LNG 101 week ten: Outlook for the Future
Jan27

LNG 101 week ten: Outlook for the Future

The future of LNG can be looked at from a global, national and Alaskan perspective. As we have discussed in many of the previous issues, the global demand for LNG has risen very quickly. From 1990-2010, gas rose from 19 percent to 22 percent of global energy supply. LNG is the fastest growing segment within gas. In that same time period, the gas share of the global electric supply has risen from 15 percent to 24 percent. The advantages of LNG as a fuel are more pertinent now than ever before. Japan needs new sources of power generation after shutting down most of its nuclear plants. China is anxious to reduce their coal consumption, and LNG offers a clean, reliable alternative. Asia has made up the majority of the growth since 1990 and is projected to make up the majority of the new demand. In Europe, countries like Poland and Lithuania see LNG as a tool that allows them to reduce their dependence on Russia. As a result, the number of countries looking to buy LNG has increased from 11 in 2000, to 27 in 2013. Analysts expect that number to increase to 42 by 2020. With regard to the supply of LNG, Qatar has been the largest contributor over the past decade, but in this decade, it will be Australia. Other strong prospects for more production are the U.S., Canada and Africa. 40 percent of proposed liquefaction plants are in the U.S., with 17 percent in Canada and 14 percent in Australia. If you added together the capacity of every proposed plant, there would be an over-supply of LNG on the world markets in the mid-2020s. Many of the variables in the LNG market, however, are very difficult to assess, and the prospect of less LNG supply being developed is real. A tight market for exporters could lead to improved returns. For those looking to import LNG, other sources of energy may need to be used to fill the gap. The United States is in a very strong position for more production. Terminals, loading docks and storage tanks that were built for the purpose of importing LNG can be reconfigured for exporting. The US has a strong pipeline infrastructure as well as a solid engineering industry. After years of delay over permits for sale to countries that don’t have a trade agreement with the US, the Department of Energy has recently given approval for four projects in addition to Sabine Pass. Twenty-one other applications are awaiting approval from the Department of Energy. Buyers from Japan, Korea and India have already signed deals to buy US LNG. The demand...

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LNG 101 week nine: Spot Market Pricing and Economics
Dec09

LNG 101 week nine: Spot Market Pricing and Economics

Spot Market: A public financial market in which financial instruments or commodities are traded for immediate delivery. Spot markets can operate wherever the infrastructure exists to conduct a transaction. The LNG spot market began to develop in the 1990s. Extra capacity caused by the start-up of new projects and the expiration of old contracts at existing facilities led to LNG cargo becoming available for purchase on a short-term basis. The use of LNG to meet seasonal demand by countries like Spain and Korea also contributed to the growth of the LNG spot market. Due to the flexibility of the LNG product, the history of its growth in the spot market has been affected by many things including plant shutdowns and natural disasters. Hurricane Katrina and the Fukishima disaster both caused LNG cargoes to be diverted, leading to significant price increases in European gas. LNG spot trading typically takes place when there is extra capacity in the infrastructure (liquefaction, LNG tankers and regasification facilities) and a large number of players buying on the market. The LNG spot market is made up of both short-term deals of less than 1 year (though some participants in the LNG market consider anything less than 4 years a “short-term deal”) and trades that involve only one cargo. The LNG spot market is beginning to take a share of the overall LNG trading market, currently about 20 percent of the total. In 2012, the total volume of LNG traded globally was 223 million tons. Some industry analysts are projecting that short-term LNG trade will increase by 11 percent per year through 2015. Even though there has been significant growth in the LNG spot market, long term contracts still dominate the LNG market since these contracts finance the infrastructure that is required. In the last few years, the main markets where LNG is traded over the spot-market are the United Kingdom and Asian countries like Japan, Korea, Taiwan and China. The main LNG sup­pliers for the market have been Qatar, Australia, Indonesia, Trinidad and Nige­ria. Some multi-national oil companies and investment banks are developing trading houses in places like London and Houston to serve the LNG spot cus­tomers from Europe and Asia.   A snapshot of today’s LNG spot market shows that spot LNG prices are climb­ing in Asia due to strong winter demand from China, Japan and South Korea. China’s LNG imports are increasing rap­idly as several of their new LNG receiving terminals come on line. At the same time, South American demand has decreased. Argentina and Chile are demanding less as they enter into their summer season. A common contract used in the spot market trade is...

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LNG 101 week eight: Buyers and Sellers
Dec02

LNG 101 week eight: Buyers and Sellers

Buying LNG is usually accomplished through a short-, medium- or long-term contract. LNG may be purchased as an “individual cargo” — also called a spot transaction. Buyers and sellers each can handle the shipping of the LNG once a contract is in place. “Free on Board,” or FOB, describes a sale where the buyer arranges for the shipping. CIF, or Cost, Insurance, Freight, describes a transaction where the seller arranges for shipping. DES, or Delivered Ex Ship also describes a transaction where shipping is arranged by the seller. In 2012, there were 27 countries buying LNG. Asian countries bought 70 percent of the total with Europeans buying 20 percent, North and South America at 4 percent each and the Middle East at 2 percent. Projections for 2030 show South America growing to 6 percent, the Middle East to 4 percent and North America dropping to 2 percent. The fastest growth is projected to come from the smallest market — the Middle East and Africa, with Kuwait being the biggest driver. In Asia, Japan is the largest destination for LNG. Buyers include utilities like Tokyo Electric and Tokyo Gas. South Korea is also an active buyer of LNG for companies like Korea Gas Corp. or KOGAS, and manufacturing companies who import LNG for their own use. Chinese companies like PetroChina and Sinopec add to the growing demand for LNG in Asia. While demand for LNG is rising, big supplies are not expected before 2015. Major Australian projects are expected to enter the market in 2014, but most of the new projects, many from North America, are projected to come online in 2015. With a rise in demand of 7 percent a year through 2020 this gap between supply and demand will result in a narrow market. New sellers are slowly emerging. In Russia, the government recently passed legislation that allows LNG exports to Asian markets. LNG exporters in East Africa and the East Mediterranean are scheduled to enter the market before 2018. The complex nature of LNG transactions demands that the buyers and sellers who are negotiating LNG contracts, which are typically long-term, understand every detail of the global LNG market. Understanding methods for determining prices in this fluid market is critical to avoiding wrong sourcing decisions and significant negative financial impacts as well as legal liabilities. In an Oct. 4 Energy Inc article entitled “LNG contract sales are ripe for a Shakeup,” Jason Burner highlights the first LNG Producer-Consumer conference that was held in Tokyo last year. The conference was held to provide Asian LNG buyers an opportunity to lobby for lower prices and more flexible contract terms. A...

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LNG 101 week seven: Role of LNG in world energy supply
Nov25

LNG 101 week seven: Role of LNG in world energy supply

International Energy Outlook 2013 projects that world energy consumption will grow by 56 percent between 2010 and 2040. Much of the growth in energy consumption is projected to occur in countries outside the Organization for Economic Cooperation and Develop­ment known as non-OECD. In these non-OECD countries, demand is driven by strong, long-term economic growth, and is expected to increase by 90 percent. In OECD coun­tries, the increase is predicted to be 17 percent. China accounts for the largest share of the growth in global energy use, with its demand rising 60 percent by 2035, followed by India — where de­mand doubles. A recent headline in Reuters pro­claimed “India’s future lies in liquefied natural gas.” Imports of LNG by India “will soar in the next decade to fuel an expanding economy; pitting India against China and Japan for supplies as its domestic gas output struggles and overland delivery remains a dream.” India’s trillion-dollar economy is already one of world’s largest import­ers of LNG. The rapid increase in LNG demand from Japan will limit the ability of emerg­ing markets such as India to obtain LNG at an affordable price. The extra sup­plies that India needs are more likely to come from Qatar and Australia. Qa­tar already supplies India on long-term contracts. According to a 2012 study done by Wood Mackenzie Ltd., China may need to boost imports of liquefied natural gas by about 80 percent from current contracted volumes to meet their demand for the fuel. The world’s biggest energy user may need to purchase an additional 37 mil­lion metric tons of LNG by 2030 on top of current contracted volumes of 46 mil­lion metric tons. Imports of LNG by China rose 34 percent from 2011 to 2012. Two years after the Fukushima earthquake, Japan’s energy market remains in transition. As the world’s biggest LNG consumer, this has global implications for the LNG market. Only 5 percent of Japan’s nuclear capacity is operational as of January 2013. Power generators have switched to alternative fuels, most notably natu­ral gas. This has intensified global com­petition for LNG, led to cargo diversions from other markets and contributed to rising prices for flexible LNG. So it’s no surprise that fossil fuels are projected to supply almost 80 per­cent of world energy use through 2040. Natural gas is the fastest-growing fossil fuel in the outlook. Global natural gas consumption is expected to increase by almost 2 percent per year. According to the Energy Informa­tion Administration, or EIA, “large‐scale investment in energy‐supply infrastruc­ture is required to replace existing supply capacity and expand to meet growing energy needs. Some industry analysts believe that a cumulative in­vestment of $37...

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LNG 101 week six: terminals: operating & under construction
Nov18

LNG 101 week six: terminals: operating & under construction

As of October 2013, there are 32 on-stream LNG liquefaction plants in the world, with 13 under construction and 17 others planned.  There are 96 on-stream regasification terminals, with 18 under construction and 25 others planned. The global list of regasification terminals in the planning stage has shrunk from an all-time high of 47 to 25 in the last year, as several potential projects have either been suspended or canceled. Liquefaction plants in the planning stage were reduced from 21 to 17 in the same time period. Australia and Malaysia each have three on-stream LNG liquefaction plants. Qatar leads the way with six. Australia is poised to surpass Qatar with seven new plants under construction and six more in the planning phase. New Australian projects have been getting approved at a quick pace. More than $180 billion worth of LNG export projects are now being built, putting the country on track to quadruple its LNG exports by the end of the decade. Upon completion of the $34 billion Ichthys project, Australia is positioned to overtake Qatar as the world’s top exporter of LNG by 2017. Australia’s first LNG project began in 1980 when six major producers united to form the North West Shelf Venture, or NWSV. Located north of Perth, and with capital expenditures of about  $27 billion, the project was commissioned in 1984  for domestic supply, followed in 1989 by the first  shipment  of LNG to Japan. The NWSV project represents Australia’s largest oil and gas resource development and currently accounts for more than 40 percent of Australia’s oil and gas production.     Japan leads the way for on-stream regasification terminals with 28. They also have three under construction and two others in the planning phase. China has six on-stream regasification terminals with eight under construction. The United States has 11 on-stream regasification terminals with none currently under construction and only two in the planning phase. Eleven U.S. projects that were in the planning phase have either been canceled or suspended. In the United States, the Federal Energy Regulatory Commission, or FERC, is responsible for authorizing the location and construction of onshore and near-shore LNG import or export facilities under Section 3 of the Natural Gas Act. The Commission also issues certificates of public convenience and necessity for LNG facilities engaged in interstate natural gas transportation by pipeline. As required by the National Environmental Policy Act, FERC prepares environmental assessments or impact statements for proposed LNG terminals. According to the FERC website, “there are more than 110 LNG facilities operating in the U.S. performing a variety of services. Some facilities export natural gas from the U.S., some...

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LNG 101 week five: Regasification Process and Terminals
Nov12

LNG 101 week five: Regasification Process and Terminals

The LNG chain ends with the unloading, storage and vaporization of the gas in a regasification terminal. Liquefied natural gas is received and offloaded from an LNG carrier into storage tanks ranging in capacity from 100,000 to 160,000 cubic meters. These maintain the gas in the liquid state at minus-163° Celsius. Regasification involves gradually re-warming the liquefied gas until its temperature rises above 0° Celsius. The process takes place at high pressure through a series of evaporators, the most energy-efficient technique when the right water quality is available. In other cases, some of the gas is burned to provide the necessary heat. The gas returns to its original state. In other words, it recovers its gas form and its initial volume, almost 600 times greater. Evaporators of various output volumes, constructions and heating methods are the basic equipment used in the LNG regasification facility. The location, intended use and fuel availability are the main factors considered in selecting the type of evaporators and the LNG regasification facility layout. LNG evaporators are divided into the following groups: Evaporators that heat to a temperature equivalent to the temperature of the surroundings Evaporators that heat to a temperature higher than the temperature of the surroundings Evaporators with direct heating (Photo/Courtesy/Petrobras News Agency – The first Floating Storage and Regasification Unit, or FSRU, was the Golar Spirit, which is chartered by Petrobras and began operating in Brazil in January 2009. A regasification vessel is an LNG carrier with LNG vaporizers onboard and represents a major development for the industry.) On its way out of the terminal, the gas is treated as necessary to meet the specifications of regulators and end-users. For example, its heating value can be modified by adjusting the concentrations of nitrogen, butane or propane or by blending with other gases. The gas is then injected into a gas pipeline connected to a distribution network and, in this way, it reaches the end user, whether household or industrial. One hundred LNG regasification terminals are now operating in 21 countries worldwide, nearly 20 more are under construction, and approximately 30 more have been proposed. The largest receiving and regasification terminal in the world is the Sabine Pass LNG terminal in Cameron Parish, La. The terminal is spread over an 853-acre site. The terminal is owned and operated by Cheniere Energy. The Federal Energy Regulatory Commission, or FERC, approved the project in December 2004. Ground breaking for phase 1 of the terminal took place in March 2005. This phase came on stream in April 2008. The facility can handle 400 LNG vessels a year and features two unloading docks and four dedicated tugs....

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