the development solution. Production will take
place in a closed system without harmful discharges to the
sea and an onshore biological treatment plant will remove
polluting components. Carbon dioxide (CO2) in the wellstream will be separated out on Melkya and piped back to
Snhvit for storage below ground.
Interests in the seven licences have changed over the
years. The partners are now Statoil, Petoro, Total, Gaz de
France (GdF), Amerada Hess and RWE-DEA.
An attempt was made in the early 1990s to establish a
basis for developing Snhvit. Statoil initiated a planning
process in 1991 under Norwegian legal provisions for
impact assessments relating to a possible project. Plans
then embraced an offshore field development and a gas liquefaction plant at Slettnes, on Srya, near Hammerfest.
They depended on selling LNG to the Italian market.
A proposed programme of impact assessments was sub-

Snhvit facts
The field: The Snhvit area comprises the Snhvit,
Albatross and Askeladd fields. The first gas discovery was
made in 1981.
Recoverable reserves: 193bn cm of natural gas, 3.1m6.2m barrels of condensate. and 120,000-140,000 tonnes
of liquefied petroleum gases (LPG).
Water depths: 250-345 metres.
Development solution: No surface installations. Subsea
production wells, pipeline to the land plant, where the gas is
liquefied for export by ship. Production on the field is
remotely operated from land.
Annual production: 5.67bn cm LNG, 0.75m tonnes of
condensate and 247,000 tonnes of LPG.
Construction: A total 28,000 work-years will be performed
in 2002-2006, two-thirds associated with the land plant.

84

Fundamentals of the Global LNG Industry, 2004

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Table 1: Snhvit LNG (Melkya Island)


Start-up:
Shareholders:

Operator:
Capacity (million t/y):
Number of trains:
Process method:
Gasfields:
Storage capacity (000 cm):
Exports to:

2006
Statoil 33.53%; Total 18.4%; GdF 12%;
Amerada Hess 3.26%; RWE-Dea 2.81%;
Norway (state) 30%
Statoil
4.2
1
Statoil/Linde
Snhvit; Askeladd; Albatross
250
Spain; US

mitted to the energy ministry, which circulated the proposal


for comment in September 1991. But Statoil halted the
planning process, because of cost and market factors, and
the ministry never specified an assessment programme.
Statoil did not, however, abandon its plans for LNG
exports based on gas resources in the Snhvit area, but
development costs had to be reduced. A new solution for
developing the field was proposed, with a landfall on
Melkya island and subsea production installations
remotely operated from land.
Planning resumed in 1997, with a new proposal for
assessments submitted to the ministry in the following
year. This embraced both new impact assessments and
upgrading of preparatory work conducted in the previous
development process. On behalf of the licensees, Statoil
submitted a plan for development and operation of the field
in September 2001, and this was approved by Norways
Storting (parliament) in March 2002.

New postponement
Less than two weeks after the Storting go-ahead, the Efta
Surveillance Authority (ESA) which monitors the European
Economic Area (EEA) contacted the Norwegian government. It wanted to establish whether special depreciation
rules adopted for Snhvit might breach the provisions on
state subsidies in the EEA agreement between Norway and
the European Union.
Bellona, a Norwegian environmental organisation, which
has campaigned to halt offshore operations in the Barents
Sea, raised this issue with the ESA. The ESA intervention
meant site preparations on Melkya were suspended until
the authority announced, in early June, that it had
approved revised tax terms for Snhvit. Adopted by the government in late May, these restrict the tax rules for the project to the far northern county of Finnmark and four local
authorities in the neighbouring county of Troms.
Snhvit will be the first major development on the
Norwegian Continental Shelf with no surface installations.
No fixed or floating units will be positioned in the Barents
Sea. Instead, the subsea production facilities will stand on
the seabed, in water depths of 250-345 metres. A total of
20 wells will be drilled to produce gas from the Snhvit,
Askeladd and Albatross fields.
And Snhvit is also going further in other areas. The
pipeline carrying production from the subsea installations to

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Exporters: Norway

northwestern coast of Melkya, with the ship working its


way out to the field along a carefully planned route.
The unprocessed wellstream arriving at Melkya must be
separated before the gas can be cooled to liquid form and
exported by tanker. CO2 removed from the wellstream will
be returned offshore for storage underground. Condensate
and natural gas liquids butane and propane must also
be separated out before export.
After this process, the resulting lean gas is cooled to
163C in the liquefaction plant. That reduces its volume
600-fold, making it suitable for ship transport. The LNG will
be stored in dedicated tanks before shipment.
Melkya will be no less than 143 km long a world-record
distance for piping an unprocessed wellstream. And the
system for remote operation of offshore production and
transport from a control room at the Melkya facility is also
the longest of its kind. Land-based controllers will open and
close subsea valves on the field, using fibre-optic cables as
well as high-voltage electricity lines and hydraulic power for
monitoring and control.

Pipelines and umbilicals


The field will be tied to the land-based plant by several
links. The largest of these is the 143-km gas pipeline,
which will have an internal diameter of 68 centimetres. In
addition, there are two chemicals lines, an umbilical and a
separate pipeline for transporting CO2. Gas from the Snhvit
area contains 5-8% CO2.
The pipelines are due to be laid from a special ship in the
summer of 2005. Laying will start from the landfall, on the

Snhvit LNG
project
development

Barge-mounted
The whole process plant will be constructed on a massive
barge (9 metres high by 154 metres long and 54 metres
wide) to be built at the Spanish shipyard group Izar
Construcciones Navals yard in Ferrol. Following completion,
the barge will be towed to the Dragados outfitting yard
where about 30,000 tonnes of process equipment for the
gas liquefaction plant will be installed on its deck. From the
outfitting yard the barge will be transported to Hammerfest
and Melkya on a heavy-lift ship and installed in a dock
blasted out in advance.
The chosen building approach greatly reduces the need for
steelwork on Melkya and provides cost savings as well as
higher productivity compared with building the plant on site.
The LNG carriers scheduled to ship gas from the Melkya
plant are very large, measuring 290 metres in length, with
each of their four spherical cargo tanks having a diameter
of 40 metres. One carrier will load every six days at

5.14

More than good ideas

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Exporters: Norway

Melkya, adding up to about 70 consignments a year. Four


LNG carriers, each able to carry about 140,000 cubic
metres (cm), are required to handle this export volume.
Statoil will be part-owner of three of these vessels,
which are all being built in Japan. One will be owned
together with Norways Leif Hegh & Co and Japans MO
Lines, and two with Japans K-line. The French licensees
in Snhvit, Total and GdF, will lift their own share of the
gas with one of the four carriers.
While thousands of conventional oil tankers exist, the
world fleet of LNG carriers numbers only about 130 vessels. Most sail on fixed routes between LNG export and
import terminals. These ships are very expensive because
of their special cargo tanks, which must cope with being
cooled down to 163C.

Gas for the US and southern Europe


The US and countries in southern Europe will be the main
markets for Snhvit gas. Statoil is to market 2.4bn cm/y to
the US. To gain access to this market Statoil has acquired
capacity at the Cove Point terminal, near Washington DC.
Spains Iberdrola will purchase 1.6bn cm/y. GdF and Total
will dispose of their own share of the gas (1.7bn cm/y).
The US is the worlds largest natural gas consumer and its
largest producer. However, consumption is 17% higher than
production, requiring large volumes of imports primarily by
pipeline from Canada. But LNG imports are increasing and
six countries delivered a total of 6.6bn cm of LNG to the US
in 2001 an increase of 40% from the previous year.
When Snhvit begins deliveries in 2006, Spain will
receive Norwegian gas by both ship and pipeline. Norway
has delivered pipeline gas to Spain since 1993 and the
country doubled its gas consumption from 1995 to 2001.
The LNG market has been the worlds fastest-growing
energy sector over the past two decades and has more
than quadrupled in size since 1980. A total of 143bn cm of
gas was carried by ship in 2001 26% of all worldwide gas
exports. The remaining 74% was transported by pipeline.
The most important LNG recipient is Japan, which
accounts for 52% of world imports. Other important LNG
importers are South Korea, France, Spain, the US, Italy and
Turkey. Indonesia, Algeria, Malaysia, Qatar and Australia
are the biggest exporters.

5.14

As Statoils first development in the Barents Sea, Snhvit


faces very special environmental requirements. These have
been taken into account when planning the project. Statoil
has kept in close touch with fishing interests during this
process to ensure the development does not conflict with
their activities. And although 0.67m tonnes of CO2 will be
removed from the field and stored below ground, the
energy-intensive liquefaction process will emit over 0.9m t/y
of CO2 to the air. No technology for economic flue-gas
treatment has so far been developed.

Special features
Snhvit is the best-studied project Statoil has ever applied
to develop. More than 2,000 pages of technical documentation, involving most of Norways specialist expertise in this
field, form the basis for the extensive environmental-impact
assessment compiled for the development application submitted to the authorities in 2001. Several special features
of Snhvit make this an advanced project in technological
and environmental terms:
The highest subsea production so far to be remotely operated over a distance of 143 km from field to control room;
No surface installations to interfere with fishing and the
subsea facilities can be over-trawled;
The field will be produced in a closed system, without
harmful emissions or discharges;
An onshore biological treatment plant will handle environmentally harmful components;
The longest offshore pipeline for carrying unprocessed
wellstreams to land;
CO2 to be stored underground, in the second-largest
industrial storage project after the Sleipner fields also
operated by Statoil;
Energy-efficient gas liquefaction plant developed in cooperation with Germanys Linde; and
LNG carriers built to the strictest environmental and
safety standards.
The gas and condensate resources in Snhvit represent
major assets for northern Norway and the Norwegian community as a whole. Developing Snhvit will contribute to a
substantial enhancement in local expertise and value creation. This project is set to create new industrial jobs in the
region, which can have synergies with existing industry.
Based on estimated petroleum prices and future exchange
rates, revenues from the development for 2006-30 are
expected to be around NKr200bn.
About NKr45bn will be invested in the Snhvit development, with about NKr30bn being spent from 2001-06 in
other words, before revenues start to flow. This investment
primarily relates to the subsea installations on the field, the
pipeline to Melkya, the receiving terminal on land and the
associated gas liquefaction plant. Costs associated with
LNG ship construction are additional.

Local and regional deliveries

Project schematic

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Fundamentals of the Global LNG Industry, 2004

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Deliveries by local and regional companies in northern


Norway for an estimated 25 years from the start of production in 2006 should be worth some NKr240m a year. Local
spin-offs from the Snhvit development are likely to be
most noticeable in the Hammerfest area, adjacent to the
Melkya plant, and in the surrounding communities.
Deliveries from northern Norway will primarily relate to
construction work for the gas liquefaction plant. But contracts in such areas as supplying goods, catering and transport will also be substantial. Construction will also account
for most deliveries to Snhvit from companies in the rest of
Norway. There will also be some commercial services relating to transport, supply of goods and accommodation.

Exporters: Americas

Gearing up to meet US demand


Trinidad and Tobago has given the go-ahead for Atlantic LNG to construct a fourth
production train at its Port Fortin complex. The plant will utilise 85% of the countrys proved
natural gas reserves, drawing criticism from the methanol industry, but the government
sees LNG as a major source of tax revenue. By David Renwick, Petroleum Economist

TLANTIC LNG (ALNG) is a joint venture of stateowned National Gas Company (NGC), with four
international companies BP, BG, Repsol YPF and
Tractebel. The facility, at Point Fortin, on the southwestern coast of Trinidad, was the first greenfield LNG plant
to be built in the western hemisphere in the past 25
years, costing around $1bn. Operations started up in
April 1999.
With the green light given by the government for a fourth
train at ALNG, Trinidad and Tobago has committed no less
than 85.5% of its proved natural gas reserves to LNG production. The four trains will utilise 17.8 trillion cubic feet
(cf) of proved reserves of 20.8 trillion cf.

Figure 1: Atlantic LNG export history


bn cm
6
5
4
3
2
1
0

1999

2000

2001

2002

Source: Cedigaz

Sticking point
This use of so much gas by one industry was a major sticking point in the negotiations between the ALNG partners. It
also drew expressions of concern from non-LNG gas users,
such as local conglomerate CL Financial (CLF), the leading
investor in the countrys methanol plants.
Rampersad Mootilal, the chief executive officer of CLFs
Methanol Holdings subsidiary, pointedly told the government that the increased emphasis on LNG may impact
negatively on the petrochemicals sector. That sector has
been a major success story in Trinidad, which, with five
plants, has the worlds largest methanol export industry.
This position will be enhanced when Methanol Holdings
brings its M5000 plant on stream this year.
At 1.8m tonnes a year (t/y), M5000 is the largest
methanol plant planned in the world and Methanol
Holdings had feared it might have difficulty sourcing gas for
it. But officials at NGC, which makes the bulk of its income
from domestic gas trading (its shareholding in Train 4 will
propel it into the export market for the first time), say adequate gas supply for M5000 is lined up.
What reassured the government as far as gas reserves
were concerned was the confidence of the big players,

5.15
such as BP and BG, that probable reserves of 9.3 trillion cf
and possible reserves of 6.1 trillion cf will, pretty soon,
shift into the proved column, as exploration and development work proceeds.
BP alone will embark on a $25m 3-D seismic shoot on
its East Coast Marine Area acreage this year, in an effort to
identify new gas in the deeper sections of the continental
shelf (15,000 feet and below). BP regards Trinidad as one
of its six core areas for upstream growth.

Reserves potential
The big companies agree that, in addition to 3P reserves,
Trinidad and Tobagos offshore acreage contains another
30.7 trillion cf in identified exploratory leads plus about
28 trillion cf of gas resources classified as unidentified.
The deep shelf falls into the former category.
Once the fear of a gas reserves shortage was allayed, the
government seemed willing to allow 0.8bn cf/d to be consumed by Train 4 from January 2006 5.8 trillion cf over a
20-year period. This will be converted into 5.2m t/y of LNG,
which is said to make this the biggest train in the world with

Table 1: Atlantic LNG facts


Project
Start-up:
Shareholders:
Operator:
Capacity (million t/y)::
Number of trains:
Process method:
Gasfields:
Storage capacity ('000 cm)::
Exports to:

Atlantic LNG
1999
BP 34%; BG 26%; Repsol YPF
20%; Tractebel 10%; NGC 10%
Atlantic LNG
3.30
1
POCP
Mahogany; South Seg
204
Puerto Rico; Spain; US

Atlantic LNG T 2/3


T2 2002; T3 2003
BP 42.5%; BG 32.5%; Repsol
YPF 25%
Atlantic LNG
6.60
2
POCP
N coast (BG); E coast (BP)
As for Train 1
Caribbean; North America;
Spain

Atlantic LNG T4
2005+
BP 37.78%; BG 28.89%; Repsol
YPF 22.22%; NGC 11.11%
Atlantic LNG
5.20
1
POCP
N coast (BG); E coast (BP)
160
US

Atlantic LNG T5
2008
BP 34%; BG 26%; Repsol YPF 20%;
Tractebel 10%; NGC 10%
Atlantic LNG
5.20 (minimum)
1
POCP
N coast (BG); E coast (BP)
US; Spain

Table 2: Atlantic LNG supply contracts


Purchaser:
Amount (million t/y)::
Contract length:
Start:
Signed:

Cabot
1.80
20
1999
1995

Gas Natural
1.20
20
1999
1995

Gas Natural
0.70
-

Gas d'Euskadi
0.70
-

HOME

Repsol YPF
2.10
-

BG
2.10
-

Cabot
0.30
-

AES Group
0.75
-

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Exporters: Americas

all the necessary consents. With Train 4, total ALNG production at the Point Fortin complex will be 15.1m t/y, confirming Trinidad and Tobagos position as the worlds fifthlargest exporter.
Although the all-your-eggs-in-one-basket concern was
legitimate, paradoxically it was the predictable commercialisation of a substantial portion of gas, over a fairly lengthy
span of time, which appealed to the government. Eric
Anthony Williams, the minister of energy and energy industries, tells Petroleum Economist that, while the local petrochemicals producers are entitled to express their apprehensions over gas usage, global gas demand for products such
as methanol and ammonia is slowing down, whereas
demand for LNG is rising.
There have been several very favourable predictions for
LNG growth in the US, and Trinidad is the closest producer
bar the Marathon-ConocoPhillips plant at Kenai, Alaska,
which has a nameplate capacity of only 1.5m t/y.
Cambridge Energy Research Associates, for one, forecasts
LNG will meet 11% of US gas demand by 2010, up from
1% today. This means about 9bn cf/d of LNG imports will
be needed by the US at that time, a significant part of
which can best be provided by Trinidad, says Williams.

Stable production
ALNG is already the major supplier to the US, having met
68% of demand in 2002. LNG represents 57% of annual
domestic gas utilisation since Train 3 commenced production in April 2003 and Train 4 will boost that percentage
considerably by 2006, depending on how other gas-using
industries grow during the period. LNG can keep Trinidads
gas production stable for a very long period of time, the
energy minister says.
Trinidads gas also has the advantage of being free of
components such as propane and butane, which are
extracted before liquefaction, giving the countrys exports
an edge over those of potential competitors. Our LNG can
go into all four of the existing US terminals, Williams says,
because it is reasonably dry of liquids and meets Btu burning requirements.
While production from ALNGs first three trains is sold in
the US, Spain, Puerto Rico and the Dominican Republic,
almost all the production from Train 4 is likely to end up in

5.15

Alaska

HE KENAI LNG plant, in Alaska delivered its first cargo to


Japan, at Yokohama, in November 1969, under a 15year contract with Tokyo Electric Power and Tokyo Gas.
The Polar Alaskas eight-day trip carried the first commercial
LNG exports from the western hemisphere and marked the
first LNG imports into Japan. A project to optimise plant performance and reliability was completed in 1993.

the US, where prices are forecast to remain fairly buoyant


for the foreseeable future.
The government based its negotiations with the shareholders on a price of $3.50/m Btu at the US Henry Hub
and netted it back to Trinidad to see what the treasury take
would accrue to at the wellhead where the bulk of the
taxes are collected from the local energy sector.

Steady tax take


Williams seems happy with the result, as the governments
negotiators obtained an agreement that up to 90% of any
increase in price beyond the benchmark would be for the
account of the gas producers in Trinidad, who pay a petroleum profits tax, at 55%, rather than for the marketing
companies dealing with the processing and sale of LNG or
ALNG Train 4 itself, both of which pay the standard 35%
tax rate. The return to Train 4, which is to be a fully
fledged processing entity and have no title to the gas, has
been fixed at 8%, so the tax take for the state will be
steady over the 20-year period.
The big slice of income for the country will come from the
upstream. Williams claims the treasury should earn about
TT$15.1bn in upstream tax and royalties over the life of the
LNG sales contract when the Henry Hub price is $3/m Btu
and TT$49.2bn if it reaches $5/m Btu. When tax income
from the marketing companies and ALNG is added in, total
government inflow becomes TT$23.5bn at $3/m Btu and
TT$58.0bn at $5/m Btu over 20 years.

Benefits to the local economy


By normal standards, this is a huge tax take from one
industry, even when spread over 20 years, so it is not surprising that the government was happy to dispose of the
reserves question at an early stage and move on to the real
issue in the sanctioning of Train 4 the benefits to the
local economy.
Besides substantial tax revenue, which the state will be
able to use in furthering its ambition of turning Trinidad and
Tobago into a developed society by 2020, a major
advance as far as Train 4 is concerned is the increased
local content in infrastructure. ALNG has set aside $175m
of total construction costs of $1.2bn for the purchase of
local goods and services.

In 2002, ConocoPhillips sold 1.7bn cubic metres of LNG


to Japan. The Kenai plant and its two LNG ships are a joint
venture between ConocoPhillips (70%) and Marathon Oil
(30%). The plants capacity is 1.5m tonnes a year. Export
authorisations have been secured for Kenai LNG sales
through to March 2009.
Figure 1: Kenai export history
bn cm
2.0
1.5

Table 1: Kenai LNG project


Start up
Shareholders
Operator
Capacity (million t/y)
Number of trains
Process
Gasfields
Storage capacity ('000 cm)
Exports to

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88

1969
ConocoPhillips (70%), Marathon (30%)
ConocoPhillips
1.50
1
Phillips Cascade
North Cook Inlet, Kenai gasfield
105
Japan (Tokyo Gas, Tokyo Electric Power)

Fundamentals of the Global LNG Industry, 2004

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1.0
0.5
0.0

1970

1975

Source: Cedigaz

1980

1985

1990

1995

2000

Importers: US

A revitalised market
US LNG imports will rise at an average rate of 16% a year between 2002 and 2025, supported
by a large number of import-terminal proposals. Although many proposals face permitting
challenges, not least of which is local opposition, companies have responded with creative
solutions. By Damien Gaul, industry economist, Energy Information Administration

SURGE OF LNG imports in the US in 2003 appeared


to confirm the revival of the countrys LNG industry
after two decades of struggling to compete with
other sources of natural gas. Final data are expected to
show that 2003 imports total the natural gas equivalent
of over 0.5 trillion cubic feet (cf), more than doubling
deliveries of 229bn cf in 2002 and the historical high of
253bn cf in 1979.
Undaunted by economic risk and other challenges, such
as attaining the necessary permits, US and foreign companies launched proposals during 2003 to site up to 15 new
import terminals, including projects with innovative uses of
existing infrastructure, such as salt-cavern storage and floating offshore platforms. So far, regulators have consented to
the construction of two new terminals ChevronTexacos
Port Pelican and Sempra Energys Cameron.
LNG was a marginal source of gas supply to US markets
in the 1980s and 1990s. But it is again being sought as an
integral part of the US supply mix which it was in the late
1970s, when a perceived shortage of gas led to the construction of the countrys four operating terminals.
Following the large gas-price increase during winter 20002001, a first wave of renewed interest in LNG resulted in
the recommissioning of the Cove Point, Maryland, and Elba
Island, Georgia, terminals, as well as proposals to expand
the Lake Charles, Louisiana, and Everett, Massachusetts,
terminals. About a dozen projects to build new facilities
also arose. Interest in LNG continued during 2002, even as
prices declined for much of the year.
As high prices returned in 2003, interest in LNG became
even stronger. Project sponsors gained confidence from a
variety of changes in the outlook for LNG, including
increased financing interest, regulatory flexibility and technological breakthroughs. However, the number of proposed
LNG import terminals far exceeds the number that is likely
to be built. The number of proposed sites more than doubled during 2003 to over 30 (see Table 1). This exuberance
in the market underscores the opportunity for development
of US LNG import terminals.

tion of four new terminals on the Atlantic and Gulf coasts


between 2007 and 2010, LNG deliveries are forecast to
reach 2.2 trillion cf in 2010. At this level, LNGs share of
gas imports would rise from 5% in 2002 to 39% in 2010.
Imports at the four existing terminals are expected to
reach 1.4 trillion cf in 2010, while around 0.8 trillion cf is
forecast to be delivered to the four new terminals, which
include two on the Gulf coast, one in the South Atlantic
and one in the Bahamas. In addition to these new terminals, the EIA expects the construction of a terminal in Baja
California, Mexico, which will result in deliveries of about
60bn cf to southern California from 2007. The deliveries
will increase to about 180bn cf/y by 2010.
The growth in LNG imports since 2001 will continue over
at least the next two decades. Total US imports, of both
LNG and pipeline gas, will account for over 23% of supply
in 2025, or 7.2 trillion cf. With more terminals expected to
be built, LNGs share of net imports will rise to 66%, or 4.8
trillion cf by 2025.

6.1

Opportunities and issues


The stiff competition to build LNG facilities is taking place
on many fronts. As of December 2003, the EIA has tracked
31 proposed terminals for North America. Many of these
projects are already before regulators, and some have
achieved success with one receiving final approval from
the Federal Energy Regulatory Commission (Ferc). Fercs

Supply and demand


Driving the development of US terminals is both a demand
pull and a supply push. The recognition of a growing need
for incremental baseload gas supplies is represented by
prices at the Henry Hub averaging well above $5/m Btu in
2003, more than double the prices for most of the 1990s.
On the supply side, there is a growing number of countries
looking to monetise their gas reserves, including several
countries with their first liquefaction projects under construction. As of late 2003, this included Egypt, Russia and
Norway, with countries such as Bolivia and Angola expected
to announce firm plans to join the global marketplace.
Forecasting a long-term role in the US market, the EIAs
Annual Energy Outlook 2004 expects net LNG imports in
2010 to supply 8% of gas consumption, which, by then, is
expected to have grown to 26 trillion cf/y. Through capacity
increases at existing terminals and the projected construc-

Storage tanks at Lake Charles


Photo: CMS Panhandle

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Fundamentals of the Global LNG Industry, 2004

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Importers: US

approval of Sempras Cameron LNG terminal was the first


The recognised need for baseload supplies in the US
regulatory approval for an LNG import terminal in 25 years. market, as well as cost reductions throughout the LNG supChevronTexacos Port Pelican project has been authorised ply chain, has expanded the opportunities to locate regasifiby the US Coast Guard and, when construction is complete, cation terminals to the GoM. The EIA has tracked at least
it will be the worlds first offshore regasification facility.
14 proposed terminals for the GoMs onshore and offshore.
Generally, terminal proposals have been grouped in five The integration of the Mexican and US markets and, pergeographic regions in North America: the Gulf of Mexico haps just as importantly, the decision of Mexican energy
(GoM) region of the US and Mexico
regulators to promote gas as a fuel for
(onshore and offshore); the west
power generation, have contributed to
The GoMs extensive pipeline opportunities for project sponsors in
coasts of Mexico and the US; the
infrastructure offers the
Bahamas; and the US and Canadian
Baja, where at least three projects
east coasts. Projects in Canada would
opportunity to take advantage have been proposed. The growth of
move regasified product south through
Floridas market, essentially for power
of economies of scale
existing pipelines, while LNG deliveries
generation, is a driving force behind
to terminals in Mexico would either
the Bahamas three proposed projects.
displace US exports to the country, or result in net imports
to the US. Bahamas-based projects include proposals to Pipeline infrastructure
The GoM regions extensive pipeline infrastructure offers
build pipelines to Florida.
an opportunity for a facility that can take advantage of
Drafting blueprints
economies of scale. The proposed terminals for the
Project sponsors have been creative in drafting blueprints region generally have the capacity to deliver 1bn-2bn cf/d
for siting facilities. Terminals on the west and east coasts into the pipeline grid. For example, Freeport LNG has prowould provide direct access to markets otherwise served by posed building a facility that could deliver up to 1.5bn
long-haul pipelines. Because of transportation costs added cf/d to Texas, giving their customers a choice of delivery
to gas from the GoM, LNG gains a competitive edge, or at to three major interstate pipelines and access to much of
least it benefits as it competes with supply basins tapped the eastern US. Sempra Energys Cameron LNG facility
by North American pipeline infrastructure. This was a key would also have the capability to deliver as much as
factor in planning the locations of three of the US four 1.5bn cf/d into the grid and, with nearly 9bn cf of storage
operating terminals, and the reason that project sponsors capacity and two docks, the flexibility to handle two LNG
tried for eight years to gain approvals to build a facility in shipments at a time.
California, before finally withdrawing the proposal as gas
One of Freeport LNGs owners, Cheniere Energy, is a
prices fell in the early 1980s.
small independent producer that has attracted attention for

6.1

Table 1: Proposed US LNG import terminals


Project
West coast
Terminal GNL Mar Adentro de BC
Tijuana Regional Energy Center
Sound Energy Solutions
Energia Costa Azul LNG
Crystal
Tractebel Mexico
Cabrillo Port LNG

Owners

Location

Start-up

Capacity (bn cf/d)

ChevronTexaco
Marathon, Golar LNG, Grupo GGS
Mitsubishi
Sempra Energy, Shell
Crystal Energy
Tractebel
BHP Billiton

Baja California, Mexico (offshore)


Baja California, Mexico
Long Beach, Caifornia
Baja California, Mexico
Oxnard, California (Offshore)
Lazaro Cardenas, Mexico
Oxnard, California (Offshore)

2007
2006
2007
2007
2006
2007
2008

0.75
0.75
0.70
1.00
0.60
0.50
1.50

Florida/Bahamas
Ocean Express LNG
Freeport
Calypso

AES
El Paso
Tractebel Bahamas LNG

Ocean Cay, Bahamas


Freeport Grand Island, Bahamas
Freeport Grand Cayman, Bahamas

2006
2007
2007

0.85
0.50
0.83

Gulf coast
ExxonMobil LNG
Sabine Pass/Cheniere
Port Pelican
Cameron LNG
Altamira
Corpus Christi LNG
ExxonMobil/Sabine Pass LNG
Liberty
Main Pass Energy Hub
Gulf Landing
Vermillion 179
Mobile Bay LNG
Freeport LNG
Energy Bridge

ExxonMobil
Cheniere Energy
ChevronTexaco
Sempra Energy
Shell
Cheniere Energy
ExxonMobil
HNG Storage/Conversion Gas
Freeport-McMoRan Sulphur
Shell
Conversion Gas Imports
ExxonMobil
Freeport, Cheniere, Contango
El Paso

Quintana Island, Texas


Sabine Pass, Louisiana
Louisiana (offshore)
Hackberry, Louisiana
Altamira, Mexico
Corpus Christi, Texas
Sabine Pass, Texas
Cameron, Louisiana
Gulf of Mexico (offshore)
West Cameron, Louisiana (offshore)
Louisiana
Mobile Bay, Alabama
Freeport, Texas
Floating Dock (offshore)

2007
2008
2007
2007
2004
2008
2008
2007
2006
2008-9
2008
2008
2006
2005

1.00
2.00
1.60
1.50
0.50
2.00
1.00
3.00
1.50
1.00
1.00
1.00
1.50
0.50

East coast
Canaport
Weaver's Cove
Access Northeast Energy
Fairwinds LNG
Providence LNG
Crown Landing
Somerset LNG

Irving Oil/ChevronTexaco
Poten
Access Northeast Energy
TransCanada, ConocoPhillips
Keyspan, BG LNG Services
BP
Somerset LNG

Canaport, New Brunswick, Canada


Fall River, Massachusetts
Bearhead, Nova Scotia
Harpswell, Maine
Providence, Rhode Island
Logan Township, New Jersey
Somerset, Massachusetts

2006
2007
2008
2009
2005
2008
2007

0.50
0.40
0.50
0.50
0.50
1.20
0.43

Source: EIA

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90

Fundamentals of the Global LNG Industry, 2004

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Importers: US

its stated goals of building two more import terminals in the opposition to the project. Additionally, the Fairwinds LNG
GoM, one at Sabine Pass, Louisiana, and the other at proposal, for Harpswell, Maine, has stalled, at least temCorpus Christi, Texas. These two facilities, now before Ferc, porarily, as local fishermen and other groups have launched
would each have capacity to deliver up to 2.5bn cf/d. opposition. Fairwinds, proposed by TransCanada and
Competitors for onshore GoM facilities include supermajors ConocoPhillips, would deliver up to 0.5bn cf/d. The compasuch as ExxonMobil, which plans to build at least three nies engaged the community surrounding the small town
facilities, in part to accept deliveries from its planned 7m early in the process, detailing the benefits in dollars to the
tonnes a year (341bn cf/y) liquefaction plant in Qatar community over time, even stating up-front that the project
scheduled to begin operations in 2008.
was a non-starter if the town of Harpswell did not support
Projects in the GoM require a large capital investment, it. At the time of writing, the town councils vote on the proabout $0.6bn on average. But the investment amount ject had been delayed twice, but was expected to take
depends heavily on site-specific considerations (including place in January 2004, at the earliest.
whether or not the terminal is designed for the offshore).
The difficulty in siting terminals onshore is one reason
Generally, these projects are larger than those planned for behind about a dozen offshore proposals. In California,
other US locations. In market areas such as the northeast Crystal Energy has proposed the conversion of a former oil
and California, the proposed terminals are, generally, platform, about 15 miles off the coast of Ventura County,
smaller and require less investment capital average costs to an LNG terminal at a cost of about $100m. Most
are about $400m for a facility with deliverability of about recently, Australias BHP Billiton has proposed an import
0.5bn-0.6bn cf/d.
terminal about 25 miles off the coast of southern
These facilities are being proposed
California, presumably to draw LNG
for markets that experience a premium
from liquefaction projects in Australia.
It is important to gain the
price relative to prices in the GoM.
Both are before the US Coast Guard
With the basis between Boston and acceptance of local groups for for approval.
the Henry Hub averaging over $0.60/m
the proposal to avoid lengthy
Supply chain integration
Btu over the last five years and at
permitting delays
Generally, regasification costs are as
times spiking to $10/m Btu or more
low as $0.30-$0.50/m Btu of the
during the coldest winter days, when
pipeline access is restricted, this premium can be substan- supply cost, which can range between $3 and $4/m Btu
tial. There is also the economic option of storing LNG in to bring LNG to the US market. Import costs can vary
places with high peak-winter heating requirements, much widely depending on the distance and the cost of
feedgas. However, with regasification costs a relatively
as the Distrigas facility has operated in Everett.
small portion of the overall cost to market LNG, investPermitting
ment decisions are not necessarily dependent on, or
LNG terminals are large industrial facilities, requiring deep- even based on, the construction of regasification termiwater accessibility and, to limit costs, an established har- nals. It is possible to conceive of multiple LNG regasificabour facility. Typically, project sponsors seek out tracts of tion terminal projects moving forward without firm comland of 100 acres or more, although the facility itself occu- mitments in place for supplies.
pies about 40 acres.
However, supply chain integration has been a significant
Siting a facility requires detailed studies on marine con- characteristic of the LNG industry because of the difficulty
gestion and other logistical issues, as well as evaluating and risk in co-ordinating upstream supplies, including
construction costs relative to the condition of the land tract shipping. Additionally, financing is often contingent on
or depth of the water passage. It is also important to gain long-term agreements throughout the value chain.
the acceptance of local groups for the proposal to avoid Terminal owners also need to know whether, and where,
lengthy permitting delays, or even rejection by government long-term supplies are available. As a result, many indusreviewers. One project proposed for Mare Island, California, try observers say the projects backed by sponsors with
the former site of a naval shipyard complex near San good credit and ownership throughout the LNG supply
Francisco, has been withdrawn because of local opposition chain have an advantage.
just six months after being tabled by its sponsors, Shell and
Bechtel. One local group involved in that battle has a web- Btu content
site and is providing consultation to other local communi- Much attention has focused on the relatively high Btu content of LNG from various countries (Libya has the highest,
ties opposing proposed LNG terminals.
Locating new terminals in the GoM, with its existing at about 1,162/cf). Natural gas with such a high heat conindustrial base and less resistance by the local popula- tent is incompatible with many appliances and exceeds the
tion, is expected to reduce the length of time and difficulty US interstate-pipeline standard of 1,035 Btu/cf with a
in obtaining regulatory approval. However, even in the range of plus or minus 50 Btu.
Although the heat content of LNG became a short-term
GoM, substantial opposition can occur. The day after
receiving port-authority backing to build a terminal in concern, limiting LNG supplies during 2003, the industry is
Mobile, Alabama, community groups filed lawsuits for moving fast to address the issue. There are several soluallegedly circumventing the port-approval process. And tions, more than one of which has been implemented. At
Freeport LNG, which has received preliminary environmen- Everett, Distrigas uses in-tank blending of pipeline gas with
tal approval for its facility, was subjected to a last-minute LNG to meet standards, while at Lake Charles, Southern
filing of opposition to the project at Ferc by the Audubon Union mixes high heat-content natural gas in with gas
Society, which was disturbed by the proximity of the facil- being transported in pipelines. El Paso is equipping its
facility with air-injection devices to dilute Btu content at
ity to a nearby bird sanctuary.
In the northeast, local opposition has formed around the the Elba Island facility. Lastly, Dominion is spending $28m
proposed Weavers Cove project, outside Boston, to equip Cove Point with a nitrogen-separation plant, also
Massachusetts, where the mayor of Fall River has to dilute LNG heat content. In the long-term, concerns
demanded new studies on the safety of LNG as part of his over Btu content will fade.

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Importers: US

Regulations set to boost imports


A change in regulatory conditions in conjunction with high US gas prices, growing
demand and falling domestic production seems set to encourage the expansion of US
import capacity. By Philip R Weems, partner, King & Spalding, Lisa M Tonery, counsel, King
& Spalding, and Kevin D Keenan, senior associate, King & Spalding International

NY INTELLIGENT fool can make things bigger [and]


more complex It takes a touch of genius and
a lot of courage to move in the opposite direction. While Einstein was certainly not referring to regulatory
regimes, the principle he taught is equally applicable to the
propensity of governments to over-regulate industries, stifling growth and detering investment. The regulatory environment in the US has arguably done just that to the countrys LNG industry in recent years. However, all this has
changed within the last year, with the adoption of a more
encouraging US Federal Energy Regulatory Commission
(Ferc) policy for onshore terminals and a move by the
Congress to ease legislative constraints on developing new
offshore terminals steps that appear to have taken the
US LNG regulatory regime in the opposite direction.
With the rise of gas prices and demand in the US and
the domestic gas production nearing plateau, the owners of
LNG terminals have anticipated the need for additional
import capacity, submitting applications to Ferc to expand
facilities. Nonetheless, expansions of existing receiving terminals are not expected to be sufficient to fulfill the need
for LNG regasification capacity later in this decade.
Although plans for several greenfield onshore LNG terminals were announced between 1999 and 2002, only those
for Texas and Louisiana survived into 2003 (greenfield projects with less hospitable local populations, including those
in North Carolina and California, have been abandoned). As
a result of the setbacks, a significant proportion of proposals for LNG import terminals have been relocated to
Mexico, Canada and the Bahamas (mainly to circumvent
daunting Ferc and other US regulatory requirements). Much
of the resulting regasified LNG will be piped to the US from
its neighbours. Likely routes include the Bahamas to Florida
and Baja California, Mexico, to San Diego, California.
A more friendly US regulatory environment is a welcome

Philip Weems

6.2
Lisa Tonery

Kevin Keenan

The Lake
Charles
terminal,
Louisiana
Photo: CMS
Panhandle
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Fundamentals of the Global LNG Industry, 2004

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development for project developers. Exporters have long


argued that new export-project capacity will be delayed if
import capacity is not assured, while terminal owners have
asserted that Fercs open-access requirements and the
lack of freedom to set rates for terminalling services discourage them from investing in new facilities. The recent
easing of regulatory barriers to the development and construction of terminals in the US is aimed at encouraging the
development of additional infrastructure, needed to
increase gas supply in the US market. This marks the first
policy change in LNG regulation in the US in over 25 years.
As a direct result of important and long-awaited regulatory changes, the US is witnessing a rise in greenfield terminal applications, as industry players realise the US is
opening its doors to this important source of gas supply.

Land-based terminals
In December 2002, Ferc adopted a new policy governing
onshore import terminals. This new policy grants operators
the right to charge market-based rates, eliminates the
requirement to hold an open season (the process by which
potential users of a facility submit bids indicating the terms
under which they agree to take service) for terminal capacity and limits the open-access requirement to the downstream pipeline component of a receiving terminal. Under
the prior policy, in force for more than two decades, open
access and rate regulation was applicable from the discharge of LNG at the tankers rail.
To ensure and facilitate the required open access, an
open season had to be conducted with respect to the terminals entire capacity. In effect, greenfield terminal developers had the worst of both worlds: Fercs open-season
requirements denied the developer the sole use of a terminals capacity to import its own cargoes, while the cost-ofservice limits restricted return on the developers investments to 10-12% a year (in many cases resulting in new
terminals falling below management investment hurdle
rates). Under the new policy, open-access requirements and
rate regulation only begin to apply at the point where the
vaporised LNG is delivered to the interstate pipeline grid.
During 2002, Ferc indicated it shared the growing view
that imported gas will be needed to meet growing US
demand, especially demand from new power generation
capacity. Ferc took the opportunity to articulate its change
in policy through a preliminary determination (the Order),
conditionally authorising Hackberry LNG Terminal, then a
subsidiary of Dynegy, to site, construct and operate an
import terminal in Hackberry, Louisiana, and to build an
associated pipeline to connect to the interstate grid. In the
Order, Ferc approved Hackberrys proposal to site, construct and operate an LNG import terminal, and granted
Hackberry authority to provide terminalling service to an
affiliate, Dynegy Marketing & Trade, at rates, terms and
conditions agreed to by Hackberry and Dynegy Marketing.
The Order also approved Hackberrys proposal to construct
and operate a 35.4-mile pipeline connecting the terminal to
Transcontinental Gas Pipe Lines interstate system. In the

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Importers: US

Order, Ferc indicated that the Hackberry terminal (but not facilities to be used for the sale or transportation of gas in
the downstream pipeline) would be treated as equivalent to interstate commerce, there is no right of eminent domain
a producing well and, accordingly, would not be subject to available to applicants under Section 3 (which governs
tariff and rate regulation. Ferc noted that the economic risks facilities used for the import and export of gas).
of the project would be borne fully by Hackberry, as there are
And there is still a certain amount of public resistance to
no captive customers that could be forced to bear any costs land-based LNG terminals in populated areas, because of
or, for that matter, risk of cost recovery.
safety and security concerns, as well as a general not-inFerc indicated in the Order that its change in policy was my-backyard sentiment which business units of Shell and
the result of several factors. First, sales of imported LNG El Paso recently found insurmountable in connection with
were deregulated under the Energy Policy Act of 1992 and plans for onshore facilities at Mare Island, California, and
the sale of this gas will occur in competition with the sale Radio Island, North Carolina, respectively.
of gas produced in the US Gulf coast region. Additionally,
all economic risk associated with the project will be recov- Offshore terminals
Offshore oil terminals have been in existence world-wide for
ered solely through the sale of gas at competitive prices.
Ferc indicated that this new regulatory approach may pro- many years (although only one exists in the US). However,
vide incentives for the development of additional energy while offshore LNG terminals have been in the planning
stages since the early 1990s, no facilinfrastructure, while ensuring competiity has been put into operation. Recent
tive commodity prices. It also noted
The industry has reacted
legislation passed by Congress, perthat its change in policy was supported
favourably to the new policy haps partly in response to safety and
by comments at a public conference in
October 2002 that discussed signifi- several applications for onshore security concerns at congested US
ports, has opened the way for the US
cant issues facing the US gas industry.
terminals have been filed
to serve as a testing ground for offDuring that proceeding, representatives
shore LNG terminal technology.
of the LNG industry (including business
Jurisdiction over LNG terminals constructed offshore in
units of Shell and BP) argued that the open-access and
open-season requirements deter investment in new facili- federal waters was recently transferred from Ferc to the DOT
ties. They indicated that investors need certainty of access under the Maritime Act. The Maritime Act, which amended
to terminal capacity and that foreign governments are reluc- the Deepwater Port Act of 1974 (as so amended, the Act)
tant to approve export projects to US ports given the existing to include jurisdiction over gas facilities, exempts owners of
US regulatory climate. Ferc further noted in the Order that offshore LNG facilities from open-access or common-carrier
its change in policy would help to keep onshore terminals provisions, granting owners the right to reserve for themon competitive parity with offshore terminals, regulatory selves all the import and storage capacity at their facilities.
jurisdiction over which was recently transferred from Ferc to Although the transport secretary has delegated the processing of deep-water port applications to the US Coast Guard
the Department of Transportation (DOT).
(USCG) and the Maritime Administration (Marad), the Act
Degrees of regulation
requires that the secretary makes the final determination on
The policy change applies to all land-based LNG import ter- all deep-water port applications after consulting with other
minals whether in areas where there is robust gas compe- federal agencies and adjacent coastal states.
tition, such as the US Gulf coast, or where there is limited
competition, such as New England. Despite the relaxed reg- The governors approval
ulatory hurdles resulting from the Order, Ferc has not with- In issuing notice of a deep-water port application in the
drawn all intention of regulating onshore terminal opera- Federal Register (the journal in which US federal public
tions. In announcing this new policy, Ferc noted in the Order notices are published), the secretary will designate as an
that its decision to adopt a less intrusive degree of regula- adjacent coastal state any coastal state that would be
tion here does not affect our jurisdiction in this case and directly connected by pipeline to a deep-water port as prothat if it were to receive complaints of undue discrimination posed in an application, or would be within 15 miles of any
or other anti-competitive behaviour, it would consider proposed deep-water port. Additionally, other states may
apply for adjacent-coastal-state status. The secretary may
reasserting its jurisdiction over the Hackberry terminal.
The industry has reacted favourably to the new Ferc pol- not issue a licence for a deep-water port without the
icy, as several applications for new onshore terminals have approval of the governor of each adjacent coastal state.
Under the Act, a deep-water port is defined as any fixed
been filed with the Ferc since issuance of the new policy
and several more are in process. While Fercs change in or floating manmade structure other than a vessel, or any
policy can be expected to diminish some of the regulatory group of such structures, that are beyond state seaward
and economic barriers to development of land-based LNG boundaries and that are used or intended for use as a port
terminals, it does not address all existing impediments. For or terminal for the transportation, storage or further hanexample, the environmental permit and review process dling of oil or natural gas for transportation to any state.
remains a protracted part of the approval process for appli- The term deep-water port includes all components and
cants seeking authorisation to construct import facilities, equipment, including pipelines, pumping or compressor
stations, service platforms, buoys, mooring lines and similar
especially in areas perceived as environmentally sensitive.
There is also no statutorily prescribed timeframe within facilities that are proposed or approved for construction and
which Ferc must act on an application for authorisation to operation, to the extent they are seaward of the high-water
construct onshore import facilities. Additionally, the right of mark and do not include interconnecting facilities. Any
eminent domain (the right of governments to put private facilities landward of the high-water mark would not fall
property, following fair compensation, to uses deemed nec- within the definition of a deep-water port and would probaessary for the public good) will no longer be available for bly be subject either to the jurisdiction of Ferc or a state
onshore LNG terminals because such facilities will be regulatory commission.
The regulatory approval process for offshore facilities that
authorised solely under Section 3 of the NGA. Unlike
Section 7(c) of the NGA, which governs the construction of fall within the definition of a deep-water port promises to be

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more streamlined than the approval process for similar landbased facilities. By constructing facilities offshore, some of
the time-consuming permitting, environmental and other
issues associated with land-based terminals will be eliminated. And unlike the review process for land-based facilities, there is a prescribed timetable for action on applications filed under the Act. Specifically, barring stoppages for
civil suits and requests for large amounts of additional information, the entire approval process should take no more
than a year from application to final approval or denial.
Towards this end, the Act establishes a period of 21 days
following receipt of an application for USCG and Marad to
determine if the application contains all required information. Within five days of making the above determination,
assuming the application is sufficient, USCG and Marad
must publish a notice of the application in the Federal
Register. All public hearings associated with the application
must be held within 240 days from the date a notice is
published in the Federal Register. Following the last public
hearing, federal agencies and the governors of the adjacent
coastal states have 45 days to comment on the application
so that the transport secretarys decision can follow within
90 days of the last public hearing.

Potential challenges
While it sounds promising, there are potential challenges facing the implementation of the Act and its regulations.
Construction of facilities offshore does not eliminate all environmental issues or the need for an applicant to apply for
and receive the appropriate environmental permits and clearances. Moreover, although there is an established timeframe
that requires the expeditious processing of deep-water port
applications, there is not a well-established infrastructure to
carry out this mandate, because no offshore receiving terminal has been built in the US for over 25 years.
The US only licensed deep-water terminal is the
Louisiana Offshore Oil Port (Loop), in the Gulf of Mexico
(GoM), 18 miles south of Grand Isle, Louisiana. In 1977,
when Loop received its deep-water port licence, the USCG
staff charged with processing deep-water port applications
consisted of about 25 people. At that time, the USCG had
the expertise and systems in place to process a deep-water

6.2

Applications accepted
In November 2002, Port Pelican, an affiliate of
ChevronTexaco, filed an application to own, construct and
operate a deep-water port off the coast of Louisiana. The
project will deliver gas to the Gulf Coast using existing gassupply and -gathering systems in the GoM and southern
Louisiana. Gas will be delivered to shippers using existing
pipeline facilities. The project consists of an LNG receiving,
storage and regasification facility, and the Pelican interconnector pipeline to carry the gas to the existing offshore gasgathering system, which, subsequently, will take the gas to
shore. In November 2003, the transport secretary published
his decision to issue a deep-water port licence.
In December 2002, El Paso Global LNG filed an application with the USCG to construct and operate an offshore gas
deep-water port in the GoM. Scheduled to be operational by
the end of 2004, the gas delivery system will be around
116 miles off the coast of Louisiana. El Paso plans to build
an offshore buoy and riser system that will interconnect with
two existing sub-sea pipelines to deliver gas to the main
pipeline grid. The proposed offshore terminal is intended to
be used with the deployment of on-board regasification vessels employing EP Energy BridgeTM technology. The decision
to issue a deep-water port licence was published in
December 2003.

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Fundamentals of the Global LNG Industry, 2004

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port application. However, having not received a deepwater port application for over two decades the USCG no
longer has the depth of in-house expertise to expeditiously
act on an application, let alone several applications.
Recognising this problem, the USCG is re-establishing
the necessary processes and procedures to review and
approve these applications, as well as establishing
synapses with other agencies to draw on their expertise in
the review of similar applications. On 6 January 2004, DOT
issued a temporary interim rule governing deep-water ports
and deep-water port applications, making clear strides
towards streamlining the application process.

Recent applications
Two applications for offshore LNG terminals have been
accepted by the USCG and a decision to issue a licence to
each under the Act has been reached (see Box). Similar to
authorisations for the construction and operation of
onshore terminals, each deep-water port licence, including
those issued to Port Pelican and El Paso Global LNG,
includes conditions with which an applicant must comply.
There are no procedures in place to appeal or modify these
conditions, but as these licensing procedures are still evolving, that is likely to change.
Notably, both the Port Pelican and El Paso projects have
opted to utilise existing sub-sea pipelines to deliver gas to
the pipeline grid. Neither applicant proposed to build a
pipeline from its proposed facility to a point onshore. By
interconnecting with existing offshore pipelines, which are
prevalent in the GoM, Port Pelican and El Paso each minimised its exposure to regulatory uncertainty and delay by
placing their projects squarely within the purview of the Act
and unquestionably outside the purview of onshore regulations, jurisdiction for which commences when a pipeline
makes landfall at the shoreline.
While the issue of regulatory oversight for a pipeline that
runs from an offshore receiving terminal to an onshore
pipeline interconnect has yet to be addressed under the
Act, it is logical to assume the construction and operation
of land-based segment of such a line would be subject
either to the jurisdiction of Ferc or a state regulatory commission, depending on whether the pipeline were to be
used to transport gas in interstate or intrastate commerce.
The more regulators involved in the approval process, the
greater the likelihood for delay.
After years of discussion by terminal developers on
greenfield terminal infrastructure, it seems the regulatory
conditions are set to encourage the expansion of LNG
imports into the US. The combination of high prices, growing demand, shrinking domestic production, and an
increasingly friendly regulatory environment will undoubtedly
result in the construction of new facilities and the expansion of existing import capacity.
Given the shorter regulatory review and approval process,
as well as general public concern over safety, it is likely a
significant number of developers will opt to site new projects in onshore areas near other energy infrastructure or
offshore (if possible, near existing sub-sea pipeline capacity). While land-based LNG facilities (especially those in the
GoM) are still expected to play a significant role in the US
LNG trade, the protracted environmental-approval process,
security and safety concerns, and the threat of delay
caused by landowner and community activist involvement,
suggest a significant part of future import capacity may be
filled offshore. It remains to be seen if the friendlier environment toward new terminal capacity will dampen the
enthusiasm for developers investing huge sums in Mexican,
Canadian and Bahamian LNG infrastructure.

Importers: Europe

Fighting for a market


As the international LNG trade expands, competition has increased throughout the LNG
cycle. Costs of liquefaction have been cut significantly and competition in markets has led
to a sharpening of price terms. Exporters and importers are looking for assets throughout
the LNG value chain. By Kenneth McKellar, managing director, petroleum services, Deloitte

NG IS THE hottest topic on the agendas of those who gas demand, with the UK slightly ahead of Germany. Both
supply and use energy, as well as the governments countries are being targeted by major new gas pipeline
that regulate them. Gas is the default fuel for those projects, as well as maintaining significant existing piped
seeking a significant position in the power sector. Electricity gas supplies.
generation is increasingly dependent on gas, particularly
The UK will be supplied by gas from Norways Ormen
given the environmental desire to reduce dependence on Lange field, into Easington on the northeast coast of
nuclear and oil-fired generation, and to phase out coal. All England, in 2008. At the same time, two large LNG prothe major international oil companies have stated their jects, at Isle of Grain and Milford Haven, in the southeast
intentions to make gas and power operations the corner- and southwest of England respectively, between them are
stone of their future strategy and earnings growth. expected to import up to 25% of the UKs future gas needs.
However, the worlds biggest gas users foresee a supply
For Germany, Russia intends to land gas near Bremen
shortfall within the next five years.
from a new subsea pipeline running
According to our estimates, the UK
under the Baltic Sea from St
People understand that
will need annual supply equivalent to
Petersburg by 2008. Like the UK,
development is essential,
the whole of Norways 375bn cubic
which already receives gas at St
metres (cm) Ormen Lange field from
Fergus and Bacton, Germany takes
but they are not ready to
2007 to satisfy even modest domestic
substantial piped supplies from
accept it at any cost
demand growth, as supply declines
Norway. France has LNG regasificafrom indigenous gasfields. The US will
tion terminals on both its Atlantic and
become just as import-dependent in a similar timeframe, Mediterranean coastlines, and surplus supply from Fluxys
also because of falling indigenous supply as well as the existing LNG facility at Zeebruggee may be utilised in
need for electricity generators to provide greater security of future at Dunkerque, in France.
supply. And Japan, which is a significant gas importer, will
The critical year will be 2008, when major new LNG and
see its dependence increase as the electricity sector is piped gas projects are scheduled for completion. Because
deregulated and seeks more-flexible energy sources.
a number of these projects are chasing the same markets,
However, most of the worlds gas trade is conducted whoever completes their project first will alter the economthrough pipelines linking supply points to demand centres, ics of all subsequent projects, even to the point of making
meaning gas has been bought and sold in a series of later competing projects potentially uneconomic.
regional markets, unlike oil, which has been globally traded
for a number of years. LNG could change pipelines domi- Improved market position
nance if the substantial planned investments, in particular LNGs position in the European gas market has improved
by the major international oil companies, are made and are significantly, compared with piped gas, in the last couple of
years. With the departure of trading-led US energy compasuccessful, bringing more flexibility to gas supplies.
nies, at least for the time being, the European Union (EU)
Supply competition
has turned its attention to security of supply issues rather
The planned investments mostly involve taking gas from than a liberalisation and deregulation agenda. EU-Russia
fields where those companies already have an equity inter- dialogue, among other initiatives, has demonstrated that
est, transporting gas using their own tankers and landing the regulators are prepared to be flexible to ensure the gas
gas in countries whose demand is greatest. However, at the infrastructure necessary to enhance security of supply is
point of delivery, supplies will face competition from incum- soundly financed and built. This means an acceptance that
bent, state-owned companies, which several years of liberali- long(er)-term contracts must underpin security of supply.
sation and deregulation have failed to affect significantly.
In the same way, flexibility has been shown by national
These national champions typically own and operate and EU regulators in conceding that third-party access
the pipeline infrastructure that carries gas to consumers, (TPA) rules may not need to apply for certain key points in
and they too have aspirations to control the whole of the the gas value chain. This derogation of TPA rules has given
gas value chain from wellhead to burner tip the only an important boost to LNG aspirations, as has the realisaway to gain optimum value from gas assets and trading. tion by international oil companies, unlike in previous years,
As a result, the incumbents, which already understand that a key element of their growth (and even survival) in
and control mid- and downstream operations, are invest- ever more competitive oil-only markets is massive investing heavily in the same upstream operations that are con- ment in gas and power strategies.
trolled by the major international oil companies. The
Most gas and power markets are effectively closed to
result will be a battle for control of the gas value chain, these international oil companies by the increasingly prowith LNG in the forefront.
tective outlook of national utilities (especially in Germany),
There will be no fiercer competition than in northwest as well as the failure of key countries to deregulate and libEurope, in particular in the UK, Germany, France and eralise in the way the EU intended. As a result, the only
Belgium. The UK and Germany are Europes biggest gas effective way to compete in European gas and power marmarkets, together accounting for over 50% of European kets is with supply. The decision of Shell and Esso to dis-

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solve their BEB joint venture, one of Germanys largest gas


shippers, is evidence of the difficulty of penetrating the
most complex energy market in Europe, as well as the
companies plans to pursue their own separate gas and
power strategies.

Pipeline versus LNG


Some suppliers argue that, within the next decade, LNG will
provide baseload gas in northwest Europe. This is a tall
order, which presupposes significant liquidity and optionality
will be created by LNG supplies and infrastructure. By 2008,
the number of LNG terminals in Europe will be significantly
outnumbered by the number of pipelines bringing gas to the
same markets. Even if maximum projected volumes of LNG
are brought into northwest Europe on schedule, they will still
account for around only 20% of total gas demand.
Europe is not a principal destination for LNG. A new LNG
business region has been established and is planned for
the Atlantic basin, which has only two operational supply
sources Nigeria and Trinidad although, by 2008, there
may well be four further exporters: Equatorial Guinea;
Angola; Norway; and Venezuela.
Demand for Atlantic basin LNG is driven by substantial
requirements in the US, the result of rising demand and its
dwindling indigenous production, as well as falling pipeline
imports from Canada and Mexico. The US will dictate LNG
supply to Europe, not only because of its own demand forecasts, but also because of the US companies that are the
main investors in additional LNG capacity.
The potential for other forms of energy to provide base
load supply should not be underestimated. Notwithstanding
intentions to start decommissioning nuclear plant in the

6.3

next decade, the speed and extent of this decommissioning


may affect the extent to which gas can play a more baseload role. Coal, particularly in Germany, still plays a major
part in supplying energy. Although environmentally less
friendly than gas, low coal prices make it an attractive
source of energy that could keep it as a competitor to gas
for some years to come.
The outcome of the fight on the beaches of northwest
Europe is far from certain. It depends on the timescale
over which the battle will be judged to have been fought,
the speed of future deregulation within Europe, the ambitions of existing piped gas players in Europe to move away
from their existing core markets, demand for gas in the
US, as well as the degree of globalisation of LNG and the
gas market itself.

price competition
As the international LNG trade expands beyond previous
expectations, competition has increased throughout the
LNG cycle. Costs of liquefaction, which account for over
half of all costs in the LNG train, have been cut significantly. Competition in markets has led to a sharpening of
price terms in all new sale-and-purchase agreements and
has precipitated a redefinition of organisational structure.
Exporters use their own LNG carriers to keep shipping costs
and profits in-house. Buyers of LNG are increasingly offered
participation in the upstream portion of the value chain.
All of these developments will help to move the delivered
cost of LNG into northwest Europe closer to the costs at
which indigenous producers have in the past been able to
deliver piped gas. But they will not move the location of the
battle itself the beach.

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Importers: Spain

Increasing market share


With Spanish demand for natural gas set to maintain its substantial growth, increased
pipeline and LNG supplies will be needed. Enagas, as the countrys main regasification and
transmission company, will make an important contribution to this process. By Antonio
Gonzlez-Adalid, chairman, Enagas

PAIN IS ONE of the few countries that initially developed


its natural gas system based exclusively on LNG. The
reasons for this atypical development included the lack
of known domestic gasfields during the first 15 years of gas
imports, the small size of the potential market less than 2bn
cubic metres a year (cm/y) with a 10-15 year horizon and
the geographical distance of possible pipeline suppliers.
Once Spanish demand had topped 3bn cm/y, LNG was
joined by supplies from subsequently discovered national
gasfields, as well as by pipeline connections carrying gas
from Norway and Algeria to the Iberian Peninsula.
The contract enabling the Algerian project included an
initial contracted flow of 6bn cm, equivalent to the total
Spanish market consumption at the time it was signed. But
the pipeline, with a strategic eye on the future, was developed in such a way as to allow three times as much gas to
be carried with additional compression.
In the third stage, which began when Spanish demand
reached 20bn cm/y and continues today, the supply plan
must be adapted to accommodate demand projected to
reach 45bn cm/y by 2011.

Pipeline advantages
Gas transported by pipeline offers the advantages of allowing connections with other European Union (EU) countries
to be increased and eliminates supply problems in winter
when weather conditions are particularly adverse. Pipeline
disadvantages include:
The scarcity of potential suppliers, which could lead to
the application of uncompetitive prices compared with
those set in other EU countries;
The time needed to execute interconnection projects,
with an added difficulty of co-ordinating long-term supply
contracts with building the necessary transmission pipelines
in a regulated environment, which allows access to the system to third parties that assume no investment risk; and
The impossibility of changing suppliers for a given system-entry point.
The sole disadvantage of LNG, is the risk of ports being
closed for a limited number of days because of adverse
weather conditions. In contrast, LNG offers the advantages
of flexibility of origin and volume, shorter periods for the

Figure 1: Spain LNG import history


bn cm
15
12
9

Antonio
GonzlezAdalid

6
3
0
1970

1975

1980

1985

1990

1995

2000

Source: Cedigaz

6.4
installation of needed entry capacity, lower costs and modulating possibilities with regard to necessary investments.
Above all, it provides the certainty that the price of the LNG
brought into the Spanish system will be competitive compared with gas prices in the systems of the main EU countries, which, in turn, constitutes the best guarantee that the
price of pipeline supplies will also be competitive.
The gas and electricity network plan approved by the
Spanish Congress in October 2002, which is indicative on
the issue of supply, opted for a pragmatic solution. It recommended a balance between both types of supply and introduced the criterion that neither piped gas nor LNG should
have a market share of less than one-third of the total.

Market share to rise


In accordance, the market share of LNG in Spain can be
expected to increase, at least in the next two years,
approaching the maximum value desired by the government. Likewise, Spain can be expected to continue in its
role as the most intensely active EU country in the LNG
spot market, promoting its development so that it behaves
similarly to the spot markets for crude oil and products in
terms of marking prices and ensuring the availability of gas
to meet market requirements.
Historically, LNG has lacked an important world spot
market as the traditional practice was to build liquefaction

Table 1: Spain import projects


Project:
Start-up:
Promoter:

Barcelona
1968
Enagas

Cartagena
1989
Enagas

Huelva
1988
Enagas

Bilbao
2003
Bahia de Bizkaia Gas
(BP 25%; Iberdrola 25%;
Repsol YPF 25%; Ente
Vasco de la
Energia 25%)

Enagas

Bahia de Bizkaia Gas

Operator:

Enagas

Enagas

Source:

Abu Dhabi; Algeria;


Australia; Libya; Nigeria;
Qatar; Trinidad and
Tobago
4.50
240.0

Abu Dhabi; Algeria; Abu Dhabi; Algeria;


Abu Dhabi; Nigeria;
Nigeria; Trinidad and Australia; Libya;
Trinidad and Tobago
Tobago
Malaysia; Nigeria; Oman;
Qatar; Trinidad and Tobago
1.31
2.37
5.00
160.0
160.0
300.0

Capacity (million t/y)::


Storage (000 cm)::

HOME

Mugardos
Sagunto
2006/7
2006/7
Reganosa (Unin
Unin Fenosa 50%;
Fenosa 20%; Endesa 20%; Endesa 25%;
Groupe Tojeiro 18%;
Iberdrola 25%
Xunta de Galicia, Caixa de
Galicia, Caixa Vigo, Banco
Pastor 17%; Sonatrach 15%)
Reganosa
Planta de Regasificacion
de Sagunito
Algeria
Egypt; Oman

4.50
300.00

2.75
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Importers: Spain

projects to supply the markets of one or more purchasers


exclusively. Consequently, most existing liquefaction units
were designed with virtually no surplus capacity beyond
that required for long-term contracts. These contracts usually include take-or-pay clauses and destination clauses
that, respectively, limit withdrawal flexibility and the capacity of purchasers to sell the LNG in markets not stipulated
in the supply contract.
However, in recent years, two developments have led to
an increase in the number of days a year when LNG is
competitive in the US spot market. The first is the reduction
in the cost of LNG, brought about by technological improvements in the liquefaction process at new plants, which has
lowered unit investment costs and reduced the energy consumption required to liquefy gas by about 50%.
The second, much more recent development, is the rising price of gas in the US the result of a supply shortfall,
caused by declining domestic reserves, and limits on
Canadian imports making LNG a viable supply option.

Spurring plans
Together, these changes have given a spur to plans for
multiple LNG projects. These projects have a substantially
more open-ended scope, as they hope to capitalise on the
new situation, where LNG from the Middle East can reach
the east coast of the US regularly and at competitive
prices. Furthermore, the first regasification plant projects
carried out at the promoters own risk before long-term
contracts have been signed to guarantee the economic viability of the investment are being considered.
Considering the expected development of the LNG spot
market, the Spanish gas system will benefit from two highly
relevant aspects:
The possibility of obtaining the best possible LNG
prices in Europe, as the main LNG market in the EU, both
in terms of unloaded LNG volumes, and having the high-

6.4

est number of regasification terminals; and


The possibility of matching supply and demand with
spot market cargoes. This is a significant factor given the
high rates of expected gas demand growth in Spain and
the volatility of demand depending on each winters
weather conditions.

Infrastructure development
Spanish demand for natural gas will continue to grow over
the course of this decade at rates much higher than the EU
average. This growth will be particularly marked in the next
three years, when several combined-cycle electricity generation units will be put into operation.
Even taking into account the 3bn cm/y increase in the
amount of gas that Spain will receive through the MaghrebEurope pipeline from Algeria, beginning in 2005, Spain
must increase regasification capacity and contract additional LNG, if it is to meet the additional demand projected
for the near future.
Spanish legislation entrusts the regulator (the ministry of
economy) to define the compulsory regasification capacity
the gas system must have. However, it is left to the transporters to decide where to locate facilities and what their
capacities should be.
The country has four regasification plants, in the northeast (Barcelona), southeast (Cartagena) and southwest
(Huelva), owned by Enagas, and the BBG terminal, in the
north (Bilbao). Two other projects have been approved, one
in the east (Sagunto), with construction already under way,
and another in the northwest (Mugardos), which has suffered some delays.
Although the promoters of the Mugardos and Sagunto
plants initially claimed they would be operating by 2004,
and although they have communicated successive changes
in the starting dates, they have not yet obtained all the permits they will need to start up. It seems unlikely either
plant will be available to the system before 2007.
Regardless of the progress of projects promoted by other
companies, Enagas plans to increase the capacity of its
three plants to ensure that they, along with the Bilbao
plant, can provide the gas system with the LNG supply it
needs until at least 2007.

The role of Enagas

Enagas Barcelona
receiving terminal

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Enagas has a double role in the Spanish gas system,


because of its duel role as the main transporter and the
system technical manager (STM). As a transporter, it plans
to implement most of the new infrastructure the gas system requires to meet the projected demand, within the levels of guarantee and quality of supply set by the regulator.
Enagas also plans to increase substantially both the
regasification and LNG storage capacities of each of its
three plants. These investments, which will amount to
Euro0.9bn over the 2002-2010 period, are the quickest
and cheapest way of providing the Spanish system with the
additional entry capacity it will need until 2007.
As STM, it must co-ordinate the activities of all gas operators so that, particularly in peak periods, the system runs
smoothly and without bottlenecks. In this sense, it is responsible for providing end-consumers with their gas supply.
The spot market for LNG will most likely develop in a
comparable way to the oil spot market 30 years ago.
In this environment, the Spanish gas system will play a
very significant role because of its strategic geographical
position, between the Middle East suppliers and the US
east coast consumption areas, the crucial importance of
LNG in its supply matrix, and, because of the availability of
ample regasification capacity.

Importers: Belgium

Strategic gateway set to double


LNG throughput
The prime location of the Fluxys LNG reception terminal in Zeebrugge makes it a strategic
gateway to the liberalised western European gas markets. Development, under a multi-shipper
concept, could see the terminals throughput capacity rise from 4.5bn to up to 9bn cm/y. By
Walter Peeraer, chief executive officer of Fluxys, and president of the board, Fluxys LNG

LUXYS LNGs Zeebrugge terminal is a regulated, openaccess facility offering terminaling services that cover
unloading of LNG carriers, cycling storage, regasification and send-out through the Fluxys transmission grid. The
terminal has an excellent safety and environmental record
and over 850 LNG carriers have been unloaded since the
commissioning of the facility in 1987.
The key asset of the Zeebrugge terminal is its prime location, triggering opportunities for an investment strategy
aimed at further developing gas infrastructure. The terminal
sits at the heart of the Atlantic basins LNG market and the
nearby Zeebrugge Hub the largest gas hub in Continental
Europe, with over 50 trading parties and an estimated gross
traded volume of 15m cubic metres (cm) per hour.

Prime location
The terminal is also at the crossroads of two major axes in
cross-border European gas flows Zeebrugge is the landfall
of both Zeepipe (a subsea pipeline carrying Norwegian gas
into the Fluxys system) and the Interconnector (another
subsea pipeline moving gas either from the UK to the
Fluxys system in forward flow, or from the Fluxys system to
the UK in reverse flow). The terminal, Zeepipe and the
Interconnector together represent a maximum flow corresponding to about 15% of Continental western European
gas consumption. The total contracted border-to-border
transit capacity in the Fluxys system amounts to 48bn
cm/y, about three-times the volume of the gas being
shipped for consumption in Belgium.
Because the terminal is connected directly to the Fluxys
system, it offers LNG shippers a strategic gateway to the
Belgian market and to some of the largest gas markets in

Table 1: Belgiums LNG import terminal


Project:
Start-up:
Promoter:
Operator:
Source:
Capacity (million t/y)::
Storage (000 cm)::

Zeebrugge
1987
Fluxys LNG
Fluxys LNG
Abu Dhabi; Algeria; Australia; Nigeria; Oman; Qatar
4.0
261.0

Walter Peeraer

Continental Europe, such as Germany, France and the


Netherlands, and indirectly to Italy and Spain. The terminal
also provides access through the Interconnector to the
UK, which will become a net importer of gas as early as
2005/2006. In anticipation of this changing situation,
Interconnector UK the pipeline operator has decided to
increase compression capacity at Zeebrugge in order to
double the reverse flow transmission capacity of 8.5bn
cm/y. Further investment could almost triple capacity.

6.5

Liberalised gas market


As independent transmission system operators (TSOs), it is
key to both Fluxys and Fluxys LNGs roles in a liberalised
European gas market to serve as a catalyst in developing
gas-to-gas competition and aggregate demand for transport
capacity in a transparent and non-discriminatory way. In
early 2003, an information memorandum was sent to LNG
companies to gauge their interest in subscribing to longterm terminaling capacity at Zeebrugge from 2007. Until
that date, the capacity of the terminal (4.5bn cm/y) is
reserved under a long-term contract.
Market response has revealed serious interest from several shippers with total demand that justifies investment in

The Zeebrugge terminal


Unloading

Storage

The Fluxys LNG terminal can handle LNG


carriers of almost all types and capacities:
LNG carriers of up to 350 metres in
length, 55 metres breadth and a draft of
up to 12 metres; there is no limitation
of airdraft; and
Membrane Technique Carriers, Moss
Rosenberg Technique Carriers and the
newest generation of LNG carriers over
10 types of LNG carrier have unloaded
at the terminal.
The terminal has an unloading capacity of up to 12,000 cubic metres (cm)
an hour of LNG. The jetty consists of
four 16-inch LNG unloading arms and
one vapour-return arm.

Total storage capacity is 261,000 cm.


Three storage tanks of the full containment type are installed, each with a nominal capacity of 87,000 cm. The tanks
have a design pressure of 230 mbarg.
The fourth storage tank, to be built as
part of the extension project, will be of
the same type and has a capacity of up
to 140,000 cm, bringing the total storage capacity to up to 401,000 cm.

Regasification and send-out


The firm send-out has a peak capacity
of up to 0.95m cm an hour. The additional send-out facilities to be built as
part of the extension project would

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bring the firm send-out capacity to a


peak of up to 1.85m cm an hour.
There are six vaporisers to regasify
the LNG. Each has two independent
heat sources: a submerged burner and
a hot-water injection distributor. The
supply of hot water comes from a combined-heat and power unit with a 40
megawatt gas turbine.
Hot exhaust gases from the turbine
pass through a heat-recovery tower
and transfer their heat to raise the
temperature of a closed hot-water circuit. This hot water is circulated and
injected in the waterbath of the vaporisers and transfers its heat to regasify
the LNG.

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a project to build a fourth storage tank and additional sendout capacity. Also included in the project are technical solutions for blending gas, enabling LNG shippers to meet the
problem of multiple gas-quality standards applicable in
Europe. A board decision on whether or not to invest will be
taken in early 2004.
Both the increased number of LNG shippers and the additional volumes made available at Zeebrugge would further
increase liquidity at the Zeebrugge Hub. This increase would,
in turn, strengthen gas-to-gas competition and have a positive impact on price setting. The multi-shipper and multi-supply source concept would also increase security of supply.
The legal and regulatory framework in Belgium provides
that TSOs must submit new tariffs for approval to the regulator every year. This system bears the risk of tariff volatility
and endangers any negotiation with new long-term LNG

Figure 1: Belgium LNG import history


million tonnes
3.5
3.0
2.5
2.0
1.5
1.0

1987

1989

1991

1993

1995

1997

1999

2001

2003

Source: Cedigaz

shippers. However, a specific tariff structure has been


obtained featuring multi-annual tariffs. This system is consistent with the concept of long-term contracts for the project, a principle that has been approved by both the
European Commission and the Belgian federal government
in view of the costs involved in LNG chain development.

Infrastructure projects
Several gas companies are discussing infrastructure projects, both pipeline and LNG, to make sufficient transport
capacity available for supplying northwest Europe as a
whole and the UK in particular. In view of this competitive
environment, timing is critical for the Zeebrugge extension
project. All preparatory work on engineering and permits is
being conducted to enable construction to take off swiftly
once a positive investment decision is made. The additional send-out capacity could be made available as early
as 2006 and the fourth LNG storage tank could be commissioned during 2007. This tight schedule is possible
because the original lay-out of the terminal was designed
with extension in mind. Projects to further boost terminaling capacity would require more extensive study and a different time-lag.

6.5

Artists
impression of
the Fluxys
LNG terminal
expansion

Distrigas: 20-years of gas imports


DISTRIGAS, a Belgium-based gas merchant company, benefits
from its strategic position at the heart of the European gas networks and is active in several of western Europes markets. With
experience acquired over 70 years, Distrigas has developed a
close partnership with its customers (industrial consumers, distribution companies, electricity producers and resellers) by offering them complete and tailor-made commercial solutions, combined with flexibility and security of natural gas supply.
To meet the requirements of its customers, Distrigas carries
out several activities: gas sales and trading; trade of international transport capacity and transit capacity sales (border to
border); and LNG trading and shipping. The company sells
more than 23bn cubic metres a year (cm/y) of gas in western
Europe, of which about 15bn cm/y is sold in Belgium.
Distrigas has been importing LNG for more than 20 years,
receiving more than 1,000 cargoes at Zeebrugge. The first
long-term supply contract, amounting to 4.5bn cm/y, was
signed with Algerias Sonatrach in 1975. The first delivery was
made in November 1982 by the LNG carrier Methania under
a long-term charter. A second vessel, the Mourad Didouche,
also under long-term charter from Sonatrach, is employed on
the Algerian trade. Since 1982, Sonatrach has supplied more
than 70bn cm of natural gas to Distrigas.
To optimise its supply portfolio, Distrigas complements its
long-term purchases by taking advantage of spot-market
opportunities and sales on the Zeebrugge and UK markets,

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and by purchasing LNG cargoes. Such cargoes have been


received from Abu Dhabi, Australia, Nigeria, Oman and Qatar.
Distrigas majority shareholder, Suez-Tractebel, is the only
company to own and operate LNG regasification facilities on
both sides of the Atlantic (Everett, Massachusetts, US, and
Zeebrugge, Belgium). The Zeebrugge terminal, owned and
operated by Fluxys LNG, another affiliate of Suez-Tractebel, is
ideally located to supply not only Belgium and Continental
Europe, but also the UK.
In addition to the vessels Methania and Mourad Didouche,
Distrigas is co-owner of the 138,000 cm Berge Boston.
Delivered in January 2003, it is owned 49% by Distrigas and
51% by Bergesen, the operator. The tanker is contracted
under a long-term charter to Tractebel LNG North America,
Suezs US subsidiary and operator of the Everett terminal.
This joint ownership of the new vessel enables Distrigas to
play a larger part in the fast-growing LNG industry. Recently,
the company concluded a short-term voyage charter for the
Methania between the Middle East and the US east coast.
Distrigas major long-term asset is its diversified and competitive portfolio of gas-purchase contracts. Long-term purchase contracts are the backbone of the supply services to
customers, while sale and purchase opportunities on the
short-term piped gas and LNG markets are a complementary
tool for enhancing the competitiveness of prices and increasing volume flexibility.

Importers: UK

LNG makes a comeback


With gas demand rising and domestic production set to decline, the UK will need to import
gas in the near future. LNG will fill part of the supply gap. The countrys most advanced
LNG-import project is the Isle of Grain terminal, where a peak-shave LNG storage plant is
in the process of being converted into a base-load import terminal. Completion is set for
January 2005. By Mark Johnson and Ian Belmore, National Grid Transco

INCE the closure in 1994 of the worlds first LNG


import terminal, on Canvey Island, the UK has not
had facilities for importing LNG. By the beginning of
next year, that will change, when the conversion of National
Grid Transcos (NGT) Isle of Grain peak-shave LNG storage
facility to LNG receiving terminal is due for completion.
There are five peak-shave LNG storage facilities in the UK,
strategically located across the gas transmission network,
owned and operated by NGT. The Isle of Grain terminal, in the
Thames Estuary, opposite Canvey Island, has a natural deepwater berth, is within 50 km of London and has an existing
connection into the high-pressure gas transmission system. It
is, therefore, ideally located for receiving LNG shipments.
The UK is undergoing a rapid change in its gas supply
and that will continue over the next decade, as demand
rises and indigenous production declines. It is estimated
that additional gas supplies will be required from 2005,
with up to 10% of UK supply being imported. By 2010, the
UK is projected to import up to half of its gas demand. By
2020, imports may be as high as 90%.

NGTs role
NGT was formed in 2002 as a result of the merger of
National Grid Group and Lattice Group. The merger formed
an international energy-delivery business, with principal
activities in the regulated electricity and gas industries in
the UK and US. In the UK, it owns and operates the natural
gas transmission and distribution system through its
Transco subsidiary. NGT also owns and operates the highvoltage electricity transmission network in England and
Wales, and the largest electricity transmission and distribution network in the New England/New York region of the
US. The Isle of Grain is owned and operated by Grain LNG,
a wholly owned subsidiary of NGT.
The Isle of Grain peak-shave LNG plant was commissioned in 1981 and has 200,000 cubic metres (cm) of
storage space in four double containment LNG storage
tanks. The send-out capacity is comparable in scale with
many of the worlds import terminals, with a peak send-out
rate of 22m cm/d. The tanks are filled with LNG from two
small liquefaction plants, an open-loop expander plant,
which makes use of the high demand requirements for lowpressure gas in southeast England and a closed-loop nitrogen-expander plant, which gives the site the ability to produce LNG at any time of the year.
The installation has a typical peak-shave configuration of
slow fill-times and high send-out rates, taking 270 days to
fill and only five days to empty the LNG storage.
The site has been in continuous operation since it came
into service in 1981, providing LNG storage services both to
Transco, as the system operator, and to gas suppliers in
the UK. Because of the strategic location of the LNG site,
even after imports commence, the Isle of Grain facility will
still play an important role in the safety and integrity of the
UK pipeline systems. During the conversion, the site is

Table 1: UK LNG import projects


Milford Haven
(Dragon LNG)
2007
BG (50%),
Petroplus (20%),
Petronas (30%)
Source
Capacity (million t/y) 4.40
Storage ('000 cm)
330

Project
Start-up
Promoter/Operator

Milford Haven
2007
ExxonMobil,
Qatar Petroleum

Isle of Grain
2005
Sonatrach, BP
NGT

Qatar
15.00*
-

Algeria + others
3.30
200

Mark Johnson

* By 2009 BP and Sonatrach share the capacity. NGT is operator


Possible future expansion to 10.5m t/y

remaining operational, with only two of the four tanks being


converted at a time. Following the commissioning of the
import terminal, the existing liquefaction facilities will be
fully decommissioned.

6.6
Ian Belmore

The challenges of conversion


In developing the Isle of Grain a number of significant commercial and technical challenges were overcome. The technical challenges consisted of: developing a robust and
properly costed engineering proposal for the conversion;
The decommissioning and revalidation of the LNG tanks
within the project timelines; and construction while the
plant remained in service.
On the commercial side, the challenges were: convincing
the market that a shortfall of supply would occur and that
LNG would be competitive against pipeline alternatives;
demonstrating that the Isle of Grain site was the best site
in the UK for LNG importation; setting up a fair and open
process to sell the capacity of the site to the market; following the construction timetable in order to give the project first-mover advantage over rival projects; and ensuring
a fair market price for the capacity sold.

The commercial process


The commercial processes started in mid-2002, with briefing presentations to key industry players. This gave them an
outline of the supply side gap and the potential of the Isle
of Grain and LNG to fill that gap. This step was critical in
terms of allowing the market players sufficient time to carry
out their own analysis of the UK market conditions before
the capacity sale commenced in 2003.
Before the sale of the capacity could occur Grain LNG
developed a set of General Terms and Conditions (GTCs),
the commercial terms and rules that govern the commercial and physical operation of the terminal. These allow for
multiple owners of the terminal capacity, with each owner
having the rights to berth, unload, store and vaporise LNG
at the terminal. The operator of the terminal has incentives
to operate efficiently and act as a reasonable and prudent
operator. The successful capacity owners are responsible
for the purchase of pipeline capacity in the UK to ship their
gas to the market and for selling the gas.

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Importers: UK

The second stage commenced in early 2003, with an the existing equipment installed on the site for future baseindustry-wide call for expressions of interest in capacity at load operation. The suitability of the marine approach for
the Isle of Grain terminal. A proposals document was sent to LNG carriers and the attitudes of the local regulators and
over 25 companies. From this process, companies were residents were also considered - particularly the safety and
asked for indicative proposals for the securing of the capacity environmental aspects of the terminal which is located
and for comments on the GTCs for the sale and operation of adjacent to a nature reserve. This report highlighted no irrethe capacity. These comments were taken into account and solvable issues and resulted in the project moving to cona revised set of GTCs were issued to the shortlisted compa- ceptual design and initiation of the commercial processes.
nies, which proceeded to stage three. This was for the proviDesign of the import terminal
sion of indicative bids for the capacity at the Isle of Grain.
The final stage commenced in July 2003 and involved the The design concept involves connecting the existing LNG
provision of firm, legally binding bids for the terminal capac- storage facility to a new jetty through an above-ground
unloading line, converting the existing
ity. Four companies were invited to
tanks from peak-shave duty to being
enter the final round of the process,
The philosophy for the design able to accept LNG from ships at far
which included detailed negotiations.
is to re-use existing site plant higher flow rates, installing new and
This structured process had a nummore efficient LNG vaporisation equipber of advantages over the more tradiand equipment, to minimise
ment and larger boil-off gas comprestional negotiated route. First, it
project costs and lead time
sion to dispose of the flash gas accomensured all interested parties had an
panying the ship offloading.
equal chance of securing the terminal
The philosophy for the design is, where possible, to recapacity. Second, key principles, which underpinned the
GTCs, were set and these were enhanced and improved fol- use the existing site plant and equipment, in order to minlowing comments received from the industry. Third, a firm imise project costs and lead time, while ensuring a design
and fixed timeline was followed, which enabled all partici- life for the new terminal of 25 years. A major challenge for
pants to plan their response and ensure internal sign-off the project was therefore the modification and revalidation
before submission. Upon completion, Grain LNG was able of the existing storage tanks for use in importation duty.
to demonstrate that it had the best offer available from the
market for the service and that the process had been an Modification of storage tanks
Four 50,000 cm, double-walled LNG storage tanks are
open and competitive one.
installed. These peak-shave storage tanks are designed to be
The technical process
filled at 900 cm of LNG a day. This fill-rate is increased to
The technical challenges of the conversion relied on obtain- 12,000 cm an hour on conversion to importation duty to
ing answers to fundamental questions as to the practicabil- ensure that a 138,000 cm ship can be offloaded in 12
ity of the conversion at a very early stage much earlier hours. This step-change in fill-rates requires that significant
than these issues would normally be addressed. For exam- adjustments are made to the connections to the tank, as well
ple, was it feasible to re-engineer the LNG tanks within the as to the instrumentation and safety systems. Furthermore,
project timeline? This was critical to the success of the pro- the modifications to the tanks, two of which were commisject. To answer these questions a pre-feasibility study was sioned in 1979 and the other two in 1981, are to present
undertaken, where past studies on the Isle of Grain and standards, which has had a significant impact on the design.
new fundamental issues were examined. This study looked
Initially, it was hoped the tanks could be modified in serat the length of the unloading line (some 3.5 km), the rapid vice and the option of re-using existing nozzles on the tank
de-commissioning and re-commissioning of the LNG tanks, for the faster fill-rates was extensively analysed during conthe capital cost of the modifications and the suitability of ceptual design. It was envisaged that three of the emer-

6.6

Aerial view of
the Isle of
Grain site

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Fundamentals of the Global LNG Industry, 2004

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gency relief valve nozzles could be used for fast filling, while
upgrading the remaining nozzles to ensure adequate relief
capacity. Ultimately, this method of tank conversion was
deemed unacceptable because of inadequate heat breaks
on the nozzle penetration and the potential of in-service
failure because of vibration harmonics.
In view of this, and also to allow revalidation inspections
to extend the design life of the tanks for a further 25 years,
it was apparent that the tanks would have to be fully
decommissioned and warmed up. This was well within the
initial design parameters of the LNG tanks, with an
allowance of six warm/cold cycles.
In addition, as the Isle of Grain was to continue to perform its role as a peak-shaving plant while the modifications were made in order to maintain security of transmission supplies, only two tanks could be decommissioned at
any time. Furthermore, hydro-testing of the tanks after the
modification needed to be avoided because of the complexity and cost involved. Therefore, no modifications to the
tank internals, which would affect the integrity of the primary containment vessel, were to be undertaken that
would necessitate a further hydro-test of the facilities.

Scope of works
The decommissioning of each tank would follow the following basic steps: pump out, warm up, purge to nitrogen,
purge to air, isolation, initial tank entry, tank inspection and
construction, de-isolation, drying and purge to nitrogen,
purge to gas, cool-down and refill.
The modifications to the tanks are the provision of new
24-inch fill and boil-off gas lines (compared with the 3-inch
fill and 12-inch boil-off lines presently fitted), an increase in
the amount of available process pressure relief (to handle
the fill case), the provision of three independent level measurement systems, an independent high-level trip system
for overfill protection at the new fill rates, and additional fire
and gas protection on the tank roof around the in-tank
pumps and relief valves. The tank volumes were also to be
recalibrated following the modifications.
To meet the timescales of the project, a number of
methods of reducing the time-frame for tank modifications
were examined. Two areas of efficiency were examined in
detail, namely reducing the warm-up times of the tank by
supplying additional heat input and reducing the boil-off
times by insertion of a temporary pump to reduce the level
of LNG, following pump-out to a minimum (heel removal).
It was estimated that the heel of the tank would take up
to six months to evaporate, jeopardising the project completion date of January 2005. A method for insertion of a
temporary pump, pump down of the heel and removal of
the pump was developed and utilised.
For the purposes of revalidation of the tanks to demonstrate that no part of the tank had warmed up at greater
than 4C per hour, it was decided that the tank would be
allowed to warm up naturally.

Project progress
Decommissioning of the first tank was initiated in
December 2002, with the tank level reduced to 380
milimetres (mm) by the in-tanks pumps. The temporary
pump was inserted into the tank in January 2003, with the
level reduced to below 35 mm. It was envisaged that the
removal of the heel saved one month per 100 mm of heel
removed, saving three and half months from the programme for each tank. This procedure was completed
within two weeks, with no technical or health and safety
problems, by a joint team from Grain LNG, Skanska
Whessoe and Carters Cryogenic Services. This has subse-

BACK

Figure 1: LNG tank cool-down


Temperature (oC)
50
TI point 12
TI point 13
TI point 14
TI point 15

0
-50
-100
-150
-200
11:00
05/12/03

TI point 1
TI point 3
TI point 6
TI point 9
01:00
06/12/03

01:00
07/12/03

19:00
07/12/03

Source: National Grid Transco

quently been used successfully on a number of projects


around the world.
During construction, the tank was fitted with new fill and
boil-off gas lines, new pressure-relief systems and new
level, temperature and pressure instrumentation appropriate to importation duty as well as additional fire- and gasdetection systems on the tank roof. In addition, while out of
service, the first tank was inspected and revalidated for a
further 25 years of design life and the in-tank pumps were
removed, inspected, overhauled and returned.
The second tank was decommissioned in May 2003 and,
by the end of November 2003, the modifications were
completed on both tanks. The two tanks were then cooled
down in December 2003 (see Figure 1). The LNG stock
from the in-service tanks was pumped across to return the
modified tanks to peak-shave duty. The other two tanks are
now empty and warming up to allow modification. Baseload operation is to commence in January 2005.

The future
The conversion of the Isle of Grain will enable the terminal
to accept 3.3m tonnes a year (t/y) of LNG. This does not,
however, meet the expected market demand for LNG or
utilise the installed assets to their optimum capacity.
Therefore, a further expansion is being planned for the terminal with a second open season approach to the market
to commence in early 2004.
Permit applications for up to an additional 570,000 cm
of storage capacity held in three large total containment
tanks, additional vaporisation and associated plant have
been submitted. These applications are being evaluated
and permits are expected to be granted in early 2004. This
expansion would increase the capacity of the terminal to
10.5m t/y and could be operational for the winter of 2007.
The conversion and reuse of the existing peak-shave LNG
storage tanks at the Isle of Grain will allow the base-load
terminal project to be developed within two years from
award of contract and four years from project conception.
The commercial process has secured a 20-year capacity
contract from a BP/Sonatrach joint venture, while providing
a demonstrably open and competitive process.
The expansion proposals for the Isle of Grain will ensure
NGT and the Isle of Grain will be at the forefront of the
development of the UK LNG market, ready to expand to
meet the requirements of the UK gas market and help
meet the shortfall in supply.
The construction of the site is well under way, with full
commercial operation on schedule for first-quarter 2005.
This fast-track process with pre-investment by NGT has
ensured the Isle of Grain will allow the first large scale LNG
imports to return to the UK after a 20 year absence.

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Fundamentals of the Global LNG Industry, 2004

103

6.6

Importers: France

Plans for expansion


Controlling the second-largest import market in Europe, Gaz de France is looking to
develop further its involvement throughout the LNG chain, both at home, in France, and
around the world. By Pierre Clavel, vice-president, gas supply, Gaz de France

Pierre Clavel

6.7

RANCE HAS been importing LNG for nearly 40 years.


Gaz de France (GdF) as well as shipping and trading,
and was involved in the development of LNG technology in the 1950s. Imports in 2003 were 11bn cubic
metres (cm), providing some 23% of the countrys gas
consumption. At the end of 2005, when the first deliveries from Egypt start, this figure will raise to 16bn cm/y
First imports came from Algeria in 1965 and, in 1999,
imports from Nigeria began, strengthening GdFs position
as Europes main LNG importer and the third-largest
importer in the world (nearly 10% of the global market).
Since 2001, the company has developed a growing shortterm trading activity, buying from various North African or
Middle Eastern suppliers and selling spot cargoes in the
US, Spain, South Korea and Taiwan.

Supply contracts
France was one of the first purchasers of Algerian LNG
the signature of the first contract with Sonatrach, still in
force, dates back to 1965, and accounts for about 10bn
cm/y of supply. The countrys other long-term contract
supplier is Nigeria LNG, which began deliveries in 1999.
At that time, Frances position at the centre of major continental natural gas importing roads allowed GdF to enter
swap arrangements involving LNG for pipeline natural gas,
in particular a long-term swap agreement signed with
Italys Enel.
More recently, GdF has entered a long-term agreement
to purchase and lift the entire production of the first train of
the Idku plant, in Egypt, in which the company owns a 5%
stake. First commercial deliveries are expected by the end
of 2005. GdF also holds a 12% stake in Norways Snhvit
LNG project and has elected to lift its equity share of the
LNG, 0.7bn cm/y, from 2006.
In 2000, GdF concluded a joint-venture deal with
Sonatrach (Med LNG and Gas) to market LNG to various
markets, including Asia and the US. Depending on opportunities and shipping availability, GdF, either alone or through
Med LNG and Gas, regularly enters short-term deals, buying
spot quantities from producers such as Sonatrach, Adgas,
Oman LNG, Qatargas or Nigeria LNG, either for its European
market or for delivery elsewhere.

Reception terminals in operation


France has two LNG reception terminals: at Montoir-deBretagne, on the Atlantic coast, and at Fos-sur-Mer
(Tonkin) on the Mediterranean coast. The Montoir terminal has two unloading berths and no practical restrictions on the size of ships it can receive. There is, however, a restriction on height (air draught), because the
ships must pass under a bridge on the River Loire. This
height restriction affects ships only of a certain design
and the modifications to enable such ships to pass
safely under the bridge are straightforward. There are
strong tidal currents in the Loire estuary, meaning
tankers can only approach the berth on a rising tide. The
main restriction on the capacity of Montoir is the capacity of the regasification units.
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Fundamentals of the Global LNG Industry, 2004

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Table 1: LNG ships chartered by GdF


Name
Descartes
Tellier
Edouard LD
Ramdane Abane
LNG Lerici
Tenaga Satu

Capacity (000 cm)


50
40
129
126
65
129

Owner
Messigaz *
Messigaz *
Methane Transport
Sonatrach
Snam - LNG Shipping
MISC

* Messigaz is a 100%-owned subsidiary of GdF Methane Transport is


50%-owned by GdF

Table 2: France LNG import terminals


Project
Start-up
Promoter/operator
Capacity (bn cm/y)
Storage (000 cm)

Fos-sur-Mer
(Tonkin)
1972
GdF
1.90
150.0

Montoirde-Bretagne
1982
GdF
4.20
360.0

Fos-sur-Mer
(Cavaou)
2007
GdF, Total
5.80
330.0

Fos Tonkin is operating at near capacity, which is set by


the number of ships which can be received. A total of 235
unloadings was achieved in 2002, when the terminal
received some 5.6bn cm of LNG. The terminal has a
restriction on the length of ships it can receive, which effectively puts an upper limit of 74,000 cm on the size of a
tanker that can unload.

New reception terminal approved


Other regasification capacities will be needed to meet the
countrys LNG supply needs in the coming years. GdF plans
to construct a new terminal at Fos Cavaou, on the
Mediterranean, close to the existing terminal. The new terminal will have a regasification capacity of 8.25bn cm/y
and three 110,000 cm storage tanks. It will be able to
receive LNG ships of up to 160,000 cm in capacity, with no
restrictions on length, weight or draught. Fos Cavaou will be
built with one berth initially, with the possibility of adding a
second. All the administrative approvals have been received
and the terminal is scheduled for operation in 2007.

LNG shipping
GdF charters six LNG carriers (see Table 1). Two further
vessels are on order from Chantiers de lAtlantique for
delivery in October 2004 and October 2005. The GdF
energY, with a capacity of 74,000 cm and 220 metres in
length, is designed to the maximum size of vessel that
can load at Algerias Skikda plant and enter the existing
Fos Tonkin terminal and the Italian terminal of
Panigaglia. The design of the new ship is innovative. The
LNG containment units will implement a highly efficient
membrane design and a diesel-electric propulsion unit,
which is characterised by a greater efficiency than traditional steam units, saving space in the vessel while minimising environmental impacts.
The second new tanker will implement the same innovations in the design as the GdF energY, but will have a
capacity of 153,000 cm the largest LNG carrier ordered
so far. She will be delivered in October 2005.

Importers: Portugal

Adapting to a changing market


The Sines LNG terminal received its first LNG cargo in October 2003. The infrastructure is in
place to meet its contractual long-term commitments, serving the traditional LNG terminal
services, as well as to cope with new Atlantic basin market developments. By Anibal
Fernandes, managing director, and Miguel Martn, general manager, Galp Atlntico

OR MORE than 40 years, the LNG industry has been Sines terminal had to maximise plant automation, as well
developed on long-term, take-or-pay sales contracts, as being constructed on a modular basis that would enable
dedicated to certain markets and backed up by sover- the business to expand with marginal investments and
eign deals. Recently, LNG shipping investments have trans- minimum business disruption.
formed a market that was short of transportation flexibility
Consequently, in July 2002, the terminals sponsor was
and rising US gas prices, spurred by declining domestic able to double its transmission capacity to the grid, at
production, have initiated a revolution in commercial trends marginal capital expenditure, and with only a one month
in the LNG market, particularly in the Atlantic basin.
extension of the engineering, procurement and construcSimultaneously, on the east of the
tion contract duration. The first LNG
Atlantic, important market changes
cargo arrived in 2003, adding a sevThe Sines LNG terminal has
have been introduced as a result of libenth supply gateway to the Iberian
eralisation of European Union (EU) started commercial operations gas market.
energy markets, as well as fast-grow- in a very different environment
Traditional terminal activities
ing gas demand supported by the
to that five years ago
Traditionally, LNG terminals were
development of environmentally
defined as infrastructure that transfriendly combined-cycle gas turbines,
form delivered LNG into a continuous natural gas export
such as has been seen in Spain.
Developed to diversify the sources of natural gas supply stream. In markets with alternative gas production or
into Portugal, the Sines LNG terminal has started its com- pipeline imports, LNG terminals would act as the system
mercial operations in a totally different environment to baseload and minimise the costs resulting from adverse
that five years ago, when the go ahead decision was gas demand fluctuations. Storage capacity was designed to
taken by the Portuguese government. However, the con- provide a buffer between periodic ship discharges and
struction philosophy undertaken by its promoters has would correlate the size of the vessels cargo and the freenabled the development of an infrastructure not only quency of their arrival into port. In markets isolated from
able to cope with todays gas market characteristics, but gas production or pipeline imports, LNG terminals would
also able to act as a strategic, asset-supporting, flexible have extra storage capacity, guaranteeing both a strategic
and a peak-shaving stock.
market-oriented gas player.
The scope of traditional LNG terminals was limited to
Construction philosophy
unloading tankers, operational LNG storage and regasificaIn 1998, the EU Gas Directive set the basis for the liberali- tion under a predictable, scheduled business that would be
sation of the European gas market by directing the enough to satisfy vertically integrated incumbent gas playunbundling of vertically integrated gas businesses, the ers operating in a monopoly gas market. These services
granting of third-party access (TPA) to gas infrastructures at have been the focus of a regulated TPA regime by the
transparent tariffs and the creation of national regulators.
1998 and more recent 2003 EU gas directives.
It was natural that, after government authorisation later
that year, the Sines LNG terminals sponsor, Gas de Contributors to LNG chain flexibility
Portugal (later on merged into the Portuguese oil and gas In other markets, such as the UK and the US, characterised
player Galpenergia) decided to develop the project as a by the liberalisation of gas production and market liquidity,
tolling unit, completely unbundled from the remaining gas LNG terminals were closed during the period of low-cost
chain. (This was the worlds first LNG terminal to be project domestic production. However, they are resuming operafinanced as a tolling unit.) In such a context, the Sines LNG
terminal had to prove, from the start, its economic and reliability merits when compared with the existing gas-import
source the Maghreb-Europe gas pipeline.
The special purpose company formed in 1999 was
asked to design an LNG terminal that would minimise
costs and optimise the balance between capital expenditure and operating costs, while safeguarding the paramount factors of safety and integrity. To achieve this, the

Anibal Fernandes

6.8
Miguel Martn

Table 1: Sines LNG project


Start-up:
Promoter:
Operator:
Source:
Capacity (million t/y)::
Storage (000 cm)::

2003
Galp Atlntico
Galp Atlntico
Nigeria
4.00
240.0

Aerial view of
the Sines LNG
terminal
Galp
Atlntico

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Fundamentals of the Global LNG Industry, 2004

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Importers: Portugal

costs, guaranteeing that investment is paid from the


charges levied on the users of that capacity and not from a
spill-over from the regulated tariffs; and
Exemption of TPA this exemption to the general rule
can apply whenever a player enhances competition or the
security of supply in a market where similar LNG undertakings are, or can be, constructed, provided that other parties
have an opportunity to gain access to that capacity at the
early stages of development. The scope and duration of the
exemption is correlated to the uncertainty of revenues
resulting from consumption unpredictability, alternative
investments or changes in world market conditions for primary fuels when compared with a material investment.
The exemptions to LNG undertakings require LNG terminals to be operated transparently and owned by a company
separated (at least in terms of its legal form) from the system operator.

Tanker
unloading
Galp
Atlntico

tions as domestic production falls and LNG plays a more


important role.
Contrary to the path followed by most continental
European countries, characterised by a limited number of
gas producers and a larger number of mid-stream participants, US and UK regulators are willing to provide an
exemption to the TPA rules and let the gas players develop
private initiatives that either complement the existing gas
services (typically peak-shaving or time-swap services), or
provide further variety in the gas offer (typically LNG terminals that are building blocks in the LNG chain).
Continental European countries face the challenge of
providing a competitive supply to consumers, without control over the limited number of suppliers, while avoiding
adverse financial effects on incumbents tied into take-orpay commitments the cornerstone of the security of
European gas supply.
In the liberalised environment, gas players will focus on
both flexibility of supply and flexibility of outfalls, as the way
to move from a starting point of secured return on heavy
investment commitments, to a still-rewarding market-risk
margin, versus commitment equilibrium. LNG terminals
have, therefore, become important assets in gas players
strategy, as LNG is geographically and time flexible.
Confronted with limited financial balances, compared
with those of the major oil and gas players, maximisation of
LNGs flexibility potential is critical for players sandwiched
by dominant gas producers and liberalisation initiatives.

6.8

Future developments of LNG terminals

Sines LNG
terminal,
process area
Galp
Atlntico

BACK

Conscious of this reality, the EU Gas Directive legislator did


not want to suffocate the dynamics of a fledging liberalised
market by imposing a low-remunerated, exclusively regulated TPA on LNG terminals. To allow the gas players to
transform or mitigate their volume-risk undertakings, while
perpetuating the existing security of supply, three mechanisms were designed to attract private investment to LNG
asset-based flexibility:
Special treatment LNG undertakings both existing and
new infrastructures can benefit from an allowed rate of
return above the amount normally allowed to the main network, provided the tariff methodology is approved in
advance by the national regulator;
Exemption from published tariffs on TPA new capacity
may be constructed and exclusively dedicated to certain
gas sponsors that have responded to a so-called open
season for bids, or new capacity may be constructed and
offered afterwards on the basis of an auction or individual
negotiation. This exemption is conditional on a transparent
process of bid implementation and a clear ring-fencing of
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Fundamentals of the Global LNG Industry, 2004

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Future terminal activities


On the top of traditional terminaling activities, the Gas
Directive supports the different gas market agents (from
consumers to marketers) by not obstructing private initiatives to adapt to changes in the Atlantic basin market, by
allowing new strategic activities such as:
Spot-market activities the trade of LNG cargoes on a
spot basis will become increasingly important for gas players wishing to match purchase obligations with market
demand. This important vehicle for market liquidity means
LNG terminals need a wider range of ship compatibility and
investments will have to be made to move away from building a terminal to serve a specific long-term contract;
Storage speculative storage capacity will become
important to provide peak-shaving services or to mitigate
the inflexibility of contractual volumes. Traditional bottlenecks in underground storage (injection or pump, as well as
geological limitations) may enforce the construction of
more expensive storage capacity; and
Transshipment complementing the first two precedents,
transshipment of LNG cargoes from new-generation large
carriers to older, smaller vessels by means of supporting
storage capacity or duplication of LNG jetties will become
important in order to reduce the supply cost of LNG and will
aid the development of smaller, isolated markets.
The Sines terminal has fulfilled its construction obligations
by being built within the time and budget approved in 1999
and meeting the initial design capacity. As the most recent
LNG terminal to be built, it is well placed to serve both the
traditional LNG market, and the new, fast-changing commercial trends of the gas industry.

Importers: Japan

Demand set to grow


Japan, the worlds largest importer of LNG, expects demand to rise by 60% by 2030, as the
electricity generation sector increasingly switches to LNG-fired power. By Kazuya Fujime,
senior adviser for research, chief economist, The Institute of Energy Economics, Japan

APAN BEGAN importing LNG in 1969, with shipments


totaling only 182,000 tonnes received from Alaska in
that year. In the fiscal year 1973, the year of the first oil
crisis, imports approached 1m tonnes. In 2002, 33 years
later, Japan imported 55m tonnes, from eight countries (the
US, Australia, Malaysia, Brunei, Indonesia, Qatar, Oman and
the UAE), representing about 75% of global LNG trade.
Although originally utilised as city-gas feedstock, LNG
gradually came into use as fuel for thermal power plants
near the major cities (on the coasts of Tokyo Bay and
Osaka Bay), mainly because of its environmentally friendly
features. Now, about 70% of imports are directed to the
power sector, with the remainder used for city gas manufacture. Japan could be seen as the forerunner of the shift
to gas use in power source mixes, which is under way
around the world.
The utilisation of LNG has expanded with the support of
government policy, not only for environmental reasons, but
also to reduce national dependency on oil. LNG is considered superior in terms of supply stability because its sources
lie mainly in the Asia-Pacific region, unlike those of crude
oil, which is imported mostly from the Middle East. However,

Figure 1: Japan import history


bn cm
80
70
60
50
40

Kazuya Fujime

30
20
10
0

1970

1975

1980

1985

1990

1995

2000

Source: Cedigaz

6.9

LNG prices in the Asia-Pacific market are by no means stable, as they are indexed to crude prices. Price formulae
have been established to prevent excessive swings in the
price of LNG in response to fluctuations in oil prices.
Japan imports about 80% of its LNG from the Asia-Pacific
region, with the remainder coming from the Middle East.

FIND OUT WHY


GORGON IS WORLD-CLASS AT LNG14
THE WORLD CLASS AUSTRALIAN RESOURCE.
The vast reservoirs of untapped natural gas found in the Greater Gorgon Area off
Western Australias Pilbara Coast contain in excess of 40 Tcf of gas. Using cutting-edge
sub-sea technology, innovative design, and leading edge approach to greenhouse gas
management, Gorgon is the world-class Australian Resource.
www.gorgon.com.au

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Importers: Japan

benefits, LNG-fired thermal power is competitive, even economically, not only with oil-fired, but also with coal-fired
thermal power. In addition, when the cost of reprocessing
spent fuel, disposing of radioactive waste and other requisites are included, the cost of nuclear power is substantially
higher. As such, in a liberalised market, nuclear power is
reportedly less competitive than LNG-fired thermal power,
also because of its substantial initial investment.

Figure 2: Japan LNG consumption by sector


million cm
60
Industrial

50

City gas
Power

40
30
20

City gas business and LNG

10

LNG demand for city gas exhibits a firmer trend than that for
electricity generation and the share of LNG consumption
occupied by city-gas feedstock is forecast to rise above 30%
in the near future. The LNG share of city-gas feedstock rose
from 15.1% in 1970 to 51.1% in 1980, 75.8% in 1990,
87.2% in 2000 and 88.6% in 2001. Consequently, it is
approaching its upper limit. Riding on the wave of market liberalisation, city-gas firms have begun building LNG-fuelled
power plants, expanding their electricity sales, confirming
LNGs superiority in competition in a liberalised power market.

1970

1975

1980

1985

1990

1995

2000

2005

Source: Institute of Energy Economics

This statistic stands in sharp contrast to Japans crude


imports, about 90% of which come from the Middle East.

The power industry and LNG


Around the time of the second oil crisis, of 1979-80, LNGs
share of the power generation mix rose to about 80%.
Today, about 40m tonnes a year (t/y) of LNG is used for
power generation, accounting for about 25% of total output.
LNG-fired thermal power makes up almost 40% of Tokyo
Electric Powers output, which accounts for about 30% of the
combined output of the countrys 10 leading electricity utilities. This use makes a vital contribution to environmental
preservation, reduction of oil dependency and improved economics because of the higher generation efficiency derived
from combined-cycle power plants.
According to the latest data released by the Federation of
Electric Power Companies Japan, assuming a service life of
40 years, a utilisation factor of 80% and a discount rate of
3%, the generation cost per kilowatt hour of newly constructed power plants amounts to 5.3 for nuclear, 5.7
for coal-fired thermal, 6.2 for LNG-fired thermal and
10.7 for oil-fired thermal. Considering its environmental

6.9

Supply/demand outlook
The Advisory Committee on Natural Resources and Energy
an advisory department to the minister of economy, trade
and industry is preparing a long-term energy
supply/demand outlook extending to fiscal 2030 (with revisions of figures in the preceding outlook for 2010), to be
released in June 2004. Because of constraints on carbon
dioxide emissions, some observers claim energy consumption as a whole, and of electricity and city gas, may level
off, or even go into decline, in the long term.
Nevertheless, the government is targeting economic
growth of 2% a year and energy consumption, including
electricity and city gas, will probably continue to rise in the
long term, provided the economy does not record negative
rates of growth. As a result, LNG imports are forecast to
rise by around 60%, from 54.5m tonnes in 2000 to over
87m tonnes in 2030.

Table 1: Japan LNG import projects


Project
Chita

Start-up
1983

Chita (Kyodo)
Chita-Midorihama
Fukuoka
Futtsu

1977
2001
1993
1985

Hatsukaichi
Higashi-Niigata
Higashi-Ohgishima

1995
1984
1984

Himeji
Himeji II
Kagoshima
Kawagoe
Negishi
Ohgishima
Senboku I
Senboku II
Shin-Minato
Shin-Oita
Sodegaura

1979
1984
1996
1997
1969
1998
1972
1977
1997
1990
1973

Sodeshi/Shimizu

1996

Tobata

1977

Yanai
1990
Yokkaichi (LNG Centre) 1987
Yokkaichi (Works)
1991

BACK

108

Promoter
Chita LNG (Toho Gas; Chubu
Electric Power)
Toho Gas; Chubu Electric Power
Toho Gas; Chubu Electric Power
Saibu Gas
Tokyo Electric Power

Operator
Chita LNG

Australia; Indonesia; Malaysia; Qatar


Australia; Indonesia; Malaysia; Qatar
Malaysia
Abu Dhabi; Alaska; Australia; Brunei;
Indonesia; Malaysia; Qatar
Hiroshima Gas
Hiroshima Gas
Indonesia
Nihonkai LNG; Tohoku Electric Power Nihonkai LNG
Abu Dhabi; Indonesia; Malaysia; Qatar
Tokyo Electric Power
Tokyo Electric Power
Abu Dhabi; Australia; Brunei; Indonesia;
Malaysia; Qatar
Osaka Gas; Kansai Electric Power
Kansai Electric Power Australia; Indonesia; Malaysia
Osaka Gas; Kansai Electric Power
Osaka Gas
Australia; Indonesia; Malaysia; Qatar
Nippon Gas
Nippon Gas
Indonesia
Chubu Electric Power
Chubu Electric Power Australia; Indonesia; Qatar
Tokyo Gas; Tokyo Electric Power
Tokyo Gas
Alaska; Brunei; Malaysia
Tokyo Gas
Tokyo Gas
Australia; Indonesia; Malaysia; Qatar
Osaka Gas
Osaka Gas
Brunei; Malaysia
Osaka Gas; Kansai Electric Power
Osaka Gas
Australia; Indonesia; Malaysia; Oman; Qatar
Sendai City Gas Bureau
Sendai City Gas Bureau Malaysia
Kyushu Electric Power; Oita Gas
Oita LNG
Australia; Indonesia
Tokyo Electric Power; Tokyo Gas
Tokyo Gas
Alaska; Australia; Brunei; Indonesia;
Malaysia; Qatar
Shizuoka Gas
Shimizu LNG (Shizuoka Malaysia
Gas; Tonen General
Petroleum)
Kyushu Electric Power; Tobata Power Kitakyushu LNG
Indonesia
Cooperative Thermal Power; Saibu
Gas; Nippon Steel
Chugoko Electric Power
Chugoko Electric Power Australia; Qatar
Chubu Electric Power
Chubu Electric Power Australia; Indonesia; Qatar
Toho Gas
Toho Gas
Australia; Indonesia; Qatar

Fundamentals of the Global LNG Industry, 2004

Toho Gas
Toho Gas
Saibu Gas
Tokyo Electric Power

Capacity Storage
Source
(million t/y) ('000 cm)
Australia; Indonesia; Malaysia; Qatar
5.40
780.0

HOME

1.75
4.20
0.50
6.00

300.0
200.0
70.0
1,110.0

0.37
6.30
5.00

170.0
540.0
540.0

4.41
3.70
0.13
5.43
3.50
2.20
0.77
5.83
0.26
5.00
7.50

1,080.0
740.0
36.0
480.0
1,180.0
600.00
180.0
1,585.0
80.0
460.0
2,660.0

0.96

177.0

5.95

480.0

2.40
7.00
0.70

480.0
320.0
160.0

Importers: Taiwan

Terminal expansions to meet


rising demand
Rising LNG demand for the power sector calls for major upgrades at the islands sole LNG
receiving terminal. By Jiuun-Chang Liou, technical department manager, Chinese
Petroleum Corporation, explains the companys development plans

ITH MODEST natural gas reserves, estimated at


2.7 trillion cubic feet in 2003, Taiwan has been
importing LNG since 1990 to meet demand, primarily for electricity generation. The island imported
7.2m tonnes of LNG in 2002, according to Cedigaz, but
demand is expected to reach 10m tonnes a year (t/y) in
the foreseeable future.
Contracted LNG supplies are provided under long-term
agreements with Indonesia and Malaysia. But there are
plans to source new supplies from Australias North West
Shelf project and another potential source of additional
imports is the Shell-led Sakhalin-2 development, in
Russias far east.
Taiwans Yung-An LNG import terminal began operating
in 1990 with a capacity of 1.5m t/y. A first expansion project saw capacity raised to 4.5m t/y in 1996 and, to
accommodate rising demand, a third-phase expansion project increased import capacity to 7.8m t/y in 2002. Plans
for further increases in capacity are scheduled for completion by December 2005.

A second terminal
Yung-An remains the only import facility on the island,
although construction of a second terminal by Tung Ting
Gas, with a capacity of 3m t/y in the north of the island,
should start this year and is due for completion and to
begin commercial operations in 2008.
The major facilities at the Yung-An terminal include six
underground LNG storage tanks, 24 second-stage pumps

and 18 vaporizers. There are two main production lines


that operate separately, but can be mixed together if necessary. The three LNG storage tanks were repaired by
Mitsubishi Heavy Industries under phase-two development work. An overall maintenance schedule is due to
begin in September 2004.
The terminals unloading system has two berths, using
the same unloading platform with one unloading jetty
pipeline. However, CPC is building a second unloading
system to cope with the forecast rise in imports. The
southwest tide impacts operations at Yung-An harbour,
especially during the summer months, and the LNG terminal has had a southern breakwater for several years.
Additional problems at the harbour include occasional
interference with tankers caused by fishing boats illegally
entering harbour waters and the encroachment of sea
sand in the cruise area requiring terminal staff to dig out
the cruise area every five years.

Independent unloading systems


Plans to build a new north jetty could overcome some of
these problems. Under the expansion project, CPC will
construct two jetties, 1,277 metres in length. The designs
include a new unloading system and unloading-jetty
pipeline connected to existing LNG tanks. CPC also plans
to set up a dock to accommodate up to five tugboats. On
completion, in 2005, there will be two independent
unloading systems available to unload LNG cargoes conveniently and interchangeably.

Table 1: Taiwan import terminal


Project:
Start-up:
Promoter:
Operator:
Source:
Capacity (million t/y)::
Storage (000 cm)::

Yung-An
1990
CPC
CPC
Indonesia; Malaysia
7.87
690

Figure 1: Taiwan LNG import history


bn cm
8
7
6
5
4
3
2
1
0

1990

Source: Cedigaz

1994

1998

2002

Tanker at the Yung-An terminal


Photo: David Hayes

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Fundamentals of the Global LNG Industry, 2004

109

JC Liou

6.10

Importers: India

Outlook for Indian LNG


LNG activity in India is beginning to mirror trends in the biggest regional LNG market
Asia. Too many export projects, many often without signed long-term supply contracts,
appear to be chasing too few credible customers the result is a powerful buyers market.
By Ashutosh Shastri, Partner, Energy and Utilities Practice, Candesic

Ashutosh
Shastri

6.11

S THE FIRST LNG deliveries are received at Dahej,


several important questions are being asked about
Indian gas demand. Demand forecasts for Indias gas
requirements are around 200m cubic metres a day (cm/d)
by 2007, 265m cm/d by 2012 and 350m cm/d by 2025,
according to the Hydrocarbon Vision report published by the
Ministry of Petroleum. On its own, domestic gas production
of 70m cm/d will be unable to support this demand growth,
presenting the opportunity for pipeline and LNG imports.
Including the Petronet-promoted Dahej project, in
Gujarat, the west coast is home to eight of the 12 import
projects under consideration (see Table 1). The western
region is home to about 60% of the countrys chemicals
and fertiliser plants and a significant number of gas-fired
power plants are under consideration in the western states.
Gujarat could be home to not only four of the eight terminals, but has also made significant advances in developing
a local gas pipeline network.

Opportunities for LNG


LNGs contribution to supplying the growing demand in the
industrially advanced states of Gujarat, Maharashtra and
Karnataka is expected to be significant and gas grid development in these states may provide further opportunities.
Additionally, all the major Indian private-sector partners in
these projects (Tata, Reliance and Essar) not only have significant engineering capabilities and expertise in executing
large infrastructure projects, but are also potential buyers of
the landed natural gas.
Power generation is expected to be the dominant driver of
gas demand, followed by the fertiliser sector. Industrial
demand is expected to demonstrate a more modest growth
rate of about 3-4% a year, while residential and commercial
consumption, predominantly in cities, could begin provided the pipeline developments under way are sustained.
A recent analysis of LNG projects suggests about 35% of
the proposed capacity faces significant delays, while the
remainder is more likely to be commissioned over the next
five to 10 years. The projects with higher likelihood of commissioning, at full operating capacity, would meet about

Figure 1: Short-term gas consumption by sector


Total, 2002: 63m cm/d

Total, 2007: 200m cm/d


(of which, LNG: 110m cm/d)

million cm/d
Power
Fertiliser
Other
industrial
Local
distribution
Shrinkage
0

10

15

20

25 0

20

40

60

80 100

Source: Ministry of power, Candesic

55% of the demand by 2008. Consequently, both international and domestic pipeline developments are critical.
To analyse the viability of LNG projects in India requires
close monitoring of: evolving inter-fuel competition in the
consuming sectors; evolving regulation in the gas and power
sectors; and tracking of gas and power infrastructure development activity. The policy and regulatory level changes in
the Indian power sector have been tremendous and hold the
key to understanding the evolving economics of Indian LNG.

Market trends
The share of natural gas in electricity generation in India, at
8% (see Figure 2), is significantly lower than in Europe
(25%). Of the 41 gigawatts (GW) of new generating capacity expected to come on line by 2005 about 20-22 GW is
likely to be combined-cycle gas turbine (CCGT) a considerable proportion is either under construction or close to
financial closure (see Figure 3).
In the longer term (2005-2010), however, the contribution from independent power producers (IPPs) is likely to be
overshadowed by state and central sector plans. Most of
the central sector plans are for non-gas-fired capacity, particularly ministry of power plans to install 50 GW of hydro-

Table 1: Indias LNG import terminals


Project
Dahej
Pipavav
Jamnagar
Hazira
Trombay
Mangalore
Dabhol
Kochi
Ennore
Kakinada
Gopalpur-on-Sea
Paradeep

Capacity
5.0-10.0
5.0
2.5
2.5-5.0
3.0
2.5
5.0
2.5
2.5

Promoters
Petronet LNG and GdF
BG Group
Reliance Industries
Shell and Essar Group
Total, Tata Group, Gail
Proposed by Petronet
Enron, Bechtel, GE and MSEB
Petronet LNG and GdF
Unocal, Woodside, IOC,
Siemens, CMS
2.5 BP, IOC, Petronas
5.0 Al-Manhal Group, Industrial
Promotion and Investment
7.0 Fertiliser Industry Co-operative

Gas sourcing
RasGas
Yemen LNG- MoU
NIOC-Iran/South Pars
Oman LNG
Yemen LNG, Oman LNG, Adgas
Not pursued
Oman LNG, Adgas, Petronas
RasGas
RasGas, Woodside, Pertamina

Key local customers


New NTPC plants and Oil PSU uptakes
Local and HBJ route industrials
Own refinery, industrial
Local and HBJ route, industrial
Tata Electric plants, local industry
Local IPPs and refinery
Dabhol Power plant , industry
Kayamkulam power plant, industry
CMS-IPP, industry

Comments
Operational
Suspended
Under development
Under construction
Suspended
Cancelled
Construction suspended
Under development
Under development

Malaysia LNG, Pertamina


Australia LNG

Local IPPs, industry


Own power plant, petrochemicals ,
fertilisers
Fertilisers, Tata Chemicals

Under development
Speculative

Adgas, Malaysia LNG,


Australia LNG, Pertamina

Speculative

Source: Ministry of Petroleum , Candesic

110

Fundamentals of the Global LNG Industry, 2004

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Importers: India

electric capacity by 2015. Coal is still a dominant part of


the generation mix.
In the fertiliser sector gas already forms the bulk of the
feedstock for urea production. LNG would compete with
naphtha, which is significantly more expensive in India than
gas, but still constitutes more than a quarter of the feedstock
mix. Fertiliser prices are subsidised and controlled by the government and the industry claims that unless a delivered gas
price of $3/m Btu is achieved it does not make the switch
from naphtha economic. The removal of fertiliser subsidies,
as with electricity subsidies to the agricultural sector, is a delicate political issue and no dramatic changes are expected.
It has been argued that recent emphasis on LNG is
skewed as it was skewed in favour of IPPs in the early
1990s as proposed pipeline developments have not
picked up as much of the forecast demand growth because
of political complexities.

Gas and power regulation


The Electricity Act 2003 forms the centrepiece of regulatory
reform and a basis for adoption of best practices in electricity market design and regulation consistent with international standards. In the gas sector, several policy-level initiatives are pending before Parliament, such as the
Petroleum Regulatory Bill 2002 (similar to the Electricity
Bill) and draft policy for the pipeline network development.
This is expected to pave the way for wide-ranging reforms in
the gas sector, including the establishment of non-discriminatory third-party access rules and pricing, establishment of
an independent regulator and the phased introduction of
competition and market-based pricing.
As sector regulation develops for gas and electricity,
inevitably, discontinuities are likely to emerge. Even in wellestablished markets, such as the UK, integrated gas and
electricity reform is new. This may have to be actively managed and will present a challenge in India. There are fundamental differences between the structure of the electricity
and the gas industries, primarily that while the electricity sector was mired in bankruptcy the gas sector is not.

Figure 3: Expected power capacity additions


GW
20
Total additions: 41 GW
19

15

13.5

10
8.5

5
0

Plants under
construction

Plants with
construction permits

Expected new
capacity

Source: Ministry of power, Candesic

promoted mainly by the private sector, are beginning to


take shape. In parallel, the merger of the subsidiaries of
Gujarat regions Gujarat State Petroleum Gujarat State
Petronet, Gujarat Info Petro and Gujarat State Fuel
Management to create Gujarat State Petroleum
Corporation, heralds the creation of regional gas utilities.
The recent initial public offering of Indraprastha Gas, in New
Delhi, suggests there is significant market appetite for gas
distribution companies. And there are significant opportunities for similar structures to evolve in other states.
What shape the gas transportation infrastructure might
take in the light of these developments is uncertain. The
governments proposed 10% divestment of its stakes in
energy Public Sector Undertakings (PSU) in March 2004 is
one to watch out for. Whether the majors would be involved
in shaping the sector is also worth keeping an eye out for.

Creative strategies

An extensive and robust pipeline system is essential to


deliver gas to end-users. Indias pipeline network is sparsely
developed, both at the high-pressure transmission and lowpressure distribution levels. There is no national transmission system owner and operator, although state-owned Gas
Authority of India sees itself as the natural monopoly owner
and operator of its proposed National Gas Grid. Several privately promoted projects are also under consideration.
At the local distribution level, large urban area networks,

It will require creativity on the part of all stakeholders to


build a vibrant gas market in India. The global gas majors
can help by transferring best practice. Similarly, the traditional Indian energy PSUs may have to demonstrate more
flexibility. But success at Dahej shows the Indian oil and
gas industries can work together, with multinational
energy companies and with the regulatory and administrative bodies. The development of the pipeline grid in
Gujarat state should provide the impetus for similar structures to evolve, particularly in the states with significant
industrial infrastructure.
Indias political and administrative system has played an
important, and supportive, role, but more must happen
and faster. If it does, the next few years could see the
establishment of a strong and vibrant gas market.

Figure 2: Fuel mix in Indian electricity generation

ashastri@candesic.com

Tracking development activity

6.11

Total capacity: 100 GW


1%

Liquid fuels

3%

Nuclear

8%

Natural gas

24%

Hydro-electric

64%

Coal

Construction of the
Dahej terminal
Photo: Petronet LNG

Source: Ministry of power, Candesic

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Fundamentals of the Global LNG Industry, 2004

111

Design and Technology

Larger is greener
LNG train size will increase to 8m t/y with the introduction of the AP-XTM Hybrid LNG Process,
bringing the opportunity to realise economic and environmental benefits. By Robert P
Saunderson, Joseph M Petrowski and James C Bronfenbrenner, Air Products and Chemicals

Robert
Saunderson

S ECONOMIES of scale have driven baseload LNG


trains to larger capacities, innovative process technologies and equipment advancements have resulted
in lower operating expenses and reduced the capital cost
per unit of production. Natural gas is the cleanest-burning
fossil fuel, emitting less carbon dioxide (CO2) per unit of
energy than oil or coal. Air Products and Chemicals
recently introduced AP-XTM Hybrid LNG Process has the ability to drive the baseload LNG industry to lower CO2 emissions and reduce the unit cost of product.

The MCR process era

7.1
Joseph
Petrowski

James
Bronfenbrenner

Air Products MCR processes are the most widely used liquefaction cycles in the baseload LNG industry. The C3-MR
version of the MCR process was first used in the early
1970s and has remained the liquefaction process cycle of
choice, as train capacity more than tripled over the past 30
years. A comparison of net LNG output to fuel gas consumed shows a 13% advantage in overall plant-fuel efficiency for the C3-MR cycle compared with the second most
commonly used cycle (see Table 1). Another strength of
MCR processes is flexibility they can maintain high efficiency through feed composition changes and daily/seasonal temperature variations.
Over the past 30 years, power-generation turbines and
refrigerant compressors have evolved to provide better efficiency at a lower unit cost $ per kilowatt (kW). The time
between scheduled maintenance outages has also
increased substantially, yielding a higher on-stream factor.
Early C3-MR-cycle LNG trains used steam turbines to generate refrigeration power. During the 1970s, gas turbines
gained acceptance as the main refrigerant-compressor drivers because of improved reliability. As a result, the capital
investment in steam generating equipment was reduced.
In the 1990s, the transition from dual-shaft to large single-shaft gas turbines increased fuel efficiency by 10-15%.
Certain single-shaft turbines could be directly connected to
the refrigerant-compressor shaft eliminating the need for a
speed-altering gear and its associated power losses. The
power output of large-frame, single-shaft gas turbines more
than doubled the power output of existing dual-shaft turbines (see Table 2).

Instead of the one-to-one, turbine to compressor-casing


relationship, two mixed-refrigerant compressor casings
could be connected to one single-shaft gas turbine. The
resulting capital cost reduction ($/kW) associated with the
shift to single-shaft turbines was in the range of 15-25%.
In the late 1990s, Air Products introduced the
SplitMR T M machinery configuration, which allows two
large-frame, equal-power, single-shaft gas turbines to be
fully utilised, making more efficient use of the capital
invested in refrigeration power generation. Two MR compressor casings are connected to one turbine, and a third
is on the same shaft with the propane compressor connected to the second turbine.
During this same time period, improved compressor
technology resulted in higher polytropic efficiencies, lowering the required refrigeration power per unit of production.
Compressor-seal leakage losses were also reduced substantially by the use of dry-face seal technology, resulting in
decreased hydrocarbons emissions to the atmosphere.

Economics and the environment


The innovations and evolutions during the C3-MR process era
resulted in a 40% decrease in the real-term, specific capital
cost of producing LNG (see Figure 1). During the same
period, LNG output capacity per train increased by more than
300% and the typical specific refrigeration power requirements of trains using the C3-MR cycle fell by about 30% in
terms of kWh per normal cubic metre of LNG (see Figure 2).
LNG has become more affordable because of the
decrease in capital cost and the reduction in operating
expenses resulting from these improvements. This
increased economic viability has enabled nations without
indigenous gas supplies to import LNG for use in power
generation, gradually displacing less environmentally
friendly fossil fuels. Switching from coal to natural gas, for
example, reduces CO2 emissions per unit of energy by more
than 40% (see Table 3).
LNG production developments have reduced the fuel
requirements necessary to drive the refrigeration system used
Table 1: Overall plant-fuel efficiency
Net LNG
production
(million Btu/d)
438,838
425,239

Process

Figure 1: Real-term capital cost per train (averaged by decade)


% ($ per t/y of LNG)
100

C3-MR
Cascade*

* Similar site ambient conditions

60

Table 2: Gas-turbine fuel efficiency and power


Gas turbine

40
20
1960

1970

1980

1990

Fundamentals of the Global LNG Industry, 2004

Frame 5C
Frame 5D
Frame 6B
Frame 7EA

*Fuel efficiency
(kWh/kg of fuel)
2.32
2.41
2.55
2.62

*ISO power
(MW)
28.3
32.6
41.5
87.4

* Provided by General Electric Based on ISO heat rate Fuel is 70%


methane, 30% nitrogen

Source: Shell Global Solutions International

112

Net LNG/
fuel consumed
8.7
7.7

Source: Richardson et al. Passing the baton cleanly. Gastech 2000

80

Fuel gas
consumed
(million Btu/d)
50,573
55,419

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Design and Technology

Figure 3: CO2 emissions from fuel

Figure 2: Typical specific liquefaction power per train using


C2 -MR process (averaged by decade)

kg of CO2/kg of LNG
0.35

kWh/cm of LNG
0.35

0.30

0.30

0.25

0.25

0.20

0.20

0.15

0.15

0.10

0.10

0.05

0.05

0.00

0.00

1970

1980

1990

2000

Cascade

C3-MR

Atlantic LNG Qatargas

C3-MR

Rasgas

C3-MR

C3-MR

Nigeria LNG Oman LNG

Source: Merlin Associates

Source: Air Products and Chemicals

to liquefy the gas. This means less specific CO2 emissions


from production as well. For example, the 30% reduction in
specific refrigeration power shown in Figure 2 translates to a
reduction of CO2 emissions per unit of LNG output. The 13%
advantage in overall plant fuel efficiency, shown in Table 1,
for the C3-MR process also reduces CO2 emissions compared
with a facility not using the C3-MR process (see Figure 3).
The selection of gas turbines to provide power for liquefaction is just as important as the choice of process cycle.
To achieve a train capacity of 4.5m-5.0m tonnes a year
(t/y), the preferred adaptation of the cascade process uses
eight Frame 5D gas turbines. The C3-MR cycle with the
SplitMRTM machinery configuration achieves the same production range with two Frame 7EA gas turbines, plus additional power roughly equivalent to a Frame 5D gas turbine
(see Table 4). Using a configuration of two Frame 7EA turbines and one Frame 5D turbine costs 18% less and
reduces CO2 emissions by 27%.
To increase LNG train capacities beyond 5m t/y using the
existing MCR cycles would require the addition of compressor casings to the propane and/or MR refrigeration systems.
In 2001, Air Products AP-XTM Hybrid LNG Process was introduced, enabling the production capacity of a single LNG
train to leap from 5m t/y to 8m t/y without adding propane
or MR compressor casings in parallel service. The MR and
propane compressor casings can also remain within reasonable extensions of proved vendor frame sizes and the
dimensions of the main cryogenic heat exchanger will not
need to increase beyond the size manufactured today. The
AP-XTM cycle also retains the major strength of the previously existing MCR cycles the flexibility to maintain high
efficiency through changes in feed composition and
daily/seasonal temperature variations.
The AP-XTM cycle enhances LNG production capacity by
augmenting the C3-MR cycle with a nitrogen-expander refrigTable 3: Emissions factors
Fuel
Natural gas
Petroleum
Black coal
Brown coal

Emissions factor
(kg of CO2/gigajoule)
55
68
91
95

eration system to accomplish LNG sub-cooling. The refrigeration load absorbed by the nitrogen-expander system alleviates the need to increase the size and quantity of the
propane and MR system equipment. The manner in which
the C3-MR cycle is enhanced to form the AP-XTM cycle is analogous to the way the C3-MR cycle was originally invented. At
that time, the single-MR cycle used in an early LNG train was
augmented with a propane-refrigeration system used for feed
gas and MR pre-cooling. The AP-XTM process patent also has
an embodiment where a dual-MR system is similarly
enhanced with a nitrogen system for LNG sub-cooling.

Economic and environmental impact


The Kyoto Protocol calls for nations to reduce greenhouse
gas emissions by an average of 5% from 1990 levels by
2010. This is one factor that will drive the gas market to
expand its 25% share of the world energy market.
Economies of scale have favoured increasing train sizes for
baseload LNG plants to drive down the unit cost of LNG.
The AP-X TM cycle can use Frame 9E gas turbines to
increase an LNG trains production capacity to 8m t/y (see
Table 5). Using a Frame 9E gas turbine provides about 50%
more power at only 16% higher capital cost than a Frame
7EA. CO2 emissions from the Frame 9E turbine are about
6% less than the Frame 7EAs per unit of power generated.
This unprecedented increase in LNG train size, coupled
with the specific cost advantage of the Frame 9E gas turbine, has the potential to drive a major step change in LNG
facilities the introduction of combined-cycle power generation, which utilises waste heat from the gas turbines to
generate steam to drive a steam turbine. The turbines provide power to electric motors connected to the refrigerant
compressors. Combined-cycle power generation can be 5560% efficient compared with 30-34% for gas turbines. The
combined cycle is also about 20% less CO2 intensive than
gas turbines or steam turbines.
Combined-cycle power generation requires a larger initial
capital investment than gas turbines, but its higher efficiency and better on-stream availability reduces operating
costs. When the substantial increase in train capacity provided by the AP-XTM cycle is also factored into the long-term
economic evaluation, a major step towards crossing the
threshold where combined-cycle generation becomes standard at baseload LNG facilities has been achieved.

Table 4: Gas turbine CO2 emissions and economics


Gas Turbine
8 x Frame 5D
2 x Frame 7EA + Frame 5D

*CO2 exhaust
*2003 turbine
emissions at 30C capital-cost factor
(kg-mole/hr)
($)
8 x 463 = 3,704
8 x 1.0 = 8.00
2 x 1,112 + 463 = 2,687 2 x 2.78 + 1.0 = 6.56

* Provided by General Electric Fuel is 70% methane, 30% nitrogen

BACK

7.1

Table 5: Gas turbine CO2 emissions and economics


Gas turbine
Frame 7EA
Frame 9E

*Power at 30C
(MW)
79.4
120.8

*CO2 exhaust *Specific CO2 exhaust


emissions at 30C
emissions at 30C
(kg-mole/hr)
(kg-mole/MWh)
1,112
14.0
1,598
13.2

* Provided by General Electric Fuel is 70% methane, 30% nitrogen

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Fundamentals of the Global LNG Industry, 2004

113

*2003 turbine
capital-cost factor
($)
1.00
1.16

Design and Technology

Bigger trains, lower capital costs


The rapid expansion of the global LNG market in recent years is driving the need for trainsize increases. But trains with capacities of up to 8m t/y pose a new set of challenges. By
Cas Groothuis and Barend Pek, Shell Global Solutions International BV

Barend Pek

7.2

Cas Groothuis

INCE THE beginning of the LNG industry, train capacities have continued to rise to capture the advantages
of economies of scale. Over 30 years, train capacities have increased from 0.5m tonnes a year (t/y) to nearly
5m t/y. In real terms, the specific capital cost for plants,
expressed in dollars per tonne a year of LNG, has more
than halved during that period, mainly because of the application of larger trains.
It is only in the last few years that developments at the
design stage have created another leap in LNG train capacity from 5m to 8m t/y, further reducing the specific capital
cost by another 10-15% on an equal stream-day basis. In
an increasingly competitive climate, the rapidly expanding
LNG business drives further train-size increases for both
greenfield plants and brownfield expansions. Traditionally,
Air Products and Chemicals (APCI) has held a dominant
role with its C3-MR process, but other processes and licensors have emerged in the last decade (see Figure 1).
Although the lowest specific capital cost has always been
an important driver (and to a large extent still is), an overriding objective for all projects is to achieve the highest net
present value per dollar invested. This is a factor that also
takes account of the sales build-up even more significant
for mega projects. However, very large train capacities pose
a new set of challenges, which will need to be addressed in
a wider context.
Higher-capacity trains attract more risk regarding the
availability of proved gas reserves, marketability and technical step-outs, and all three aspects should be balanced in
their development. High-capacity trains do not fit well in a
scenario with limited outlook for extra gas reserves and a
gradual projected market build-up. The drive to higher
capacities in a number of locations is primarily fuelled by the
opening of the North American market, combined with LNG
projects that have access to large reserves. To capture fully
the diminishing advantages (10-15%) in economies of
scale, the assessment and control by all relevant stakeholders of technical risks has become even more important.

Technologies
Several licensors offer liquefaction-train technologies in the
5m-8m t/y capacity range, they include:
APCI provides its C3-MR split MR process in a capacity
range of between 4.5m and 5m t/y, based on two GE F7
drivers. Trains are under construction in Egypt and Qatar.
APCI has developed the 8m t/y AP-XTM process, based on
large GE F7 or F9 drivers a three-cycle, in-series liquefaction process, with a propane cycle as pre-coolant, mixed
refrigerant for gas liquefaction and initial sub-cooling, and a
nitrogen cycle for further sub-cooling of the LNG. This technology has been proposed for expansions in Qatar.
According to APCI, a feature is the possibility to phase the
construction of the third cooling cycle (nitrogen loop), which
allows the phasing of LNG production to match market
build-up;
Shell has developed a portfolio of robust LNG train
designs, with two cycles, covering the full range of 5m8m t/y. At the 5m t/y capacities, choices are between a
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GE F7 direct drive C3-MR 5m t/y train (based on the Split


PropaneTM technology) and a DMR 5m to 5.5m t/y. The
latter design is based on the Sakhalin-2 projects 2 x GE
F7 driven, 4.8m t/y DMR process for which a final investment decision was taken in mid-2003. In the ultra-large
capacities, Shell has developed an 8m t/y Parallel Mixed
Refrigerant (PMR) process based on C3-MR or DMR technology, with three GE F7 drivers. These technologies are
based on well-proved tubular heat exchangers, in precool and liquefaction cycles, combined with proved rotating equipment. The parallel line-up improves the overall
availability compared with three-cycles in series configurations, further lowering the technology risk. Capacity
phasing is possible by delaying the construction of the
parallel liquefaction section. GamechangerTM, electricitydriven DMR trains are considered for various locations
and fill the interval between the 5m and 8m t/y capacities
on a continuous design curve, without losing the benefits
of economy of scale. Using electric drives compensates
for the somewhat higher cost (at similar daily capacities)
of these LNG trains with higher plant availabilities.
Electrical generation also enables further reductions in
fuel consumption and carbon dioxide emissions;
ConocoPhillips has a nominal 5m t/y Optimized Cascade
three-cycle process, which is applied in Atlantic LNGs Train
4. This design is a scaled-up version of the 3m t/y
Optimized Cascade process applied in the first Trinidad
trains. This leads to a total of eight GE F5 or LM2500 gasturbine drivers per train. Higher-capacity designs are being
considered in the range of 5m-6m t/y and around 8m t/y.
These designs are based on the GE F7 and GE F9 gas-turbine drivers, respectively;
Statoil and Linde have developed the Mixed Fluid
CascadeTM (MFCTM) process, which is under construction in
Hammerfest (Norway). This process has a capacity of 4.3m
t/y. Additional studies have been conducted on offshore
application in the range of 5m-6m t/y and up to 8m t/y or
more is under consideration; and
Axens has its LIQUEFINTM process, a two-cycle DMR-type
technology, based on plate-fin heat exchangers for precooling as well as liquefaction. Both e-drive and mechaniFigure 1: Licensors development
Existing plants, to 2002

New-built plants, 2003-2010

Total capacity: 116m t/y

Total capacity: 85m t/y

90.4%

Propane-MR

2.6%

Technip

32.8%

Propane-MR

25.1%

3-cycle

3.7%

Cascade

2.6%

Prico

11.2%

Cascade

16.7%

DMR

10.6%

Split-MR

3.5%

% of existing capacity

% of new capacity

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Design and Technology

Projects
500

Existing
Under construction
Proposed

400

7
6
5

300

200

Train capacity (m t/y)

Specific cost in $/t/y for greenfield plants*

Figure 2: Capacity and specific greenfield cost development

1
100
1960

0
1970

1980

1990

2000

2010

Start-up year
*Normalised for ME location

cal drive options are considered in ranges from 5m-8m t/y.


The process has not yet been built and no references are
available for plants under detailed design or construction.

Technical versus commercial risk


The main variable to assess the risks in a technical design is
to translate them into plant availability, not only of the LNG
plant proper, but also for the integrated upstream and downstream facilities. For example, for a single LNG train, singlestring, greenfield concept, the downstream reliability will
affect the upstream utilisation (combined upstream, midstream and downstream availability) with ultimate knock-on
effects on overall LNG production. In this risk assessment, a
large single-train, single-string concept bears higher risk and
has a lower availability than dual- or parallel-string concepts.
In a two-train or brownfield configuration, an additional single-string, large-train concept would have less effect on
upstream utilisation.
Technology step-outs are important to assess, particularly
in combination with single-train, single-string concepts. The
use of large gas turbines as mechanical drivers (larger than
100 megawatts), for which only limited experience has been
gathered, will have an impact on availability, especially in the
initial years of operation. Project economics are normally very

sensitive to revenues in the early years of operation and,


therefore, high availabilities are essential to take advantage of the economy of scale of large-capacity LNG trains.
Typically, the trip frequency of plants that have applied
a technology step out, is a factor two or three times
higher than technologies that have a proved track record.
Other step-outs, such as in compressor and electric
motor sizes, the application of very large cryogenic spoolwound exchangers, or novel applications of plate-fin heat
exchangers, must be carefully addressed in large-scale
LNG plant developments.
For smaller upstream gas reserves, in combination with
limited markets, and despite the higher specific cost, it
may be advantageous to rely on multiple LNG trains with
proved technology in the 3m-5m t/y range. Alternatively,
large 5m-8m t/y trains, based on parallel and dual-string
concepts, could also be attractive in those train concepts,
based on less or no technology step-outs.
In the development of large 5m-8m t/y LNG plants, the
role of the process-design integrator becomes more pronounced than that of the licensor, in order to mitigate
technical step-out risks. Where a liquefaction process
licensor typically guarantees that a capacity shall be met
in an acceptance test run, the process-design integrator
looks beyond the test run and relies on extensive operational and engineering experience to guide his choices
both in equipment selection and integrated process lineups. Such process-design integration knowledge resides
with international oil companies (IOC) and/or a combination of IOCs with large international contractors, and
recent trends indicate that contractors with a track record
in LNG plant construction are assuming the role of
process-design integrators.
Beyond 5m t/y, the reduced economy-of-scale advantages,
compared with the impact of technical step-outs on train
availability, should be assessed with diligence. In particular,
large single-string concepts should be weighed up against
parallel- and dual-string concepts. The influence of the overall
process-design integrator has become more important than
that of a technology licensor alone, and the technology risks
must be translated in an overall upstream, midstream and
downstream availabilities context.

Australias NWS LNG project


uses APCI technology
Woodside Energy

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115

7.2

Design and Technology

Increased efficiency and


economic enhancement
As new import terminals are developed around the world, the desire to optimise cost,
increase efficiency and minimise environmental impacts is a common goal. Integration of
LNG terminals and other facilities is a proven way to achieve these goals. By Brian C Price,
vice-president, LNG Technology, Black & Veatch Pritchard

W
Brian Price

7.3

ITH A GROWING LNG import market in the US,


Vaporisation of LNG into sales gas is a major step in the
infrastructure owners are realising the need to terminal process. The LNG is pumped to pipeline pressure
develop more efficient and environmentally friendly and then heated from -164C to about 5C. This heating is
LNG terminal designs. The vaporisation of the LNG for typically accomplished by warming the gas against seawater
send-out means either fuel is burned for heating (which using an open-rack vaporiser (ORV) or shell and tube vaporaffects air emissions) or seawater is used (which affects the iser (STV). In either system, the seawater must be taken
water ecosystem). Both methods have significant capital- from an intake structure with large pumps and sent in large
cost effects, in addition to environmental impacts.
piping to the vaporisation location. The seawater warms the
By integrating LNG operations with other facilities, such LNG and is cooled in the process. The cool seawater is then
as power generation and chemicals facilities, the capital returned to the ocean in another large piping system.
cost of a terminal and the environmenThe design temperature drop on the
tal impact can be reduced significantly
seawater determines the size of the
Technology has been
and in some cases eliminated.
system. Typically, this temperature difdeveloped to integrate NGLs
Integration also has a favourable effect
ference is limited to 10C. The result is
on the capital and operating costs of
a very large seawater flow of about
production into new and
the adjacent host facility.
15,000 tonnes an hour to vaporise 1bn
existing LNG terminals
US LNG imports must also meet gas
cubic feet a day (cf/d). The intake and
specifications in existing distribution
outfall structures must be located so
infrastructure. For many LNG streams this means a reduction they do not communicate. The cost of this overall system is
in the heat content of the gas. The primary method for Btu site-dependent and can add significantly to the overall facility
reduction is to remove the natural gas liquids (NGL) compo- cost. The thermal effect of discharging the cooled seawater
nents. Technology has been developed to integrate NGLs pro- is an environmental impact that must be addressed.
duction into new and existing LNG terminals. This integrated
Alternatively, LNG is heated in a fired heater, normally a
NGLs production can produce increased revenues from the submerged combustion vaporiser (SCV). The SCV consumes
facility, while helping to maintain a consistent LNG output about 1.5% of the inlet gas to achieve vaporisation. SCVs
composition handling a wide range of LNG feedstocks.
come in modules that can vaporise about 200m cf/d per
module, so multiple modules and spare capacity are
Primary systems
installed. Gas combustion is a major operating cost for faciliA typical LNG terminal is composed of several primary sys- ties potentially, over $40m a year for a 1bn cf/d terminal.
tems. The LNG is unloaded from tankers and stored in large These units will also be a major emission source. Depending
tanks with sufficient capacity to unload the tanker and to sup- on the specific site, Low nitrogen oxides (NOx) burners will
ply the LNG to send-out between tanker shipments. These often be required to meet environmental restrictions and, in
tanks are sized with sufficient surge capacity to prevent dis- some locations and capacities, there will still be a problem
ruption of send-out gas when tanker shipments are delayed. meeting the allowable limit for NOx emissions.
Vapour is produced from the tank because of heat ingress
into the system. During unloading, large quantities of vapour Cold utilisation
are produced because of unloading pump energy and vapour Both of these vaporisation methods suffer because the cold
displacement in the tanks. Most of this vapour is returned to available from the LNG is wasted and each has potential
the tanker, but the balance is compressed and recondensed environmental impacts. The cold can be used advantaby contacting with LNG that is being pumped to the send-out geously by integrating the LNG terminal with other facilities.
system. This recondensing system normally operates at about Some possible uses for the LNG cold are:
7 bara. This combined stream is then pumped to send-out Integration with cryogenic facilities, such as air separation, frozen foods, dry ice;
pressure, vaporised, metered and delivered to a pipeline.
In addition to these main process systems, a terminal also Electricity generation;
requires supporting utilities, control systems and safety sys- Power generation integration; and
tems to ensure safe and reliable gas supply to the sales Integration with chemical facilities
Facilities that can utilise the cold at low temperatures
pipeline. These facilities are designed to send out gas at full
capacity, essentially all of the time. Sparing of equipment is are preferred because the lower temperature level can take
applied judiciously to minimise cost while supporting this full- full advantage of the cold available from the LNG. Air-sepatime operation. Most terminals are of sufficient size that the ration units are often considered because of the direct use
systems are composed of multiple parallel units because of of the low temperature in the process. The LNG cold is
the large sizes involved. Therefore, spare equipment typically used in the chilling of the inlet air and other intermediate
streams in the air-separation plant. Typically, two heat
represents a small fraction of the installed capacity.
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transfer loops are needed to establish this integration.


Many of these schemes can result in a 50% reduction in
power consumption in the air-separation plant.
The critical constraint with this type of cryogenic integration is the need to locate such a facility beside the terminal
to achieve close coupling of the processes. The facility
using the cold energy also needs to run at design capacity
continuously to support the terminal operation.
Electricity generation can be achieved using expansion of
the vaporised LNG, or using a Rankine-cycle system with an
intermediate heat-transfer fluid. Combinations of the technologies have also been used. These systems have been
developed in some Japanese terminals, providing 10
megawatts (MW) of power capacity. The systems are complex, and expensive to install and operate. A high electricity
price is needed for the system to be economically feasible.

Power generation integration


One option that has a strong economic effect is the integration of the LNG terminal with a combined-cycle powerfacility. By using the power plant as a sink for the LNG cold,
the use of seawater for vaporisation or fired vaporisation is
eliminated. This is advantageous because of capital-cost
savings and a dramatic reduction in environmental impacts.
The integration is usually accomplished using a glycol/water
heating loop to capture the cold energy and use the cold in
the power cycle. The cooling can be applied in two areas:
Inlet chilling of the turbine air the inlet air can easily be
chilled to 10C with the glycol/water. In warm climates, this
chilling can allow the turbine to produce about 10% more
power. The only cost to the power plant is the inlet chillers
a small investment for such a large power boost; and
Condensing steam in the power cycle the heat medium
can be used to condense the steam in the power cycle
instead of using cooling water. The glycol/water replaces the
cooling water in the steam condensers. The cooling-water
system (cooling tower, pumps) can be eliminated, or significantly reduced in size with this integration. Usually, the heat
medium is available at a lower temperature, which can allow
an additional boost of 1-2% in the combined-cycle power.
Additional benefits can also be realised: supply of fuel for
power generation directly from the terminal; supply of
power from the generation to the terminal; integration of
operating and maintenance organisations; and sharing of
common utilities and infrastructure.
A facility using this LNG terminal/power plant integration is
in operation in Puerto Rico. This facility uses the LNG cold to
chill the inlet air to a 500 MW power facility. This integration
increased the power availability by about 50 MW. The facility
has a single 160,000 cubic metre LNG tank to support the
power generation, future gas sales and the possible further
integration of using the LNG cold to condense steam in the
power cycle. In addition, some of the waste heat in the
steam cycle is used for a desalination unit.
A recent facility development studied by Black & Veatch
demonstrates the benefits of integration. The development
was based on a 1bn cf/d terminal and a 220 MW power
plant. The two plants were integrated by using a
glycol/water loop to vaporise the LNG and condense the
steam in the power cycle. The integrated plant produces
1.044bn cf/d and 202 MW of net power send-out. Through
integration, immediate capital savings of at least $30m can
be realised. This saving was realised while maintaining the
capability to run each facility independently. The capitalcost savings can be greatly increased if the facilities are
totally integrated with no stand-alone capability. However,
this will depend on the specific site requirements for redundancy and on-line expectancy for the two facilities.

BACK

Penuelas LNG/power
project, Puerto Rico
This general relationship can be used to evaluate other
facility integrations. The basic relationship is that for each
100 MW of power generation about 3.5m tonnes a year
(t/y) of LNG can be vaporised. Inlet chilling can be added to
the integration scheme with the same glycol/water loop. To
inlet-chill 100 MW of generation capacity, about 0.25m t/y
of LNG can be vaporised. In most of the installations we
have examined, substantial power plants can provide all the
necessary heat for LNG terminals.
The LNG cold can be used beneficially in many other
process facilities. LNG vaporisation is typically accomplished with a heat medium such as glycol/water. This
medium is then used for process cooling in the adjacent
process facility. Using this heat medium means the seawater intake, large piping and outfall facilities can be eliminated. The heat medium can be designed with a much
larger temperature delta T, such that the flow rates handled
in this type of system are much smaller than a typical seawater ORV system.

Heating value control/NGLs recovery


In the US, many of the gas pipelines that will carry gas from
LNG terminals have heating value limits of 1,050-1,070
Btu/cf (HHV). Imported LNG from many sources may have
heating values from 1,080-1,160 Btu/cf. To send these
gases through the existing pipeline systems, the heating
value must be reduced.
One option is to inject nitrogen up to the pipeline limit for
inerts. For most pipelines this will be limited to 2-3%, bringing a reduction of about 20-30 Btu/cf. This may be sufficient for some streams, but will not work for others.
To reduce the heating value, the C2 and heavier components must be removed. This can be accomplished by
adding an expensive cryogenic-expander processing plant
downstream of the terminal. However, the preferred
method is to add a facility integral to the terminal that can
reduce the heating value from the LNG before vaporisation.
Black & Veatch has developed and patented a process
for this NGLs removal, which can be installed in the terminal and can be operated or bypassed as desired for Btu
control and NGLs production. The NGL stream in most
cases is a more valuable product than the LNG and can be
marketed to increase the revenue to the terminal project.
The process can reduce the heating value well below the
specification. This allows the owner flexibility in applying
this process by: bypassing a portion of the LNG and blending with the low-Btu product to meet the gas Btu specification; blend back NGLs as desired to maximise Btu sales;
adjust the recovery level to leave more light components
(C2, C3) in the LNG; blend back the lighter components
preferentially; or operate to maximise the NGLs yield. The
process is very flexible and can process a wide range of
LNG streams in a single process unit.

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117

7.3

Design and Technology

The offshore option


World LNG demand is rising rapidly, with US requirements alone forecast to rise by 11% a
year until 2025. As demand increases more receiving terminals will be required. Siting
them offshore is a viable option. By Al Kaplan, Foster Wheeler

Al Kaplan

7.4

HERE ARE around 40 LNG regasification terminals operating worldwide, with expansions of several terminals
under way. There are also about 50 new receiving terminals in various stages of discussion, with over 40 proposed
for the North American market alone. The US governments
Energy Information Administration expects LNG imports to
increase at an average rate of 11% a year, to 2.14 trillion
cubic feet (cf) by 2025, from 140bn cf in 2002.
The development of offshore LNG terminals has been discussed for several years as an alternative to onshore developments. Aside from demand, other drivers are combining
to make offshore terminals a viable alternative to onshore
facilities, including: unpopulated land close to demand centres is increasingly scarce; delays in the permitting for
onshore terminals, primarily because of the public perception that LNG is dangerous; and security considerations.
Some planned offshore LNG terminals are well advanced,
such as Rovigo, Italy (ExxonMobil, Qatar Petroleum and
Edison), and Port Pelican, Gulf of Mexico (ChevronTexaco),
and a number of potential projects around the world, proposed by several companies, are waiting in the wings.

Reasons for going offshore


Until now, there have been sufficient onshore terminals and
an acceptance of their location, close to population centres. The development of offshore projects has been hindered by technical challenges, a lack of guiding codes and
standards, and a lack of regulatory processes. Many operators perceive the projected cost of offshore LNG terminals
will be significantly greater than comparable onshore developments. However, depending upon specific site conditions, and including any net-present-value (NPV) differential
for longer permitting time than an onshore development, an
offshore terminal may be cost competitive or even cheaper.
In many areas, sufficient indigenous, low-cost gas
resources or an acceptance of power generation fuelled by
oil, coal or nuclear sources, effectively prohibited the
widescale use of LNG. But LNG is increasingly viewed as an
economic energy source in regions with access to alternative gas and energy supplies, as costs fall and availability
increases, with construction of larger and greater numbers
of production facilities worldwide.

A floating
storage and
regasification
unit
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Fundamentals of the Global LNG Industry, 2004

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Recent legislative developments, such as the US


Deepwater Ports Act, have made regulators more receptive
to offshore terminal developments. The continuing development of codes and industry guidance notes on both fixed
and floating offshore LNG terminals has increased confidence in the specifications for such facilities. Operators
confidence in the offshore terminal permitting times and
the maturing of offshore LNG technology has allowed
reduced contingencies to be applied to offshore projects
compared with onshore developments, particularly compared with those in the US. This is significant, considering
the NPV of revenue lost because of an extended permitting
time. These factors, added to safety and security concerns
regarding onshore LNG terminals, should make offshore
developments an attractive option.

Terminal types
Offshore developments fall into two major classifications,
gravity-base structures (GBS) and floating storage and
regasification units (FSRU). Both offer advantages over an
onshore development: the ability to place the facilities in
close to existing offshore pipeline systems; and the elimination of a need for a new port to receive LNG carriers.
GBSs and FSRUs may be constructed in either steel or
concrete hulls. Each has advantages and disadvantages.
Steel facilities offer lower capital cost, but higher maintenance and operating costs affect operational expenditure.
The total life-cycle cost will probably be similar for either
form. The type of LNG tanks selected is also a consideration, with each option having specific requirements and
resultant effects on facility cost and construction schedule.
GBSs consist of a large steel or concrete substructure resting on the seabed in water depths of less than 30 metres.
GBSs have been used successfully for oilfield development for
over 30 years, many in the harsh environment of the North
Sea, and have proved safe and reliable. Onshore LNG tanks
typically have a concrete outer shell and, therefore, GBSs
unite these two designs. GBSs combine three functions
required for an LNG terminal: LNG tank structural support; a
marine breakwater to provide safe shelter for LNG tankers;
and real estate to support the regasification facilities. This
facility would be constructed in a purpose-built graving dock,
adjacent to a deep-water channel with access to the sea.
With a GBS development, water depth, wave conditions,
soil conditions and environmental requirements are the key
design variables and drive the cost and feasibility of the facility. Optimally, a GBS will be placed in a water depth of 15-20
metres, as this will minimise concrete quantities, while still
providing adequate water depth for LNG carriers. The ships
will require a water depth of about 15-18 metres, depending
on their size, tidal variations and seabed conditions.
The soil conditions at the GBS site will also be a major
cost driver. The preferred soil conditions would be moderately stiff, with a non-rocky and relatively level seabed.
Terminal sites with soft soil to depth require a foundation
structure, known as a skirt, to penetrate the soft soil to an
underlying stiffer layer. Long skirts (greater than 2 metres)
increase the cost and reduce options for construction

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Design and Technology

because of the increased draught during GBS transportation.


The keys to a successful offshore development are the
The seismic conditions of the site also influence the cost.
location of the facility, an early decision on the type of LNG
In general, the GBS design is similar to an onshore facility, tanks to be used and the confirmation of the codes and
except that its LNG tanks are partially submerged. The LNG standards for the design and construction of the facility by
tanks may be 9% nickel, similar to many onshore tanks, or regulatory authorities. All of these affect the cost, ease of
be constructed from membrane or from stainless steel, in permitting and schedule for implementation. For a GBS,
the form of prismatic self-supporting tanks. The regasification selecting a graving-dock location close to the proposed offfacilities will be virtually identical to an onshore facility. The shore site is desirable to minimise transportation cost and
fixed GBS facility normally provides enough shielding to the the risk of adverse weather during a long tow of the facility
LNG carriers at berth to allow the use of conventional LNG to the installation site.
unloading equipment. One issue to be considered with GBS
is its orientation with respect to the prevailing weather condi- Location, location, location
tions, as even relatively benign sea conditions from the load- Location affects the cost in several areas: soil conditions
may require ground-improvement techniques, or long skirts
ing berth side can induce significant weather downtime.
FSRU developments offer the significant advantage that to penetrate the seabed and provide solid soil conditions for
they can be placed in virtually any water depth, greatly GBSs; and the proximity of pipelines will minimise pipeline
increasing location options. As only anchor foundations are costs and may improve the overall schedule compared with
required, the cost of the facility can be reduced, while giving an onshore location if a long pipeline with significant permitting is required. This will apply to either
greater flexibility for access to pipelines.
the GBS or FSRU options; if an onshore
With a deeper-water location, no dredgPeople understand that
alternative requires a significant breaking for ship channels would be
development is essential,
water or a harbour facility to protect
required. As the FSRU will be built in an
ships during unloading, this can add
existing shipyard, the environmental
but they are not ready to
$100m-250m to costs, making an offassessment and permitting of the conaccept it at any cost
shore option cost competitive; and
struction facility is not required. And inilocating the facility near a demand cential construction cost may be lower
than a GBS, as it can be built in a conventional shipyard and tre could reduce pipeline transportation costs.
The permitting time is also better defined for an offshore
is close in design to a traditional LNG carrier. Relatively low
additional maintenance costs for mooring systems would be facility, at least for the US market, which can improve the
overall facility economics by a year or more, accelerating
required over the lifetime of the facility.
the revenue stream.
Flexible mooring and unloading
The selection of an LNG containment system is critical.
Because of its weathervaning capability, an FSRU does not All systems are viable for an offshore development, but
provide direct protection for the LNG carrier from the waves each offers advantages and disadvantages. Safety cases
and current during berthing and unloading operations. and acceptance by regulators will also be drivers in the
However, compared with a GBS, it offers the flexibility of selection of the containment system. Cost competition
side-by-side or tandem mooring and unloading operations can be enhanced by considering a greater number of
that have been safely carried out on floating oil-storage storage technologies, which include: 9% nickel (5 venvessels for many years.
dors); SPB (1 vendor); and membrane (1 vendor). For the
Depending on local site conditions at the offshore loca- FSRU option, only membranes, spherical or SPB tanks
tion, the mode of offloading operations will have to be care- are available alternatives.
fully determined to provide the required availability of the
facility (the time that the facility could receive and unload Codes and standards
an LNG carrier). In most situations, conventional loading- The codes and standards to be used for the facility and
arm designs will be used for side-by-side loading. However, their acceptance by regulators will require significant investfor more severe environmental conditions, Serial Number 1 ment in discussion, as well as the risk tolerance and
loading systems will be needed if a high availability for the approach by the owner. The development of these codes is
facility is to be obtained. A number of groups are develop- increasing day by day and these are not judged to be fatal
ing such equipment, even to the extent of building scale flaws. However, an allowance in the project schedule is recommended to allow sufficient time for discussions.
models, but, to date, none has been installed.
Shipping lanes for the LNG carriers and other marine trafOther issues for an FSRU are the motion of the facility,
which affect the process equipment, requiring the use of a fic may also affect the workability of the facility especially
different vaporisation process to that used onshore. for a GBS, as they must be closer to shore and accepPrecedents for the use of this equipment exist, although they tance by regulatory and other local authorities should be
have not been used as frequently as the typical equipment reviewed closely before deciding where to place a facility.
Significant dredging may be required for an onshore facilused onshore. Another challenge for the FSRU is the relatively
common condition of partially filled LNG tanks being affected ity and this may make an offshore development more
by sloshing, caused by vessel motions. Repeated LNG slosh- attractive from both a cost and an environmental perspecing results in fatigue damage to the tanks and possibly the tive. However, as a GBS will be in shallower water than an
entire facility. However, this can be addressed for each loca- FSRU, dredging may be required. Environmental permitting
requirements for a graving dock to build a GBS may also be
tion by selecting a suitable containment system.
The initial investment for both FSRUs and GBSs should be a challenge and require considerable time. Good planning
competitive or possibly even lower than the equivalent should allow the permitting process to be carried out in paronshore terminals requiring breakwater facilities, or those in allel with the GBS engineering. If so, there would be an
areas with a scarcity of suitable waterfront land. The GBS and insignificant effect on the projects overall schedule.
A commitment to the construction of the worlds first offFSRU procurement and construction schedule is generally
shorter than for an onshore terminal significantly so for the shore LNG terminal is imminent. The question is which
group will be first to take the leap?
FSRU. But offshore-terminal operating costs will be higher.

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Fundamentals of the Global LNG Industry, 2004

119

7.4

Design and Technology

Revitalising LNG plants


Effective strategies deliver significant improvements to ageing LNG plant at a fraction of
replacement costs. By Roy Nap, general manager, gas engineering, and Jelle Kiesling,
general manager, gas operations, Shell Global Solutions International BV

NG PLANTS that are reaching their end-of-design life


offer an opportunity for life extension and capacity
improvement. A considered and systematic approach
to rejuvenation and capacity enhancement has enabled
some LNG plants an extension of the original lifetime of 20
years and increased capacity by more than 25%. Shell
Global Solutions has played a key role in the design and
construction of about 40% of the worlds LNG capacity and
continues to provide technical support to most of these
plants. Two have extended their design life considerably
and all plants exceed their original design capacity.

Methodology

7.5

With many LNG plants having reached or nearing the end


of their design life of 20 years, a proper and innovative
approach to life extension and capacity enhancement is
crucial. The LNG facilities will have to undergo a total rejuvenation effort of upgrading, equipment renewal and
major repairs. Opportunities for capacity and efficiency
increases must be analysed in detail by all process and
engineering disciplines.
In recent years, Shell Global Solutions has gained substantial experience in upgrading and extending the life of
LNG plants, and has successfully supported the preparation
and implementation of these projects. Based on worldwide
LNG operational and design experience, an integrated
process methodology has been developed to enable successful implementation of both gas and LNG plant
upgrades and life extension.
The methodology combines the skills used in project
management, process engineering, and engineering disciplines, corrosion engineering, maintenance management
and operations. In the first evaluation step, a high-level
review is carried out by experts to determine the best
approach to enhance the plant capacity/yield, integrity and
reliability. It includes a comprehensive data-gathering
Figure 1: Typical skills used in LNG plant upgrading

Maintenance

LNG
technology

Gas treating

process to evaluate the potential of the plant with respect


to limits on equipment and process parameters.
The team will introduce best-in-class techniques to
enhance equipment and plant capacity. In addition,
integrity, operations and maintenance management are
reviewed. To increase plant availability and reliability, the
team will advise on risk-reliability management and a structured approach to shutdown management. The detailed
analysis will comprise:
Shell benchmarking comparisons with similar plants;
Proprietary modelling techniques with advanced computer programs;
Review of detailed equipment, comparisons with similar
units through benchmarking;
Review of operations and maintenance-management
systems;
Review of health, safety and environment aspects;
Apply best-in-class techniques to enhance equipment
and plant capacity;
Implementation of risk-reliability management and structured approach to shutdown management to increase plant
availability, mechanical integrity and reliability;
De-bottlenecking of the plant by detailed equipment-performance reviews and dynamic process modelling; and
Multi-disciplinary approach with a team of up to seven
experts covering the relevant disciplines (see Figure 1).

Repair, renew or upgrade?


During a rejuvenation project, every detail of the gas or
LNG plant must be scrutinised. Equipment is repaired,
renewed or upgraded as appropriate to ensure the facilities can be restored to a condition that is equivalent to a
new plant. Operational experience is key to making these
decisions.

Brunei LNG,
work in
progress on the
main cryogenic
exchanger
Shell

Civil
Operations
Rotating
Inspection

LNG
plant upgrading and
rejuvenation

Mechanical

Benchmarking
Electrical
Best practice
Pipeline
Shipping
Cost-estimating

120

Project mgt.

Fundamentals of the Global LNG Industry, 2004

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Design and Technology

Global Solutions is supporting MLNG with an extensive plant rejuvenation programme with the aim of
LNG plant
Number
Year of
Design
Current Capacity increase
securing a continued and reliable supply for at
of trains start-up (million t/y) (million t/y)
(%)
least another 20 years. The first module that was
Brunei
5
1972
5.3
7.2
140
Australia
3 (4)
1987
6.0
7.5
125
rejuvenated was completed in 2003 and the
Malaysia I (Satu)
3
1983
6.0
7.6
125
remainder of the project will be carried out in the
Malaysia II (Dua)
3
1995
7.8
8.7
110
next two years.
Nigeria
3 (4,5)
1999
5.9
6.5
109
The project involves replacement, refurbishOman
2 (3)
2000
6.6
7.2
112
ment
and design changes to the plant equipment
Numbers in brackets indicate trains under construction
and systems to ensure reliability. Hot and cold
Source: Shell Global Solutions International BV
insulation on piping and equipment will be
replaced, the steam boiler and the steam system
Equipment and systems, which are likely to become will be refurbished, as will the gas inlet facilities. The
obsolete during the plants extended lifetime, are upgraded major rotating equipment will be upgraded, the electroor renewed. Labour-intensive processes in maintenance chlorination cells, seawater distillers and some process
and operations are reviewed for efficiency and checked for equipment will be replaced, and there will be an external
which improvements would provide cost reductions over a corrosion abatement campaign.
period of time. This analysis also takes a long-term view on
health, safety and environment issues. Some aspects of a Operating experience counts
plants operations may not be permissible in the future and The improvements at Brunei and Malaysia were made over
the review will strive to identify these and tackle them it is a number of years. However, with the benefit of this experience, similar improvements could be made at other plants
far easier to undertake modifications at this point.
The results can be impressive. Not only can a plants life in a single rejuvenation and/or capacity enhancement probe extended for another 20 years, but capacity can also be ject. Simply replacing worn-out equipment and optimising
increased significantly. Brunei LNG (BLNG), for example, processes is not enough. Apparent weaknesses must be
now operates at 140% of its original design capacity and carefully investigated, the root causes of any problems
much of this increase can be attributed to the plants first identified, and projects and initiatives selected that will
have the maximum impact on performance. This is where
rejuvenation programme.
operating experience counts.
Rejuvenation essential
A long-term view is needed to ensure the plant complies
BLNGs plant, on the coast of Brunei Darussalam, is the with future trends or regulations. For example, a piece of
oldest Shell Group-advised LNG plant, having started up equipment that is likely to have spare parts problems in a
in 1972. When it renewed its first long-term delivery con- few years should be upgraded, and solutions that pre-empt
tract, in 1992, plant rejuvenation was an essential factor, increasingly stringent environmental legislation should be
as BLNG had to demonstrate that the plant was in a con- implemented. Operators benefit by seeing the performance
dition that would guarantee reliable deliveries for an of their ageing plant transformed into the equivalent of a
extended period. During this rejuvenation, the pneumatic new plant, and enjoy smooth and efficient operations for
instrumentation was replaced by a distributed control sys- the next 20 years. It also ensures that they can compete in
tem, insulation was improved and critical electrical equip- the tough gas and LNG markets of the future.
ment was upgraded. New loading
facilities were constructed and two
new storage tanks were also
installed. BLNG is planning its second
rejuvenation, which will take place
around 2010 and extend the life of
the plant to 60 years.
Meanwhile, the plants performance
has improved gradually over the years
as technologists and engineers have
identified improvement projects. A
number of developments have boosted
the plants efficiency. The liquefaction
process has been optimised by shifting
the cooling loads in the liquefaction
cycle, modifications have been made
to the gas-treating section and the
molecular sieves have been upgraded.
There have also been improvements to
utilities such as the instrument air,
water and steam systems, and the
nitrogen plant.
Malaysia LNG (MLNG), one of the
largest Asian LNG producers, has seen
performance increases at its Satu,
Bintulu, plant. It now operates each of
the three liquefaction trains at 125%
Brunei LNG, Lumut
of their design capacity. With MLNGs
Shell
sales contracts expiring in 2003, Shell
Table 1: LNG plants capacity

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Fundamentals of the Global LNG Industry, 2004

121

7.5

Design and Technology

Application of steam ejectortype heat exchanger


The new Mizushima LNG terminal, in Japan, will supply vaporised natural gas mainly for
power generation. Yoshifumi Numata, technical general manager, natural gas process
engineering department, Chiyoda Corporation, provides a technical analysis of the heatexchange system at the plant

Yoshifumi Numata

7.6

APANS MIZUSHIMA receiving terminal will import


LNG and supply vaporised gas to local customers
from April 2006, mainly Chugokos Mizushima power
station. Chiyoda is adapting the Mizushima oil refinery,
removing existing tanks and installing a 160m litre LNG
tank above ground, along with receiving and transshipment facilities. The capacity of LNG handled will be 0.6m
tonnes a year (t/y).
Chiyoda will install a steam ejector-type heatexchanger (SEV) for the LNG vaporiser at the plant, as a
back-up and for peak-shaving use. Steam is supplied by
pipeline from boilers at a neighbouring refinery (see Table
2). This new type of heat exchanger has previously been
used as a natural gas heater by Tokyo Electric Power. Its
use is dependent on an available supply of seawater, or
steam, as the heating source.

Figure 1: Ejector performance


Steam and air weight rate ()

Drawn-air rate
Steam rate

0.1

0.2
0.3
0.4
0.5
Steam inlet pressure(MPag)

0.6

0.7

Source: Chiyoda Corporation

Conventional vaporisers
Conventional LNG vaporisers can be classified into two
types: an open rack-type vaporiser, which uses seawater as
the heating source; and a submerged combustion-type
vaporiser (SCV), which uses the combustion gas of natural
gas as the heating source. The SEV heat exchanger uses
the same hot-water bubbling heat-transfer technology as
the SCV system, with the same heat-transfer tube configuration (shape and required area).

Performance and configuration


The SEV system has no moving parts, such as pumps or
blowers. The steam ejector in the SEV system draws air into
the steam stream which will be introduced at the bottom of
the water bath as the heating source. The resultant bubbling maintains a high heat-transfer coefficient.
Typical performance of the steam ejector is shown in
Figure 1, it has large ratio of drawn air rate per steam flow
rate at ejector outlet pressure under 30 KPag. The drawn
Table 1: Mizushima LNG shareholders
Company
Chugoku Electric Power
Nippon Oil Corporation

%
50
50

Table 2: Basic requirements and specifications


LNG design rate (tonnes per hour)
Heat load (MW)
LNG in/out temperature
LNG turn-down ratio
Heating source
Bath-water temperature

105
25
-160C/0C
Over 20
Steam at over 0.7 MPag pressure
Range from 30-40C

Configurations
Heat transfer tube, as in SCV, one is installed in concrete bath
One small ejector for baseload and two larger ejectors for high LNG load
operation

122

Fundamentals of the Global LNG Industry, 2004

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air rate is roughly constant and stable in the range of


steam pressure from 0.2-0.6 MPag. This means the turndown ratio of steam load for one ejector becomes about a
maximum of three, then generally multi- and differentcapacity ejectors are applied to the SEV to maintain a
high turn-down ratio.

Vaporiser operation
At standby, the bath-water temperature can be maintained
at the same level as during load operation, for a quick
start-up. A small amount of steam is introduced into the
bath water through the temperature-control valve. In an
SEV, LNG may be introduced only after steam has been
introduced to the first-stage ejector, which is designed to
satisfy the required water-bath agitating performance.
Steam pressure in the first-stage ejector is kept at 0.2
MPag for base-agitating operation. The later ejectors start
one by one in response to increases in the LNG load, or
changes in the required bath-water temperature. The
steam pressure is generally kept at between 0.2 MPag
and 0.6 MPag.

Water treatment
Steam consumption is about 0.3 tonnes for each tonne of
LNG vaporised. Accumulated condensate is drawn off from
the water bath and is either disposed of, with no water
treatment, or reused for boiler-feed water with a simple
treatment, such as filtering or degassing.

Characteristics
In general, SEV has two or more steam ejectors and a
heat-transfer tube, in the same configuration as for SCV.
The steam ejectors are placed above the bath. Other
types of heat-transfer tube, such as a U-tube bundle,
may also be used.

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A History of the Worlds LNG Industry

A history of the worlds LNG industry

8.1

1914-55, the early years Godfrey L Cabot, of the US, patents a


river barge for the handling and transportation of liquefied gas in
1914. There is no record that the barge is ever built. The liquefaction method has been technically feasible for a long time. It is first
used in 1917, in the US, for the extraction of helium.
Also in 1917, the worlds first gas liquefaction plant operates in
West Virginia in the US.
In 1942, a 3 tonne lorry and a number of single-deck buses in
London are modified to run on liquid methane. All the tests are
technically successful, but are not exploited because of the lack of
a ready source of methane in the UK.
A Norwegian, Dr Oivind Lorentzen, produces a design for an LNG
tanker of 17,000 tonne capacity. During 1954 and 1955, a firm of
naval architects in the UK is commissioned to carry out a design
study for a methane transport ship of about 14,000 tonnes. In
1954, Gaz de France (GdF) examines the feasibility of importing
Algerian gas to France, by pipeline or ship. Also in 1954, there are
plans to ship natural gas in refrigerated barges from the Gulf of
Mexico up the Mississippi and Illinois rivers to Chicago. One gascarrying barge is built and tested.
Tests begin on the use of balsa wood for insulation. Layers of
balsa wood are glued to the inside of storage tanks to make a lining
about one foot thick. By 1955, Shell initiates a programme for carrying LNG on board ship. Preliminary design proposals indicate that
the capital costs of refrigerated natural gas tankers would be twice
those of conventional oil carriers.
In 1951, Union Stockyard and Transit Company, of Chicago, begins
building a barge capable of carrying LNG. In 1954, Continental Oil
joins Union Stockyard and Transit to form Constock Liquid Methane
its purpose is to develop ocean-going liquefied-gas carriers.
1959 The historic voyage of Methane Pioneer. In February, a
shipload of 2,000 tonnes of natural gas from Louisiana is transported across the Atlantic and landed in the UK, at Canvey Island
on the Thames estuary, for use by the state-owned North Thames
Gas Board. Methane Pioneer was a dry-cargo vessel converted
into a 39,000-barrel capacity prototype LNG carrier. The safe
ocean crossing of this unique cargo, the first of its kind transported by sea, marks the completion of the opening stage of commercial LNG transportation.
1960 Shell acquires a 40% interest in Constock, whose name is
changed to Conch International Methane.
1960 Large gas reserves are discovered in the French Sahara
and a liquefaction plant is built at Arzew in Algeria, near Oran. The

The first ocean-going LNG


carrier, Methane Pioneer
Shell

124

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Fundamentals of the Global LNG Industry, 2004

main field, at Hassi RMel, is one of the worlds largest with recoverable reserves estimated at up to 35 trillion cubic feet (cf). A 500km pipeline is constructed to link this field with the liquefaction
plant. Initial capacity of the pipeline is 145m cf/d, with a possible
capacity of 400m cf/d. Arzew becomes the first source of natural
gas for regular commercial shipments by LNG tanker.
1961 The UK plans to receive regular imports of LNG from the
Sahara in refrigerated tankers by 1964. Under a 15-year contract
with French gas-producing companies, and with Conch International
Methane, the British Gas Council will take annual deliveries of 35bn
cf, thermally equivalent to over 10% of the UKs demand for town
gas. The French plan for similar LNG shipments.
The LNG will be carried in two specially constructed tankers, each
holding about 12,000 tonnes. Their construction costs will be very
high at least 3.5m each because of the novel design. With a
service speed of 17 knots, the two tankers between them are
expected to complete 56-58 return trips a year over the 2,500-km
route between the Algerian loading port of Arzew and the UK receiving terminal at Canvey Island.
1961 Although the experiments with Methane Pioneer showed
both the technical and economic feasibility of shipping deep-cooled
LNG safely across the oceans, their translation into commercial
practice presented marine engineers with many novel problems of
ship design, construction and operation. These concern primarily
the choice of suitable shapes, configurations of insulating materials
for the cargo tanks, and the best way of using the boil-off gas during the voyage. While balsa wood proves an efficient insulant,
research is directed to developing less-costly methods. Three different materials are tested in a French experimental LNG tanker, the
re-vamped Liberty ship Beauvais, whose conversion was completed
in 1962.
1962 Compagnie Algerienne de Methane Liquide (Camel) established in Paris to operate the methane liquefaction plant at Arzew,
Algeria, with an initial capacity of 1.5bn cubic metres a year (cm/y).
About two-thirds of this output is earmarked for export by refrigerated tankers to the UK. Conch takes a 40% shareholding in Camel
and designs the worlds first two commercial methane tankers,
Methane Princess and Methane Progress. In addition to France,
purchases from Camel are also under consideration in West
Germany and Italy.
1962 Algeria concludes an agreement with GdF. From 1964,
French-built refrigerated methane tankers will ship 335,000 tonnes
a year (t/y) of LNG.
1962 Arzew is to have the worlds first frozen-gas storage facility,
a novel method of low-temperature storage developed by Conch
and applicable to a range of chemical products as well as liquefied
gas. The storage container consists of a large frozen hole in the
earth, covered by an insulated roof hermetically sealed to the
ground.
1964 The worlds first commercial movement of LNG occurs
between Algeria and the UK.
1964 Camel negotiates an $18m loan from the World Bank. The
loan is guaranteed by the Algerian government, which asks for a
20-25% holding in the company.
1964 The liquefaction plant at Arzew is officially inaugurated by
President Ben Bella on 27 September. The plants capacity is now
fully committed under export contracts signed with UK and French
interests. The UK Gas Council has contracted to take the equivalent
of 1bn cm/y of natural gas, which will be delivered by Methane
Progress and Methane Princess, each carrying 30,000 cm.
1964 Frances first LNG tanker, the Jules Verne, is launched with
a carrying capacity of 25,000 cm (in seven insulated cylindrical
alloy-steel tanks). She will make about 30 round trips a year from
Arzew to Le Havre to transport the equivalent of about 450m cm of

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Construction
work at Brunei
LNG. Exports
begin in 1972
Shell

8.1
gas. French engineers work on designs for much larger and more
economical LNG carriers, with capacities of up to 100,000 cm.
1964 After a long period of exhaustive tests, the Findon begins
successful sea-trials in 1964. For its initial voyage to Arzew, the
vessel carries 63 tonnes of liquid ethylene, the first occasion such a
cargo has been carried by sea, while, on the return voyage, 125
tonnes of LNG are carried to Canvey Island. Two further such round
trips are carried out with the Findon.
1965 In the first five months of their service between Algeria and
the UK, both Methane Princess and Methane Progress complete 11
voyages. Each tanker cost 4.8m to build.
1967 Alaska becomes the first contracted LNG supplier to Japan.
Shipments are due to start in 1969 when facilities under construction at Port Nikiski are completed. A 15-year sales contract is
signed in March by Marathon Oil and Phillips Petroleum with Tepco
and Tokyo Gas. The project involves construction of plant capable of
liquefying up to 173m cf/d of gas, three storage tanks each of
225,000 barrels capacity, six loading pumps and a 1,200-foot
dock in Cook Inlet.
Two Swedish-built tankers, designed by Gaz Transport, of France,
will be used. Each will have a capacity of 440,000 barrels of LNG,
equivalent to 1.5bn cf of gas, in six tanks. Because of the unique
weather conditions in Alaska, where the tidal variation in Cook Inlet
is as much as 32 feet and broken ice is a serious hazard, special
steels are to be used to strengthen the hulls, and heating will be
installed to prevent freezing of the water ballast. The cargo tanks
are claimed to be completely different in design from those used in
any existing LNG ships. Using the membrane concept, the tanks
contain the liquid by a very thin metallic sheet formed from strips of
Invar a 35% nickel steel with virtually no expansion or contraction
in the temperature range involved.
1968 Delays in building Algerias new plant, at Skikda, make it
unlikely the target date for the start-up of additional LNG exports to
France will be met. Under a 15-year agreement concluded in 1967,
France undertook to buy 1.5bn cm/y of gas, beginning in 1971, rising to a maximum of 3.5bn cm/y by 1975. This is in addition to the
0.5bn cm/y exported to France from Arzew. The French contract
requires construction of a pipeline from Hassi RMel to a liquefaction plant at Skikda, and two or three methane tankers to carry the
gas to Fos, near Marseilles.
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Fundamentals of the Global LNG Industry, 2004

1969 Brunei LNG is established in December. Brunei will be


the first Asian LNG producer, exporting to Japan. Besides a liquefaction plant to be built in Brunei, eventually seven LNG tankers
will be required. The liquefaction plant will be at Lumut.
1969 The first trial shipment of LNG leaves Exxons new plant at
Marsa el-Brega, Libya, bound for Spain, marking Libyas entry into
the still-exclusive ranks of LNG exporters. The methane tanker,
Aristotle (the re-named Methane Pioneer), carries the first cargo to
Barcelona as the initial instalment under Exxons 15-year contract
to supply 110m cf/d of gas to Gas Natural. Further experimental
shipments will go to Panigaglia, near La Spezia, under an agreement to supply Italys Snam with 235m cf/d over a 20-year period.
When exports to both countries reach full contract level by 1970,
output from Exxons plant will total 345m cf/d, or 3.6bn cm/y.
1969 Algeria is now exporting 2bn cm/y (1.5bn cm to the UK and
0.5bn cm to France).
1969 Nine LNG carriers are in operation or under construction
and five others are in the bidding stage.
1969 Shipments to the US east coast are proposed to meet the
expected gas shortage in the late 1970s. LNG shipments of around
300m cf/d, probably from the Caribbean, are regarded as a useful
safeguard. An import project of this complexity could not, however,
become operational until 1974 at the earliest.
1969 Japanese importers are in discussions concerning LNG from
Abu Dhabi and there are new proposals for Russian deliveries direct
from Sakhalin Island.
Tokyo Gas and Tepcos joint scheme to import LNG from Alaska
has been postponed twice, apparently because of difficulties in
the tanker-building programme. The Nikiski liquefaction plant,
operated by Phillips, is officially dedicated on 8 August and is
under test. Of the two Swedish-built, low-temperature tankers,
one, Polar Alaska, has completed sea trials and is on its way to
Nikiski for cryogenic testing.
1969 Bridgestone Liquefied Gas and Mitsui discuss the possible liquefaction and import of natural gas from Abu Dhabi with BP and CFP.
Bridgestone indicates its confidence in an agreement by calling for bids
on the construction of LNG tankers, while Mitsui is looking for potential
customers in Japan. Industry estimates suggest the scheme will
require some 3bn cm/y of gas for 10 years for a liquefaction plant on
Das Island. The network will be the first to utilise the Middle Easts vast
gas reserves and will be the third serving Japans growing market.
1970 Two years of negotiation by Shell and Mitsubishi Shoji with
Tepco, Tokyo Gas and Osaka Gas result in the supply of 65m
tonnes of LNG over a 20-year period from Brunei LNG.
1970 LNG tankers have developed with astonishing speed The
first ships built expressly as LNG carriers were comparable in size to
28,000 tonne oil tankers Methane Princess and Methane
Progress, had capacities for only 173,000 and 160,000 barrels of
liquids respectively. By contrast, the newest methane tanker in service, Polar Alaska, can carry 450,000 barrels equivalent in size to
a 70,000 tonne crude tanker. Methane Pioneer, now trading as the
Aristotle, carries two emergency shipments of Algerian methane to
Boston Gas, in the US.
1970 The Phillips-Marathon joint venture, at Nikiski, comes on
stream. The Polar Alaska delivers the first cargo to Tokyo Gas and
Tepcos terminal near Yokohama at the end of November. The next
operating network will be Exxons plant at Marsa el-Brega, Libya. Of
the four new 250,000-barrel tankers Exxon is chartering for the
venture, the Esso Brego has been delivered, while the Porto
Venere, the Liquria and Laieta are due in service shortly.
1970 El Paso says it will seek US Federal Power Commission
approval to import 1bn cf/d of Algerian gas twice as much as
under any LNG scheme yet proposed for which nine to 11 tankers
will be needed, with a capacity of 0.6m-0.75m barrels each.
Gazocean has earmarked the 315,000 barrel Descartes, under
construction for 1971 delivery, as the worlds first LNG tramp ship
for spot-cargo deliveries to the east coast of the US, and confirms
another order for what will be the worlds largest methane tanker to

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date a 472,000 barrel ship to be built by Frances Ciotat shipyard, for 1974 delivery.
1970 There are currently only 11 LNG tankers in existence, but
firm LNG export commitments call for 24 to be built within the next
five years, with as many as 70 operating by 1980. Shell has
ordered seven LNG tankers from French shipyards. With a capacity
of 75,000 cm of LNG, these ships will be equivalent in size to
100,000 tonne crude tankers and are estimated to cost between
$27m and $30m each. They are due to be delivered between
1972 and 1975.
There are now three basic types of LNG ships (although within
each type there are variations according to design and materials
used). The first generation featured self-supporting tanks of either
aluminium or a 9%-nickel steel. The second generation, and
recently the most successful in terms of orders, features integrated
membrane tanks supported by the hull of the ship and made of
either corrugated stainless steel or smooth Invar.
A new spherical-tank design eliminates the secondary barrier,
required by classification societies to protect the hull from tank leakage, and reduces costs by a further 10% over the membrane design.
1970 Philadelphia Gas Works plans to import 5bn cm/y of
Venezuelan gas. Exxon says it is seriously considering bringing
Venezuelan gas to the US.
1972 Approval is given for the US first long-term import of
Algerian LNG. The 20-year contract for 50m cf/d is to be shipped to
Bostons Distrigas in the Descartes. Deliveries will come from the
new Skikda liquefaction plant.
1972 Sonatrach signs the worlds biggest individual LNG export
contract in December with a five-company European consortium.
The 20-year deal will supply 260bn cm of gas.
1972 Brunei LNG starts exporting to Japan in December, with a
first shipment to Osaka Gas.
1973 Brunei LNGs main sales contract, with Tepco, kicks in and
exports build to 7m t/y.
1975 By the end of the year, eight LNG projects are in operation,
with a further 25 under discussion or construction.
1976 Belgiums Distrigas signs a 20-year LNG contract with
Sonatrach.
1976 Talks start on Irans Kalingas project, a joint venture
between National Iranian Gas, and US and Norwegian companies.
The proposal is to produce 5.8m t/y of LNG for export to Japan, rising to over 11m t/y at full capacity. The project never materialises.
1976 Abu Dhabi signs a 20-year LNG contract with Tepco to supply 3m t/y of LNG. The plant will be built near the offshore oil terminal on Das Island.
1977 Under a second supplemental agreement, GdF increases
the volume of LNG to be imported to 5.15bn cm/y. The agreement
is for 20 years, starting in 1980. Two earlier contracts, signed in
1964 and 1971, provide for delivery of 4bn cm/y.
1977 Indonesia begins its first shipment of a 20-year LNG contract with Japan in August. The Bontang facility, in East Kalimantan,
has a throughput of 0.53bn cf/d of gas from Huffcos Badak field,
discovered in 1972.
1978 Indonesias second LNG plant, Arun, makes its first deliveries in October. The three-train facility in Aceh, north Sumatra, takes
the gas from Mobils Arun field, found in 1971.
1978 Malaysia LNG incorporates, with Petronas (70%), Shell Gas
(15%), and Mitsubishi (15%) as the shareholders.
1979 The first LNG contract, the 15-year deal between Algeria
and the UK, expires.
1979 Worldwide LNG deliveries rise by one-third and sales
increase by 60%. But the market is shaken by disputes over pricing,
breaches of contract and abrupt cancellations of projects thought
certain to go ahead.
1979 Malaysia LNG signs its first contracts, with Tepco and Tokyo
Gas. The 20-year contract is for 7.4m t/y of LNG.
1981 The US Lake Charles terminal is completed in July. Three
LNG storage tanks, each 196 feet in diameter and 163 feet tall,

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are the most prominent physical features of the facility. The tanks
have a combined capacity of 1.8m barrels (285,000 cm). At peak
capacity, the terminal can regasify LNG and send out natural gas at
a maximum rate of 1.2bn cf/d.
1982 First deliveries of Algerian LNG to Distrigas.
1982 Indonesias energy minister, says the country wants to double LNG exports and announces that it hopes to export to South
Korea, Hong Kong, Taiwan and Singapore.
1983 Malaysia LNG ships its first cargo to Japan, on 29 January,
from the Bintulu plant. The plant liquefies gas from the Central
Luconia basin, offshore Sarawak.
1984 Japan purchases 72% of the worlds LNG and uses threequarters for power generation. France and Japan consume nearly
90% of world production.
1984 Fluor draws up a basic concept for utilisation of gas from
Qatars North Field. Under the scheme, 0.8bn cf/d will be developed in Phase 1 for local use. A second 0.8bn cf/d phase will be
developed for sale to neighbouring countries, while Phase 3 will see
a final 0.8bn cf/d developed as LNG for export.
1985 The go-ahead is given in August for Australias $7bn North
West Shelf project, to be operated by Woodside Petroleum. The
LNG-export scheme will involve construction of a second offshore
production facility in the Goodwyn gasfield and a third in the North
Rankin field. These will be tied into the existing North Rankin A platform so that gas can be piped 135-km to shore to a planned LNG
plant on the Burrup Peninsula. Storage tanks and an LNG shipping
jetty will be installed on the coast near Dampier. Eight Japanese
utilities have contracted for the plants output.
1985 The start of talks on a possible LNG plant in Nigeria.
1985 Indonesias Pertamina begins talks to supply Taiwan with
up to 2m t/y.
1985 Spain agrees to tough terms with Algeria that require it to
take 60bn cm over the years to 2004 with rising deliveries. Under
the 1973 agreement, Spain was meant to take 4.5bn cm/y, of
which no more than 1.5bn cm/y was actually taken. Spain agrees
to pay $0.5bn in compensation for underlifting.
1986 South Koreas first shipment of 59,250 tonnes is delivered
from Indonesia.
1986 Indexing of Algerias LNG price to the official price of eight

The first delivery of LNG


from Brunei to Osaka
Gas, 1972
Shell

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crudes is discontinued, the first LNG producer to omit the official


crude price from the formula.
1987 The 0.6bn cf/d LNG terminal at Zeebrugge, Belgium, is
brought into operation. LNG is imported from Algeria.
1988 The first of Enagas two LNG receiving terminals in the
south of Spain comes on stream.
1988 Advanced discussions begin between Nigerias NNPC, with
Shell as technical leader, over building a 4m t/y two-train LNG plant
at the Bonny site in Nigeria. Discussions are held with most of the
European gas utilities and with potential US buyers. Prospects look
better than at any time in the 20 years that the project has been
under consideration.
1988 Shell acquires an option to purchase or charter two unemployed LNG ships, and, on behalf of its Nigeria LNG partners, five
other unemployed LNG ships.
1988 Two possible Norwegian projects are mooted. One is for the
Snhvit (Snow White) gasfields off northern Norway, where CFTTotal has a stake. Two floating-production systems and a two-train
onshore liquefaction plant, capable of processing 3.6m t/y, are considered. To the south, near Stavanger, a 220m cf/d liquefied petroleum gas (LPG) and LNG processing plant is studied by Statoil.
1988 Qatar is seeking buyers for LNG to exploit the non-associated gas reserves in the North Field. Marubeni promises to take 2m
t/y and India even more. South Korea and Taiwan also show interest.
1988 Algerias attempt to rebuild its LNG trade with the US
crosses another hurdle. US authorities give approval for a deal
between Sonatrach and Distrigas, of Boston, for the sale of up to
17 LNG cargoes a year, over 15 years.
1989 In August, the first shipment of LNG from Australias North
West Shelf to Japan is made ahead of schedule.
1990 Taiwans first LNG receiving terminal, at Kaohsiung, opens
to import 1.5m t/y of LNG from Indonesia.
1991 First discussions on the possibility of LNG from Russias
Sakhalin Island.
1992 Increasing LNG demand leads to concern about future supplies. Greenfield ventures are again discussed, mainly development
of Western Australias Browse Basin. The addition of at least two
more trains at Bontang, Indonesia, will be necessary to bridge the
anticipated supply gap.
1992 In February, Oman launches its LNG export scheme.
Shell International Gas is commissioned to carry out a detailed
feasibility study, including a full appraisal of reserves. These are
put at 280bn cm.
1992 Malaysias MLNG Dua is incorporated.
1993 First LNG deliveries from Australias North West Shelf project arrive in Japan and South Korea. And the first spot LNG cargo
sales from Australia to Spain take place.
1993 Brunei renews contracts with Japanese buyers for a further
20 years and signs a five-year contract, later extended to 2013, for
sales to South Korea.
1993 The 3,000th cargo from Brunei LNG is delivered safely
and on schedule.
1993 Mobil formally enters the Qatargas LNG consortium,
replacing BP. The new shareholding structure is Qatar General
Petroleum Corporation (QGPC) (65%), Mobil (10%), Total (10%),
Marubeni (7.5%) and Mitsui (7.5%). Mobil is given operatorship
of the LNG plant.
1994 Oman LNG is incorporated. The shareholders are Oman
state government (51%), Shell (30%), Total (5.54%), Korean LNG
(5%), Partex (2%), Mitsubishi (2.77%), Mitsui (2.77%) and Itochu
(0.92%). The Barik, Saih, Nihayda and Saih Rawl fields will supply
the gas via a 360-km, 48-inch diameter pipeline.
1994 The third train at Abu Dhabis Das Island is completed, as
is Indonesias F train at Bontang, which adds 2m t/y to supply.
1994 Algeria ships its first LNG to Turkey, landing at Marmara
Ereglisi, on the Sea of Marmara.
1995 Atlantic LNG, the project company set up to build and operate the downstream side of Trinidad and Tobagos LNG project, is
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effectively given the go-ahead when sales agreements are signed in


August. Spains Enagas signs up to take 40% of the projects 3m
t/y output and Cabot LNG, of the US, agrees to buy the balance.
The partners in the project are Amoco (49%), British Gas (31%),
state-owned National Gas Company (10%) and Cabot LNG (10%).
1995 The Qatargas LNG project goes ahead with the construction
of a third LNG train at its Ras Laffan plant.
1995 Enron signs a memorandum of understanding with Israel to
supply 2m t/y of LNG from Qatar by 2000. The deal is a major
boost to Enrons plans to build an LNG plant in Qatar.
1995 Shell and its partners in the Nigeria LNG venture sign the
construction agreement in December. Gas exports should start in
2000. The cost of the venture, including tankers, is put at $3.8bn.
The partners in the venture are Shell (25.6%), Elf (15%), Agip
(10.4%) and NNPC (49%). The buyers are Italys Enel with 3.7bn
cm/y, Turkeys Botas with 1.2bn cm/y, Enagas with 1.6bn cm/y and
GdF with 0.5bn cm/y. Capacity of the plant will be 7.9bn cm/y
(5.8m t/y).
1995 Deliveries begin from the three-train, 7.8m-t/y expansion,
MLNG Dua, to Taiwan, Japan and South Korea. MLNG Tiga is
incorporated.
1996 Egypt is the latest country to join the lengthening list of
potential LNG suppliers.
1996 Construction starts on Oman LNG and Atlantic LNG.
1996 Qatargas starts deliveries to Japans Chubu Electric from its
two-train, 4m-t/y plant. Meanwhile, Ras Laffan LNG (RasGas), Qatars
second LNG project a joint venture between QGPC (70%) and Mobil
(30%) signs the three main engineering, procurement and construction (EPC) contracts. Mobil is the operator. The two-train plant
has a capacity of 5m t/y. RasGas signs a 25-year agreement with
Korea Gas to supply 2.4m t/y of LNG, starting in mid-1999.
1997 RasGas, the QGPC-Mobil, LNG joint venture is joined by
Itochu and Nissho Iwai, with the former taking 4% in the venture and
the latter buying 3%. RasGas drops its floor-price provision in its deal
with Korea Gas, which in return, agrees to double its purchase to
4.8m t/y of LNG. RasGas plans to increase its capacity to 10m t/y.
1997 The shareholder-agreement for the $2.5bn Yemen LNG
project is finalised, with Total taking the largest stake. First production is expected in 2001, but the project is postponed.
1997 Atlantic LNGs British Gas (BG) says it is confident a second
train will be built, and that the consortium is investigating the possibility of constructing a third train, which would take the plants
capacity up to 1.3bn cf/d. Prospects for an extension of the project
were boosted with BGs sizeable gas discovery in the Hibiscus field,
off Trinidads north coast, in 1996.
1997 The planned Tangguh LNG project in Indonesia receives a
boost with the participation of the UKs BG. Gas will come from
the proposed Irian Jaya project, using reserves from Arcos
Wiriagar and Berau production-sharing contracts (PSCs) and BGs
Muturi PSC. Arco has outlined plans for a two-train plant operational by 2003.
1997 Wapet, owners of the Gorgon field, offshore Western
Australia, makes a proposal to the North West Shelf LNG consortium,
proposing co-operative development of the field. The plan envisages
the construction of two new liquefaction trains, adjacent to the existing North West Shelf trains, on the Burrup Peninsula. LNG development in the region could be further accelerated by another gas find
by Chevron in the Carnarvon basin, in the Gorgon/Chrysaor trend.
Chevron and Texaco are 50:50 owners of the Dionysus field.
1997 Shell and Woodside unveil proposals for an LNG plant at
Darwin, Australia, with feedstock coming from discoveries in the
Sunrise, Troubadour, Loxton Shoals and Evans Shoals fields. They
propose a $7.8bn, 7.5m t/y facility to come on stream in 2005.
The two-train plant would supply export contracts for 20 years.
1997 BHP and Phillips are negotiating with other partners to decide
on a way forward for a planned LNG facility, with feedstock from
Australias Bayu-Undan offshore field, 500-km northwest of Darwin. It
is estimated that the Bayu-Undan field has reserves of 5 trillion cf.

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1997 Indias government approves construction of four LNG


receiving terminals at Cochin (Kerala), Ennore (Tamil Nadu),
Mangalore (Karnataka) and either Hazira or Dahej (Gujarat). It is to
be 2004 before construction is completed on the first terminal,
Dahej.
1997 Malaysias LNG Tiga project is under way, a contract for
project specification work has been placed with Fluor Daniel. The
plant is projected to produce 6.8m t/y when fully operational.
1997 Petronas launches the 13,000 cm Puteri Firus, built by the
French firm, Chantiers de LAtlantique.
1997 BP searches for customers for a mooted LNG plant in
Papua New Guinea, drawing its feedstock from the Hides field. BP,
the operator, has a 45% stake in the field, Exxon, 47.5% and Oil
Search, a local firm, has the remaining 7.5%. The partners plan the
construction of a 405-km pipeline from the Hides gasfield, in Papua
New Guineas highland region, to the northern port of Wewak,
where the liquefaction plant is planned.
1997 Malaysias Petronas signs a PSC with Sarawak Shell and
Petronas Carigali for the continued supply of natural gas to the
Malaysia LNG plant in Bintulu.
1997 Qatargas signs a sales and purchase agreement (SPA) to
supply 4m t/y of LNG to Chubu and 2m t/y to seven other Japanese
utilities for 25 years from mid-1998.
1997 Sofregaz completes renovation of two of the five liquefaction trains at Sonatrachs Skikda LNG complex.
1997 Turkey plans to boost LNG imports. In 1996, Algerian deliveries amounted to 2.235bn cm in excess of the contract volume.
Botas and Sonatrach sign another agreement covering 2bn cm/y,
and capacity is being increased at the Marmara Ereglisi facility to
4bn cm/y. Botas is in the buyer group for Nigerian LNG after signing
up for 1.2bn cm/y, starting in late 1999.
1997 There are plans to build a second import terminal at Ta-Tan
in northern Taiwan. The countrys existing LNG import plant, at YungAn, is to be expanded from a capacity of 4.5m t/y to 7.75m t/y.
1998 Two new liquefaction projects are mooted for Prudhoe Bay,
Alaska. Yukong Pacific proposes a plant on the North Slope, using
gas supplies from Port Thompson or Prudhoe Bay. Prudhoe Bays
major producers, Exxon, Arco and BP, together with Phillips
Petroleum, are considering an alternative facility, which will be integrated with the existing oil terminal at Port Valdez.
1998 Korea Gas imports 13.6m tonnes of LNG, compared with
11.6m tonnes in 1997 and 9.2m tonnes in 1996. South Korea has
two receiving terminals (Pyongtaek and Inchon) and has started the
design of a third at Tong Young.
1998 Snam joins Amoco and EGPC in Egypts planned LNG
export project. Shareholders in Egypt LNG, are now Amoco (45%),
Snam (45%) and EGPC (10%).
1998 Algerias renovation programme is in its final stages. The
first project, on the GL2Z plant at Arzew, was completed in 1996 by
Kellogg, which constructed the facility in 1981. GL2Z now has a
design capacity of 12.1bn cm/y, up from its initial capacity of
10.5bn cm/y. Bechtels work on the GL1Z plant, also at Arzew and
brought on stream in 1978, is nearing completion. Capacity will
also be 12.1bn cm/y, up from 10.5bn cm/y. The third project, on
the GL1K plant at Skikda, brought on stream in 1972, was
upgraded by GdF and its Sofregaz subsidiary in 1997 and Kellogg
completes renovation of the remaining trains. GL1Ks capacity is
raised to 8.2bn cm/y. There will be no renovation of the Camel
plant the worlds oldest LNG plant. It will run for as long as it is
economically feasible and will then be closed down.
1998 Italys Enel signs a firm contract to buy 3.5bn cm/y of gas
from Nigeria LNG, starting in October 1999 and continuing for 22
years. The contract confirms Enels original agreement, which it
sought to cancel in late-1996 because it could not secure planning
permission for a regasification terminal. Enel has made arrangements with GdF for the LNG to be delivered to the Montoir-deBretagne terminal. In return, GdF will supply Enel with balancing volumes of Algerian LNG and Russian gas at the Italian-Austrian bor-

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der. Other contracts are for Enagas of Spain (1.6bn cm/y), Botas of
Turkey (1.2bn cm/y) and GdF (0.5bn cm/y).
1998 A consortium led by Kvrner Oil and Gas Australia wins the
contract for the front-end engineering development and design for
the Gorgon LNG project in Western Australia. Meanwhile, the shareholders of the North West Shelf project are considering a two-train
addition based on the Perseus reserves.
1998 The Oman LNG plant, under construction at Qalhat, about
130 km from Muscat, is ahead of schedule. The 6.6m t/y plant is
due to begin production in 2000. Oman LNG is owned 51% by the
state, 30% by Shell, 5.54% by Total, 5% by Korea LNG (which in
turn is owned 24% by Korea Gas, 20% by Daewoo, 20% by
Hyundai, 20% by Samsung and 16% by Yukong), 2.77% by
Mitsubishi, 2.77% by Mitsui, 2% by Partex and 0.92% by Itochu.
1999 The EPC contract for Malaysias MLNG Tiga is awarded to a
consortium that includes Halliburton subsidiary KBR and Japans JCG.
1999 BP and Amoco complete their merger, then BP Amoco buys
Arco. Exxon and Mobil agree to a merger. Franco-Belgian TotalFina
makes a successful take-over bid for Frances Elf.
1999 Nigeria LNGs first two trains come on line and the firm
confirms a third train, with a capacity of 2.9m t/y, will be built,
increasing overall processing capacity to 8.7m t/y. The third train is
scheduled for completion by 2003 and 2.7m t/y of LNG has already
been sold under a 21-year contract to Spains Enagas.
1999 After three years of negotiations, Enron, the US power company, and Qatar cancel plans to build a $4bn LNG facility in Qatar.
1999 An SPA between Total and Oman LNG is signed, covering
the supply of 130,000 tonnes of LNG over an 18-month period,
starting in April 2000.
1999 The first shipment leaves Nigeria LNG. A 122,000 cm
cargo is delivered to Italys Enel at Montoir.
1999 In a filing with Ferc, El Paso says it will spend $26m to
bring the Elba Island regasification plant, mothballed since 1982,
back on stream. The LNG 22bn cf/y from Trinidad is to be
imported and marketed by Sonat Energy Services, an El Paso subsidiary, which wins the bidding for all of Elba Islands capacity.
1999 Abu Dhabi Gas Liquefactions (Adgas) signs an agreement
with Enron, the majority partner in Dabhol Power, to export LNG to
India at a rate of 480,000 t/y, from October 2001, for a 20-year
period. The Indian company will need 2.1m t/y of LNG to fuel

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Construction work
at Oman LNG, June 1998
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Dabhol once the power plants second 1,624-MW phase is operational and the first 826-MW naphtha-fired plant is converted to gas.
2000 An SPA is signed between Oman LNG and Enagas, of
Spain, covering the delivery of 17 cargoes of 125,000 cm each, in
2000 and 2001.
2000 The first shipment leaves Oman LNG for South Korea.
2000 BP Amoco reports the discovery of a major gasfield off the
coast of Trinidad, which may hold 2 trillion cf. The company and its
partners announce a planned expansion of its LNG facility, which
will triple capacity by 2003.
2000 Italys Eni signs a $3.8bn deal with Iran to develop the countrys South Pars gasfield, in the Mideast Gulf. The project will take
five years to come on stream, eventually producing 0.53bn cf/d.
2000 Shell announces its intention to invest in the development
of gas reserves on Russias Sakhalin Island. Marathon transfers its
37.5% interest in the project to Shell.
2000 Chevron merges with Texaco.
2000 Puerto Ricos regasification plant at Punta Guayanilla,
Penuelas, nine miles west of the city of Ponce, begins to import
LNG from Trinidads Atlantic LNG under a 20-year contract. The
EcoElectrica terminal and the accompanying 540-MW gas-fired
power plant are operated and managed by Enron, which owns 50%
of the facilities. Edison Mission owns the other 50%.
2001 Argentinas Pluspetrol, operator of the Camisea consortium,
examines the possibility of building an LNG plant in Peru.
2001 Australias North West Shelf LNG agrees new export contracts. Tohoku Electric will take 400,000 t/y from 2005; Tokyo Gas
and Toho Gas will take 1.37m t/y from 2004; Osaka Gas will take
1m t/y from 2004; Chubu Electric will take 0.6m t/y from 2009;
and Shell agrees to 3.7m tonnes over five years from 2004. Osaka
Gas already imports 0.79m t/y under a 20-year contract that
started in 1989 and final negotiations are under way for Kyushu
Electric to take 0.5m t/y from 2006.
2001 GdF buys 10% of Petronet LNG; the Indian company
launches bids for its second import terminal.
2001 South Koreas Kogas signs an agreement to increase
RasGas LNG purchases from 2.4m t/y to 4.8m t/y for 25 years.
RasGas capacity is 6.6m t/y from two trains, but this will rise to over
11m t/y following the commissioning in 2004 of a third 4.7m t/y
train. RasGas also signs an agreement with Petronet, of India, to
supply 5.7m t/y of LNG, for 25 years, starting in 2003. A similar
agreement has been signed with Indias Dakshin Bharat
Consortium, to supply 2.6m t/y of LNG over the same period.
2001 Claiming the power companys prices are too high, the
Maharashtra State Electricity Board Dabhol Powers sole customer
cancels its seven-year contract, so construction stalls on the power
plant and LNG regasification terminal. Dabhols LNG import agreement, with Adgas, is not fulfilled. Meanwhile, TotalFinaElfs Indigas
terminal, at Trombay, and the Dakshin Bharat terminal both stall.
2001 El Paso abandons negotiations with Australias $1.4bn
Bayu-Undan project to import 4.8m t/y of LNG to the US for 20
years from 2005, opting for Indonesian suppliers instead. BPs
Tangguh project receives its first letter of intent for 1.3m t/y of LNG
from Philippines power company, GNPower. BP buys out Cairns
9.7% share in the project and Mitsubishi buys Occidentals 16.3%.
ExxonMobils Arun LNG plant in Aceh, meanwhile, faces protests
that force its temporary closure.
2001 Two partners in Norways Snhvit project decide to market
their shares of the gas-supply basket independently. GdF and
TotalFinaElf own 12% and 18.4%, respectively, of the gasfields that
will feed the liquefaction plant on Melkya. The plant will have a
nominal capacity of 5.7bn cm/y. The remaining six partners sell
their 4bn cm/y to El Paso (2.4bn cm/y) and Iberdrola (1.6bn cm/y).
2001 Qatargas signs a contract with Spains Gas Natural to supply 12.4m tonnes of LNG from 2001 to 2012.
2001 Taiwans state-run Taipower issues a tender for the construction of a receiving terminal to supply its 4 gigawatt (GW) Ta-Tan power
plant for 20 years from 2003. The plant will require 1.7m t/y of LNG.
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North West Shelf's


Sanderling loading at
Withnall Bay, Burrup
peninsula
Shell
2001 CMS, operator of the Lake Charles terminal in the US,
assigns 80% of the capacity to BG from 2002 to 2005, to be followed by the entire capacity from 2005 to 2023. Ferc gives permission for Williams to re-open its Cove Point import terminal. The
mothballed facility, which has a capacity of 10.3bn cm/y, was used
for only two years, from 1978 to 1980.
2002 Spot trading grows; 218 shipments account for 7.8% of
world trade (11.4bn cm) in 2002.
2002 Australias North West Shelf LNG agrees to sell 0.5m t/y to
Japans Kyushu Electric Power under a long-term agreement, and
1m t/y to Osaka Gas under a 30-year agreement from 2004.
2002 Development of the Timor Seas Greater Sunrise gasfields
is delayed. Following a review, Woodside, the operator, decides two
existing development proposals are not yet viable, although a floating liquefied natural gas (FLNG) barge would be technically possible. ConocoPhillips proposal had involved piping gas 500 km to
shore. Osaka Gas has committed to taking 0.5m t/y from Sunrise,
while Shell wants 4.5m t/y for the US. The Sunrise joint-venture
participants are Woodside (33.44%), ConocoPhillips (30%), Shell
(26.56%) and Japans Osaka Gas (10%). First LNG could be produced by 2009.
2002 The Andres terminal, in the Dominican Republic, takes in
its first cargo from Atlantic LNG, which will supply 0.75m t/y for 20
years. The plant has a capacity of 2m t/y with 3.8bn cf of storage.
The gas will supply a 330-MW power plant.
2002 Marathon acquires the rights to deliver up to 58bn cf/y of
LNG to the Elba Island terminal in Savannah, Georgia. The contract
has a 17-year term with an option to extend for an additional fiveyear period.
2002 Shell names its newbuilt LNG carrier, Galea, at the
Mitsubishi Heavy Industries (MHI) shipyard in Japan. The vessel is the
first in a series of four three of which have been secured from MHI.
2002 Tractebel is deciding whether to build an LNG receiving terminal in the Bahamas. The 5.25m t/y terminal would supply the US
market through a pipeline to Florida and would have two 160,000cm storage tanks. Investment would be around $0.7bn. AES is
planning a $0.6bn project, Ocean Express, again with a pipeline to
the US. Capacity would be 3m-4m t/y.
2002 An ambitious project to export Bolivian gas to Mexico and
the US advances after Pacific LNG (PLNG), a consortium of RepsolYPF, BG and Pan-American Energy, announce plans for a supply
deal. Gas reserves discovered in Bolivia in the last few years
proved, plus probable, plus possible reserves are estimated to be
around 70 trillion cf. Under the proposal, gas (and liquids) from
Bolivias Margarita field would be piped 900 km to a 0.8bn cf/d,
two-train liquefaction plant, on the southern cones Pacific coast.

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8.1

The parties say the location has not been formally decided, but will
probably be in Chile. Under a 20-year contract, the LNG would be
shipped to a regasification terminal, in Baja California, Mexico,
being developed by Sempra Energy and CMS Energy. Sempra says
commercial operation of the 1bn cf/d terminal will begin in late
2005 or in 2006. The project would also involve the commissioning
of a suitable shipping fleet.
2002 Frances GdF announces plans to build a third terminal, its
second at Fos-sur-Mer on the Mediterranean, near Marseille. The
8.25bn cm/y terminal will be able to take ships of up to 160,000
cm. The existing 4.5bn cm/y capacity installation at Fos-sur-Mer
can take vessels of up to only 75,000 cm.
2002 Unocal announces a ninth LNG liquefaction train will be
built at Bontang, Indonesia. The $0.7bn project will have a capacity
of 15m cm/d.
2002 BP looks at setting up a receiving terminal in West Java,
Indonesias first.
2002 Brunei Gas Carriers new 135,000 cm LNG vessel begins
operations.
2002 Spains Gas Natural delivers the first cargo of Algerian
LNG to the Italian utility, Enel, at the Panigaglia terminal. Enel has
third-party access to the plant through an agreement with Rete
Gas Italia. BG receives government approval for its receiving terminal at Brindisi. Capacity will be 4bn cm/y in 2006, with the possibility of an increase to 8bn cm/y after two years. Three proposals
from Enel are also under consideration at Taranto, Vado Ligure
and Muggia. Edison sells 90% of its $0.6bn regasification terminal, off the Adriatic coast, to ExxonMobil (45%) and Qatar
Petroleum (45%). RasGas II and Edison also sign an amended
SPA for 4.7m t/y of LNG from 2007.
2003 The Algerian governments plan for the development of
reserves at Gassi Touil for which bids were invited in 2002
includes the construction of an LNG plant with a capacity of about
5.5bn cm/y, probably at Arzew. The authorities are targeting the US

Sodegaura, Japan, the worlds


largest receiving terminal
Shell

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market to which Algeria was, until 1995, the sole supplier. Algeria
has already ordered two LNG tankers (138,000 cm and 145,000
cm). Three projects alone Ohanet, In Salah and In Amenas
should increase gas output by over 22bn cm/y from 2005.
2003 Violent protests against the Bolivian LNG project, Pacific
LNG, lead to at least 65 deaths and force the Bolivian president,
Gonzalo Snchez de Lozada, from office. The project is cancelled.
2003 ChevronTexaco, Sonangol and Total are pursuing a scheme
for a facility at Luanda, Angola two trains are to be built consecutively, providing 4m t/y of capacity each. ChevronTexaco says markets in the US and Brazil, as well as in Europe, are being targeted.
The company has identified reserves of 9.5 trillion cf. The scheme
will initially take associated gas from Blocks 2, 15, 17, and 18.
2003 LNG from Australias $1.5bn Bayu-Undan project 3m t/y
is sold to Japanese utilities, Tepco and Tokyo Gas. The first LNG
cargo is scheduled for delivery in early 2006. Interests in the project are ConocoPhillips (56.72%), Eni (12.04%), Santos (10.64%),
Inpex (10.52%) and Tokyo Electric Power/Tokyo Gas (10.08%).
2003 Australias Gorgon LNG which is owned by ChevronTexaco
(4/7th interest), Shell (2/7th) and ExxonMobil (1/7th) and Chinas
CNOOC sign a $21bn sales agreement, which will involve CNOOC
taking a 12.5% stake in the project. The Gorgon gasfields contain
12.9 trillion cf of proved reserves, with total gas resources in the
Greater Gorgon area of at least 40 trillion cf. The consortium also
signs a 20-year contract to supply ChevronTexacos proposed Baja
California plant, in Mexico, with 2m t/y from 2008, and letters of
understanding to supply 2m t/y of LNG to Shells Altamira project on
Mexico's Gulf Coast. The state government gives in-principle
approval to the Gorgon development in September.
2003 Australias North West Shelf project, is ramping up capacity. A fourth train should be in operation in mid-2004, bringing total
capacity to 11.7m t/y. A final investment decision on a fifth liquefaction train is imminent. Meanwhile, the venture agrees to sell
0.5m t/y to South Koreas Korea Gas for seven years and 400,000
t/y to Japanese firm, Tohoku Electric, for 15 years. The six equal
partners in the project are BHP Billiton, BP, ChevronTexaco, Japan
Australia LNG, Shell and Woodside.
2003 Belgiums Fluxys announces plans to increase capacity at
its Zeebrugge terminal from 2007.
2003 Brazils Rio de Janeiro state evaluates the construction of
an LNG export plant at Sepetiba. The plant would be fed by the
420bn cm of estimated reserves on the BS-400 block in the
Santos basin and pipeline imports from Bolivia.
2003 Canadas Gaz Metropolitain, the utility serving Montreal,
and TransCanada PipeLines are evaluating an LNG import project at
the port of Gros Cacouna. It would have a capacity of 5m t/y
2003 China agrees an $8.5bn, 25-year contract for the import of
2.6m t/y of LNG from BPs Tangguh liquefaction plant in Indonesia.
The Fujian LNG plant is due for start-up in 2007.
2003 Indonesias Tangguh LNG project is selected as the preferred supplier of LNG to two South Korean private-sector companies SK Power and Posco. The bid process for the purchase of
LNG is the first undertaken by South Koreas private sector.
Posco has two gas-fired power plants with generating capacity of
845 MW, while SK will build a 1.08 GW plant. The deal calls for
the supply of up to 1.35m t/y of LNG for a 20-year period, starting in 2005. The partners in the 7m t/y Tangguh project are BP,
37.16% and operator, MI Berau (Mitsubishi and Inpex), 16.3%,
CNOOC, 12.5%, Nippon Oil Exploration, 12.23%, BG Group,
10.73%, KG Companies (JNOC, Kanematsu and Overseas
Petroleum), 10.0%, and LNG Japan (Nissho Iwai and Sumitomo),
1.07%. BP awards the EPC contract for Tangguh to a consortium
comprising Kellogg Brown & Root, Japanese group JGC and
Indonesias PTC, following a bid of around $1.4bn.
2003 BP and BPMIGAS, Indonesias executive agency for oil and
gas, have signed a heads of agreement with Sempra for a 20-year
supply of LNG from Indonesia to its planned 1bn cf/d regasification
terminal in Ensenada, Baja California, Mexico. Under the agree-

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ment, 3.7m t/y of LNG will be delivered from the Tangguh fields
over 15 years beginning in 2007.
2003 The Cyprus government commits to importing LNG after
plans to bring in gas by pipeline prove too expensive. The $0.5bn
plant and facilities will be in place, on the site of a disused chemicals plant near the Vassiliko power station, by 2008.
2003 Petronas takes Edisons 50% share in Egypts West Delta
Deep Marine (WDDM) licence and its 35% share in the associated
liquefaction plant. In March, production starts from the Scarab and
Saffron fields. Total production from the first train of ELNG (3.6m t/y)
had been sold to GdF, and the entire 3.6m-t/y output from the second train is sold to BG Gas Marketing. LNG from Train 2, due on
stream in 2006, will initially be shipped to the Lake Charles receiving
terminal in Louisiana, US. About a year after start-up, the supply will
be shared between Lake Charles and the Brindisi terminal, Italy, to
be constructed by BG and Enel. A third train, with a capacity of 3.6m
t/y and completion in 2007, is being considered.
2003 Participants in Equatorial Guineas Bioko Island LNG terminal agree terms for the sale of the 3.4m t/y output from 2007.
Feedstock for the project would be sourced primarily from
Marathons offshore Alba field, in which the US firm has a 65%
interest. Marathons partner in the project is state-owned GEPetrol.
The gas is mainly bound for BGs Lake Charles terminal.
2003 BG acquires the 446m cf/d capacity rights at the US Elba
Island terminal from 2004 until 2023. Of this, 159m cf/d is
assigned to Marathon.
2003 ExxonMobil investigates siting an import terminal at Fossur-Mer in the south of France.
2003 The Indonesian government announces plans to build two
receiving terminals in Java before 2007.
2003 Pertamina plans a 2007 start-up for Donggi LNG in Central
Sulawesi, Indonesia. A $1.7bn, two-train plant would be supplied
by 10 trillion cf of reserves. Marathon is interested in taking the 6m
t/y output.
2003 BG investigates the possibility of a $1.4bn LNG plant in
Tombak, Iran, on the Mideast Gulf, in a joint venture with the
National Iranian Oil Company (NIOC). The plant is to comprise two
LNG trains, with capacity of 4.5m-5m t/y each, with possible completion in 2007-2008.
2003 BG concludes the sale to Enel of 50% of its planned LNG
receiving terminal at Brindisi. Enel pays Euro10.9m; the facility, is
expected to cost Euro390m to build and should start receiving gas
in 2007. The two partners will share 80% of the terminals 6m t/y
capacity, with 20% to be made available for third-party users.
2003 Jamaica decides to replace fuel oil with natural gas as the
fuel for its power stations and industrial plants. The country will
require a 1m t/y LNG import and storage terminal, probably on the
south coast a site between the Old Harbour and Salt River areas
has been identified at a cost of about $220m-250m. There is a
possibility that, to serve markets in the countrys north coast tourist
region, a second LNG import facility may have to be constructed
near Montego Bay, using ship-based regasification technology.
2003 Nippon Mitsubishi Oil, the Japanese oil refiner, plans to
build an LNG storage terminal next to its Mizushima refinery in
western Japan. In a joint venture with Chugoku Electric Power,
LNG will be sold to the industrial sector, mainly steel and chemicals manufacturers.
2003 Malaysia is adding substantial capacity. Commissioning
of the two-train 6.8m t/y MLNG Tiga will bring the Bintulu complex up to 23m t/y working capacity, making it the biggest LNG
complex in the world.
2003 Malaysias Petronas signs SPAs worth more than $20bn to
supply LNG to Tepco and Tokyo Gas. The SPA, between MLNG and
the two Japanese companies, is for the supply of up to 7.4m t/y of
LNG for 15 years, from April 2003, with an additional five-year
option. A second SPA is for 0.54m tonnes of LNG from MLNG Tiga
to Tepco over one year, starting in April 2003, renewable annually
given mutual agreement. MLNG Tiga also signs a $1.6bn SPA with

BACK

Once Trains 4 & 5 are operational,


in 2005, NLNG's capacity will rise
to 17.6m t/y
Shell

8.1
Japan Petroleum Exploration to supply up to 480,000 t/y of LNG for
20 years, from 2003. MLNG already has one SPA for 0.9m t/y of
LNG with Tohoku Electric Power and another for 1.6m t/y with a
consortium comprising Tokyo Gas, Toho Gas and Osaka Gas. MLNG
is a joint venture between Petronas (60%), Sarawak state (10%),
Shell (15%), Nippon Oil LNG (10%) and Diamond Gas (5%).
2003 MLNG Tiga production starts in May, but is interrupted after
a fire at the plant in August.
2003 Mexicos energy regulatory commission (CRE) approves
applications for four LNG import terminals, involving total capacity
of 33bn cm/y. The 7.5m t/y Altamira project will be at Costa Azul on
the Atlantic coast, while the other projects will be aiming to serve
the US market. Altamira (Shell, 75% and Total 25%) wins a 5bncm/y contract to supply the Comisin Federal de Electricidad (CFE)
for 15 years from 2006. CFE intends to use the natural gas to supply its IPP projects in the Altamira region: Tuxpan V (500 MW),
Altamira V (500 MW) and Tamazunchale I (1,000 MW). Shell and
Sempra combine two proposals into a single 1bn cf/d project, in
Costa Azul, 14 miles north of Ensanada, with half the supplies
intended for Mexico. Marathons proposal is for a 7.75bn cm/y
facility in Tijuana, with supplies imported from Indonesia. Kellogg
Brown and Root wins the EPC contract for Marathons plant.
2003 El Paso evaluates the potential of an LNG gasification plant
at Eemshaven, in the Netherlands.
2003 Three new LNG facilities are being considered for Nigeria.
The 6.9bn cm/y Brass River facility (ConocoPhillips and Agip), originally an offshore scheme, will now be onshore near the oil terminal.
ChevronTexaco, ConocoPhillips and ExxonMobil are planning a facility in the western delta. Start-up for both projects is targeted for
2008, to meet the flares-out deadline. Statoil and Shell are evaluating a project at Nnwa-Doro. Meanwhile, BG agrees to buy 2.5m
t/y of LNG for 20 years, beginning in 2005 or early 2006, from the
NLNGPlus project (Trains 4 and 5). Once the sixth train is operational, capacity at the plant will increase by 4m t/y to 21m t/y.
2003 A new company, Qalhat LNG, is set up to handle the construction and operation of a 3.3m t/y train near the existing Oman
LNG plant. Shareholders are the Omani state (52%), Oman LNG
(40%) and Unin Fenosa (8%).
2003 Oman LNG agrees four short-term contracts to supply
Tractebel with 0.6m tonnes of LNG, which is then shipped to buyers

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Fundamentals of the Global LNG Industry, 2004

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A History of the Worlds LNG Industry

8.1

in North America, Europe and Asia. The gas had been earmarked
for Indias Dabhol Power. Another contract, with Shell, will deliver
0.7m t/y to Spain for five years from 2002. BP will also take 4m t/y,
for the Spanish market, over a six-year period beginning in 2004.
2003 Tractebel announces that it has signed an MOU with Peru
LNG, a consortium consisting of Hunt Oil and SK. Under the agreement, which covers supply of some 2.7m t/y, for a period of 18
years, Tractebel will ship LNG from a proposed liquefaction plant at
Pampa Melchorita, 169 km south of Lima, to its proposed LNG
receiving terminal in Lazaro Cardenas, Mexico. The plant will produce
approximately 4.4m t/y of LNG and first delivery is planned for late
2007 or early 2008. The gas will come from the Camisea fields.
2003 Portugals 2.6bn cm/y Sines LNG terminal receives its first
cargo, from Nigeria LNG.
2003 Shell announces Indias first private-sector LNG receiving
terminal, in Hazira (Surat) in Gujarat. Upon completion, the terminal
will have a capacity of 2.5m t/y, rising to 5m t/y, with the possibility
of expansion to 10m t/y. Commercial operations will begin towards
the end of 2004.
2003 RasGas finalises a 25-year supply agreement with Indias
Petronet LNG. Its Dahej terminal will receive 2.5m tonnes in 2004
and 5.0m t/y from 2005.
2003 Sakhalin Energy receives the green light from shareholders
Shell (55%), Mitsui (25%), and Mitsubishi (20%) to launch the
second phase of the Sakhalin II project. The development represents the largest single foreign direct investment project in Russia,
approximately $10bn, and includes the construction of a 9.6m t/y,
two-train LNG plant.
Sakhalin Energy signs a sales deal with Japans Kyushu Electric for
up to 0.5m t/y of LNG for 21 years, starting in 2010. Two other deals
with Tokyo Gas, for 1.1m t/y of LNG for 24 years and another with
Tepco, for 1.2m t/y over 22 years will begin in 2007. The LNG plant
will be built in Prigorodnoye, on the southern tip of the island.
2003 Norways Statoil proposes a joint venture with Russias
Gazprom to develop the Schtokmanovskoye gas reserves in the
Barents Sea. The proposal includes construction of an LNG plant.
Meanwhile, Bechtel examines the possibility of an LNG export facility in Arkhangelsk. Gazproms Yamal fields would supply the gas.
2003 Singapore investigates the possibility of building an LNG
import facility.
2003 Spains Gas Natural buys Enrons 50% share in Puerto
Ricos Penuelas import terminal.

Construction is
under way on the
Sakhalin-2
project the
9.6m t/y LNG
plant will come
on stream in 2007
Shell

134

BACK

Fundamentals of the Global LNG Industry, 2004

2003 The first cargo is delivered to Bilbaos new import terminal


in August. Meanwhile, the authorities approve the expansion of
the 2.75bn cm/y plant, raising capacity to 7.0bn cm/y by third
quarter 2004. The facility is owned by Baha de Bizkaia Gas,
made up of Repsol YPF, BP, Iberdrola and the Basque regions
Ente Vasco de la Energa, each with 25%. Meanwhile, Endesa
signs two new long-term contracts with RasGas (0.8m t/y) and
Nigeria LNG (0.7m t/y).
2003 Qatar Petroleum and ExxonMobil hope to export 15.6m t/y
of LNG to the US and will work together to acquire transportation
and regasification capacity. Gas will come from RasGas II, in which
QP holds 70% and ExxonMobil 30%. Investment totalling $12bn will
include the cost of purchasing LNG tankers. Two large liquefaction
trains will be built at Ras Laffan, with a capacity of over 10bn cm/y.
Qatar has reserved 26 trillion cf of gas for the project. The partners
are hoping to start exports in 2008 or 2009.
2003 The UKs BG (50%), Amsterdam-based Petroplus (20%)
and Malaysias Petronas (30%) agree a joint venture, Dragon LNG,
that will own and operate an LNG import terminal at Milford
Haven, UK. The project has consent for a 4.4m t/y facility, with
two 165,000 cm storage tanks. The firms want to build a third
tank, of the same size. Start-up is planned for 2007. BG and
Petronas will each take 50% of the capacity. Meanwhile,
ExxonMobil seeks planning consent to build an LNG import terminal on the site of the former Esso refinery near Milford Haven. The
firm envisages start-up in 2007 and expansion to 15m t/y by
2009. LNG will be supplied to the planned facility for 25 years
and to another planned terminal at Fos, in France from the
firms venture in Qatar. Sonatrach and BP set up a joint venture to
import LNG into the UK at the Isle of Grain terminal in the Thames
estuary. The plant, which will be owned and operated by National
Grid Transco, will supply up to 3m t/y from 2005. The firm already
has a peak-shaving liquefaction/regasification and LNG storage
facility on the site, but will need to build a new deep-water jetty
and make other changes.
2003 The Trinidad and Tobago government approves a fourth
train at Atlantic LNG. Completion is anticipated by the end of 2005.
Meanwhile, the 138,000 cm British Trader takes the first cargo of
LNG from the third train to Elba Island, Georgia.
2003 There are about 30 proposals for new LNG import terminals
serving the North American market. Ferc approves the construction
of the $0.7bn Cameron LNG receiving terminal near Lake Charles,
the first new LNG facility to be constructed in the US in more than
two decades. The project is to begin construction in first quarter
2004 with operations commencing in 2007. Cameron LNG will
have the capacity to process up to 1.5bn cf/d of natural gas.
2003 Trunkline LNG, the subsidiary of Southern Union that runs
the Lake Charles import terminal, awards an $80m contract to
Chicago Bridge & Iron to double the facilitys capacity from 0.6bn
cf/d to 1.2bn cf/d (8.9m t/y) by the end of 2005. The contract
includes the commissioning of a 140,000 cm storage tank. The
plant will remain operational during the work.
2003 The US Maritime Administration of the Department of
Transportation approves the first natural gas deep-water port.
ChevronTexacos Port Pelican development will be in the Gulf of
Mexico, 40 miles from the Louisiana coast, and connected to the
interstate gas pipeline network. The concrete gravity-base structure
will initially be able to process about 0.8bn cf/d of gas. Meanwhile,
Shells subsidiary, Gulf Landing, applies for permission to construct
a new offshore import terminal in the Gulf of Mexico, 38 miles offshore Louisiana in West Cameron Block 213. It is expected to be
operational in 2008-09, with the capacity to deliver 1bn cf/d of gas
into the US interstate pipeline network.

HOME

This article was compiled and written by the


Petroleum Economist. Its contents and accuracy do
not necessarily reflect the views of Shell.

Arzew

Sfax

Tiaret

Arzew

RABAT

Madeira
(Port.)

World Image supplied by NPA Satellite Mapping. www.npagroup.com 2004

Yamal
Peninsula

Skikda

Gabes

Mohammedia

TUNISIA

MOROCCO
ALGERIA

Tenerife
Canary I (Sp.)

In Amenas

In Salah

La Aiun

WESTERN SAHARA

Sahara
MAURITANIA
NIGER

MALI

NOUAKCHOTT
DE

BANJUL

SENEGAL
THE GAMBIA

BAMAKO

BISSAU

GUINEA-BISSAU

NIAMEY

BURKINA FASO
OUAGADOUGOU

GUINEA

CONAKRY

SIERRA LEONE

YAMOUSSOUKRO

MONROVIA

LIBERIA

Abidjan

Kaduna

ABUJA

TOGO

COTE
D'IVOIRE

FREETOWN

BEN
IN

DAKAR

PORTO NOVO
LOME
ACCRA

NIGERIA
Lagos

CAMERO

Warri

Limbe
Port Harcourt

YAOUN
NLNG (Bonny Island)

EQUA
EQUATORIAL
GUINEA
GUIN

LIBREVILLE
LIBRE
GULF OF GUINEA

SAO TOME & PRINCIPE

Port Gentil

GABON

The Petroleum Economist Ltd, London. 2004


The information within this section is based upon or redrawn from various authoritative sources and
whilst all reasonable care has been taken in the preparation of this section no warranties can be
given as to its accuracy and/or no reliance should be placed upon the same without further detailed
inspection and survey. The publishers cannot therefore accept any liability or responsibility for any
loss or damage. The international and other boundaries in these maps are taken from authoritative
sources and believed to be accurate as at the date of publication. The representation of any pipelines
is no evidence of the existence of rights of passage or the use of the same.
No reproduction whatsoever of these maps or any part thereof is permitted without the prior consent
of the copyright owners.

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NORWEGIAN
SEA

Jan Mayen (Nor.)

North Cape

Fugloybanken
Snhvit LNG
(Melkya Island)

Hammerfest

Murmansk

Kola P
Haltenbanken

WHI

ICELAND

NORWAY

Trondheim

SWEDEN

Faroe I
(Den.)

LF
GU

Mongstad

OSLO

Turku

DUBLIN

Teesside

AMSTERDAM

LONDON

Fawley

Milford Haven
Dragon LNG (Milford Haven)

BEL.
Le Havre

Antwerpen

North
Karlsruhe
Adriatic

Brest

BERN
ERN

Montoir

Donges
Dong

Bilbao
Mugardos

BRATISLAVA
BUDAPEST

AUSTR
SWITZ. AUSTRIA

Fos-sur-Mer

Ravenna

Genova
Nice

MOLDOVA

Timisoara

BUCHAREST
Nis

BULGARIA

Bilbao

Barcelona
Porto

PORTUGAL
Sines

MADRID

LISBON

ITALY

La Spezia

Barcelona

ROME

SOFIYA
Brindisi
SKOPJE
TIRANA

Bari
ri

Tarragona
Tarrag

GREECE

Huelva

Cartagena

SPAIN

Skikda

TUNIS

Arzew

Madeira
(Port.)

Yumurtalik

Sfax

Tiaret

Arzew

Skikda

Mohammedia

TRIPOLI

TERRA

NEAN

Tenerife

JERUSALEM

Alexandria

Idku

Marsa el-Brega

In Salah

CAIRO
AIRO
In Amenas

Marsa el Brega

Libyan
Desert

EGYPT

Asyut

Fundamentals of the Global LNG Industry, 2004

Suez

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Elat

Ras Shukheir

Qena

Map 1: LNG export plants and import terminals of Europe, North Africa and central Asia

136

AMMA

LIBYA
L

WESTERN SAHARA

BACK

Zar

JORD

ALGERIA

Canary I (Sp.)
La Aiun

LEBANON
ISRAEL

Marsa el-Hariga

TUNISIA

BEIRUT

SEA

Benghazi

MOROCCO

NICOSIA

CYPRUS

Crete

MEDI
Gabes

TUR

Izmir

Revythoussa

ALGIERSS

Algeciras

RABAT

ANKARA

Aliaga
Izmir

Sicily

Samsun

IIzmit
it

ATHENS

Sines

Huelva

Marmara Ereglisi
Istanbul

Can

Sarroch

Novoros

BLACK SEA

Constanta

Burgas

ALBANIA

Sagunto

Cartagena

Berdya

Odessa

Rosignano
Marittimo

La Spezia

CHISINAU

HUNGARY

Milano

Lyon

KIEV

SLOVAK REP.

Pecs

FRANCE

Mozyr
MOLDOVA

POLAND

PRAGUE

BRUXELLES

PARIS

Plock

WARSAW

GERMANY

LUX.

Cherbourg

BELARUS
MINSK

Hamburg

Rotterdam

Isle of Grain

VILNIUS

Gdansk

Olsztyn

NETHS.

aven/Pembroke
Milford Haven/Pembroke

LITHUANIA

Kaliningrad

Zeebrugge

Stanlow

Novopolotsk

Mazheikiai

Killingholme
Kill

IRELAND

Torzhok

RIGA

Fredericia

SEA

Isle of Grain

LATVIA

SEA

DENMARK

NORTH

Kirishi

ESTONIA

Ventspils

St Fergus

Grangemouth

St Petersburg

HELSINKI

BALTIC

Goteborg

UNITED
KINGDOM

Petrozavods
LAKE
LADOGA

TALLINN

Lysekil
Nigg Bay

9.1

LAKE O

Tampere

STOCKHOLM

Slagen

Sola

FINLAND

Gavle

Karsto
Flotta

OF

A
NI
TH
O
B

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World LNG Map

Yamal
Peninsula
Gydan
Peninsula

Kolguyev I

Norilsk

Kanin Pen

Yamburg

Timan Pechora

Peninsula

Vorkuta

Urengoy

HITE SEA
Synya

URAL MOUNTA
INS

Arkhangel'sk

Ukhta

E ONEGA
odsk

Syktyvkar
Kotlas

Ob Basin
Surgut

Perm

Nizhnevartovsk

Raskino

Tobolsk

A T

Yaroslavl'
Izhevsk

Tyumen

Yekaterinburg

MOSCOW

Tomsk
Achinsk

Kurgan

Kazan
Ufa

Ryazan

Tula

9.1

Nizhniy Novgorod

Chelyabinsk

Kemerovo

Novosibirsk

Omsk

Krasnoyarsk

Ul'yanovsk
Novokuznetsk
Samara
Michurinsk

Pavlodar
Orsk

ASTANA
Karaganda

Volgograd

Rostov-na-Donu

ai

Atyrau

dyansk

ARAL

Krasnodar
rossiysk

SEA

Tuapse

EA

BAKU

YEREVAN
ARMENIA

RKEY

Tabriz

PI

AN

SE

Chardzhou

Homs

Kirkuk

DAMASCUS

Mashhad

LNG export plant

Herat

AFGHANISTAN

Peshawar

C H I N A

Lahore
Kerman

Basra

KUWAIT

Kharg I

KUWAIT
CITY

LF
GU

ARABIA

AL MANAMAH

QATAR

BACK

LNG
H import terminal planned or proposed

Quetta

im

ala

Muzaffargarh

Shiraz

DELHI

E
TH

SAUDI

LNG import terminal

LNG import terminal under construction

IRAQ
Damietta

Golmud

LNG export plant planned or proposed

ISLAMABAD

Esfahan

MAN

Qaidam Basin

LNG export plant under construction

KABUL

IRAN

Arak

Zarqa

ORDAN

Kunlun Shan
Mazar-e-Sharif

TEHRAN

BAGHDAD

Lenghu

Map Symbols

Kholm

Bakhtaran

Baiji

planned or proposed

Kashi

DUSHANBE

ASHKHABAD

A
Neka

SYRIA

Gas pipeline/s

Tarim Basin
Gas pipeline/s under construction,

Fergana

Samarkand

AZERBAIJAN
CA
TURKMENISTAN
S

Hami

Korla

TASHKENT

UZBEKISTAN

Turkmenbashi

Rasht

Banias

Shanshan

Gas or gas/condensate field/s

KYRGYZSTAN

Batumi

Erzurum

ns

Urumqi

LEGEND:

BISHKEK

Chimkent

T'BILISI

tai

Karamay

Grozny

GEORGIA

un

Kzyl-Orda
Almaty

Mo

LAKE
BALKHASH

Astrakhan

Tikhoretsk

Alt

KAZAKHSTAN

Bandar `Abbas

PAKISTAN
Mathura

Lavan I

UAE
DOHA Dubai

Aonla

Kanpur
Karachi

Hyderabad

HOME

ya

Lhasa

s
NOTE:
Countries KATHMANDU
with a red tint are:
Exporting LNG countries Dibrugarh
Countries with a green tint are:
THIMPHU
Importing LNG countries
Bongaigon

NEPAL

Jagdishpur

Barauni

Fundamentals of the Global LNG Industry, 2004

137

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World LNG Map

Qena

Lavan I

Kanpur

UAE
DOHA Dubai

QATAR

Karachi

Al Madinah

Yanbu

RIYADH

ABU DHABI

Barauni

IN D IA

Sohar

Sur

OMAN

Jeddah

BANGLADESH
DHAKA

Ahmadabad

MUSCAT

Rabigh

g g

Jagdishpur

Hyderabad

Dahej (Gujarat)

Jamnagar

Calcutta
Chittagong

MYANMAR

Hazira
Oman LNG

Port Sudan

Mand

BAY OF

Mumbai
Vishakhapatnam

Dabhol

Salalah

BENGAL
RANGOON

ERITREA

KHARTOUM

SAN'A

ASMARA

YEMEN
Bir Ali

SUDAN

Bangalore

Socotra
S

Adan

DJIBOUTI

Ennore

Mangalore

Bal Haf LNG

DJIBOUTI

Cochin

Jonglei Canal

Kochi

ADDIS ABABA

SRI LANKA

ETHIOPIA

Qatargas 1

Verkhoyansk

SOMALIA

KENYA

Rasgas 1 (Ras Laffan)

Ras Laffan

Rasgas 2 (Ras Laffan)

LAKE
Japanese LNG Importing Terminals
VICTORIA
NAIROBI
RWANDA
KIGALI
Higashi-Niigata

BUJUMBURA

Dar es Salaam

NE

L
CH

TOKYO

MO

HARARE

ANTANANARIVO

Hailar

Mutare

Okha

Kagoshima

Komsomolsk-na-Amure

MOZAMBIQUE

Korsakov
Yilan

Sakhalin II

Harbin

Jilin

NE
PRETORIA

Witbank

hannesburg
Sasolburg

Ordos
Basin

MAPUTO

Sapporo

Fushun

Shenyang

Unggi

MBABANE

NORTH
KOREA

Inchon

SWAZILANDBEIJING

la

Yokkaichi (Works)
Yokkaichi (LNG Centre)
Sakhalin Island

Daqing

MADAGASCAR
Anda
TSWANA

su

Hatsukaichi

YanaiKhabarovsk

Manchuria

Beira

Mizushima

Sodegaura
U.A.E.
Qarnayn Is.
Futtsu, Higashi-Ohgishima,
Negishi, Ohgishima
Zirku Is.
Arzanah Is.
Chita (Kyodo)
Chita

Is

MB
ZA

Shin Oita

Qatar and United Arab Emirates LNG Exporting Plants


ZIMBABWE
ULAN
BATOR

Dayina Is.

tka

SEA OF
Sodeshi
/ Shimizu
OKHOTSK
Das Is.

UE

Fukuoka

Pe

Shin-Minato

ADGAS (Das Island I & II)

AN

Tobata

nin

A TWakayama
A R

Himeji
Himeji II

Chita

Ulan-Ude

Chita-Midorihama

DOHA

IQ

LILONGWE

Magadan

Okhotsk

Senboku I
Senboku II

Dukhan

MALAWI

LUSAKA

Sakai

Zanzibar

MBIA

Kawagoe
Yelanka

ha

TANZANIA
DODOMA

LAKE
BAIKAL

Halul Is.

Yakutsk

BURUNDI

Mombasa

Ku
ril
e

9.1

Bela

mc

KAMPALA

Pangkalan Branda

Ka

BAHRAIN
UGANDA

COLOMBO

Kolyma Plain

AL MANAMAH

Dandong

YONGYANG
P'YONGYANG

Dalian
Cangzhou

Inchon

Qingdao

SOUTH
KOREA

Niigata

Tong Yeong
Pusan

Kobe

JAPAN

TOKYO

Ulsan
Onsan

Yosu

Xi'an

Pyeong Taek

SEOUL

Linyi
Ansai

Hakodate

SEA OF
JAPAN

Nagoya

Yokohama

Osaka
Gwangyang

Nagasaki

Nanjing
Shanghai
Jingmen
Jiujiang

Anqing

Hangzhou

Jinjing

Fujian
Fuzhou
Taoyuan

TAIPEI
AIPEI

TAIWAN

Tatan
(Tao Yuan)

Map 2: LNG export plants and import terminals of the Indian Ocean rim and east Asia (inset)

138

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Qili

Myitkyina

Fuzhou
Taoyuan

Kunming

AIPEI
TAIPEI

Tatan
(Tao Yuan)

TAIWAN
Guangzhou
Shenzh
Shenzhen

Mandalay

AR

PHILIPPINE
SEA

Guangdong
(Pearl River Delta)

LAOS

Gas or gas/condensate field/s

Hong Kon
Kong

Maoming

HANOI

LEGEND:

Kao-hsiung

Gas pipeline/s

Yung-An

Gas pipeline/s under construction,


planned or proposed

Chiang Mai

Hainan Dao

VIENTIANE

Nakhon Ratchasima

VIETNAM
CAMBODIA

Rayong

MANILA

Limay

BANGKOK

Si Racha

Map Symbols

Luzon

SOUTH
CHINA SEA

THAILAND

PHILIPPINES

PHNOM PENH

Tab Sakae

LNG export plant planned or proposed

Palawan

Khanom

Arun

LNG export plant under construction

Samar

Ho Chi Minh

Kompong Son

LNG export plant

P A C I F I C
O C E A N

Batangas

SULU
SEA

MALAYSIA

Natuna Sea

Zamboanga

BRUNEI

LNG import terminal


LNG import terminal under construction

Mindanao

LNG import terminal planned or proposed

Davao

Labuan
Arun
andan
Belawan

KUALA LUMPUR

Lumut

Bintulu

Portt Dickson
Dumai

NOTE:
Countries with a red tint are:
Exporting LNG countries
Countries with a green tint are:
Importing LNG countries

BANDAR SERI BEGAWAN

Kerteh

Halmahera
Halma

neo
Bor
Borneo

SINGAPORE

Sungai Pakning

Bontang

Bontang

Bintulu MLNG
Sumatra

Sulawesi

K
li
t
Kalimantan

Palembang

Buru

Irian Jaya

West Java
Balongan

Cilacap

BANDA SEA

East Java
Surabaya

Java

9.1

Seram

I N D O N E S I A
JAKARTA
TA

Tangguh

Sorong
ng

Balikpapan

PAPUA NEW GUINEA

Bali

Sumbawa Flores
Lombok
Sumba

SOLOMON
ISLANDS

Kumul Terminal

Timor Gap
Australia-Indonesia
Zone of Co-operation

Timor

PORT MORESBY

HONIARA

ARAFURA SEA
Bamaga

Cape York

Darwin
Trial Bay

TIMOR SEA

Weipa

Darwin LNG
Northwest Shelf

VANUATU

Australia LNG Sunrise

Broome

Great
Sandy

Townsville

Mount Isa

Alice Springs

Artesian
Basin

IDIN

Gorgon Australia LNG

NOUMEA

DIV

Great

Gladstone

GR

n
Carnarvon

New Caledonia (Fr.)

EAT

NWS Australia LNG

GR

Desert
Dampier

GE

AN

Gibson
Gib
Desert

Kalgoorlie
Perth
Fremantle

Bourke

Nullarbor
GREAT
AUSTRALIAN BIGHT

Bunbury

Brisbane

Cooper/Eromanga
Basin

A U S T R A L I A

Geraldton

Stony Point

Orange

Port Pirie

Newcastle
Sydney

Adelaide

Albany

Wagga Wagga
Albury

Bendigo

CANBERRA

SEA

Melbourne

Portland
Geelong

TASMAN

Altona

Bass Strait

Tasmania
Hobart

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Savannah

MOROCCO

Elba Island

AL

Tenerife
Canary I (Sp.)

BAHAMAS

Freeport

La Aiun

WESTERN SAHARA

Bahamas

Miami

NASSAU

A T L A N T I C

LA HABANA

Santiago de Cuba

DOMINICAN REP.

HAITI

Puerto Rico ((US))


SANTO DOMINGO

PORT-AU-PRINCE
KINGSTON

Virgin Is (US)

Amuay/Cardon

CARACAS

La Salina

PANAMA

PANAMA

VENEZUELA

BAMAKO

BISSAU

GUINEA-BISSAU

BURKINA FAS
OUAGADOUGOU

GUINEA

CONAKRY

Atlantic LNG

Mariscal
Sucre LNG

Chiriqui Grande

SENEGAL
THE GAMBIA

BANJUL

PORT OF SPAIN

Cartagena

muelles

DAKAR

BARBADOS
TRINIDAD &
TOBAGO

Aruba (Neths.) Neths. Antilles

MALI

NOUAKCHOTT
CAPE VERDE

Martinique (Fr.)
ST LUCIA

CARIBBEAN SEA
ICARAGUA

MAURITANIA
Penuelas

Puerto Cortes

Puerto Moin

O C E A N

Andres

CUBA

COTE
D'IVOIRE

FREETOWN

SIERRA LEONE

GEORGETOWN

Medellin

YAMOUSSOUKRO

MONROVIA
BOGOTA

Abidjan

LIBERIA

COLOMBIA

GUYANA

Tumaco

NLNG (

Esmeraldas

9.1

Baeza

QUITO

GULF OF GUINEA

ECUADOR
La Libertad

Guayaquil

Manaus
Coari

Fortaleza

Labrador

Talara
Prince Rupert

Bayovar
Edmonton

Trujillo

LAKE
WINNIPEG

Prince Albert

Natal

Pucallpa
Calgary

Suape

Porto Velho

Ro

PERU

Aracaju

cky

Ferndale

unt

Seattle

Anacortes

Salvador
Bismarck

ain

Cusco

B RLAKE
A Z I L

LA PAZ

Peru LNG

Arica

Sucre

Casper

BOLIVIA

Potosi
Salt Lake City

Chicago

Corumba

Omaha

Belo Horizonte

Betim

Vitoria

F I C
A N

Denver

Salta

WASHINGTON

Rio de Janeiro

Cubatao

Santa Fe

San Diego
Tijuana

Mexicali
Catamarca

Campos Basin

Araucaria

Memphis

O C E A N

Canoas

Hackberry

Uruguaiana

Porto Alegre
Houston

lifo

Ca

Cordoba
Hermosillo

rnia

San Lorenzo
Guaymas
Rosario

La Mora

Chihuahua
Piedras
ed as Negras
eg as

URUGUAY

Port Arthur
Galveston

Elba Island

New Orleans

Rio Grande
Corpuss Christi
Corp

Freeport

Campana

Freeport

BAHAMAS

Port Isabel

BUENOS AIRES

ARGENTINA

Concepcion/Talcahuano

Savannah

El Paso

Naco

Baja

Energia Costa Azul


(Baja California)

A T L A N T I C

Wilmington

Dallas

Rosarito
Ensenada

Lujan de Cuyo
San Luis

SANTIAGO

Raleigh

Atlanta

Phoenix

Cove Point

mond
Richmond

Lake Charles

Los Angeles

La Rioja

Valparaiso

Baltimore

St. Louis

Sao Paulo

ASUNCION

Las Vegas

Bakersfield

Tijuana
(Baja California)

Paulinia

PARAGUAY

Antofagasta

New York
Philadelphia

Campos
Indianapolis
Duque de Caxias

Mejillones
San Francisco

Irving Canaport,
New Brunswick

Providence

Pittsburgh

Ribeirao Preto
Tarija

Reno

Tocopilla

St. John's

Portland

Boston

IE
L ER

Detroit

Newfoundland

St Pierre & Miquelon (Fr.)

St. John

ronto
Toronto

Sao Mateus

Santa Cruz

Oruro

Eureka

Montreal

OTTAWA
L ONTARIO

Goiania
Rapid City

Cochabamba

GULF OF ST
LAWRENCE

Quebec

LAKE
HURON

MICHIGAN
BRASILIA
Minneapolis

Cuiaba

Puerto Villaroel

ce

ren

Law

Everett

Superior
Billings

Portland

Arequipa

St

LAKE SUPERIOR

Thunder Bay

Mo

Victoria

Recife

Regina
Winnipeg

Vancouver

LIMA

La Plata

Monterrey
MONTEVIDEO

Offshore Louisiana,
Port Pelican

MEXICO

Bahamas

Miami

NASSAU
LA HABANA

Tristan da Cunha (UK)

San Luis Potosi

CHILE

Bahia Blanca

Salamanca

Guadalajara

Plaza Huincul

MEXICO CITY

Viedma

Veracruz
Minatitlan

Lazaro Cardenas

I de
Chiloe

Santiago de Cuba

PORT-AU-PRINCE

Caleta Olivia

( )
Puerto Rico (US)
SANTO DOMINGO
Virgin Is (US)

SAN SALVADOR

CARIBBEAN SEA

TEGUCIGALPA

MANAGUA

NICARAGUA
P

Aruba (Neths.) Neths. Antilles

t M i

Penuelas

Martinique (Fr.)
ST LUCIA

HONDURAS

GUATEMALA

EL SALVADOR
Comodoro Rivadavia

DOMINICAN REP.

Puerto Cortes

BELMOPAN

Puerto Barrios

GUATEMALA

HAITI

KINGSTON

BELIZE

Salina Cruz

Andres

CUBA

Merida

Tuxpan

tan

Neuquen

Tampico

Yu
ca

Mar del Plata

Amuay/Cardon
La Salina

CARACAS

BARBADOS
TRINIDAD &
TOBAGO

PORT OF SPAIN

Map 3: LNG export plants and import terminals in the Caribbean, North America (inset), Africa and the Middle East

140

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PORTO N
LOME
ACCRA

SURINAME

Cali
Neiva

CAYENNE

PARAMARIBO

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Benghazi

ISRAEL

Marsa el-Hariga

TUNISIA

AIRO
CAIRO

Suez

Lahore

KUWAIT

Kharg I

Muzaffargarh

Shiraz

DELHI

TH

Ras Shukheir

Asyut

ARABIA

SAUDI

KUWAIT
CITY

LF

AL MANAMAH
Qena

PAKISTAN

Bandar `Abbas

GU

EGYPT

Libyan
Desert

QATAR

RIYADH

Lavan I

Kanpur

UAE
DOHA Dubai

Sahara

ABU DHABI

Karachi

Ba

INDIA

Sohar

OMAN

Jeddah

Jagdishpur

Hyderabad

Ahmadabad

MUSCAT

Rabigh

NEPAL

Aonla
Mathura

Al Madinah

Yanbu

Quetta

Kerman

Basra

Damietta

Elat

L
LIBYA

Marsa el Brega

In Amenas

IRAQ

AMMAN

JORDAN

ALGERIA

In Salah

Zarqa

JERUSALEM

Alexandria

Idku

Marsa el-Brega

Sur

Dahej (Gujarat)

Jamnagar

Hazira
Oman LNG

Port Sudan

NIGER

LI

Vishakhapatnam

Dabhol

Salalah

ERITREA

KHARTOUM

CHAD

SAN'A

ASMARA
NIAMEY

Bir Ali

DJIBOUTI

BEN

IN

Cochin

ABUJA

Jonglei Canal

NIGERIA

Kochi

ADDIS ABABA

Lagos

CAMEROON

Warri

COLOMBO

AL MANAMAH

BANGUI

Limbe

SRI LANKA

ETHIOPIA

CENTRAL AFRICAN
REPUBLIC

Qatargas 1

Port Harcourt

BAHRAIN

YAOUNDE

UGANDA

EQUATORIAL
EQUA
GUINEA
GUIN

LIBREVILLE
LIBRE

CONGO

Port Gentil

GABON

DEMOCRATIC
REPUBLIC
of CONGO

BRAZZAVILLE
Pointe Noire

KAMPALA

KENYA

LAKE
VICTORIA
RWANDA
KIGALI

NAIROBI

Rasgas 1 (Ras Laffan)

Ras Laffan

BUJUMBURA

Halul Is.

BURUNDI

KINSHASA

Mombasa

TANZANIA

CABINDA

DODOMA

Soya

Zanzibar
Dar es Salaam

Dukhan

LUANDA
LU

DOHA

A T A

ADGAS (Das Island I & II)

Angola LNG

UE

LILONGWE

Dayina Is.

U.A.E.

Qarnayn Is.

MB

IQ

LUSAKA

ANGOLA

Arzanah Is.

Zirku Is.

Qatar and United Arab Emirates LNG Exporting Plants


HARARE

ANTANANARIVO

Mutare

ZIMBABWE

Beira

NAMIBIA
Swakopmund

MADAGASCAR
MOZAMBIQUE

BOTSWANA

WINDHOEK

LEGEND:

GABORONE
PRETORIA

Witbank

Johannesburg
Sasolburg

Gas or gas/condensate field/s

MAPUTO

Gas pipeline/s

MBABANE
SWAZILAND

Gas pipeline/s under construction,


planned or proposed

SOUTH AFRICA
CAPE TOWN

Das Is.

NE
CH

AN

MALAWI

ZAMBIA

9.1

Rasgas 2 (Ras Laffan)

ZA

O TOME & PRINCIPE

SOMALIA

MO

NG (Bonny Island)

Ennore

Mangalore

Bal Haf LNG

DJIBOUTI

Kaduna

Bangalore

S
Socotra

Adan

NDJAMENA

TOGO

TO NOVO
OME

YEMEN

SUDAN

LAKE CHAD

FASO
U

Mumbai

Map Symbols
LNG export plant
Mossel Bay

Cape of Good Hope

LNG export plant under construction

Cape Agulhas

LNG export plant planned or proposed


LNG import terminal
LNG import terminal under construction
LNG import terminal planned or proposed

NOTE:
Countries with a red tint are:
Exporting LNG countries
Countries with a green tint are:
Importing LNG countries

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EL SALVADOR

SAN SALVADOR

TEGUCIGALPA

COSTA RICA

CARACAS

PORT OF SPAIN

Cartagena

PANAMA

SAN JOSE
Puerto Mogos
Puerto Armuelles

Amuay/Cardon
La Salina

Puerto Moin

BARBADOS
TRINIDAD &
TOBAGO

Aruba (Neths.) Neths. Antilles

NICARAGUA

MANAGUA

Atlantic LNG

Mariscal
Sucre LNG

Chiriqui Grande

PANAMA

VENEZUELA

GEORGETOWN

Medellin

PARAMARIBO

BOGOTA

COLOMBIA

Neiva

CAYENNE

SURINAME

Cali

GUYANA

Tumaco
Esmeraldas
Baeza

QUITO

ECUADOR
La Libertad

Guayaquil
Manaus

Fortaleza

Coari
Talara
Bayovar

Natal

Trujillo

Pucallpa

Suape

Porto Velho

PERU

Recife

Aracaju

LIMA
Salvador

B R A Z I L

Cusco

9.1

LA PAZ

Arequipa

Peru LNG

Cochabamba

Goiania
Sao Mateus

Santa Cruz

Oruro
Arica

BRASILIA

Cuiaba

Puerto Villaroel

BOLIVIA

Sucre

Corumba
Betim

Potosi

Belo Horizonte

Vitoria

Ribeirao Preto
Tarija

P A C I F I C
O C E A N

Campos

Tocopilla

Duque de Caxias

Mejillones

Paulinia

PARAGUAY

Antofagasta
Salta

Sao Paulo
Cubatao

ASUNCION

Rio de Janeiro

Campos Basin

Araucaria

A
Catamarca
Canoas

La Rioja

Uruguaiana

Porto Alegre

Cordoba

Lujan de Cuyo
San Luis

Valparaiso

San Lorenzo
Rosario

SANTIAGO

URUGUAY

Rio Grande

Campana

La Mora

BUENOS AIRES

ARGENTINA

Concepcion/Talcahuano

La Plata

MONTEVIDEO

Mar del Plata


Neuquen

CHILE

Bahia Blanca
Plaza Huincul

LEGEND:
Gas or gas/condensate field/s
Gas pipeline/s
Gas pipeline/s under construction,
planned or proposed

Viedma

I de
Chiloe

Map Symbols
LNG export plant
Comodoro Rivadavia

LNG export plant under construction

Caleta Olivia

LNG export plant planned or proposed


LNG import terminal

San Julian

Falkland Is. (UK)

LNG import terminal under construction


LNG import terminal planned or proposed

Punta Arenas

Punta Percy

Ushuaia

Tierra del Fuego

Cape Horn

Map 4: LNG export plants and import terminals in South America

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NOTE:
South Georgia (UK)
Countries with a red tint are:
Exporting LNG countries
Countries with a green tint are:
Importing LNG countries

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LNG Statistics

The worlds LNG tankers

10.1

Name

Owner

Abadi
Al Bidda
Al Hamra
Al Jasra
Al Khaznah
Al Khor
Al Rayyan
Al Wajbah
Al Wakrah
Al Zubarah
Aman Bintulu
Aman Hakata
Aman Sendai
Annabella
Arctic Sun
Bachir Chihani
Banshu Maru
Bebatik
Bekalang
Bekulan
Belais
Belanak
Berge Boston
Berge Everett
Bilis
Bishu Maru
British Innovator
British Merchant
British Trader
Broog
Bubuk
Castillo De Villalba
Century
Cinderella
Descartes
Dewa Maru
Disha
Doha
Dwiputra
Echigo Maru
Edouard LD
Ekaputra
Energy Frontier
Excalibur
Excel
Fernando Tapias
Galea
Galeomma
Gallina
Ghasha
Gimi
Golar Freeze
Golar Mazo
Golar Spirit
Granatina
Hanjin Muscat
Hanjin Pyeong Taek
Hanjin Ras Laffan
Hanjin Sur
Hassi RMel
Havfru
Hilli
Hoegh Galleon
Hoegh Gandria
Hyundai Aquapia
Hyundai Cosmopia
Hyundai Greenpia
Hyundai Oceanpia
Hyundai Technopia
Hyundai Utopia
Inigo Tapias
Isabella
Ish
K Acacia
K Freesia
Khannur
Kotowaka Maru
Laieta

Mitsui OSK
Mitsui OSK/NYK/K Line/Iino
Abu Dhabi Commercial
Mitsui OSK/NYK/K Line/Iino
Abu Dhabi Commercial
Mitsui OSK/NYK/K Line/Iino
Mitsui OSK/NYK/K Line/Iino
Mitsui OSK/NYK/K Line/Iino
Mitsui OSK/NYK/K Line/Iino
Mitsui OSK/NYK/K Line/Iino
Asia LNG Transport
Asia LNG Transport
Asia LNG Transport
Chemikalien Seetrans
Phillips/Marathon
Hyproc
NYK/Mitsui OSK/K Line
Brunei Shell Tankers
Brunei Shell Tankers
Brunei Shell Tankers
Brunei Shell Tankers
Brunei Shell Tankers
Bergesen
Bergesen
Brunei Shell Tankers
NYK/Mitsui OSK/K Line
BP
BP
BP
Mitsui OSK/NYK/K Line/Iino
Brunei Shell Tankers
Elcano
Bergesen
Chemikalien Seetrans
Gazocean
NYK/Mitsui OSK/K Line
Petronet LNG
Mitsui OSK/NYK/K Line/Iino
Humpuss
NYK/Mitsui OSK/K Line
Dreyfus
Humpuss
Tokyo LNG Tanker
Exmar
Exmar
Tapias
Shell
Argent Marine
Shell
Abu Dhabi Commercial
Golar LNG
Golar LNG
Golar LNG
Golar LNG
Shell
Hanjin Shipping Co.
Hanjin Shipping Co.
Hanjin Shipping Co.
Hanjin Shipping Co.
Hyproc
Bergesen
Golar LNG
Hoegh
Mitsui OSK/Hoegh
Hyundai Merchant Marine
Hyundai Merchant Marine
Hyundai Merchant Marine
Hyundai Merchant Marine
Hyundai Merchant Marine
Hyundai Merchant Marine
Tapias
Chemikalien Seetrans
Abu Dhabi Commercial
Korea Line Corp.
Korea Line Corp.
Golar LNG
NYK/Mitsui OSK/K Line
Maritima del Norte

144

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Fundamentals of the Global LNG Industry, 2004

Capacity
(cm)

Year

Loa
(metres)

Beam
(metres)

Draft
(metres)

Tanks

136,912
137,339
137,000
135,169
137,540
137,354
137,420
137,308
137,568
137,573
18,927
18,942
18,928
35,491
89,089
129,767
126,885
75,056
75,078
75,072
75,040
75,000
138,059
138,028
77,731
125,915
138,000
138,000
138,000
137,529
77,679
138,000
29,588
25,500
50,240
126,975
138,000
137,262
127,386
125,568
129,323
136,400
145,385
135,273
138,000
138,517
135,000
126,540
135,000
137,100
124,872
125,862
135,225
129,013
140,500
138,366
138,366
138,214
138,333
40,109
29,388
124,890
87,603
125,904
137,415
137,415
125,000
137,415
137,415
125,182
138,000
35,491
137,512
138,017
138,015
125,003
125,454
39,782

2002
1999
1997
2000
1994
1996
1997
1997
1998
1996
1993
1998
1997
1975
1993
1979
1983
1972
1973
1973
1974
1975
2003
2003
1975
1983
2003
2003
2002
1998
1975
2003
1974
1965
1971
1984
2004
1999
1994
1983
1977
1990
2003
2002
2003
2002
2002
1978
2002
1995
1976
1977
1999
1981
2003
1999
1995
2000
2000
1971
1973
1975
1974
1977
2000
2000
1996
2000
1999
1994
2003
1975
1995
2000
2000
1977
1984
1970

290.00
297.50
289.14
297.50
293.00
297.50
297.50
297.50
297.50
297.50
130.00
130.00
130.00
198.48
239.00
281.72
283.00
256.70
248.43
247.25
256.70
257.23
277.00
277.00
258.90
281.00
278.80
278.80
278.80
297.50
248.30
284.40
181.55
201.00
220.00
283.00
277.00
297.50
272.00
283.00
280.60
290.00
289.50
277.00
277.00
279.80
290.00
289.10
290.00
293.00
293.76
287.55
290.00
289.00
279.80
280.00
264.31
280.00
280.00
199.54
181.54
293.00
249.54
287.54
288.71
288.77
274.00
288.71
288.77
274.00
284.40
198.48
293.00
277.00
277.00
293.00
281.00
207.88

46.00
45.75
48.10
45.75
45.75
45.75
45.75
45.75
45.75
45.75
25.70
25.70
25.70
26.50
40.00
41.60
44.50
34.75
34.75
34.75
34.75
34.75
43.30
43.30
34.75
44.20
42.60
42.60
42.60
45.75
34.80
42.50
29.00
24.80
31.85
44.50
43.30
45.75
47.20
44.50
41.60
46.00
49.00
43.40
43.40
43.40
46.00
41.17
46.00
45.84
41.60
43.40
46.00
44.60
43.40
43.00
43.00
43.00
43.00
29.28
29.00
41.60
40.00
43.40
48.20
48.20
47.20
48.20
48.20
47.20
42.50
26.50
45.75
43.40
43.40
41.60
44.20
29.30

11.38
11.25
11.80
11.25
11.24
11.25
11.25
11.25
10.95
11.25
7.12
7.12
7.12
10.47
11.02
11.33
11.50
9.45
9.45
9.45
9.45
9.45
11.40
11.40
9.45
11.46
11.30
11.30
11.30
11.25
9.45
12.30
9.42
7.82
9.22
11.50
11.40
10.95
17.83
11.50
11.22
11.83
11.40
11.40
12.10
12.12
11.00
11.91
11.00
11.27
11.70
11.52
11.68
12.52
11.50
11.30
12.02
11.30
12.02
9.30
9.42
11.68
10.64
11.52
12.02
12.02
11.77
12.02
12.02
11.77
11.38
10.47
11.27
12.02
12.02
11.73
11.52
9.17

5
5
4
5
5
5
5
5
5
5
3
3
3
5
4
5
5
5
5
5
5
5
4
4
5
5
4
4
4
5
5
4
4
7
6
5
4
5
4
5
5
5
4
4
4
4
5
6
5
5
6
5
5
5
4
4
4
4
4
6
4
6
5
5
4
4
4
4
4
4
4
5
5
4
4
6
5
4

HOME

NEXT

LNG Statistics

The worlds LNG tankers (cont )


Name

Owner

Larbi Ben M'hidi


Hyproc
LNG Abuja
Nigeria LNG
LNG Aquarius
BGT
LNG Aries
BGT
LNG Bayelsa
Nigeria LNG
LNG Bonny
Nigeria LNG
LNG Capricorn
BGT
LNG Delta
Argent Marine
LNG Edo
Nigeria LNG
LNG Elba
ENI
LNG Finima
Nigeria LNG
LNG Flora
Osaka Gas / NYK
LNG Gemini
BGT
LNG Jamal
Osaka Gas / NYK
LNG Lagos
Nigeria LNG
LNG Leo
BGT
LNG Lerici
ENI
LNG Libra
BGT
LNG Palmaria
ENI
LNG Port Harcourt
Nigeria LNG
LNG Portovenere
ENI
LNG Rivers
Nigeria LNG
LNG Sokoto
Nigeria LNG
LNG Taurus
BGT
LNG Vesta
Mitsui OSK
LNG Virgo
BGT
Matthew
Cabot Corp.
Methane Arctic
British Gas Corp.
Methane Polar
British Gas Corp.
Methane Princess
Golar LNG
Methania
Exmar
Mostefa Ben Boulaid
Hyproc
Mourad Didouche
Hyproc
Mraweh
Abu Dhabi Commercial
Mubaraz
Abu Dhabi Commercial
Norman Lady
Mitsui OSK/Hoegh
Northwest Sanderling
NWS LNG Shipping
Northwest Sandpiper
NWS LNG Shipping
Northwest Seaeagle
NWS LNG Shipping
Northwest Shearwater
NWS LNG Shipping
Northwest Snipe
NWS LNG Shipping
Northwest Stormpetrel
NWS LNG Shipping
Northwest Swallow
NYK/Mitsui OSK/K Line
Northwest Swift
NYK/Mitsui OSK/K Line
Pacific Notus
Tokyo Electric
Pioneer Knutsen
Knutsen
Polar Eagle
Phillips/Marathon
Puteri Delima
Petronas
Puteri Delima Satu
Petronas
Puteri Firus
Petronas
Puteri Intan
Petronas
Puteri Intan Satu
Petronas
Puteri Nilam
Petronas
Puteri Nilam Satu
Petronas
Puteri Zamrud
Petronas
Ramdane Abane
Hyproc
Senshu Maru
NYK/Mitsui OSK/K Line
Shahamah
Abu Dhabi Commercial
Shinju Maru No. 1
Shinwa
SK Splendor
SK Shipping
SK Stellar
SK Shipping
SK Summit
SK Shipping
SK Sunrise
SK Shipping
SK Supreme
SK Shipping
Sohar LNG
Mitsui OSK
Surya Aki
MCGC International
Surya Satsuma
Mitsui OSK
Tellier
Messigaz
Tenaga Dua
Petronas
Tenaga Empat
Petronas
Tenaga Lima
Petronas
Tenaga Satu
Petronas
Tenaga Tiga
Petronas
Umm Al Ashtan
Abu Dhabi Commercial
Wakaba Maru
NYK/Mitsui OSK/K Line
Y K Sovereign
SK Shipping
Zekreet
Mitsui OSK/NYK/K Line/Iino
Source: EA Gibson Shipbrokers

BACK

Capacity
(cm)

Year

Loa
(metres)

Beam
(metres)

Draft
(metres)

Tanks

129,500
126,750
126,750
126,750
137,500
132,588
126,750
126,540
126,750
41,005
132,588
125,637
126,750
136,977
122,255
126,750
65,000
126,750
41,005
122,255
56,095
137,500
137,500
126,750
127,547
126,750
126,540
71,500
71,500
138,000
131,235
125,260
126,190
135,000
135,000
87,994
125,452
125,500
125,541
127,500
127,747
125,525
127,544
127,580
137,006
1,100
88,996
130,405
137,489
130,358
130,405
137,489
130,405
137,489
130,358
126,190
127,167
137,756
2,513
138,370
138,395
138,003
138,270
138,248
137,248
19,538
23,096
40,081
130,000
130,000
130,000
130,000
130,000
137,000
127,209
127,125
137,482

1977
1980
1977
1977
2003
1981
1978
1978
1980
1970
1984
1993
1978
2000
1976
1978
1998
1979
1969
1977
1996
2002
2002
1979
1994
1979
1979
1969
1969
2003
1978
1976
1980
1996
1996
1973
1989
1993
1992
1991
1990
1994
1989
1989
2003
2003
1993
1995
2002
1997
1994
2002
1995
2003
1996
1981
1984
1994
2003
2000
2000
1999
2003
2000
2001
1996
2000
1973
1981
1981
1981
1982
1981
1997
1985
1994
1998

281.72
285.30
285.30
285.30
288.75
286.85
285.30
289.10
285.35
207.73
286.83
272.00
285.30
290.00
275.00
285.30
215.00
285.30
207.70
274.42
216.20
288.00
288.00
285.30
272.00
285.30
289.12
243.30
243.30
277.00
280.00
278.80
274.40
290.14
290.10
249.50
272.00
272.00
272.00
272.00
272.00
272.00
272.00
272.00
290.00
68.87
239.00
274.30
276.00
274.30
274.30
276.00
274.30
276.00
274.30
274.42
283.00
293.00
86.25
278.85
278.85
277.00
278.85
278.85
297.50
151.00
151.03
196.80
280.60
280.60
280.60
280.60
280.60
290.14
283.00
274.00
297.50

41.60
43.74
43.74
45.74
48.00
41.80
43.74
41.15
43.74
29.30
41.80
47.20
43.74
46.00
42.00
43.90
33.90
43.74
29.30
42.00
33.90
48.20
48.20
43.90
47.20
43.90
42.15
34.00
34.00
43.30
41.60
41.00
42.00
48.10
48.10
40.00
47.20
47.20
47.20
47.20
47.20
47.20
47.20
47.20
46.00
11.80
40.00
43.30
43.40
43.30
43.30
43.40
43.30
43.40
43.30
42.00
44.80
45.75
15.10
42.60
42.60
43.40
42.60
42.60
45.75
28.00
28.00
29.20
41.60
41.60
41.60
41.60
41.60
48.10
44.80
47.20
45.75

10.85
11.53
11.50
11.50
12.32
13.50
11.51
11.91
11.53
9.17
11.22
10.85
11.97
10.95
12.90
10.97
9.15
10.97
9.17
11.80
9.48
11.15
11.15
10.97
11.45
10.97
10.97
10.03
10.03
11.15
10.22
12.20
13.30
11.30
11.77
10.62
11.39
11.37
11.37
11.37
11.37
11.37
11.40
11.40
11.00
3.30
11.02
12.00
11.06
12.00
12.00
11.06
12.00
11.06
12.00
13.32
11.52
10.95
4.17
12.02
11.30
12.02
11.30
11.30
11.25
7.60
7.06
8.11
11.72
11.72
11.72
11.72
11.72
12.30
11.52
11.77
10.95

5
5
5
5
4
5
5
6
5
4
5
4
5
5
6
5
4
5
4
6
4
4
4
5
4
5
6
6
6
4
5
6
5
4
4
5
4
4
4
4
4
4
4
4
5
2
4
4
4
4
4
4
4

HOME

Fundamentals of the Global LNG Industry, 2004

4
5
5
5
2
4
4
4
4
4
5
3
3
5
5
5
5
5
5
4
5
4
5

145

NEXT

10.1

LNG Statistics

The worlds LNG tanker orderbook

10.1

Name/ or Shipyard Hull No

Owner

Capacity
(cm)

Atlantique 32
Berge Arzew
Bilbao Knutsen
Cadiz Knutsen
Daewoo 2218
Daewoo 2219
Daewoo 2220
Daewoo 2221
Daewoo 2222
Daewoo 2223
Daewoo 2224
Daewoo 2226
Daewoo 2227
Daewoo 2228
Dukhan
Elvira Tapias
Energy Advance
Excelsior
Fuwairit
Gaz de France Energy
Gemmata
Golar Frost
Hudong Zhonghua 1401A
Hudong Zhonghua 1402A
Hyundai 1460
Hyundai 1469
Hyundai 1470
Hyundai 1471
Hyundai 1472
Indhan
Izar Puerto Real 105
Kawasaki 1532
Kawasaki 1534
Kawasaki 1540
Kawasaki 1545
Kawasaki 1562
Maersk Ras Laffan
Methane Kari
Mitsubishi 2184
Mitsubishi 2185
Mitsubishi 2187
Mitsui 1562
Mitsui 1564
Muscat LNG
Northwest Swan
Puteri Firus Satu
Puteri Zamrud Satu
Samsung 1440
Samsung 1441
Samsung 1502
Samsung 1503
Samsung 1536
Samsung 1553
Samsung 1554
Samsung 1555

Gaz de France
Bergesen
Knutsen
Knutsen
Exmar
Exmar
Golar LNG
Bergesen
Bergesen
Bergesen
Bergesen
Golar LNG
Kristen Navigation
Kristen Navigation
Qatargas
Tapias
Tokyo LNG Tanker
Exmar
Exmar
Gaz de France
Shell
Golar LNG
COSCO
COSCO
Golar LNG
Nigeria LNG
Nigeria LNG
Nigeria LNG
Nigeria LNG
Petronet LNG
Tapias
Statoil
Algeria Nippon Gas
Tokyo LNG Tanker
Osaka Gas / NYK
Oman Govt.
A P Moller
British Gas Corp.
Hoegh
Hoegh
Tokyo Electric
Petronas
Statoil
Oman Govt.
Woodside Petroleum
Petronas
Petronas
NYK
NYK
Petronas
Petronas
Oman Govt.
British Gas Corp.
British Gas Corp.
British Gas Corp.

153,500
138,000
138,000
138,000
138,000
138,000
138,000
140,500
140,500
140,500
140,500
145,700
145,700
145,700
135,000
140,500
145,000
138,000
138,200
74,000
135,000
137,500
145,000
145,000
137,500
141,500
141,500
141,500
141,000
138,000
138,000
140,000
145,000
145,000
145,000
145,000
138,200
138,200
145,000
145,000
135,000
138,000
140,000
145,000
140,500
137,489
138,000
145,000
145,000
145,000
145,000
145,000
145,000
145,000
145,000

Year

Loa
(metres)

Beam
(metres)

Draft
(metres)

Tanks

2005/10
2004/7
2004/2
2004/6
2005/4
2005/4
2004/3
2005/3
2005/7
2005/11
2006/3
2005/12
2005/10
2005/11
2004/9
2004/5
2005/6
2004/11
2004/1
2004/10
2004/3
2004/1
2005/9
2006/1
2004/10
2004/11
2005/3
2005/7
2005/12
2004/12
2005/3
2006/4
2004/12
2006/12
2006/9
2005/11
2004/3
2004/5
2005/10
2006/1
2006/3
2005/3
2005/11
2004/4
2004/4
2004/9
2004/3
2005/5
2005/12
2006/2
2006/3
2006/10
2006
2006
2006

na
277.00
284.40
284.40
277.00
277.00
277.00
285.40
285.40
285.40
285.40
285.40
285.40
285.40
283.00
277.00
289.50
277.00
278.80
219.95
290.00
288.00
277.00
277.00
288.00
288.00
288.00
288.00
288.00
277.00
284.40
289.50
289.50
289.50
289.50
289.50
278.80
278.80
289.50
289.50
290.00
276.00
289.50
289.50
277.00
276.00
276.00
278.80
278.80
278.80
278.80
278.80
278.80
278.80
278.80

na
43.30
42.50
42.50
43.30
43.30
43.30
43.40
43.40
43.40
43.40
43.40
43.40
43.40
45.75
43.30
49.00
43.30
42.60
34.95
46.00
48.00
43.30
43.30
48.00
48.00
48.00
48.00
48.00
43.30
42.50
49.00
49.00
49.00
49.00
49.00
42.60
42.60
49.00
49.00
46.00
43.40
48.40
49.00
43.30
43.40
43.40
42.60
42.60
42.60
42.60
42.60
42.60
42.60
42.60

na
12.10
12.30
12.30
11.40
11.40
11.15
11.35
11.35
11.35
11.35
11.35
11.35
11.35
11.10
11.40
11.40
11.40
12.30
9.70
11.00
11.15
12.10
12.10
11.15
11.15
11.15
11.15
11.15
11.40
12.30
11.40
11.40
11.40
11.40
11.40
11.35
12.30
11.95
11.95
11.00
11.01
11.95
11.40
11.40
11.06
11.01
12.30
12.30
12.30
12.30
12.30
12.30
12.30
12.30

na
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
na
5
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4
4

Source: EA Gibson Shipbrokers

Figure 1: LNG tanker new-build prices


300

Figure 2: The LNG tanker fleet

$ million

Number of vessels built


25

250

20

200

15

150

150

10

100

100

50

50
1972 1976 1980 1984 1988 1992 1996 2000

0
1965

Source: LNG Shipping Solutions

146

250
Vessels built each year (L-H scale)
Cumulative total (R-H scale)

BACK

Fundamentals of the Global LNG Industry, 2004

200

0
1970

1975

1980

1985

1990

1995

2000

2005

Source: LNG Shipping Solutions

HOME

NEXT

LNG Statistics

World LNG trade, 2002


Importing countries
North America

Europe

Puerto
Rico

US

0.58
0.58

4.28
4.28

4.86
4.86

Exporting
countries
US
T & Tobago
Americas total

Total Belgium

France

Greece

Asia-Oceania

Italy Portugal

Spain

Turkey

Total

0.00

0.46
0.46

Japan S Korea Taiwan

1.70
0.00

0.00

0.00

0.00

Algeria
Libya
Nigeria
Africa total

0.76

0.76

3.20

10.20

0.50

2.20

0.23
0.99

0.23
0.99

3.20

0.80
11.00

0.50

3.50
5.70

Abu Dhabi
Oman
Qatar
Middle East total

0.09
0.99
1.08

0.09
1.04
1.13

0.16
0.16
0.32

0.07

0.07

0.05
0.05

Australia
Brunei
Indonesia
Japan
Malaysia
S. Korea
Asia-Pacific total
Tanker imports

0.63

0.07

0.07

0.14

0.14

6.49

7.12

0.00

0.46
0.46

0.43
0.43

5.95
0.63
1.61
8.19

0.54
0.02
0.02

0.54

4.08
1.27
5.35

0.50

5.72

0.43

0.00

0.00

1.70

1.70
5.32
7.02
26.89
0.63
7.84
35.36

26.13
0.63
7.61
34.37
0.90
1.61
1.87
4.38

5.93
1.09
8.43
15.45

0.32
5.48
6.95
12.75

6.25
6.57
15.38
28.20

7.15
8.27
18.29
33.71

0.07
0.12

0.07
0.12

9.72
7.95
23.50

2.52

0.27

14.43
0.05
55.65

0.24
1.04
6.78
0.15
3.10
11.31

7.20

9.96
8.99
34.96
0.15
20.05
0.05
74.16

10.03
9.18
34.96
0.15
20.20
0.05
74.57

39.48

72.80

24.06

7.20

104.06

150.66

0.08

0.27
11.54

1.70

0.90
0.91
1.69
3.50

0.08

3.52

1.70

Total
Total exports

12.42

5.35

4.68

Flows on a contractual basis. 1 cm liquid = 0.45 tonnes = 561 normal cm = 593 standard cm

Source: Cedigaz

Figure 3: Worldwide LNG demand prospects


By region

million t/y
200
1985
2002

2010 High scenario

2020 High scenario

2010 Low scenario

2020 Low scenario

150

100

50

North America

Latin America

Europe

Asia-Pacific

Middle East

By country

million t/y
80
1985
2002

70

2010 High scenario

2020 High scenario

2010 Low scenario

2020 Low scenario

60
50
40
30
20
10
0

US

Mexico

Belgium

France

Italy

Portugal

Spain

Turkey

UK

Japan

South
Korea

Taiwan

India

China

Others

Source: Cedigaz

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147

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10.1

LNG Statistics

LNG contracts

10.1

Amount
(million t/y)

Country

Purchaser

Abu Dhabi
Abu Dhabi
Abu Dhabi
Algeria
Algeria
Algeria
Algeria
Algeria
Algeria
Algeria
Algeria
Algeria
Algeria
Algeria
Algeria
Algeria
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Brunei

Tokyo Electric
Dabhol
BP Gas Marketing
Distrigas
GdF
GdF
GdF
Enagas
Botas
Distrigas
Panhandle
Snam
Depa
Iberdrola
Endesa
BP/Sonatrach
Chubu Electric
Chugoku Electric
Kansai Electric
Kyushu Electric
Osaka Gas
Toho Gas
Tokyo Electric
Tokyo Gas
Chugoku Electric
Kansai Electric
Osaka Gas
Toho Gas
Tokyo Electric
Tokyo Gas
Shell Int
Osaka Gas
Osaka Gas
Tohoku Gas
Toho Gas; Tokyo Gas
Kyushu Electric
Chubu Electric
Tokyo Electric ; Tokyo Gas
Shizuoka
Kogas
Shell Gas And Power
Chevrontexaco
Kansai Electric
Tokyo Electric

Brunei
Brunei
Brunei
Egypt
Egypt
Egypt
Equatorial Guinea
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia
Indonesia

Tokyo Gas
Osaka Gas
Kogas
GdF
BG Gas Marketing
Union Fenosa
BG
Chubu Electric
Kansai Electric
Osaka Gas
Kyushu Electric
Nippon Steel
Toho Gas
Chubu Electric
Kansai Electric
Osaka Gas
Toho Gas
Tokyo Electric
Tohoku Electric
Osaka Gas
Tokyo Gas
Toho Gas
Hnt Gas
Kogas
Kogas
Kogas
CPC
CPC
Kogas
Hiroshima Gas
Nippon Gas
Tohoku Electric ;
El Paso
Cnooc (Fujian)
Posco; Sk Corp
Marathon
Sempra Energy

148

BACK

4.70
0.50
0.75
3.33
3.70
2.55
1.30
2.40
2.96
0.89
0.59
1.33
0.52
0.75
0.75
3.30
1.05
1.05
1.05
1.05
0.68
0.21
1.05
0.79
0.11
0.11
0.07
0.02
0.11
0.07
3.70
0.50
1.00
0.40
1.37
0.50
0.60
3.00
0.13
0.50
2.00
2.00
0.50
4.03
1.24
0.74
0.70
3.60
3.60
3.00
3.40
2.15
2.57
1.30
1.56
0.55
0.05
1.68
0.89
0.45
0.56
0.52
3.00
1.10
0.80
0.10
0.20
2.30
2.00
1.00
1.50
1.84
1.00
0.08
0.05
1.00
5.00
2.60
1.35
6.00
6.00-10.00

Contract
length

Fundamentals of the Global LNG Industry, 2004

Start

Signed

15
21
19
16
16
15
15
15
20
20
13
13
13
13
13
13
5
17
24
7
20
20
-

1977
2002
1982
1982
1976
1992
1978
1994
1978
1989
1997
1998
2002
2002
2005
1989
1989
1989
1989
1989
1989
1989
1989
1996
1996
1996
1996
1996
1996
2004
2009
2004
2005
2004
2006
2009
2006
2005
2003
2008
2008
2009
1973

1994
1999
2001
1975
1991
1998
1988
1988
1994
1988
2002
2002
2003
1991
1991
1991
1991
1991
1991
1991
1991
1994
1994
1994
1994
1994
1994
2001

16
20
17
20
20
20
20
20
20
3
20
20
20
20
5
25
20
20
-

1973
1973
1997
2005
2006
2004
2007
1977
1977
1977
1977
1977
1977
1983
1983
1983
1983
1984
1984
1994
1994
1994
1996
1986
1994
1996
1990
1998
1999
1996
1996
2004
2003
2007
2005
2007

2002
2003
2001
2003
1991
1996
1995
1995
2001
2002
2003
2003
2003
2003

4
25

HOME

2001
2001
2001
2001
2001
2002
2003
2003
2003
2003
2003
-

Remarks
Revised 1994 +2m t/y; 25 years
Cancelled
Option to 2013
Plus 10 years in 1991 (to 2013)
Plus 15 years in 1991 (to 2013)
Contract extended 11 years in 2000 (to 2013)
Up To 2.8m t/y in 2002 (Option 2013)
Plus 0.72m t/y in 1996
Extension (in 2002) to 2008
Up to 2.92m t/y in total
Agreement to take capacity at Grain LNG, UK
Plus 0.15m t/y beginning 1995
Plus 0.15m t/y beginning 1995
Plus 0.15m t/y beginning 1995
Plus 0.15m t/y beginning 1995
0.1m t/y beginning 1995
0.03m t/y beginning 1995
0.15m t/y beginning 1995
0.1m t/y beginning 1995
Sunrise, Key Terms Agreement
Sunrise
Northwest Shelf LNG
Northwest Shelf LNG
Northwest Shelf LNG
Northwest Shelf LNG
Northwest Shelf LNG, Key Terms Agreement
Bayu-Undan LNG, HOA
Northwest Shelf LNG, SPA
SPA
Gorgon LNG, MOU
Gorgon LNG, MOU
Northwest Shelf LNG, HOA (0.925m t/y from 2015)
Contract extended in 1993 for further 3 years and Letter Of Intent 1997 to
buy 0.47m t/y more in 2000. eXTENDED TO 2013
As above
As above
ELNG Train 1
ELNG Train 2, SPA
Damietta LNG (Segas)
Letter Of Understanding
Arun/Badak (Cif), Plus 0.45m t/y since 1983, plus 11 years since 1995
Arun/Badak (Cif), Plus 0.17m t/y since 1983, plus 11 years since 1995
Arun/Badak (Cif), Plus 11 years since 1995
Arun/Badak (Cif), Plus 0.06m t/y since 1983, plus 11 years since 1995
Arun/Badak (Cif), Plus 11 years since 1995
Arun/Badak (Cif), Plus 11 years since 1995
Plus 8 years since 1995
Plus 8 years since 1995
Plus 8 years since 1995
Plus 8 years since 1995
Plus 1.0m t/y, extended 2004-9; cut to 0.83m t/y
1993
Badak (Fob), 1993
1993
1992 Hiroshima, Nihon, Toho Gas (Plus 0.2m t/y In 2000)
Arun III, Plus 0.3m t/y since 1991 (Cif)
Arun/Badak (Fob)
Badak V
Badak (Cif), Option to increase imports after 1996
Badak (Cif),
Badak V (Fob)
MOU
Tangguh
Tangguh
MOU
MOU

NEXT

LNG Statistics

LNG contracts (cont )


Country

Purchaser

Amount
(million t/y)

Contract
length

Start

Signed

Indonesia
Libya
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia
Malaysia

Gnpower
1.30
Enagas
1.10
Tokyo Electric
4.80
Tokyo Gas
2.60
Saibu Gas
0.42
Tokyo Gas
0.80
Osaka Gas
0.60
Kansai Electric
0.42
Toho Gas
0.28
Tohoku Electric
0.50
Shizouka Gas
0.45
Kogas
2.00
Kogas
0.74
CPC
2.25
Sendai
0.15
Japex
0.48
Osaka Gas; Toho Gas;
1.16
Tokyo Gas
Tohoku Electric
0.90
Tokyo Gas; Tokyo Electric
7.40
Kogas
2.00
Enel
2.59
Enagas
1.19
Gas de France
0.37
Botas
0.89
Transgas
0.26
Enagas
2.00
Transgas
0.74
Iberdrola
0.36
Eni
1.10
Shell Western LNG
1.10
Transgas
1.50
BG LNG
2.50
Total Gas & Power
0.86
Endesa Generacion
0.75
Shell Western LNG
1.40
El Paso
1.30
Iberdrola
1.10
GdF
0.50
Kogas
4.10
Osaka Gas
0.70
Dabhol
1.60
Shell Western LNG
0.88
Union Fenosa
0.75
Union Fenosa
0.60
BP Gas Marketing (at plateau) 0.70
Tractebel LNG
2.70
Chubu Electric
4.00
Tokyo Gas
0.35
Osaka Gas
0.35
Tohoku Electric
0.52
Kansai Electric
0.29
Tokyo Electric
0.20
Chugoku Electric
0.12
Toho Gas
0.17
Kogas
4.92
Gas Natural
1.50
Gas Natural
0.58
Petronet LNG
7.50
Edison Gas
4.70
Kogas
2.00
Eni
0.90
Endesa Generacion
0.80
Taipower (CPC)
1.70
ExxonMobil
7.80
ExxonMobil
7.80
ConocoPhillips
7.50
ExxonMobil
15.60
Tokyo Gas
1.10
Tokyo Electric
1.20
Kyushu Electric
0.50
Cabot
1.80
Gas Natural
1.20
Gas Natural
0.70
Gas D'Euskadi
0.70
Repsol YPF
2.10
BG
2.10
Cabot
0.30
AES Group
0.75
Tokyo Electric
0.92
Tokyo Gas
0.31

20
20

1971
1983
1983
1993
1995
1995
1995
1995
1996
1996
1995
1995
1995
1997
2003
2004

1990
1994
1994
1994
1994
1994
1996
1993
1994
1994
1996
2002
2000

20
15
7
20
20
20
20
19
20
20
20
20
20
20
20
10
20
18
20

2005
2003
2003
1999
1999
1999
1999
2000
2002
2002
2005
2005
2005
2005
2007
2006
2005

25
25
20
5
2
2
6
25
24
24
23
23
23
23
22
25
8
5
25
25
1
20
20
20
25
24
22
21
20
20
25
25

2000
2000
2001
2002
2006
2004
2004
1997
1998
1998
1999
1999
1999
1999
2000
1999
2001
2002
2003
2007
2003
2004
2005
2008
2007
2007
2010
2009
2007
2007
2010
1999
1999
1969
1969

2001
2002
2003
1992
1992
1992
1995
1997
1999
1999
2001
2001
2002
2003
2003
2003
2003
2001
1996
1998
1998
2001
2002
2002
2003
2003
1992
1994
1994
1994
1994
1994
1994
1994
1995/1997
2001
2001
1998
2001
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
2003
1995
1995
1992
1992

Malaysia
Malaysia
Malaysia
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Nigeria
Norway
Norway
Norway
Oman
Oman
Oman
Oman
Oman
Oman
Oman
Peru
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Qatar
Russian Federation
Russian Federation
Russian Federation
Trinidad & Tobago
Trinidad & Tobago
Trinidad & Tobago
Trinidad & Tobago
Trinidad & Tobago
Trinidad & Tobago
Trinidad & Tobago
Trinidad & Tobago
US
US

Remarks
Letter Of Intent, 2001
Extended in 1990 up to 1.48m t/y
Plus 0.8m t/y In 1990
Plus 0.6m t/y In 1990
Plateau 1997
5.26m t/y
Plateau 1997
SPA
MLNG Tiga, Tokyo Gas (0.34m t/y); Toho Gas (0.22m t/y); Osaka Gas
(0.12m t/y), plus option of 0.44m t/y
Tiga, SPA
Poss 5 year extension (partial Fob transactions)
Option 252,000 t/y
Plus 432,000 t/y in 1996
Up to 360,000 t/y
T3
T3
SPA (T4)
SPA (T4)
SPA (T4)
SPA (T4 & T5)
SPA (T4 & T5); Plus excess from T1-3
SPA (T4 & T5)
Agreement in principle
SPA (T6)
GdF owns 12% of the Snhvit project
Fob
Fob
Non-operational
MOU (2002), SPA (2003)
MOU, destined for Mexico
Qatargas, Plus option 2m t/y/2-4m t/y 1997-2000
Qatargas
Qatargas
Qatargas
Qatargas
Qatargas
Qatargas
RasGas, Fob
Qatargas
Qatargas, Option to convert to medium-term contract 3-5 years
RasGas, Final Agreement 1999; SPA 2003
RasGas, Amended 2003

10.1

HOA
RasGas, SPA
RasGas, HOA
HOA
HOA
HOA
HOA
Sakhalin Energy, HOA, Fob
Sakhalin Energy, HOA
Sakhalin Energy, HOA
Revised 1992 plus 0.06m t/y and option of additional 5 years
Revised 1992 plus 0.06m t/y and option of additional 5 years

Source: Cedigaz, Petroleum Economist, A Flower

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Fundamentals of the Global LNG Industry, 2004

149

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LNG Statistics

LNG importers

10.1

Country

Project

Start-Up

Belgium
Dominican Rep
France
France
Greece
Italy
Japan
Japan
Japan
Japan
Japan

Zeebrugge
Dominican Republic, Andres
Fos-Sur-Mer
Montoir-De-Bretagne
Revythoussa
Panigaglia, La Spezia
Chita
Chita (Kyodo)
Chita-Midorihama
Fukuoka
Futtsu

1987
2003
1972
1980
2000
1971
1983
1977
2001
1993
1985

Japan
Japan
Japan

Hatsukaichi
Higashi-Niigata
Higashi-Ohgishima

1995
1984
1984

Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan
Japan

Himeji
Himeji II
Kagoshima
Kawagoe
Negishi
Ohgishima
Senboku I
Senboku II
Shin-Minato
Shin-Oita
Sodegaura

1979
1984
1996
1997
1969
1998
1972
1977
1997
1990
1973

Japan

Sodeshi/Shimizu

1996

Japan

Tobata

1977

Japan
Japan
Japan
Portugal
Puerto Rico
South Korea
South Korea
South Korea
Spain

Yanai
Yokkaichi (LNG Centre)
Yokkaichi (Works)
Sines
Penuelas
Inchon
Pyeong Taek
Tong Yeong
Barcelona

1990
1987
1991
2003
2000
1996
1986
2002
1968

Spain
Spain

Cartagena
Huelva

1989
1988

Spain
Taiwan
Turkey
Turkey
US
US
US

Bilbao
Yung-An
Marmara Ereglisi
Izmir
Cove Point
Elba Island
Everett

US

Lake Charles

2003
1990
1994
2003
1978/2003
1978/2002
1971
1982

Promoter

Operator

Fluxys LNG
AES
GdF
GdF
Depa
Snam Rete Gas
Chita LNG (Toho Gas; Chubu Electric)
Toho Gas; Chubu Electric
Toho Gas; Chubu Electric
Saibu Gas
Tokyo Electric

Fluxys LNG
AES
GdF
GdF
Depa
GNL Italia
Chita LNG
Toho Gas
Toho Gas
Saibu Gas
Tokyo Electric

Source

Capacity Storage
(million t/y) ('000 cm)

Abu Dhabi; Algeria; Australia; Nigeria; Qatar


4.0
Trinidad and Tobago
1.0
Algeria
1.9
Abu Dhabi; Algeria; Nigeria; Oman; Qatar
4.2
Algeria
1.6
Abu Dhabi; Algeria; Qatar
3.5
Australia; Indonesia; Malaysia; Qatar
5.4
Australia; Indonesia; Malaysia; Qatar
1.8
Australia; Indonesia; Malaysia; Qatar
4.2
Malaysia
0.5
Abu Dhabi; Alaska; Australia; Brunei;
6.0
Indonesia; Malaysia; Qatar
Hiroshima Gas
Hiroshima Gas
Indonesia
0.4
Nihonkai LNG; Tohoku Electric
Nihonkai LNG
Abu Dhabi; Indonesia; Malaysia; Qatar
6.3
Tokyo Electric
Tokyo Electric
Abu Dhabi; Australia; Brunei; Indonesia;
5.0
Malaysia; Qatar
Osaka Gas; Kansai Electric
Kansai Electric
Australia; Indonesia; Malaysia
4.4
Osaka Gas; Kansai Electric
Osaka Gas
Australia; Indonesia; Malaysia; Qatar
3.7
Nippon Gas
Nippon Gas
Indonesia
0.1
Chubu Electric
Chubu Electric
Australia; Indonesia; Qatar
5.4
Tokyo Gas; Tokyo Electric
Tokyo Gas
Alaska; Brunei; Malaysia
3.5
Tokyo Gas
Tokyo Gas
Australia; Indonesia; Malaysia; Qatar
2.2
Osaka Gas
Osaka Gas
Brunei; Malaysia
0.8
Osaka Gas; Kansai Electric
Osaka Gas
Australia; Indonesia; Malaysia; Oman; Qatar
5.8
Sendai City Gas
Sendai City Gas Malaysia
0.3
Kyushu Electric; Oita Gas
Oita LNG
Australia; Indonesia
5.0
Tokyo Electric; Tokyo Gas
Tokyo Gas
Alaska; Australia; Brunei; Indonesia;
7.5
Malaysia; Qatar
Shizuoka Gas
Shimizu LNG
Malaysia
1.0
(Shizuoka Gas; Tonen General Petroleum)
Kyushu Electric; Tobata Power
Kitakyushu LNG Indonesia
6.0
Cooperative Thermal Power; Saibu Gas; Nippon Steel
Chugoko Electric
Chugoko Electric Australia; Qatar
2.4
Chubu Electric
Chubu Electric
Australia; Indonesia; Qatar
7.0
Toho Gas
Toho Gas
Australia; Indonesia; Qatar
0.7
Galp Atlantico (Transgas)
Galp Atlantico
Nigeria
4.0
Edison 50%; Gas Natural 50%
Eco Electrica
Trinidad & Tobago
0.5
Consortium*
Kogas
Brunei; Indonesia; Malaysia; Oman; Qatar; UAE 18.0
Consortium*
Kogas
Brunei; Indonesia; Malaysia; Oman; Qatar; UAE 18.0
Consortium*
Kogas
Brunei; Indonesia; Malaysia; Oman; Qatar; UAE 8.0
Enagas
Enagas
Abu Dhabi; Algeria; Australia; Libya; Nigeria;
4.5
Qatar; Trinidad & Tobago
Enagas
Enagas
Abu Dhabi; Algeria; Nigeria; Trinidad & Tobago 1.3
Enagas
Enagas
Abu Dhabi; Algeria; Australia; Libya; Malaysia;
2.4
Nigeria; Oman; Qatar; Trinidad & Tobago
Bahia de Bizkaia Gas (BdBG)
BdBG
Abu Dhabi; Nigeria; Trinidad & Tobago
5.0
CPC
CPC
Indonesia; Malaysia
7.9
Botas
Botas
Algeria; Australia; Nigeria; Qatar
4.2
Egegaz
Egegaz
Middle East; North Africa (Proposed)
4.4
Dominion Energy
Dominion Energy Algeria; Nigeria; Norway; Trinidad & Tobago
5.3
Southern LNG
Southern LNG;
Trinidad & Tobago
3.3
Tractebel
Tractebel LNG
Algeria; Trinidad & Tobago
3.8
North America
Southern Union
Southern Union All Producers, except Alaska and Libya
4.8

261
160
150
360
144
100
780
300
200
70
1,110
170
540
540
1,080
740
36
480
1,180
600
180
1,585
80
460
2,660
177
480
480
320
160
240
160
1,680
1,000
420
240
160
160
300
690
255
280
240
118
154
330

* Korean Electric 24.46%; South Korea (State) 28.86%; Local Government 9.86%; Institutional/Individual 38.82% BP 25%; Iberdrola 25%; Repsol YPF 25%; Ente Vasco de La Energia
25% Including spot cargoes

Source: Cedigaz, Petroleum Economist, A Flower

Data supplied by:


LNG Shipping Solutions
12 Camomile Street
London EC3A 7BP
Tel: +44 (0)207 283 1137
www.lngship.net

150

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Fundamentals of the Global LNG Industry, 2004

Cedigaz
1 & 4 Avenue de Bois-Prau
92852 Rueil Malmaison, France
Tel: + 33 1 47 52 60 12
www.cedigaz.org

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1983
1995
2003

1999

2002

2000

1997

1999

1999

Nigeria
NLNG (Bonny Island) T1 & T2

T2 2002; T3 2003

Malaysia
Bintulu MLNG I
Bintulu MLNG II (Dua)
Bintulu MLNG III (Tiga)

NLNG (Bonny Island) T3

Oman
OLNG (Qalhat)

Qatar
Qatargas 1 T1-3

RasGas 1 (Ras Laffan)

Trinidad & Tobago


Atlantic LNG

Atlantic LNG T 2/3

Nigeria LNG

Nigeria LNG

MLNG I
MLNG II
MLNG III

NOC (Sirte Oil)

PT Arun NGL (ExxonMobil)


PT Badak NGL

Brunei LNG

ConocoPhillips 70%; Marathon 30%

BP 34%; BG 26%; Repsol YPF 20%; Tractebel 10%;


National Gas Company 10%
BP 42.5%; BG 32.5%; Repsol YPF 25%

Qatar Petroleum 65%; Total 10%; ExxonMobil 10%; Mitsui 7.5%;


Marubeni 7.5%
Qatar Petroleum 63%; ExxonMobil 25%; Itochu 4%; Nissho Iwai 3%;
Kogas 5%

ConocoPhillips

Atlantic LNG

Atlantic LNG

RasGas

Qatargas

6
6
3
6
3

5
6*
8
3
3
325
3 As above
2 As above

1 As above

3
2

2 As above
1

7.95
8.4
0.9
4.7
7.5

7.2
6.8
22.59
2.3
8.1
7.8
6.8

5.9
2.9

6.6

8
6.6

3.3
6.6
1.5

105

204

420

340

240

240

96

636
634

130

260

900
900
71
1,540

8.0

240

Capacity Number Storage


(million t/y) of trains ('000 cm)

Woodside Offshore Petroleum

Sonatrach
Sonatrach
Sonatrach
Sonatrach

Adgas

Operator

Government of Oman 51%; Shell 30%; Total 5.54%; Korea LNG 5% (Korea Oman LNG
Gas 24%; Daewoo 20%; Hyundai 20%; Samsung 20%; Sk 16%); Partex 2%;
Itochu 0.92%; Mitsubishi 2.77%; Mitsui 2.77%

NNPC 49%; Shell Gas BV 25.6%; Total 15%; Agip 10.4%

NNPC 49%; Shell Gas BV 25.6%; Total 15%; Agip 10.4%

Petronas 90%; Sarawak State 5%; Mitsubishi 5%


Petronas 60%; Shell 15%; Mitsubishi 15%; Sarawak State 10%
Petronas 60%; Shell 15%; Sarawak State 10%; Nippon Oil 10%;
Diamond Gas 5%

NOC

Pertamina
Pertamina

Brunei State 50%; Shell 25%; Mitsubishi 25%

BHP 16.6%; BP 16.6%; ChevronTexaco 16.6%; Shell 16.6%;


Mitsubishi 8.3%; Mitsui 8.3%; Woodside (Shell 34%; Others 66%) 16.6%

Sonatrach
Sonatrach
Sonatrach
Sonatrach

Adnoc 70%; Mitsui 15%; BP 10%; Total 5%

Share holders

Source: Cedigaz, Petroleum Economist, A Flower

* only four trains operational

1969

1970

Libya
Marsa el-Brega

US
Kenai, Alaska

1978/83/86
1977/86/89/93/98/99

1972

Brunei
Lumut

Indonesia
Arun Phase I-VI
Bontang A-H

1989

1977
1981
1964
1972/78/81

Australia
NWS Australia LNG

1977/1994

Algeria
Arzew GL1Z
Arzew GL2Z
Arzew GL4Z (Camel)
Skikda GL1K Phase I&II

Start up

Abu Dhabi (UAE)


Adgas (Das Island I &II)

Project

LNG exporters

Phillips Cascade

POCP

POCP

APCI

APCI

APCI

APCI

APCI

APCI
APCI
APCI

APCI

APCI
APCI

APCI

APCI

APCI
APCI
Classic Cascade
Teal (1-3), Prico (4-6)

APCI

Process method

Japan (Tokyo Gas; Tokyo Electric)

Caribbean; North America; Spain

Puerto Rico; Spain; US

Italy; Japan; South Korea; Spain;


Turkey; US
India; Italy; South Korea

Kogas; Total; BP; Shell Western;


Union Fenosa; GdF; Tractebel;
Osaka Gas and others

France; Italy; Portugal; Spain;


Turkey; US
France; Italy; Portugal; Spain;
Turkey; US

Japan
Japan; South Korea; Taiwan
Japan; South Korea; Taiwan

Enagas, Spain

Japan; South Korea


Japan; South Korea; Taiwan

Japan; South Korea

Term To: Japan. Spot To: South


Korea; Spain; Turkey; US

Europe; US
Europe; US
Europe
Europe

Asia; Europe; US

Exports to

LNG Statistics

10.1

Fundamentals of the Global LNG Industry, 2004

151

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