Energy 21st Century
Energy 21st Century
Energy 21st Century
Environmental law including the pressing considerations of energy law and climate
change is an increasingly important area of legal research and practice. Given the
growing interdependence of global society and the significant steps being made
towards environmental protection and energy efficiency, there are few people
untouched by environmental and energy lawmaking processes.
At the same time, environmental and energy law is at a crossroads. The command
and control methodology that evolved in the 1960s and 1970s for air, land and water
protection may have reached the limit of its environmental protection achievements.
New life needs to be injected into our environmental protection regimes perhaps
through the concept of sustainability in its environmental, economic and social forms.
The same goes for energy policy and law, where liberalisation, environmental protec-
tion and security of supply are at the centre of attention. This important series seeks
to press forward the boundaries of environmental and energy law through innovative
research into environmental and energy law, doctrine and case law. Adopting a wide
interpretation of environmental and energy law, it includes contributions from both
leading and emerging international scholars.
Titles in the series include:
Susan L. Sakmar
University of Houston Law Center and University of
SanFrancisco School of Law, USA
Edward Elgar
Cheltenham, UK Northampton, MA, USA
Susan L. Sakmar 2013
Published by
Edward Elgar Publishing Limited
The Lypiatts
15 Lansdown Road
Cheltenham
Glos GL50 2JA
UK
Introduction 1
Conclusion: the future looks bright for LNG as a fuel for the
21st century 410
Appendices 412
Glossary 463
Index 469
v
Figures
1.1 World natural gas consumption by region, 19802010 5
1.2 World natural gas consumption by region, 19802010 6
1.3 World primary natural gas demand by scenario 18
1.4 Gas demand grows mostly in non-OECD countries, mostly
in Asia 19
1.5 World primary natural gas demand by sector 19
1.6 World primary energy demand by fuel in the GAS
Scenario 23
1.7 Increase in natural gas consumption in the GAS Scenario,
201035 25
1.8 World primary energy demand by fuel and scenario 26
1.9 CO2 emissions in the GAS Scenario relative to the New
Policies Scenario, 2035 28
2.1 LNG value chain 33
2.2 LNG carrier types: membrane design and Moss sphere
design 39
2.3 Conventional and Q-Max LNG tanker size comparison 45
2.4 Example LNG import/regasification terminal process 47
2.5 Integrated project structure 51
2.6 Project company (merchant) structure 52
2.7 Tolling structure 53
3.1 Japans LNG import terminals 61
3.2 South Koreas LNG import terminals 66
3.3 Chinas LNG import terminals 69
3.4 Indias natural gas infrastructure and LNG terminals 71
3.5 LNG terminals in Europe 75
3.6 Existing and proposed North American LNG import
terminals 2006 86
3.7 Existing North American LNG import terminals 2011 89
3.8 33 potential North American LNG export sites 90
4.1 Future global LNG production capacities 96
4.2 Map of Malaysia 100
4.3 Top five Asia-Pacific proven natural gas reserve holders
2010 101
vi
Figures vii
ix
Appendices
A Worldwide liquefaction plants 412
B LNG carrier fleet 424
C Worldwide LNG regasification terminals 442
D Companies with major holdings in LNG and other notable
projects by company 458
E North American LNG import/export terminals
proposed/potential 460
F Applications received by DOE/FE to export domestically
produced LNG from the lower-48 states 461
x
Preface and acknowledgments
This book was written out of a desire to learn as much as possible about
one of the fastest-growing segments of the energy industry liquefied
natural gas (LNG). When I began my research, massive LNG export
projects were underway in the tiny country of Qatar, the US was running
out of natural gas and was widely expected to become one of the worlds
largest importers of LNG, the global financial crisis had not yet hit
markets, and shale gas was not on anyones radar. What a difference a few
years make!
Qatar is now the worlds largest LNG exporter, having reached its
production capacity goal of 77 million tonnes per annum (MTPA). The
US is no longer going to be the worlds largest LNG importer but instead
may become one of the worlds largest LNG exporters thanks to the shale
gas revolution that has swept through that country. While the financial
crisis seems to ebb and flow, the interest in natural gas and LNG remains
persistent with more and more countries turning to LNG to meet growing
energy demand with cleaner burning fuels.
While it is impossible to be an expert on all of the issues involving the
complex LNG industry, my goal in writing this book was to identify as
many as possible of the key opportunities and challenges for LNG in
the coming years with the hope that the book would serve as a useful
reference for others interested in learning more about the dynamic LNG
industry.
I am very grateful to the many experts in the LNG industry that lent
me not only their wisdom and knowledge but also their enthusiastic
support for the book. This includes Mr Warren True, LNG Editor,
Oil & Gas Journal, Mr Albert Nahas, VP International Government
Affairs, Cheniere Energy Inc., Mr Steven Miles, Partner, Baker Botts, Mr
David Wochner, Partner, Sutherland, Mr Jay Copan, Executive Director,
LNG17 and Senior Advisor, American Gas Association, and many others
whom I have met over the years at various LNG related events.
I also thank the numerous organizations that gave me permission to use
their materials for this book, including the International Energy Agency
(IEA), EA Gibson, Zeus Intelligence, ExxonMobil, Shell, Chevron, BP,
Charles River Associates, Poten & Partners Inc., and others.
xi
xii Energy for the 21st century
Susan L. Sakmar
Visiting Assistant Professor
Andrews Kurth Energy Law Scholar
University of Houston Law Center
Abbreviations
API American Petroleum Institute
ASEAN Association of Southeast Asian Nations
BREE Bureau of Resources and Energy Economics
(Australia)
CAAGR compound average annual growth rate
CAFE corporate average fuel economy (standards in the
US)
CAPEX capital expenditures
CBM coal bed methane
CCS carbon capture and storage
CCT clean coal technologies
CH4 methane
CHP combined heat and power (generation)
CNG compressed natural gas
CO carbon monoxide
CO2 carbon dioxide
CO2-eq carbon-dioxide equivalent
COP Conference of the Parties
CSG coal seam gas
CTG coal-to-gas
CTL coal-to-liquids
DOE Department of Energy (United States)
DOI Department of the Interior (United States)
DOT Department of Transportation (United States)
E&P exploration and production
EC European Commission
EGR enhanced gas recovery
EIA Energy Information Administration (United States)
EITs economies in transition: Russia, Former Soviet
Union (FSU) and East & Central Europe (ECE)
EOR enhanced oil recovery
EPA Environmental Protection Agency (United States)
ERU emission reduction units
EU European Union
xiii
xiv Energy for the 21st century
bbl barrel
bbl/d barrels per day
bcf or Bcf billion cubic feet
bcf/d billion cubic feet per day
bcm billion cubic meters
bcm/y billion cubic meters per year
bcma billion cubic meters per annum
cm cubic meter
Gj gigajoule
mb/d million barrels per day
mcm thousand cubic meters
MMBtu million British thermal units
mmcm or MMcm million cubic meters
MMt million tonnes
MMt/y million tonnes per year
MMtpa million tonnes per annum
Mt or MT million tonnes
Mta or MTA million tonnes per annum
Mtoe million tonnes oil equivalent
Mtpa or MTPA million tonnes per annum
Pj petajoule
Tcf trillion cubic feet
tcm trillion cubic meters
Tj terajoule
Abbreviations xvii
This book will generally use the measurements provided in the cited
source, which unfortunately may result in some inconsistency through-
out. For the readers convenience, the following is provided to make the
necessary conversions:
mmcm Multi- 1 0.001 1.00 3106 35.31 3.53 3102 7.35E-04 38800 38.80 3.88 3102 36775
ply by:
Bcm 1000 1 1.00 3103 35313 35.31 0.735 3.88 3107 38800 38.80 3.68 3107
Tcm 1.00 3106 1000 1 3.53 3107 35313 735 3.88 31010 3.88 3107 38800 3.68 31010
mmcf 0.028 2.83 3105 2.83 3108 1 1.00 3103 2.08 3105 1099 1 1.10 3103 1041
Bcf 28.32 0.028 2.83 3105 1000 1 0.021 1.10 3106 1099 1.099 1.04 3106
Mt LNG 1361 1.361 1.36 3103 48045 48.04 1 5.28 3107 52787 52.79 5.00 3107
GJ 2.58 3105 2.58 3108 2.58 31011 9.10 3104 9.10 3107 1.89 3108 1 1.00 3103 1.00 3106 0.948
TJ 0.026 2.58 3105 2.58 3108 0.910 9.10 3104 1.89 3105 1000 1 1.00 3103 948
xviii
PJ 25.77 0.026 2.58 3105 910 0.910 0.019 1.00 3106 1000 1 9.48 3105
MMBtu 2.72 3105 2.72 3108 2.72 31011 9.60 3104 9.60 3107 2.00 3108 1.055 1.06 3103 1.06 3106 1
Notes:
1. To convert 10 Mt of LNG into million cubic meters, multiply by 1361
10Mt LNG = 13610 million cubic meters of gas
2. 1 million cubic meters = 106 3 1.0 cubic meter (m3)
3. 1 billion cubic meters = 109 3 1.0 cubic meter (m3)
4. 1 trillion cubic meters = 1012 3 1.0 cubic meter (m3)
5. 1 gigajoule = 109 3 1.0 joule (J)
6. 1 terajoule = 1012 3 1.0 joule (J)
7. 1 petajoule = 1015 3 1.0 joule (J)
8. 1 British thermal unit = 1055 joules (J)
9. 1 tonne = 103 3 1.0 kilogram (kg) = 2205 pounds (lbs)
Source: Australian Government, Bureau of Resources and Energy Economics (BREE), Gas Market Report July 2012, www.bree.gov.au
Introduction
Policy makers around the globe continue to grapple with issues related
to energy security, energy affordability, and an expected increase in
demand for all energy sources. At the same time, concerns about global
climate change and reducing greenhouse gas emissions remain in focus
as the world struggles to define the path to a sustainable energy future.
Regarding it as an abundant, affordable, and clean-burning fuel, many
countries around the world are increasingly looking to natural gas to
play a key role in powering the future. The prospects for natural gas are
so promising that the International Energy Agency (IEA) has suggested
that the 21st century could be the Golden Age of Gas with demand for
natural gas projected to increase by more than 50 percent from 2010 levels
and account for over 25 percent of the worlds energy supply mix by 2035.
Along with the increased demand for natural gas comes a corresponding
increase in international trade in natural gas, with most of the increased
trade expected to be in the form of liquefied natural gas or LNG. LNG is
natural gas that has been cooled to approximately 161 C, at which point
it condenses to a liquid that can then be shipped via LNG tanker anywhere
in the world. Since the majority of natural gas reserves are located away
from key demand markets, LNG offers an important solution for the
global gas markets in terms of moving natural gas to markets where it is
most needed.
In recent years, the significant increase in interregional LNG trade has
led many to question whether the gas markets were globalizing and
whether LNG would someday trade as a global commodity. Though this
issue will be discussed in more detail in Chapter 6, the general consensus
that seems to have emerged is that while LNG markets are globalizing
in terms of the increase in trade and the number of countries now involved
in LNG trade, LNG is still not likely to become a global commodity
anytime soon for lack of a single pricing structure. Nonetheless, there is
widespread recognition that LNG is the glue linking global gas markets
and, indeed, the Golden Age of Gas would not be possible without LNG.
Energy for the 21st Century explores the growing role of LNG as the
glue linking global gas markets and identifies the key opportunities and
challenges for the LNG industry in the context of a number of competing
1
2 Energy for the 21st century
the role of natural gas and LNG in the 21st century (Chapter 1)
the entire LNG value chain, including a discussion of the lique-
faction process, LNG shipping, the regasification process, and
the complicated world of natural gas and LNG measurements
(Chapter2)
the evolution of LNG markets including the history of LNG and
an overview of the three major LNG markets the Asia-Pacific
LNG market, the European LNG market, and the North American/
Atlantic Basin LNG market (Chapter 3)
a description and overview of key LNG supply projects around the
world (Chapter 4)
the primary markets driving LNG demand around the world
(Chapter 5)
the increased globalization of LNG markets and whether LNG
could someday trade as a global commodity (Chapter 6)
the numerous safety and environmental issues that have been raised
in the context of constructing LNG projects as well as the environ-
mental sustainability of LNG as a fuel for the future (Chapter 7)
Introduction 3
As the world entered the 21st century, policy makers around the globe
were grappling with issues related to energy security, energy poverty,
and an expected increase in future demand for all energy sources. At the
same time, concerns about climate change and reducing greenhouse gas
emissions emerged as primary issues to be addressed in the search for a
sustainable energy future.
Regarding it as a clean-burning fuel, many business and policy leaders
began to look to natural gas to meet growing energy demand using more
environmentally sustainable fuels. As will be discussed in detail in Section
1.5, an important aspect of the increased role of natural gas is the growing
importance of LNG, which offers a critical solution for global gas markets
in terms of moving natural gas from where it is found to key demand
markets. During the first decade of the 21st century, natural gas demand
increased significantly, as did LNGs share in worldwide natural gas trade.1
For example, according to the United States Energy Information
Administration (US EIA), global natural gas consumption doubled
between 1980 and 2010, rising from 53 trillion cubic feet (Tcf) to 113 Tcf.
North America consumed 29 Tcf of natural gas, which accounted for
more than 25 percent of the worlds natural gas consumption (although
the region had the slowest regional growth rate of 29 percent). The Middle
East had the highest growth rate, increasing more than ten-fold from 1.3
Tcf in 1980 to 13.2 Tcf in 2010. (See Figure 1.1.)
discuss natural gas and LNG as two separate fuels but this is a bit misleading, so
at the outset it is important to note that LNG is not a fuel but merely a means of
delivering natural gas. Nonetheless, natural gas and LNG are sometimes referred
to separately since much of the debate about the role of natural gas has been
focused on natural gas in general without a distinction being made as to whether
it is piped gas or LNG. This book starts with a discussion of natural gas in general
and then focuses in particular on LNG.
4
trillion cubic feet
Former Soviet
Europe Union
North America
21 21
29
Asia
19
Middle East
2010 13
Africa
4
5
Central & South
America
Oceania
5
1
trillion cubic feet
North America
30 Former Soviet Union
25
20 Europe
15 Asia
10 Middle East
5 Central & South America
0 Africa
Oceania
1980 1985 1990 1995 2000 2005 2010
Note: Percents on graph represent that regions share of global dry natural gas
consumption in that year. Percents do not sum to 100% for each year because the graph
does not include Oceania, which only accounted for 1% of global consumption each year.
2According to the US EIA, future growth in each region will depend on eco-
nomic growth rates, natural gas production trends, differences in natural gas prices
across regions, and future energy and environmental policies.
3 US EIA, Today in Energy, April 12, 2012, http://www.eia.gov/todayinen-
As the world entered the 21st century, the role of natural gas in the energy
supply mix was anything but clear. As concerns about climate change grew
in the early to mid-2000s, there were a number of competing views regard-
ing the role of natural gas coming from the industry, environmentalists,
and a large group in the middle.
Natural gas is clean Natural gas produces less emissions than any other
fossil fuel and the most advanced combined-cycle gas turbine (CCGT)
power plants emit almost 50 percent less CO2 than coal-fired power plants.
Natural gas is affordable Natural gas power plants have a capital cost of
less than half of the cost of coal, one-third of the cost of nuclear, and one-
fifth of the cost of onshore wind.
Dec. 21, 2009, at 31; see Natural Gas Helps Exxon and Shell Lift Profits, N.Y.
Times, July 30, 2010, at B4.
8Some industry experts have opined that Exxons rush to natural gas is being
driven largely by declining oil reserves and a shrinking access to oil fields around
the world due to geopolitical reasons. Russell Gold and Angel Gonzalez, Exxon
Struggles to Find New Oil, Wall St. J., Feb. 6, 2011.
9The ExxonMobil-XTO Merger: Impact on U.S. Energy Markets: Hearing
Before the Subcomm. on Energy and Envt of the H. Comm. on Energy and
Commerce, 111th Cong. 53 (2010), available at http://energycommerce.house.
gov/Press_111/20100120/transcript_01202010_ee.pdf; Tom Doggett, Exxon-XTO
Merger Draws Scrutiny from Congress, Reuters, Jan. 20, 2010, available at http://
www.reuters.com/article/idUSTRE60J53920100120; see also Russell Gold, Exxon
Can Stop Deal if Drilling Method Is Restricted, Wall St. J., Dec. 17, 2009, at B3.
10 ExxonMobil Announces Completion of All-Stock Transaction for XTO,
13Woodside Media Release, New Look for Woodside, Feb. 4, 2009, http://www.
woodside.com.au/Investors-Media/Announcements/Documents/04.02.2009%20
Media%20Release%20-%20New%20look%20for%20Woodside.pdf.
14 Jorn Madslien and Damian Kahya, Coal-to-Gas Power Shift to Cut Energy
and distributing the final products to end users.15 So, for example, it would
be extremely difficult, absent perhaps significant government interven-
tion, to significantly expand the use of natural gas vehicles without the
support of major energy companies to help provide the huge infrastructure
investments that are needed in terms of refueling stations.
Some prominent groups have taken the view that, at the very least, natural
gas could be a bridge fuel to a renewable energy future. This view
http://www.greenpeace.org/usa/en/news-and-blogs/campaign-blog/natural-gas-
fails-the-sniff-test/blog/35470.
17 Brian Merchant, Incoming: A Glut of Natural Gas is Green Nonsense,
Other prominent groups have focused their attention on the potential for
natural gas to displace coal for power generation. In 2010, researchers at
the Massachusetts Institute of Technology (MIT) released the results of
a two-year study that analyzed the increased use of natural gas in the US
as a short-term substitute for replacing aging coal-fired power plants. The
report acknowledged that US energy and climate policy was in a state of
flux and cautioned that while natural gas is often touted as a bridge
to the future, continuing effort is needed to ensure that the bridge has
a landing point such as the expansion of nuclear power or coal power
generation using carbon capture and storage (CCS) technology to reduce
emissions in the long term. Thus, while the report found that natural gas
is less carbon intensive than coal or oil, when one considers the emissions
reduction levels required by 2050, the emissions from natural gas start to
represent an emissions problem.20
More recently, and in the context of opposition to US LNG exports
(seeChapter 12), it appears that some environmental groups are gearing up
18The US based Center for American Progress offers this summary of natural
gas as a bridge fuel: Natural gas is the cleanest fossil fuel it produces less than
half as much carbon pollution as coal. Recent technology advancements make
affordable the development of unconventional natural gas resources. This creates
an unprecedented opportunity to use gas as a bridge fuel to a 21st-century energy
economy that relies on efficiency, renewable sources, and low-carbon fossil fuels
such as natural gas. John D. Podesta and Timothy E. Wirth, Natural Gas, A
Bridge Fuel for the 21st Century, Center for American Progress, Aug. 10, 2009,
http://www.americanprogress.org/issues/2009/08/bridge_fuel.html.
19Stephen P.A. Brown, Alan J. Krupnick, and Margaret A. Wallis, Natural
edu/mitei/research/studies/report-natural-gas.pdf.
The role of natural gas and LNG in the 21st century 13
to ensure that as coal-fired power plants are retired, they are not replaced
with natural gas power plants. For example, the Sierra Club recently
announced that it is launching a new Beyond Gas campaign that repre-
sents a significant expansion of the groups ongoing efforts against other
major fossil fuels and is modeled after the decade-old Beyond Coal
campaign that sought to phase out coal-fired power plants. According to
the Sierra Club, it will seek to prevent new gas plants from being built
wherever we can.21
In the midst of the debate over the role of natural gas in the future energy
supply mix, the global economic crisis hit and between 2008 and 2009,
demand for all forms of energy dropped. Demand for natural gas in par-
ticular plummeted. At the same time, however, an enormous expansion
of gas supply was underway in terms of unconventional or shale gas and
LNG. Also in flux was the outcome of climate change negotiations and
commitments and their potential impact on world energy markets. All of
these issues created unprecedented uncertainty in world energy markets in
the late 2000s.
In its World Energy Outlook 2009, the International Energy Agency
(IEA) noted that the challenges were urgent and daunting and that how
governments rise to the challenge will have far-reaching consequences
for energy markets.22 In particular, the IEA noted the upcoming climate
change talks to be held in Copenhagen, Denmark, December 718, 2009
(COP15) and questioned whether leaders would agree to a successor treaty
to the Kyoto Protocol that would put the world on a sustainable energy
path.
In terms of demand for natural gas, the IEA noted that, under any
scenario, worldwide demand for natural gas was projected to grow in light
of constraints under which low-carbon technologies can be deployed. The
pace of that demand growth, however, hinges critically on the strength of
climate policy action.23 Over the long term, the IEA projected that more
stringent policy actions might favor efficiency and low-carbon technolo-
gies, thereby reducing natural gas demand.
As the world became mired in economic problems towards the end of
2009, it became increasingly unlikely that world leaders would reach an
agreement on a successor treaty to Kyoto at COP15. Ultimately, and
just prior to the COP15 conference in Denmark, it was announced that
President Obama and other world leaders have decided to put off the dif-
ficult task of reaching a climate change agreement ... agreeing instead to
make it the mission of the Copenhagen conference to reach a less specific
politically binding agreement that would punt the most difficult issues
into the future.24
The result of COP15 was a political accord known as the Copenhagen
Accord25 which was negotiated by only a subset of the parties, including
the US and China. Since this was not negotiated within the United Nations
Framework Convention on Climate Change (UNFCCC)26 process, it
was only noted by the COP, which left unclear which governments
supported the Accord and the legal and operational significance of the
Accord.27 Needless to say, leading into 2010, global energy markets were
in a state of flux with energy and climate change policy in most countries
uncertain.
By early 2010, the world appeared to be emerging from the worst of the
economic crisis and demand for energy resumed its pre-recession upward
trajectory.28 Also starting in 2010 was the growing recognition that regard-
unfccc.int/resource/docs/2009/cop15/eng/11a01.pdf#page54.
26There is a wealth of information and publications about climate change and
the climate change conferences and a detailed discussion is beyond the scope of this
book. Information on the UNFCCC and the status of climate change discussions
can be found at http://unfccc.int/2860.php.
27 Jacob Werksmen, Associating with the Copenhagen Accord: What Does
less of the divergent views about natural gas, it would play a greater role
in the worlds future energy mix for a variety of reasons including demand
growth, environmental benefits over other fossil fuels, and energy security.
Another reason for the growing importance of natural gas was that in the
face of continuing global economic challenges, with most governments
facing huge budget deficits, it seemed unlikely that governments, industry
and the private sector would make the trillions of dollars investment
needed for renewables. According to the IEA, approximately $18 trillion
(in year 2009 dollars) of additional spending is needed on low-carbon
energy technologies.29
In November 2010, the IEA issued its annual World Energy Outlook
(IEA WEO-2010), which explicitly highlighted the increased role that
natural gas would play in the 21st century. In the WEO-2010, the IEA
raised the question Are we entering the golden age of gas? and noted
that while this may be an exaggeration, natural gas was certainly set to
play a central role in meeting the worlds energy needs for at least the next
two-and-a-half decades.30
In the WEO-2010, the IEA acknowledged at the outset that while the
pace of the global economic recovery was key to energy prospects in
the near term, it is how governments respond to the twin challenges of
climate change and energy security that will shape the future of energy
in the longer term.31 The IEA went on to present several policy scenarios
that differed according to the level of commitment to these challenges.32
The Current Policies Scenario assumes that no policy commitments
to meet climate change goals are acted upon. The New Policies Scenario
takes account of the broad policy commitments and plans that have been
announced by countries around the world, including national pledges to
reduce greenhouse gas emissions and phase out fossil energy subsidies, and
assumes that governments will actually implement the policies and meas-
ures to meet the set goals. The 450 Scenario, which was first presented in
the IEA WEO-2008, sets out an energy pathway consistent with the goal
of reducing greenhouse gas emissions to around 450 parts per million of
years remains uncertain, amid fears of a double-dip recession and burgeoning gov-
ernment deficits. Despite this uncertainty, history has shown that while economic
forces may lead to ups and downs in terms of energy demand, over the long term,
future energy demand is projected to grow and, along with it, the role of natural
gas and LNG in the global energy mix. This book takes this long-term view.
29IEA WEO-2010 at pp.379416.
30IEA WEO-2010 at pp.17980.
31IEA WEO-2010 at pp.45, 789.
32IEA WEO-2010 at p.79.
16 Energy for the 21st century
In the New Policies Scenario, the IEA assumed that world economic
growth averages 3.2 percent per year between 2008 and 2035 with non-
OECD countries showing the highest growth.35 World primary energy
demand increases by 36 percent between 2008 and 2035, or 1.5 percent
per year on average, with non-OECD countries accounting for 93 percent
of the projected increase in world primary energy demand, reflecting
growth of economic activity, industrial production, population36 and
urbanization.37
In particular, the IEA noted that it is hard to overstate the growing
importance of China in global energy markets.38 In 2009, China overtook
the United States to become the worlds largest energy user. Between 2000
and 2008, Chinas energy consumption was more than four times greater
than the prior decade and contributed to 36 percent of the growth in
global energy use. Even greater growth is projected in the coming decades
given that Chinas per capita energy consumption level remains low com-
pared to the OECD average and that China, with 1.3 billion people, is the
33The IEA devoted much of the discussion in the WEO-2010 to the 450
Scenario, since, in the years prior, policy leaders had expressed willingness to
try to reduce emissions sufficiently to limit the global increase in temperature to
2C. Since that scenario seems unlikely, a detailed discussion of it is beyond the
scope of this book. See IEA, Latest Information, Prospect of Limiting the Global
Increase in Temperature to 2 is Getting Bleaker, May 30, 2011, http://www.iea.org/
index_info.asp?id51959
34IEA WEO-2010 at pp.6062.
35IEA WEO-2010 at p.68.
36The IEA notes that population growth is an important driver of energy
use. World population is projected to grow by 0.9% per year on average, from an
estimated 6.8 billion in 2008 to 8.5 billion in 2035. IEA WEO-2010 at p.64.
37IEA WEO-2010 at pp.814.
38IEA WEO-2010 at p.47.
The role of natural gas and LNG in the 21st century 17
In terms of gas demand and trends, the IEA WEO-2010 New Policies
Scenario highlighted the fact that natural gas is set to play a key role in
meeting the worlds growing energy needs over the next 25 years.41 Under
each of the three policy scenarios, natural gas is the only fossil fuel for
which demand is higher in 2035 than in 2008, although it grows at different
rates depending on the scenario (Figure 1.3). In the New Policies Scenario,
demand reaches 4.5 trillion cubic metres (tcm) in 2035 an increase of 1.4
tcm, or 44 percent over 2008 and an average rate of increase of 1.4 percent
per year.42
Non-OECD countries are the key drivers of demand growth and
account for almost 80 percent of the growth in gas demand to 2035, pri-
marily because non-OECD economies and population grow much faster
and therefore require more energy use. Chinas demand grows the fastest
at an average rate of almost 6 percent per year and accounts for more than
one-fifth of the increase in global demand to 2035.43 The potential for
Chinese gas demand to grow even faster depending on whether coal use is
restricted for environmental reasons led the IEA to note that China could
lead us into a golden age for gas.44
5,000
4,000
bcm
3,000
2,500
2,000
1,500
1,000
500
0
2000 2008 2015 2020 2025 2030 2035
Source: IEA Medium-Term Oil and Gas Markets 2010 OECD/IEA 2010
2008
Power generation 2035
Buildings
Industry
Non-energy use
Other*
to be the main choice for new power plants in many regions for several
reasons. In non-OECD countries, electricity demand is rising rapidly and
natural gas fired power plants are easier, less costly and quicker to build
than other forms of power generation plants. In OECD countries, natural
gas fired power is competitive with coal due to proposed CO2 prices and
policies, which are assumed to be implemented.49
Natural gas demand for power generation is lower for those countries
with more support for renewables. The use of renewables, including hydro,
wind, solar, geothermal, modern biomass and marine energy, triples over
the period to 2035 and its share in total primary energy demand increases
from 7 percent to 14 percent. Nuclear power increases from 6 percent in
2008 to 8 percent in 2035. The IEA cautioned, however, that the future
of renewables hinges critically on strong government support and that
the need for such support will increase if natural gas prices are lower
than assumed since low natural gas prices will displace more expensive
renewables.
The IEA noted that government support for renewables could be justi-
fied by the long-term economic, energy-security and environmental ben-
efits renewables can bring but cautioned that attention needs to be given
to the cost-effectiveness of support mechanisms.
Nearly all new gas consumption from natural gas used in vehicles is from
compressed natural gas (CNG). Non-OECD Asia, Latin America and
North America are responsible for the majority of the increase in demand.
The greatest potential may be in North America due to low natural gas
prices driven by increased production of shale gas. The scope of demand
for natural gas in the transportation sector depends on the future market
penetration of natural gas vehicles (NGVs), which today comprise a very
small share of the world car fleet (less than 1 percent) and face significant
infrastructure hurdles. The greatest potential seems to be with heavy-duty
vehicles that are primarily used in fleets and thus face less infrastructure
costs.51
In early 2011, several significant events transpired which called into ques-
tion some of the key assumptions in the WEO-2010. As a result of the
potential cumulative impact of these events, on June 6, 2011, the IEA
released a Special Report titled Are We Entering a Golden Age of Gas?
(IEA Golden Age Report), which presents a new natural gas focused
scenario (GAS Scenario).56
The GAS Scenario takes the IEAs WEO-2010 New Policies Scenario
as the starting point but incorporates recent assumptions about policy,
prices and other drivers that affect gas demand and supply prospects
over the coming decades.57 Under the new GAS Scenario, global use of
natural gas rises by more than 50 percent from 2010 levels with global
5,000
4,000 Oil
Gas
3,000 Coal
Mtoe
Biomass
Nuclear
2,000
Other
renewables
1,000 Hydro
0
1980 1990 2000 2010 2020 2030 2035
Source: IEA Golden Age Report, OECD/IEA 2011, Fig. 1.1, p.19
Figure 1.6 World primary energy demand by fuel in the GAS Scenario
gas demand increasing nearly 2 percent per year.58 Natural gas sees the
strongest demand growth of all energy sources in the GAS Scenario and
overtakes coal before 2030 (see Figure 1.6). By 2035, natural gas comprises
25 percent of the worlds fuel mix.59
As in the IEA WEO-2010, the GAS Scenario highlights that the largest
sector for gas demand continues to be power generation, which along with
the industry sector experiences the largest increase compared to the New
Policies Scenario.60 At the outset, the IEA noted that since the IEA WEO-
2010 was issued, more recent developments had created considerable
opportunities for greater future use of natural gas globally, depending on
the interaction between economic and environmental factors and various
policy interventions in the market. The report analyzes the key factors that
could result in a more prominent role for natural gas in the global energy
mix as well as the implications for other fuels, energy security and climate
change.
In the Golden Age Report, the IEA indicated that several factors arose
in early 2011 that point to a future in which natural gas plays a greater role
in the global energy mix. These factors, which will be addressed in detail
below, include: (1) increased demand from China as set forth in Chinas
12th Five-Year Plan; (2) lower growth of nuclear power as a result of the
China
OECD total
Middle East
India
Latin America
Russia
Africa
Energy Agency (IAEA) that an earthquake and tsunami had struck Japan, result-
ing in damage to Japans Fukushima Daiichi nuclear power plant. Flooding
caused by the tsunami disabled diesel generators intended to provide back-up
electricity to the plants cooling system and Japanese officials declared a nuclear
emergency situation. IAEA, Fukushima Nuclear Accident Update Log, March 11,
2011, http://www.iaea.org/newscenter/news/2011/fukushima110311.html.
66 For example, on May 30, 2011, Germany announced that it would phase
out all of its nuclear power plants by 2022. The announcement followed mass
anti-nuclear protests in Germany in response to Japans nuclear crisis. BBC News
Europe, Germany: Nuclear Power Plants to Close by 2022, May 30, 2011, http://
www.bbc.co.uk/news/world-europe-13592208.
67IEA GAS Scenario at p.20.
26 Energy for the 21st century
5,000
2008
2035 New Policies
Scenario, WEO-2010
4,000
2035 GAS Scenario
3,000
Mtoe
2,000
1,000
0
Oil Gas Coal Renewables Nuclear
Source: IEA Golden Age Report, OECD/IEA 2011, Fig. 1.2, p.20
This lost nuclear power generation will most likely be replaced by gas-fired
power generation, leading to an increase in natural gas demand.68 As will
be discussed in more detail in Chapter 3, Japans nuclear crisis has rever-
berated through the LNG markets, as Japan has had to import record
amounts of LNG to make up for the nuclear power lost in the wake of
the crisis. Japans imports of LNG for April 2011 were 23 percent higher
than for April 2010 and many analysts assume this elevated demand will
continue through 201112. Analysts also assume that Japans increased
use will absorb any excess supply of LNG and may possibly even lead to
a global LNG shortage, which will drive up LNG prices in other markets,
most notably Europe.69
68The IEA has cautioned that Germanys moratorium on nuclear power gen-
eration adds around 25 million metric tons a year to the countrys carbon dioxide
emissions, which will have to be offset elsewhere by replacing coal-fired power
with cleaner gas-burning plants. James Herron, IEA Warns on Impact of German
Nuclear Halt, Wall. St. J., May 27, 2011, http://online.wsj.com/article/SB10001424
052702304520804576348943486991956.html.
69 James Herron, Japan LNG Imports Surge, Supporting Global Prices,
Table 1.1Natural gas import price assumptions by scenario (in year 2009
dollars per MBtu)
to Increase After Quake Hits Energy Infrastructure, LNG World News, March 12,
2011, http://www.lngworldnews.com/japan-lng-imports-to-increase-after-quake-
hits-energy-infrastructure/; Japanese Utilities Prepare to Step Up LNG Imports to
Meet Summer Electricity Demand, IHS Global Insight, June 10, 2011, http://www.
ihs.com/products/global-insight/industry-economic-report.aspx?ID51065929775.
70GAS Scenario at p.16.
71IEA Golden Age Report at p.17.
28 Energy for the 21st century
36.5
Increase due to:
Higher energy demand
36.0 Less nuclear
Less renewables
35.5 Reduction due to:
Substitution of coal and
Gt
oil by gas
35.0
34.5
34.0
New GAS
Policies Scenario Scenario
Source: IEA Golden Age Report, OECD/IEA 2011, Fig. 1.16, p.38
1.5.2 Climate Change and the Role of Natural Gas in the GAS Scenario
intensive fuels such as coal and oil, in the absence of a global cap on
CO2 emissions low natural gas prices may also displace more expensive
low-carbon fuels such as nuclear and renewables.75 As a result, the IEA
specifically notes that an increased share of natural gas in the global
energy mix is not enough on its own to put the world on a carbon
emissions path consistent with an average global temperature rise of no
more than 2 C. To meet this target, there needs to be a greater shift to
low-carbon energy sources, increased efficiency, and new technologies
such as CCS.
The GAS Scenario assumes that governments will continue to provide
regulatory and financial support for renewables (the WEO-2010 estimated
$57 billion of support for renewables and biofuels) but notes that lower
gas prices may put pressure on some governments to review their policies
and level of support.76 Thus, it remains to be seen whether there will be
any net benefit from an increase in natural gas use over other more carbon
intensive fuels such as coal and oil.
demand of more than 50%, accounting for 25% of world energy demand by 2035,
was surely a prospect to designate the Golden Age of Gas. Ibid.
30 Energy for the 21st century
The Golden Age of Gas would not be possible were it not for liquefied
natural gas LNG. Most natural gas is consumed in the same region in
which it is produced due to the costs and impracticalities of transporting
natural gas via pipeline over long distances. LNG is natural gas that has
been cooled to approximately 161 C, at which point it condenses to
a liquid that occupies approximately 1/600th of the volume of natural
gas, thereby allowing it to be shipped via LNG tanker or stored.78 Of
primary significance is the fact that LNG provides a sea-borne solu-
tion to the impracticality of serving distant natural gas markets via
pipeline or for exploiting otherwise stranded gas reserves.79 Since the
majority of the worlds natural gas reserves are located far away from
key demand markets, LNG offers an important solution for the global
gas markets in terms of moving natural gas to markets where it is most
needed.
Between 2002 and 2007, global LNG trade expanded by around 50
percent, followed by almost no growth in 200809 due to upstream issues
in producing countries and the fall in demand due to the global economic
recession.80 Trade in LNG resumed its upward trajectory in 2010 as
the global economy showed signs it was coming out of the recession.
According to recent IEA projections, international trade in natural gas
is set to grow significantly in the coming decades, with more than half
of that growth in the form of LNG.81 The significant increase in LNG
trade, particularly between the historically distinct regions, has led many
to question in recent years whether the gas markets are globalizing.82
While this issue will be discussed in more detail in Chapter 6, the general
consensus that seems to have emerged is that while the gas markets are
globalizing, they are not yet globalized since approximately two-thirds
168.
81IEA WEO-2010 at p.192.
82IEA MTOGM 2010 at pp.158, 168.
The role of natural gas and LNG in the 21st century 31
of global gas is still consumed in the country where it is produced and also
because there is not yet a single pricing structure for LNG.83 Nonetheless,
there is widespread recognition that LNG is the glue linking global gas
markets.84
The intense interest and growth in LNG trade over the past decade war-
rants a brief discussion of the entire LNG value or supply chain since the
LNG boom has affected every aspect of the business. In the past decade,
the pressure on the LNG industry to successfully navigate the numerous
operational, commercial and environmental issues related to the LNG
value chain has been incredibly intense. On the construction end, there
was intense pressure on the industry to construct new LNG infrastructure
to meet rising demand.
The demand for new liquefaction and regasification facilities led to con-
straints in engineering services and bottlenecks of delivery of certain equip-
ment such as cryogenic storage. The intense demand affected the cost and
schedule of construction and operations and many in the industry com-
plained of skyrocketing costs and equipment delays. Nonetheless, during
this time period, liquefaction capacity witnessed significant growth, as did
the number of receiving terminals in construction, expansion projects and
proposals.
As demand for LNG grew, so too did the number of players seeking to
enter the fast-growing LNG market. The growth led to a more competitive
global LNG market, which in turn drove companies to seek cost savings
and efficiencies along the entire value chain.
The LNG value chain comprises a complex set of activities, all of which
are capital intensive and require specialized knowledge in order to execute
successfully.1 The LNG value chain begins with the drilling and produc-
tion of natural gas from subsurface gas reservoirs usually offshore. The
natural gas is then piped from the offshore platform to an onshore treat-
there must be unwavering focus on: strong partnerships; long-term vision; tech-
nological innovation; extraordinary fiscal investments, safety and environmental
leadership; significant experience in developing and operating each link of the
value chain; technical discipline; project execution and operational excellence; and
detailed knowledge of the market. ExxonMobil, LNG Fueling the Future, http://
www.exxonmobil.com/corporate/files/corporate/LNG_Brochure.pdf.
32
The LNG value chain 33
Gas treatment
Raw Storage LNG Sea transport LNG Storage Regasification Sales
gas of
Liquefaction
feed gas
Condensate LPG/ethane
ment plant, which removes impurities and liquids. The next step is LNG
liquefaction, where the natural gas is condensed into a liquid at atmos-
pheric pressure by cooling it to 162 C (260 F). After liquefaction, the
LNG is transported on special LNG carriers (ships) to the regasification
terminal, where it is warmed back to its gaseous state and fed into natural
gas pipelines for ultimate distribution to consumers. (See Figure 2.1.) The
three main stages of the LNG value chain liquefaction, shipping and
regasification are discussed in more detail below.
2.2LIQUEFACTION
Extracting the natural gas from the ground is the first step in the LNG
value chain. The gas supply that comes from the production field is called
feed gas and the feed gas is first sent to the onshore processing plant2
for treatment prior to liquefaction. It is important to note that raw natural
gas has to be purified before it is suitable for use by consumers. While the
natural gas used by consumers is almost entirely methane, natural gas is
associated with a variety of other compounds and gases such as ethane,
propane, butane,3 carbon dioxide, and sulfur, as well as oil, water, and
Once the impurities and liquids are removed, the natural gas is ready to
be liquefied at the liquefaction plant the heart of the LNG project
and the largest single investment in the LNG value/process chain.7
Challenges in the LNG Industry (Jan. 2007), KBR, Liquefied Natural Gas
(LNG) Publications, http://www.kbr.com/Newsroom/Publications/Technical-Papers/
Natural-Gas-Specification-Challenges-in-the-LNG-Industry.pdf. KBR has led
the study, design and construction of many of the worlds LNG facilities since
1976 and has also achieved many LNG firsts along the way including the first fully
modular LNG plant design in Western Australia, the first liquefaction train, and
the first large-scale gas turbine plant. www.kbr.com.
7Michael D. Tusiani & Gordon Shearer, LNG: A Nontechnical Guide 71
(PennWell 2007). In the later part of the 20th century, the estimated cost to build a
large liquefaction plant of around 8 Mtpa was approximately $1.52.0 billion. Costs
began to escalate in the mid- to late 2000s due to the rising cost of materials and
limited number of EPC contractors. Ibid. at 80. As discussed in detail in Chapters 11
The LNG value chain 35
and 12, Chenieres total expected costs (before financing) to build the first phase of
its proposed LNG export facilities, which includes two liquefaction trains capable
of producing 9.0 Mtpa, is $4.55.0 billion. The total contract price of the engineer-
ing, procurement, and construction (EPC) contract with Bechtel is $3.9 billion.
Cheniere Energy Partners, Press Release, Cheniere Partners Enters into Lump Sum
Turnkey Contract with Bechtel (Nov. 14, 2011), available at http://phx.corporate-ir.
net/phoenix.zhtml?c5207560&p5irol-newsArticle&ID51629831&highlight5.
8Liquefaction also permits the storage of natural gas for use during high
demand periods in areas where underground storage facilities are not feasible and
plays an important role in markets where peakshaving occurs. Peakshaving
is used by utility companies that typically liquefy natural gas when it is abundant
and available at off-peak prices and later, during peak demand periods, the
stored LNG is converted back to its gaseous state for use. Michelle Michot Foss,
Introduction to LNG, Centre for Energy Economics, University of Texas at Austin
(2007) at pp.78, available at www.beg.utexas.edu/energyecon/lng.
9Michael D. Tusiani and Gordon Shearer, LNG: A Nontechnical Guide
71 (PennWell 2007).
10 Bob Shively, John Ferrare, and Belinda Petty, Understanding Todays
train for the compressor that pressurizes the refrigerant. Most of the early
liquefaction plants were built using steam turbines but since the late 1980s
most LNG facilities have been constructed using gas turbines.11
Compressor sizing, layout, and liquefaction process are dependent on
the specific design for the facility. The two main liquefaction processes
used worldwide are the APCI MCR (Air Products and Chemicals, Inc.
Multi-Component Refrigerant) process and the ConocoPhillips Optimized
Cascade process. The processes differ by the type of refrigerant used and
the design of the cooling stages. Since each process is proprietary, the
decision to use one or the other ties the LNG plant owner to a specific
technology license for the life of the plant.12
Over 80 percent of the liquefaction plants worldwide use the APCI
MCR process, which uses pre-cooling with propane followed by final
cooling with the proprietary refrigerant.13 For Qatars massive LNG
projects, ExxonMobil and Qatar Petroleum first used a variation called
the APCI AP-X process at the two-train 15.6 MMtpa Qatargas II project.
The same design was repeated for all the 7.8 MMtpa mega trains used in
Qatar.14
The Snohvit LNG plant in Norway uses a new process developed by
Linde/Statoil called the Mixed Fluid Cascade (MFC) process, comprising
three refrigeration cycles in a series. The novel project design also uses
electrically driven compressors and seawater for cooling. Another feature
is that carbon dioxide present in the feed gas is removed and re-injected
underground.15
The Sakhalin project in Russia is using the Shell Dual Mixed
Refrigerant (DMR) process. This novel process uses two mixed refrig-
erant cycles in series and the process is air-cooled for process and
environmental reasons. The Shell DMR process can be used in a range
of temperature environments and was particularly suited to Sakhalins
sub-arctic environment.16
After the liquefaction process, the LNG is then stored at subzero tem-
peratures in insulated tanks until it is loaded onto LNG carriers ready to
be shipped to the designated destination.
able at http://www.igu.org.
15Ibid.
16Ibid. at p.19.
The LNG value chain 37
During the past decade, the pace of growth in the global LNG industry
has been remarkable in terms of the liquefaction capacity added world-
wide. LNG liquefaction capacity during this time frame has almost
doubled with new liquefaction capacity added at an average annual rate of
10 percent during 20062010 compared to an average of 5 percent during
19902000.17
As of the end of 2011, there were 25 liquefaction facilities in operation
in 18 countries around the world.18 In terms of LNG capacity, at the end
of 2011, there were 95 liquefaction trains in operation with total global
liquefaction capacity of 278.7 MMtpa, compared to 171.4 MMtpa at the
end of 2005.19 Appendix A provides a listing of all LNG liquefaction
terminals worldwide, including those under construction, approved and in
the permitting stage.
In terms of liquefaction capacity by country, since 2005, five countries
have commissioned new LNG plants Equatorial Guinea, Norway, Peru,
Russia and Yemen. Another seven countries expanded existing liquefaction
capacity: Australia, Egypt, Indonesia, Malaysia, Nigeria, Oman and Qatar.
Historically, Indonesia was the largest LNG producer but in recent
years Qatar has been the driving force behind liquefaction capacity
growth. Over the next decade, Australias liquefaction capacity is set to
grow significantly and the majority of the remaining LNG projects under
construction are located in Australia.20
2.3LNG SHIPPING
Once the natural gas is liquefied, it is ready to be transported via special-
ized LNG ships/carriers to the regasification facility. LNG carriers are
double-hulled ships specially designed to contain the LNG cargo at or
near atmospheric pressure at a cryogenic temperature of approximately
162 C (259 F).21
17Ibid. at p.14.
18IGU World LNG Report 2011 at p.20.
19Ibid.
20Ibid.at p.22.
21LNG can also be transported via special double-skinned tank trucks where
the liquefaction plant is close to the regasification facility. LNG is regularly
transported by tank truck in several countries including Australia, Belgium,
Brazil, China, Germany, Japan, Korea, Norway, Portugal, Turkey, the UK and
38 Energy for the 21st century
Country MMtpa
Qatar 77.0
Indonesia 34.1
Malaysia 25.0
Nigeria 21.9
Australia 19.9
Algeria 18.4
Trinidad 15.5
Egypt 12.2
Oman 10.8
Russia 9.6
Brunei 7.2
Yemen 6.7
UAE 5.8
Norway 4.5
Peru 4.5
Equatorial Guinea 3.7
US 1.3
Libya 0.7
Total capacity 278.7
LNG shipping and carriers play a critical role in the value chain since
shipping is often the only option to connect producers of LNG with
buyers or consumers of LNG. For example, Qatar, the biggest LNG sup-
plier, is about 5,000 miles away from Japan, the largest consumer of LNG.
This distance makes shipping Qatari LNG to Japan the only viable option.
While there is often discussion of pipeline gas competing with LNG (gas
on gas competition), in reality, both sources usually serve different
purposes with LNG often being the only viable option. For example, one
expert has opined that all of the planned pipeline projects into Europe
combined would not be enough to meet anticipated demand, making the
importation of LNG into Europe a necessity.22 Moreover, constructing
the US. See GIIGNL, Information Paper No. 2 The LNG Process Chain, at
pp.34.
22Moming Zhou and Alistar Holloway, LNG-Tanker Rates Doubling as
Figure 2.2LNG carrier types: membrane design (top) and Moss sphere
design (bottom)
org.
40 Energy for the 21st century
pass under most bridges, making more ports accessible.24 In addition, the
newer membrane ships are being built to meet the highest international
standards with sophisticated onboard monitoring and control features for
safely receiving, transporting and discharging the LNG.
In compliance with guidelines from the International Gas Codes (IGC),
the containment tanks on LNG ships have layers of insulation that isolate
the LNG cargo from the hull by ensuring that there is a minimum distance
from the sides and bottom of the hull. The insulation system serves to
isolate the cargo in the event of grounding or collision and also limits
the amount of LNG that boils off or evaporates during the voyage. On
many LNG vessels, the boil-off gas is used to supplement fuel during the
voyage.25
In addition to various design regulations, there are stringent interna-
tional regulations governing the construction and operation of LNG car-
riers at sea and at port. The International Maritime Organization (IMO)
is the United Nations agency responsible for adopting and updating
international treaties (conventions) for shipping safety and security. The
IMO has adopted approximately 40 conventions and protocols including
the International Code for the Construction and Equipment of Ships
Carrying Liquefied Gases in Bulk (IMO Gas Code) and the International
Maritime Dangerous Goods (IMDG) Code.26
In recent years, the IMO has been working on new guidelines to reduce
greenhouse gas emissions from ships with the aim of building a binding
international regime for adoption.27 This is discussed in more detail in
Chapter 12.
liveassets/bp_internet/globalbp/STAGING/global_assets/downloads/B/BPM_05
two_wave.pdf. For example, three of BPs current LNG fleet the British
Trader,British Innovator and British Merchant are all dual membrane type LNG
tankers.
25GIIGNL, Information Paper No. 2 The LNG Process Chain, at p.3.
26Ibid.
27 United Nations Conference on Trade and Development (UNCTAD),
Shipping is one of the most significant industries in the world and is vital
to the global economy since more than 80 percent of international trade
in goods is carried by sea.28 The ownership and subsequent management
chain of any ship often comprise many countries and nationalities, with
the economic and physical life of a ship spent moving between many dif-
ferent jurisdictions. As such, another important aspect of LNG shipping
pertains to ship registration.
The registration of ships is a time-honored practice that historically was
a means of controlling ships entitled to carry cargoes within the maritime
empires of Europe. Today, registration confers nationality on a ship and
brings it within the jurisdiction of the law of the flag State.29 The flag
state establishes rules and requirements for ships that fly its flag and also
has the primary responsibility for ensuring that registered flag state vessels
meet all national and international laws and regulations.
Since the 1980s, open registries have represented more than 50 percent
of the world shipping markets. Established after World War II to eliminate
barriers to free trade, open registry offers registration to shipowners from
all nationalities and provides political neutrality. One of the largest open
registries in the world is the Marshall Islands Registry, which is administered
by International Registries, Inc. (IRI), through a legislatively endorsed joint
venture with the Government of the Republic of the Marshall Islands.30
The Republic of the Marshall Islands maintains a comprehensive legislative
and regulatory framework that ensures the Registrys full compliance with
international conventions and the regulations of the IMO.31
The Marshall Islands ship registry is the third-largest open registry in
the world, surpassing the 70 million gross ton mark in the first half of
2011.32 Vessel types include oil tankers, bulk carriers, mobile offshore
en/docs/.pdf.
29International Registries, Inc. (IRI), Corporate Brochure, available at www.
register-iri.com.
30The Republic of the Marshall Islands is located midway between Hawaii
and the Philippines and is the easternmost island group in Micronesia. The
Republic of the Marshall Islands gained its independence in 1986 after ending
a UNUS Trusteeship Agreement by signing a Compact of Free Association
(Compact) with the United States. Under the Compact, the Republic of the
Marshall Islands is fully sovereign in domestic and foreign affairs, but gives
responsibility for its defense to the US.
31IRI, Corporate Brochure, available at www.register-iri.com.
32According to UNCTAD, the largest flag of registration country continues
42 Energy for the 21st century
The year 2009 was a major milestone for the LNG shipping industry with
several significant events occurring. The first was the celebration of the
to be Panama with 274 million dwt (dead weight tonnage), followed by Liberia
(124 dwt) and the Marshall Islands (68 dwt). UNCTAD, Review of Maritime
Transport 2009, Chapter 2, available at http://www.unctad.org/en/docs/rmt
2009ch2_en.pdf.
33IRI, Corporate Brochure, www.register-iri.com.
34 UNCTAD, Review of Maritime Transport 2009, Chapter 2, http://www.
unctad.org/en/docs/rmt2009ch2_en.pdf.
35According to UNCTAD, shipyards in Korea, and to a lesser extent,
China and Japan, build most LNG carriers. UNCTAD, Review of Maritime
Transport 2010, http://www.unctad.org/en/docs/rmt2010ch4_en.pdf. The worlds
three largest shipyards, Hyundai Heavy Industries, Co., Daewoo Shipbuilding
& Marine Engineering Co. and Samsung Heavy Industries, are located in
South Korea. Kyunghee Park, Korea Shipyards LNG Skill Beats China Bulk
Focus Freight, Businessweek, Sept. 30, 2011, http://www.businessweek.com/
news/2011-0 9-3 0/korea-s hipyards-l ng-s kill-b eats-c hina-b ulk-f ocus-f reight.
html. In 2008, it was announced that South Koreas three major shipbuild-
ers, Hyundai, Samsung and Daewoo, would construct the massive $16B
order to build 54 new ships for Qatar. Most of the new ships were the
new, larger LNG carriers 31 Q-Flex category 14 are Q-Max and 9 con-
ventional carriers. John Pratap, South Korea Building 54 Ships for Qatar,
Gulf Times, Feb. 24, 2008, http://www.gulftimes.com/site/topics/article.
asp?cu_no52&item_no5203504&version51&template_id557&parent_id556.
36The Marshall Islands Registry, Press Release, Japanese-Owned Qatar LNG
Vessels to Register with The Marshall Islands, April 8, 2008, available at http://www.
register-iri.com/forms/upload/JAPANESE-OWNED%20QATAR%20LNG%20
VESSELS%20TO%20REGISTER%20WITH%20THE%20MARSHALL%20
ISLANDS%208%20April%202008.pdf#search5lng.
The LNG value chain 43
50th anniversary of the worlds first LNG shipment, which took place
on January 28, 1959, when the Methane Pioneer carried LNG from Lake
Charles in the United States to Canvey Island in the United Kingdom,
thereby demonstrating that LNG cargoes could be transported over long
distances by ship. Also in 2009 was the celebration of the 40th anniversary
of the Moss design and the 150th anniversary of the Suez Canal.37
The LNG shipping industry has also experienced major milestones in
terms of the expansion of the global LNG fleet. In the past decade, the
global LNG fleet expanded rapidly from 195 ships at the end of 2005
to 360 LNG ships at the end of 2010 with a combined capacity of 53
MMcm. A record number of LNG vessels (47) were delivered in 2008,
most of which went to Qatar. Appendix B provides a current listing of the
worldwide LNG carrier fleet compiled by EA Gibson.38
In more recent years, the global expansion of the LNG fleet exceeded
the global LNG trade, a situation exacerbated by the global recession in
200809. This resulted in significant overcapacity of LNG shipping capac-
ity. As demand recovered in 2010, the overcapacity narrowed and it is
expected to narrow in the future. An increase in inter-regional trade is also
expected to lead to higher utilization of the additional shipping capacity.
As this book goes to print, it appears in fact that the LNG shipping glut
that persisted between 2008 and 2011 is disappearing due to the rise in
global LNG demand, especially from China and India and also emerging
from Latin America and the Middle East.39
Some experts predict that by 2020 another 100 LNG ships will be
needed and that by 2035 the global LNG fleet has to double in order to
meet expected demand.40 It remains to be seen whether the industry will
meet this challenge and one reason is the significant expense in building
LNG carriers. The current cost of an LNG ship is approximately $210
million, compared with $99 million for a supertanker.41
As this book goes to print, orders for new LNG carriers in 2011 will
expand LNG shipping capacity to 380 billion cubic meters (13.4 trillion
cubic feet) by 2015 from 300 billion cubic meters today. According to
data from Clarkson Research Services Ltd., 24 LNG tankers have been
ordered at shipbuilders in South Korea and China in 2011 and there are
44 ships contracted and 362 LNG carriers in service.42
In addition to the increase in the sheer number of LNG carriers, the
actual size of LNG carriers has also increased significantly in the past
decade. For example, the new LNG mega ships that were designed for
Qatar the Q-Flex and the Q-Max are significantly larger than con-
ventional LNG carriers (Figure 2.3). A majority of the worlds LNG
terminals can accommodate vessels with LNG carrying capacity over
155,000 cm and a growing number of terminals are upgrading facilities to
accommodate larger ships.
Despite the recent trend in building larger-capacity LNG carriers, the
size of LNG carriers in the global LNG fleet varies significantly. In 2010,
the global LNG fleet averaged 146,686 cm of capacity per carrier. The
smallest vessels (typically 18,00040,000 cm) are used primarily to trans-
port LNG from Southeast Asia to smaller terminals in Japan. There are
even smaller carriers (7,500 cm and below) that are used in domestic and
coastal areas, thereby facilitating delivery of LNG to remote areas.
41Ibid.
42Michelle Wiese Bockmann, LNG Tanker-Fleet Surge Risks Worker
quarter of 2013 while the second vessel will follow during the second
quarter of 2014.43
The proposed new ships have the potential to revolutionize the
delivery of LNG from extremely harsh environments and are expected to
offeryear-round gas exports from Russias first LNG project Sakhalin-2.44
2.4LNG REGASIFICATION
The third major step in the LNG value chain is regasification, in which
the LNG is returned to its original gaseous form at the LNG import or
regasification terminal. Once returned to its gaseous state, the natural
gas is then injected into the domestic pipeline grid for delivery to
end-users.45
Regasification usually occurs at an onshore import terminal that
includes docking facilities for the LNG carrier, one or more cryogenic
storage tanks to hold the LNG until regasification capacity is available,
and a regasification plant.46 In some cases, LNG is regasified offshore and
then transferred onshore via undersea pipelines.
Typically, after an initial feasibility study, an engineering firm is hired to
perform detailed FEED (front-end engineering and design) work to deter-
mine a design for the LNG terminal that meets the desired requirements
and provides sufficient detail for regulatory review and approval.47 While
there are different designs of LNG import terminals, the basic process and
major equipment are about the same. As depicted in Figure 2.4, the major
equipment components of an LNG import and regasification terminal are:
unloading arms; cryogenic pipelines; storage tanks; low pressure pumps,
boil-off gas compressors and recondensers; high pressure pumps; and
vaporizers.
45GIIGNL, Information Paper No. 2 The LNG Process Chain, at p.4. Since
Submerged BOG.
LP pumps Boil-off gas recondenser
compressors
Berth/
jetty
Submerged
47
combustion
vaporizer Fuel Open rack
LNG carrier gas vaporizer
THT
Pipeline
HP pumps
Metering Odorization
From sea
To sea
power emergency release coupler (PERC) is fitted into most arm instal-
lations. In addition, there are other safety and emergency procedures and
equipment that allow for the rapid disconnection of the unloading arms
and the emergency shutdown of cargo transfer.48
Once the LNG cargo is unloaded, the LNG is transferred via cryogenic
pipelines to insulated storage tanks (cryogenic storage tanks) specifically
built to hold LNG. Import terminals must have specialized, full contain-
ment cryogenic storage tanks that are capable of holding a minimum of
one shipload of LNG. Typical storage tanks range in size from 55,000 to
180,000 m3 but in recent years economies of scale have resulted in larger
tanks being built, with tank sizes of 200,000 m3 now becoming more
common.49
The storage tanks represent the largest single piece of equipment needed
for an onshore import terminal and also represent a significant portion of
the capital costs of the terminal. For example, a 160,000-m3 full contain-
ment storage tank is estimated to cost $100 million or more. If a facility
is being constructed to handle 145,000 m3 ships, then three storage tanks
may be required, for a total cost of up to $500 million.50
The LNG that is stored in the tanks is ultimately sent to vaporizers that
warm and regasify the LNG back into its original gaseous state. The
main types of vaporizers used in the industry are open rack vaporizers,
submerged combustion vaporizers, and ambient air vaporizers.51
Open rack vaporizers derive the heat necessary to vaporize the LNG
from seawater. The water is first filtered to remove impurities then run
over panels of tubes containing LNG and then gathered in a trough under-
neath before being discharged back into the sea. The LNG is heated and
vaporized as it passes through the tubes that are specifically designed to
optimize heat exchange.52
Submerged combustion vaporizers burn natural gas produced by the
import terminal and then pass the hot gases into a water bath containing
the tubular heat exchanger that contains the flowing LNG.53
Ambient air vaporizers use ambient air, either a natural draft mode or
a forced draft mode, to vaporize the LNG. The advantage of these vapor-
izers is that they have the least environmental impact of any design since
there is not air or water discharge. The disadvantage is that they require
large sites and are more suitable for service in warm climates.54
Over the past decade, the number of markets turning to LNG to meet
natural gas demand has grown dramatically, as evidenced by the more
than doubling of the number of countries with LNG receiving capacity
between 2000 and 2010. In just five years (200610), 30 terminals started
operation, bringing the total number of LNG import terminals to 83 as
of the end of 2010. Ten of these terminals are floating terminals, nine of
which use floating regasification vessels and one of which is a gravity-
based structure.55 Appendix C provides a listing of the worldwide existing
and planned LNG regasification terminals.
Since 2005, South America and the Middle East have emerged as new LNG
importers with the following five countries, along with Canada, entering the
list of LNG importers: Argentina, Brazil, Chile, Kuwait, and the UAE.
The worlds other 17 LNG importing countries are Belgium, China, the
Dominican Republic, France, Greece, India, Italy, Japan, Mexico, Portugal,
Puerto Rico, South Korea, Spain, Taiwan, Turkey, the UK and the US.56
According to the IGU, the global annual send-out capacity of the
worlds regasification terminals has increased 70 percent since 2005, for a
total capacity of 572 MMtpa at the end of 2010. An additional 110 MMtpa
is under construction and is due online in 2015. Indonesia, Malaysia, the
Netherlands, Poland, Singapore, Sweden and Thailand currently have
their first regasification facilities under construction and these countries
are expected to join the ranks of LNG importers by 2015, bringing the
total number to 30.57
In addition to the 30 countries with existing or under-construction
LNG regasification terminals, at least 11 countries in Europe, 7 in South
American and the Caribbean, 5 in South and Southeast Asia, 4 in MENA
and 2 in Africa are studying or planning LNG imports to meet domestic
gas needs going forward.58
Due to a lack of indigenous natural resources, Japan has the most receiv-
ing terminals in the world with 28 terminals in operation at the end of
2010. Japan is followed by the US with ten terminals at the end of 2010
(an eleventh terminal, Golden Pass, came online in 2011). In terms of
regasification capacity, Japan has more than one-third of the total global
regasification capacity (31.5 percent), followed by the US (19 percent),
Korea (14.6 percent), Spain (6.8 percent), the UK (5.8 percent), with the
rest dispersed among numerous other countries.
As of the end of 2010, East Asia, which includes the traditional major
LNG importers of Japan, Korea and Taiwan, as well as fast-growing
China, held the majority of the worlds regasification capacity, at 51
percent or 280 MMtpa. While East Asia historically held the majority of
regasification capacity throughout the 1990s and early 2000s, significant
regasification capacity was added in the US in the early to mid-2000s,
which altered the historic breakdown. Europe also saw regasification
capacity increase since the mid-2000s and the next projected increases
are expected to come from the emergence of LNG importing countries in
South Asia, South America and the Middle East.59
According to the IGU, at the end of 2011 there were 89 regasification
terminals around the world with a total regasification capacity of 608
MTPA.60
59Ibid.
60IGU World LNG Report 2011 at p.35.
61This section is adapted from the following article: Thomas E. Holmberg,
Comparison of Project Structures in an LNG Liquefaction Plant, Oil & Gas
Financial Journal, March 2012, www.ogfj.com.
The LNG value chain 51
Upstream
Supply chain PSC
contractors
Ownership
Liquefaction
interest
plant
Sales
agreements LNG sales
Buyers
62In a cost, insurance and freight or CIF sale, the seller delivers the goods
to the buyer on board the vessel and risk of loss passes from the seller to the buyer
52 Energy for the 21st century
Upstream
Supply chain
Gas sales
Sales
agreements Project Co.
(LNG plant)
LNG sales
Buyers
model, including one where a governmental entity may own the LNG
facility (directly or through the state-owned national oil company) while
an operating company owned by the upstream PSC contractors operates
the facility.
Under a tolling model (Figure 2.7), the company that owns the LNG
liquefaction facility does not take title to the gas and receives a fee to
process the natural gas into LNG for the buyer. A principal benefit of
this model is that it minimizes the market risk to the facility owner by
providing for predictable payments of the tolling fee. A second fee (for
example, a commodity charge) may also be assessed per unit of natural
gas processed.
on board the vessel. The seller is responsible for the costs and freight to bring
the vessel to the port of destination and is also responsible for insurance to cover
buyers risk of loss to the goods. In a free on board or FOB sale, the buyer is
responsible for providing LNG shipping, and title and risk of loss pass from the
seller to the buyer as the LNG is loaded onto the LNG ship from the liquefaction
facility. In a delivered at place or DAP sale, the seller is responsible, at its own
expense, for providing shipping for the LNG, the title to and risk of loss of which
transfer from the seller to the buyer as the LNG is unloaded from the LNG ship
to the receiving terminal. Thomas E. Holmberg, Comparison of Project Structures
in an LNG Liquefaction Plant, Oil & Gas Financial Journal, March 2012, www.
ogfj.com.
The LNG value chain 53
Upstream
Supply chain
Tolling fee
Sales/service
agreements Toll Co.
(LNG plant)
LNG sales
LNG Buyers
The units of measurement in the LNG industry are complex and vary
according to whether used to measure natural gas in its gaseous form or
its liquid form. To add to the complexity, since LNG is a global business,
both English and metric units are used depending on the location.
LNG is usually measured in metric tons when it is in a liquefied form
and in cubic feet or cubic meters when converted back to a gaseous state.
Annual capacities are often stated in terms of million tonnes per annum
or year with a variety of abbreviations used mtpa, MMtpa, MMt/y, or
million t/yr.
To make it even more confusing, tanker capacities may be stated in
cubic meters of liquid and recall that when liquefied the volume is reduced
by a factor of 610. A typical tanker holds between 120,000 and 145,000m3,
which is equivalent to 2.7 to 3.2 Bcf (76.5 million to 90.6 million m3) of
gas or 55,400 to 65,700 tonnes of LNG. In terms of comparing what this
means from a practical standpoint, one average size LNG tanker holds
enough natural gas to serve approximately 5 percent of the United States,
section is adapted from an excellent discussion of natural gas and LNG measure-
ments found in the book at pp.56. The book also discusses energy content, which
has been omitted from this discussion.
54 Energy for the 21st century
Since many of the references in this book come from the International
Energy Agency (IEA), it is important to note that the IEA uses billion
cubic metres (bcm). According to the IEA, a bcm of natural gas is a com-
monly used measure of gas production and trade, but what a bcm rep-
resents depends on how it is measured and how much energy it contains.
The IEA standard is to report gas volume as actual physical volumes,
measured at 15 C and at atmospheric pressure. This means that a bcm of
Russian gas, in terms of energy content, can have a different value from a
bcm of gas from another country. Since this is a difficult process, the IEAs
approach is to keep the underlying balances for each country on an energy
basis (rather than a volume basis) and to maintain a database of the differ-
ent energy content of gas imports, exports, production and consumption
for each country.
The rapid growth of and intense interest in LNG over the past decade
might lead some to believe that LNG is a newly discovered fuel. In fact,
LNG is not a new fuel at all; it is merely a means of delivering an old
fuel natural gas.1 For decades, natural gas was viewed as an unwanted
byproduct of drilling for oil.2 Whereas oil was relatively easy to store,
load, and transport, transporting natural gas presented a significant tech-
nical challenge that would take decades to solve. The challenge of course is
that natural gas has to be chilled through a process known as liquefaction
before it can be turned into a liquid that can be transported.
Natural gas liquefaction dates back to the 19th century when British
chemist and physicist Michael Faraday experimented with liquefying
different types of gases, including methane/natural gas. German engineer
Karl von Linde facilitated advances in gas liquefaction on an industrial
scale when he invented a heat exchanger and later the first practical com-
pressor refrigerator machine. However, it was not until 1914 that Godfrey
Cabot registered the first US patent for transporting liquefied natural
gas on a barge, although there is no material proof that this was actually
done.3
1Warren R. True, What LNG Was, Isnt, and Is, Oil & Gas Journal, Sept.
19, 2011, Vol. 109, Issue 38 (LNG is only the means of storing and moving the
fuel, which is natural gas), http://www.ogj.com/articles/print/volume-109/issue-
38/regular-features/journally-speaking/what-lng-was-isn-t-and-is.html.
2Many years ago, when oil companies drilled for oil and found natural gas,
their efforts were deemed a failure and the natural gas often had to be reinjected,
flared, or left for another day. Fred Bosselman et al., Energy, Economics and
the Environment 526 (2nd edn, 2006). In fact, oil wildcatters used to joke, The
bad news is we didnt hit oil, the good news is we didnt find gas. Vapour Trails:
Oil Companies Dash for Gas, The Economist, July 1, 2010, http://www.economist.
com/node/16488892.
3 Nevertheless, the company that he founded, Godfrey L. Cabot, Inc., later
became the Cabot Corporation, whose subsidiary, Cabot LNG, ultimately built
55
56 Energy for the 21st century
It would take over two decades before the first commercial LNG
peakshaving plant was built in West Virginia in 1939. In 1941, a second
peakshaving facility was built in Cleveland, Ohio, by the East Ohio Gas
Company. This facility was subsequently expanded to add a larger storage
tank but, owing to metal shortages during World War II, the storage
tank was constructed of steel instead of stainless steel alloys, which could
withstand very cold temperatures without fracturing. In 1944, the tank
ruptured causing natural gas to leak into the sewer system, and then into
peoples homes where it ignited and ultimately killed 128 people. This
incident effectively put LNG development on hold for another decade.4
In the 1950s and 1960s, the Union Stock Yards of Chicago was facing
escalating electricity rates and began to explore the possibility of liquefy-
ing natural gas in Louisiana and barging it up the Mississippi River to
Chicago. At the same time, the British Gas Council was also looking into
ways to transport natural gas. The Union Stock Yards and the British Gas
Council, along with Continental Oil Company, eventually joined forces to
convert an old World War II dry bulk carrier into the worlds first LNG
carrier the Methane Pioneer.5
In January 1959, the Methane Pioneer set sail from Lake Charles,
Louisiana, with a cargo of LNG destined for Canvey Island, UK. This
first ever USUK shipment of LNG demonstrated that large quantities
of LNG could be transported safely across the ocean and opened up the
possibility of transporting large volumes of natural gas from otherwise
stranded fields to distant destinations based on consumer demand.6 The
Methane Pioneer subsequently carried seven additional LNG cargoes to
Canvey Island.7
In the early 1960s, a major discovery of natural gas in Algeria led Great
Britain to sign the first LNG contract with Algeria in 1961, thus estab-
lishing the first commercial-scale LNG chain with a liquefaction plant
the first US LNG import terminal (Everett) in Boston in 1971. Stream Repsol, The
History of LNG, http://www.streamrgn.com/servlet/ContentServer?gnpage53-
140-0¢ralassetname53-140-Articulo-HistoriaGNL¢ralassettype5Artic
ulo.
4Michael D. Tusiani and Gordon Shearer, LNG: A Nontechnical Guide
to serve new demand. Qatar became the second Middle Eastern LNG
producer with the delivery of its first cargo of LNG from the Qatargas
LNG plant in January 1997. Several other plants also came online in the
late 1990s including: Trinidad, April 1999; Ras Laffan, Qatar, May 1999;
and Nigeria in October 1999. In April 2000, Oman commenced produc-
tion with a plant of design capacity of 6.6 mtpa delivering its first cargo
to Korea.
As the LNG markets evolved over the decades, they tended to develop
in regional isolation from one another, primarily due to the high cost of
natural gas transportation. Historically, two distinct LNG trade regions
developed the Asia-Pacific region and the Atlantic Basin region, which
included North America, South America and most of Europe.12 Until
Qatar began to export LNG to both regions in the mid-1990s, the two
regions were largely separate, with unique suppliers, pricing arrange-
ments, project structures, and terms. As will be discussed in detail in
Chapter 6, the increase in inter-regional trade in more recent years, as well
as the development of a more active spot market, has tended to blur the
distinction between the two main regions.
For purposes of this book, the regional markets will be analyzed as the
Asia-Pacific region (Section 3.2), the European region (Section 3.3), and
the North American/Atlantic Basin region (Section 3.4), which includes
North America, South America and Latin America.
The Asia-Pacific region has historically been the largest market for LNG.
Japan is the worlds largest LNG importer, followed by South Korea and
Taiwan. These three countries have few indigenous resources and rely
almost exclusively on LNG for their natural gas supply. China and India
have recently emerged as LNG importers and could become significant
buyers of LNG over time. Smaller, niche markets are also developing as
other countries such as Thailand, Singapore, Chile and Pakistan look to
become LNG importers (see Chapter 5).
12The Atlantic Basin LNG region historically was defined to include export-
ing countries such as Algeria, Libya, Egypt, Nigeria, Oman, Qatar and Trinidad
and importing countries such as the US, Mexico, Spain, France, Italy, Turkey,
Greece, Portugal, the UK and Belgium. Ken Snodgrass, Shell Gas & Power
International, Presentation to the 23rd World Gas Conference, Amsterdam, 2006:
Atlantic Basin LNG: Diverse Drivers that Require Diversified Marketing, http://
www.igu.org/html/wgc2006/pdf/paper/add10832.pdf.
The evolution of LNG markets and primary demand regions 59
Todays global LNG industry was really founded in the 1970s based on
a now 40-plus-year relationship between Japan and Kenai, Alaska.13 The
development of LNG technology coincided with the discovery of major
natural gas reserves in the Cook Inlet Area of Alaska in the late 1950s and
early 1960s. The lack of local demand for the gas led Phillips Petroleum
(now ConocoPhillips) and Marathon to consider international LNG
projects as a means of securing a home for the newly discovered natural
gas. At the same time, Japan was beginning to consider LNG as a means
to secure significant energy supplies to compensate for its almost total lack
of indigenous energy resources.14 Phillips and Marathon drew up plans for
an LNG project that included a liquefaction plant and deepwater docking
and loading facilities in Kenai, Alaska, and a receiving and regasification
plant in Japan. Two new LNG tankers were also commissioned to ship the
LNG from the new Kenai LNG plant to Japan.15
In 1967, Phillips and Marathon signed an agreement with Tokyo
Electric and Tokyo Gas to supply LNG to Japan and received authoriza-
tion from the US regulatory agency to export LNG to Japan.16 The first
LNG tanker docked in Japan two years later, in November 1969, and
marked the first LNG export from the Western Hemisphere and the first
LNG imported into Asia.
13Amy Burnett, The Kenai LNG Plant Celebrates 40 Years, Spirit Magazine, http://
www.conocophillips.com/EN/about/worldwide_ops/country/north_america/
Documents/Kenai_spirit.pdf.
14Ibid.
15Ibid.
16Authorization to export LNG to Japan was originally granted to Phillips
At the time, the Kenai LNG plant was only the second LNG plant
in the world and the project was the largest undertaking in Phillips
history, completed in 1969 at a cost of $200 million.17 Kenai LNG also
resulted in the development of significant LNG technology namely the
ConocoPhillips Optimized Cascade process. When Bechtel Corporation
built the Kenai LNG liquefaction plant in 1969, ConocoPhillips decided
to retain the rights to the new and advanced Optimized Cascade process
for use in future LNG projects, which has served the company well in
the years since.18 Over the next four decades, Kenai LNG would ship
more than 1,300 LNG cargoes to Japan,19 successfully filling two 20-year
contracts.20
Today, Japan is the largest importer of LNG in the world. In 2002,
Japan imported 2.6 Tcf (54.6 million tonnes) of LNG21 and by 2010,
Japans LNG imports had grown to 70 million tonnes.22 With very
limited domestic gas production and no pipeline imports, Japans LNG
imports account for approximately 35 percent of the global trade in
LNG.23 Japan imports LNG primarily under long-term contracts from
17Amy Burnett, The Kenai LNG Plant Celebrates 40 Years, Spirit Magazine.
18Ibid. Since the Kenai LNG project, ConocoPhillips has licensed the
technology for the Optimized Cascade process in ten LNG plants worldwide,
representing almost half of the grassroots LNG projects.
19Ibid.
20The most recent application for Kenai LNG exports was granted in June
2008 by DOE/FE Order No. 2500. In that Order, the Department of Energys
Office of Fossil Energy (DOE/FE) authorized the export of LNG from Kenai
LNG in Alaska to Japan and/or one or more countries on either side of the Pacific
Rim after considering the domestic needs for the gas as well as the policy of pro-
moting free trade. DOE authorized the export of up to 99 Trillion British thermal
units (TBtus) of liquefied natural gas (LNG) (the equivalent of 98.1 Billion cubic
feet (Bcf) of natural gas), to Japan and/or one or more countries on either side of
the Pacific Rim ... pursuant to transactions that have terms of no longer than two
years. Th[e] authorization [was] effective for a two-year term beginning on April 1,
2009, and extending through March 31, 2011.
21 Energy Information Administration (EIA), The Global Liquefied Natural
Ishikari
Existing
Planned
Under contruction
Nihonkai Niigata
Ohita LNG
Kagoshima
the total LNG imported by Japan, back in 1969 the tiny Kenai LNG facility was
Japans only supplier.
25 Poten & Partners Kitimat Market Assessment.
62 Energy for the 21st century
26Ibid.
27Ibid.
28Ibid.
29Ibid.
30Ibid.
The evolution of LNG markets and primary demand regions 63
resources, Japan will remain reliant on LNG imports and will always
place a premium on security of supply. While economic growth is one key
driver of LNG growth, in Japan, perhaps the more important driver is the
operation and development of existing and future nuclear power plants.31
The reason for this is that the share of nuclear and LNG in Japans total
electricity generation mix are roughly the same 30 percent. Thus, LNG
demand for power generation can suddenly increase if there is a nuclear
power facility shutdown, as demonstrated by two separate incidents in
recent years.
In July 2007, TEPCOs Kashiwazaki-Kariwa nuclear facility, with a
total 8.2GW of capacity, was shut down due to an earthquake in northeast
Japan.32 As a result, TEPCO had to increase imports of LNG to record
amounts of approximately 21.4 million tons, exceeding the record 19.2
million tons purchased in fiscal 2003, when all 17 of its reactors were shut
down after TEPCO admitted hiding nuclear faults for a decade.33
On March 11, 2011, Japanese authorities informed the International
Atomic Energy Agency (IAEA) that an earthquake and tsunami had
struck Japan, resulting in damage to Japans Fukushima Daiichi nuclear
power plant. Flooding caused by the tsunami disabled diesel generators
intended to provide back-up electricity to the plants cooling system and
Japanese officials declared a nuclear emergency situation.34
As a result of the Fukushima Daiichi twin disasters, Japan had to import
record amounts of LNG in 2011. In September 2011, the IEA indicated
that Japan is likely to import an additional 11 billion cubic metres (bcm) of
gas (8.4 million tonnes of LNG) in 2011 to offset the loss of nuclear power
generation. The IEA also projected that Japans LNG demand could
increase by nearly a third in 2012 if the country fails to restart any nuclear
reactors and that Japan could struggle to secure enough LNG. The worst
case is that Japan might need an additional 30 billion cm (22.8 million
tonnes) of LNG with Qatar as a potential supplier, although it is unclear
whether Qatar can supply this additional amount.35
31Ibid.
32Megumi Yamanaka, Tokyo Electric Plans Record LNG Imports After
www.iaea.org/newscenter/news/2011/fukushima110311.html.
35 Kwok W. Wan, IEA Forecasts Japan LNG Worst-case, Petroleum
Like Japan, South Korea has very limited domestic natural gas production
and thus relies heavily on LNG imports for its natural gas needs. South
Korea began importing LNG in 1986 and has maintained its position as
the worlds second-largest LNG import market ever since.40
Koreas natural gas market is highly seasonal, with winter peaks driven
by space heating requirements, especially during periods of particularly
cold weather. Large seasonal swings have led to a high dependence on
spot market purchases and medium-term contracts to meet peak winter
needs in the past. In order to manage this issue of seasonality, Kogas
has conducted an aggressive terminal upgrade program to boost storage
org/textbase/nppdf/stud/11/mtogm2011.pdf.
37It is also possible that the Kenai LNG plant might offer additional cargoes
to Japan, although the plan to mothball that facility remains unchanged. Eileen
Moustakis and Edward McAllister, Conoco Says Kenai LNG Plant to Operate
into October, Reuters, Aug. 9, 2011, http://www.reuters.com/article/2011/08/09/
energy-lng-kenai-idUSN1E7781JR20110809.
38IEA MTOGM 2011.
39 Pat Roberts, CWC Dynamic Insights Report, World LNG Series Asia
Pacific Summit, October 2011. The CWC Group organizes numerous quality gas
and LNG events that involve the industrys leading players to address the key
issues facing the global energy sector (http://www.thecwcgroup.com/gasandlng).
The CWCs Dynamic Insights Report provides the latest insights from key players
in the global gas industry and is written by industry experts. http://www.thecwc-
group.com/cdi/.
40 Poten & Partners Kitimat Market Assessment.
The evolution of LNG markets and primary demand regions 65
41Ibid.
42 Korea Gas Corporation (KOGAS) was incorporated by the Korean gov-
ernment in 1983 and has since grown to become the worlds largest LNG importer.
KOGAS is the nations sole LNG provider and currently operates three LNG
terminals and a nationwide pipeline network spanning over 2,739 km. KOGAS
imports LNG from around the world and supplies it to power generation plants,
gas utility companies and city gas companies throughout South Korea. KOGAS,
Who We Are, http://www.kogas.or.kr/kogas_eng/html/main/main.jsp.
43 Poten & Partners Kitimat Market Assessment.
44Ibid.
45Ibid.
46Ibid.
47Ibid.
66 Energy for the 21st century
Samchuk
Incheon
Pyeongtaek
GS Caltex
Tongyeong
POSCO
Existing
Planned
Under construction
48Ibid.
The evolution of LNG markets and primary demand regions 67
3.2.3 Taiwan
As with Japan and South Korea, Taiwan has limited domestic natural gas
production with no pipeline imports, and therefore relies almost exclu-
sively on LNG imports for power generation and city gas supplies. Taiwan
began importing LNG in 1990 and by 2009 was the seventh largest LNG
market, consuming 8.8 MMt of LNG or around 5 percent of the global
LNG trade. Due to its lack of indigenous energy resources, Taiwan, like
Japan and South Korea, is expected to continue to rely on LNG for energy
security reasons.52
Taiwan imports LNG primarily from Indonesia, Malaysia, Qatar,
Oman and Australia under long-term contracts and some spot shipments
and from Atlantic Basin exporters on a spot and short-term contract
basis. State-owned Chinese Petroleum Corporation (CPC) is the sole
importer of LNG in Taiwan and controls all aspects of natural gas supply
in the country, including exploration and production (E&P), imports,
domestic pipeline transportation and gas wholesaling. CPC operates two
existing LNG import terminals at Yung-An (1990) and Taichung (2009).
The two terminals have a combined send-out capacity of 1.7 bcf/d. CPCs
customers consist of city gas companies and power companies. Taiwan
49Ibid.
50 Pat Roberts, CWC Dynamic Insights Report, World LNG Series Asia
3.2.4 China
Historically, China has been far less reliant on gas imports than other
Asian countries and, unlike Japan, Korea or Taiwan, China has large
domestic fossil fuel reserves particularly coal, which supplies a large
share of its energy and electricity needs, in addition to significant reserves
of oil and gas.57 Nonetheless, China started importing LNG in 2006 and
as of 2011 has four LNG terminals with a total regasification capacity
of approximately 21 bcm.58 The existing LNG terminals are located in
the eastern coastal region of China in Guangdong, Fujian and Shanghai,
where rapid economic growth is underpinned by strong increases in energy
consumption (Figure 3.3). This region lacks significant indigenous energy
53Ibid.
54Ibid.
55Ibid.
56Ibid.
57Ibid.
58IEA MTOGM 2011.
The evolution of LNG markets and primary demand regions 69
Tangshan Hebei
Beijing
Ordos Basin Dalian
Shandong
Tianjin FSRU
Jiangsu
West-East
Pipeline I
Shanghai
Sichuan Basin Wuhaogou
Puguang Pinghu Gas Field
Gas Field
Zhejiang
West-East
Pipeline II
Fujian
LNG Terminals Shenzhen Fujian Expansion
Existing
Zhuhai
Under construction Guangdong Dapeng
Planned Guangzhou
Guangdong Dapeng Expansion
Liwan
Macau
Guangxi
These bullish forecasts are in line with forecasts from Chinas state-owned
China National Offshore Oil Corp. (CNOOC), which estimates demand
for LNG imports could reach 30 mtpa by 2015, largely driven by a surge
in LNG-fueled vehicles and the development of LNG storage facilities.62
Additionally, many of the LNG mega projects in Australia (Chapter 8)
are underpinned by the expected demand spike in China and India, some
even predicting that demand in China and India could increase six-fold by
2025.63
3.2.5 India
India to import LNG and set up LNG terminals in the country. Petronet LNG
also involves Indias leading oil and natural gas industry players including GAIL
(India) Limited (GAIL), Oil & Natural Gas Corporation Limited (ONGC), Indian
Oil Corporation Limited (IOCL) and Bharat Petroleum Corporation Limited
(BPCL). Petronet LNG, http://www.petronetlng.com.
The evolution of LNG markets and primary demand regions 71
Indian Ocean
Kochi
Tuticorin
SRI LANKA
Colombo
shell_businesses/india_business_structure/hazira_lng.
67IEA MTOGM 2011.
68 Petronet LNG, http://www.petronetlng.com.
69 Indian Oil in Talks with BG, Others to Secure LNG Supplies, Reuters,
modified, the ability to pay market prices for LNG has been limited since
the costs often cannot be passed on to the consumer.70
and refineries, can afford to pay more for LNG and these customers are paying
an average of $1315 per mmBtu and sometimes as much as $16 per mmBtu for
imported LNG. Ibid.
71 Poten & Partners Kitimat Market Assessment.
72Ibid.
73Ibid.
74Ibid.
The evolution of LNG markets and primary demand regions 73
www.lngndustry.com.
76Andy Flower, LNG in Europe, LNG Industry, Winter 2009.
77Ibid.
78IEA MTOGM 2011.
74 Energy for the 21st century
79In 2011, the UK imported a record 19.6 million metric tons of LNG, up 32%
from 14.8 million in 2010. Spanish LNG imports fell by about 18% to 17.4 million
tons, while French imports rose 16% to 11.6 million tons. Dinakar Sethuraman,
U.K. Overtaking Spain to Become Worlds Third-Biggest LNG Buyer, Bloomberg,
Jan. 4, 2012, http://www.bloomberg.com/news/2012-01-04/u-k-overtaking-spain-
to-become-world-s-third-biggest-lng-buyer.html.
80IEA WEO-2006, www.iea.org.
81Andy Flower, LNG in Europe, LNG Industry, Winter 2009 at pp.1015.
82Gas Infrastructure Europe (GIE) was established on March 10, 2005, as
20 6
Existing
Existing Expansions
LNG under New commited or
under
Terminals construction construction
Planned
6 Dockside
regasification
New LNG Terminals facility
commited or under Small scale
construction
32 LNG
Terminals
under study/
planned
CANARY
ISLANDS
3.3.1 Spain
Spain has historically been Europes largest LNG importer and the third
largest importer worldwide after Japan and Korea. Spains 2008 LNG
imports were 22.1 million tonnes, representing just over 50 percent of the
total for Europe. Spain relies on LNG to meet 73 percent of its natural
gas demand, making it the European country most dependent on LNG.
The primary reason for Spains dependence on LNG is due to geography
since the Pyrenees Mountains are a barrier to the construction of pipelines
connecting Spain to the European gas grid. There are only two small pipe-
lines connecting Spain to Europe one linking Spain to France and one
used to carry gas contracted by Spanish gas company, Gas Natural, from
Norway. There is also the Pedro Duran Farrell pipeline, which passes
through Morocco and across the Straits of Gibraltar and allows Spain to
import gas from Algeria. Due to the lack of pipeline gas, Spain has more
LNG terminals than any other country in Europe and as of 2009 six facili-
ties were in operation with a seventh, the El Musel terminal in the north of
the country, under construction.84
As the worlds first LNG importer, the UK began receiving LNG imports
from Algeria in 1964. However, less than a year after LNG imports
began, significant reserves of natural gas were discovered in the North
Sea, which resulted in the country becoming self-sufficient in natural
gas. LNG imports dwindled and ceased when the original contract with
Algeria expired in the early 1980s. More recently, declines in North Sea
gas production have led to the UK once again turning to LNG imports.85
The UK currently has four LNG receiving terminals in operation with
capacity being expanded. Two terminals were commissioned at Milford
Haven in southwest Wales in 2009.86 The South Hook Terminal, a part
of the Qatargas 2 integrated value chain, is the largest LNG regasification
terminal in Europe.87
According to the IEA, LNG imports into the UK jumped by 85 percent
in 2010, to 18.8 bcm. The primary reason for the large increase was the
UKs taking of many Qatari cargoes throughout 2010 that would other
wise have gone to the US but for the shale gas revolution underway in
the US (see Chapter 10). Since the UKs NBP prices were higher than
HH prices in 2010, many producers, such as Qatar, sought buyers in the
UK. Qatar in particular used the UKs South Hook import terminal as a
strategic outlet for the LNG from its mega-trains.88
The UKs Dragon LNG terminal also received a cargo from Qatar for
the first time in August 2010. Notably, the Isle of Grain terminal received
a cargo re-exported from Chenieres Sabine Pass LNG import terminal
the first US cargo since the historic Methane Pioneers delivery to the
UKs Canvey Island over 50 years ago. In early 2011, Centrica reached
an agreement with Qatargas to supply 3.3 bcm (2.4 mtpa) of LNG for
three years to the Isle of Grain terminal. Given the UKs increase in LNG
imports, it now appears that the UK is set to play an important role as an
intake point of LNG to Continental Europe.89 In fact, according to pre-
liminary data, in 2011 the UK overtook Spain as the worlds third-largest
LNG importer behind Japan and South Korea.90
85Ibid.
86Ibid.
87Southhook LNG, http://www.southhooklng.co.uk/cds-web/view.do.
88IEA MTOGM 2011.
89Ibid.
90See note 79. The IGUs most recent LNG report confirms that in 2011 the
UK was the worlds third-largest LNG importer with imports of 18.6 mtpa. Spain
The evolution of LNG markets and primary demand regions 77
3.3.3 France
France has historically been Europes second-largest market for LNG and
imported 9.5 million tonnes of LNG in 2008. France is well connected to
Europes pipeline grid and also has capacity to expand pipeline imports
of natural gas.91 The French gas market is dominated by GDF Suez,
which is 35 percent state owned and has the largest gas transport network
in Europe. Over 75 percent of GDF Suezs natural gas requirements are
covered over the next decade by long-term contracts.92
France currently has three LNG terminals in operation. Fos-Tonkin
located on the Mediterranean Sea and Montoir de Bretagne on the
Atlantic Ocean are both owned by Elengy, a subsidiary of GDF Suez
created in early 2009. The third terminal, Fos-Cavaou, received a test
cargo in October 2009 and started commercial operations in April 2010.
As of 2010, the following three new terminals were under consideration,
with FID expected sometime in 2010, with projected start-up dates of 2013,
2014, and 2015 respectively: Le Havre-Antifer (9 bcm project sponsored
by Gaz de Normandie (73 percent) and Compagnie Industrielle Maritime
(27 percent)); Dunkerque (1013 bcm project sponsored by EDF, the
Port of Dunkerque and possibly Total); and Fos-sur-Mer (8bcm project
undertaken by Shell and Vopack).93
Although France is Europes second-largest market for LNG, the
share of natural gas used in France is actually relatively low (15 percent)
compared to Europes average of 25 percent. Frances lower use of natural
gas is primarily due to the large use of nuclear for power generation in
France.94
3.3.4 Italy
was the worlds fourth-largest importer with imports of 17.1 mtpa. IGU World
LNG Report 2011 at p.11.
91Andy Flower, LNG in Europe, LNG Industry, Winter 2009, at pp.1015.
92IEA MTOGM 2010.
93Ibid.
94Ibid.
95Ibid.
78 Energy for the 21st century
for power generation in Italy and accounted for over 54 percent of the
power output in 2008.96
Italys LNG imports tripled in 2010 to 9 bcm, with LNG entering
through two LNG terminals, Panigaglia LNG and Adriatic LNG. The
Adriatic LNG terminal commenced operations in 2009 and in 2010 it
received 7 bcm of LNG, primarily from Qatar. Like South Hook in the
UK, the Adriatic LNG terminal appears to be one of the LNG terminals
used by Qatar as an outlet for its LNG production.97
In addition to the two LNG terminals, Italy has five pipelines through
which imported gas enters the country. In recent years, Italy has been
faced with winter gas shortages due to the lack of import and storage
capacity. In order to meet expected increased demand and improve energy
security, a number of projects have been planned since the early 2000s.
To date, however, Italy has made limited progress in expanding its LNG,
pipeline and storage infrastructure.98
3.3.5 Belgium
The Zeebrugge terminal in Belgium was built to receive LNG for the
countrys main gas company, Distrigas. However, a long-term contract
between Distrigas and Algeria was not renewed and expired in 2006. Since
then, the Zeebrugge terminal has primarily been used to import LNG
from Qatar under a long-term contract between Distrigas and RasGas.
In recent years, the terminal has also received spot cargoes from Egypt,
Nigeria, Norway, Trinidad and Tobago, and Malaysia.99 The Zeebrugge
LNG terminal is a gateway to supply LNG into Northwestern Europe and
is operated by Fluxys, an independent operator of both the natural gas
transmission grid and storage infrastructure in Belgium. Zeebrugge is also
a hub where any LNG can be redelivered for consumption on the Belgian
market, or traded on the Zeebrugge Hub for onward transmission to
supply other end consumer markets in any direction including the UK, the
Netherlands, Germany, Luxembourg, France and Southern Europe.100
About 1,200 LNG carriers have docked at the Zeebrugge terminal since
it was commissioned in 1987. A fourth storage tank and additional send-
out capacity were added to the terminal in 200408 and this enhancement
96Ibid.
97IEA MTOGM 2011.
98IEA MTOGM 2010.
99Andy Flower, LNG in Europe, LNG Industry, Winter 2009, at pp.1015.
100Zeebrugge LNG Terminal, http://www.fluxys.com/en/About%20Fluxys/
Infrastructure/LNGTerminal/LNGTerminal.aspx.
The evolution of LNG markets and primary demand regions 79
3.3.7 Turkey
101Ibid.
102Gate Terminal Press Release, Sept. 1, 2011, First Commercial LNG
Portugal and Greece each have one LNG terminal and both were built
to diversify natural gas supply from pipeline imports from Algeria and
Russia. Portugals main LNG supplier is Nigeria and Greece receives most
of its LNG from Algeria.109
In North America, the United States, Canada and Mexico have strong
pipeline connections and exports to these countries are typically regarded
as part of an integrated supply mix. With large supplies of natural gas and
an extensive pipeline system connecting the US, Canada, and Mexico,
North America has historically been able to supply almost all of its natural
gas requirements from indigenous sources.
During the supply-constrained 1970s, however, the United States began
importing LNG from Algeria. Four LNG import terminals were built in
the US between 1971 and 1980: Lake Charles, LA, Everett, MA, Elba
Island, GA, and Cove Point, Md. The US received a peak volume of 253
billion cubic feet (BCF) of LNG in 1979 (which represented 1.3 percent of
US gas demand), after which LNG imports in the United States declined
for a number of reasons. The first was deregulation, which led to an
increase in North American domestic natural gas production. Another
reason was price disputes with Algeria, then the sole LNG exporter to the
United States. As a result, the LNG terminals at Elba Island and Cove
Point were mothballed in 1980 and those at Lake Charles and Everett
suffered from very low utilization.113
In 1999, the first Atlantic Basin LNG liquefaction plant came online in
Trinidad and Tobago. This event, combined with increasing US natural
gas demand, particularly for electric power generation, and increasing
natural gas prices, resulted in renewed interest in LNG for the American
market.114
In the early 2000s, Trinidad and Tobago provided a full 66 percent of the
USs LNG imports. According to the EIA, in 2002 the US imported 151
Bcf (3.2 million tons) from Trinidad and Tobago. In addition to imports
from Trinidad and Tobago and Algeria, the US also received LNG cargoes
from Brunei Darussalam, Malaysia, Nigeria, Oman, and Qatar.115
113Dominion, http://www.dom.com/business/gas-transmission/cove-point/
history-of-lng.jsp.
114Ibid.
115 US EIA Report no. 0637, The Global Liquefied Natural Gas Market: Status
At the time, all four terminals had either completed an expansion or were
planning to expand their regasification capacity to meet rising demand.
In addition, there were at least two dozen proposals to build new LNG
regasification terminals in North America over the next several years.
The EIAs Annual Energy Outlook 2004 (AEO2004) projected that four
new LNG regasification terminals would be constructed on the Atlantic
and Gulf Coasts from 2007 through 2010 to meet an expected 58 percent
increase in LNG imports that was projected for that time-frame.117
116Ibid.
117Ibid.
The evolution of LNG markets and primary demand regions 83
118Ibid.
119Ibid.
120 Paul W. Parfomak, Cong. Research Serv., Liquefied Natural Gas (LNG) in
U.S. Energy Policy: Infrastructure and Market Issues, Jan. 31, 2006, http://www.
cnie.org/NLE/CRSreports/06feb/RL32386.pdf.
121Ibid.
84 Energy for the 21st century
Bush stated, One of the great sources of energy for the future is lique-
fied natural gas ... We need more terminals to receive liquefied natural
gas.122
In June 2005, Department of Energy Secretary Samuel Bodman com-
mented, LNG seems to offer a solution to ... the growing demand for
natural gas that we will see all around the globe.123 In November 2005,
Federal Reserve Chairman Alan Greenspan testified before Congress that
severe reaction of natural gas prices to the production setbacks that have
occurred in the Gulf highlights again the need to ... import large quantities
of far cheaper, liquefied natural gas (LNG) from other parts of the world.124
The US Congress, the Federal Energy Regulatory Commission, the
Department of Energy, and other US federal agencies also began to
promote greater LNG supplies by changing regulations, clarifying
regulatory authorities, and streamlining the approval process for new
LNG import terminals.125 For example, the Energy Policy Act of 2005
(P.L. 109-58) included various incentives for domestic natural gas produc-
ers (Title III, Subtitle E). The act also amended Section 3 of the Natural
Gas Act of 1938, granting the Federal Energy Regulatory Commission
(FERC) explicit and exclusive authority to approve onshore LNG
terminal siting applications (Sec. 311c) among other provisions.126
Federal officials and Members of Congress debated the merits and risks
of increased US LNG imports. Some questioned the implications of such
a policy, drawing analogies with the consequences of US dependency on
foreign oil and citing potential instability among foreign LNG suppli-
ers.127 Others expressed concern about LNG safety and vulnerability to
terrorism.128
122Ibid., citing President George W. Bush, Press conference dated April 29,
2005.
123Ibid., citing Samuel Bodman, US Energy Secretary, Remarks to the USEA/
Center for LNG Conference, National Press Club, Washington, DC, June 16, 2005.
124Ibid., citing Alan Greenspan, Chairman, US Federal Reserve Board,
Natural Gas Prices, Sen. Domenici Says, Press Release, Feb. 15, 2005; Hon. John
E. Peterson, Remarks at the Hearing of the House Resources Committee, Energy
and Mineral Resources Subcommittee on U.S. Energy and Mineral Needs,
Security and Policy, March 16, 2005.
128 Hon. Edward Markey, Democratic Reaction to the 9/11 Commissions
Final Report and its Security Recommendations for Preventing Further Attacks,
Press conference, Dec. 5, 2005.
The evolution of LNG markets and primary demand regions 85
http://www.sierraclub.org/ca/coasts/victories/victory2007-04-19.asp.
133 New York Secretary of State Determines Broadwaters LNG Facility Not
Consistent with the Long Island Sound Coastal Management Program, New York
Dept. of State Press Release, Apr. 10, 2008, available at http://www.dos.state.
ny.us/pres/pr2008/41008.htm.
134 FERC Approves Broadwater LNG Project Subject to Safety, Environmental
86
PROPOSED TO FERC
20. Long Beach, CA: 0.7 Bcfd, (Mitsubishi/ConocoPhillips Sound Energy Solutions
33 21. Longan Township, NJ: 1.2 Bcfd (Crown Landing LNG BP)
20 22. Bahamas: 0.5 Bcfd, (Seafarer El Paso/FPL)
34 C 7 23. Port Arthur, TX: 1.5 Bcfd (Sempra)
19 24. Cove Point, MD: 0.8 Bcfd (Dominion)
18 22
6,3 29 D 2 26 25. LI Sound, NY: 1.0 Bcfd (BroadWater Energy TransCanada/Shell)
5,3 28 3 4 26. Pascagoula, MS: 1.0 Bcfd (Gulf LNG Energy LLC)
8 1123 1 36 27. Bradwood, OR: 1.0 Bcfd (Northern Star LNG Northern Star Natural Gas LLC)
9 35 28. Pascagoula, MS: 1.3 Bcfd (Casotte Landing Chevron Texaco)
12 E 14
30 37 29. Cameron, LA: 3.3 Bcfd (Creole Trail LNG Cheniere LNG)
13 30. Port Lavaca, TX: 1.0 Bcfd (Calhoun LNG Gulf Coast LNG Partners)
17 US Jurisdiction 31. Freeport, TX: 2.5 Bcfd (Cheniere/Freeport LNG Dev. Expansion)
32. Sabine, LA: 1.4 Bcfd (Cheniere LNG Expansion)
PROPOSED TO MARAD/COAST GUARD
FERC 33. California Offshore: 1.5 Bcfd (Cabrillo Port BHP Billiton)
US Coast Guard 34. So. California Offshore: 0.5 Bcfd (Crystal Energy)
As of January 4, 2006 35. Louisiana Offshore: 1.0 Bcfd (Main Pass McMoRan Exp.)
36. Gulf of Mexico: 1.0 Bcfd (Compess Port ConocoPhillips)
* US pipeline approved; LNG terminal pending in Bahamas 37. Gulf of Mexico: 1.5 Bcfd (Beacon Port Clean Energy Terminal ConocoPhillips)
38. Offshore Boston, MA: 0.4 Bcfd (Neptune LNG Tractebel)
39. Offshore Boston, MA: 0.8 Bcfd (Northeast Gateway Excelerate Energy)
Figure 3.6Existing and proposed North American LNG import terminals 2006
The evolution of LNG markets and primary demand regions 87
At one point, leading energy expert Daniel Yergin predicted that, due
to environmental concerns in some regions of the United States, import
terminals would probably need to be built in neighboring countries such
as Mexico and Canada to supply the United States.135 Mr Yergins pre-
dictions were correct and to date the only West Coast terminal to have
been built is Sempras LNG import terminal, Energia Costa Azul, located
in Baja California, Mexico (at the border of Southern California and
Mexico).136
Opposition to LNG terminals was not just limited to the West and
East Coasts. For example, in Alabama, a state assumed to be friendly to
energy infrastructure, community groups effectively blocked two onshore
terminal proposals and called for LNG import terminals to be built only
offshore.137
Moreover, US opposition to LNG import terminals did not seem to
dissipate over time, as evidenced by the long-standing opposition to Hess
LNGs proposed Weavers Cove terminal, a proposed East Coast LNG
terminal at the north end of Fall River in Massachusetts. In June 2011,
Hess LNG announced they were abandoning their plans to develop the
controversial LNG terminal in Weavers Cove, claiming that changing
economics due to the significant increase in shale gas production was the
reason for their decision to withdraw applications for the facility proposed
back in 2003. Environmental groups had long opposed the facility and
were supported by a host of public officials and federal and state lawmak-
ers, some of whom had worked to pass laws complicating the ability of
LNG tankers to reach Mount Hope Bay. While Hess said the opposition
played no role in the decision to abandon the project, environmentalists
hailed the decision, stating that the project was never appropriate for
Narragansett Bay, so its official demise is long overdue.138
In addition to public opposition, in some cases state and local agencies
were at odds with federal agencies over LNG terminal siting approval. For
example, Delawares environmental secretary blocked the development
135Daniel Yergin and Michael Stoppard, The Next Prize, Foreign Affairs,
Weavers Cove LNG Project, Natural Gas Intelligence. Jan. 30, 2006.
US
A. Everett, MA: 1.035 Bcfd (GDF SUEZ DOMAC)
B. Cove Point, MD: 1.8 Bcfd (Dominion Cove Point LNG)
C. Elba Island, GA: 1.6 Bcfd (El Paso Southern LNG)
D. Lake Charles, LA: 2.1 Bcfd (Southern Union Trunkline LNG)
E. Gulf of Mexico: 0.5 Bcfd, (Excelerate Energy Gulf Gateway Energy Bridge)
F. Offshore Boston: 0.8 Bcfd, (Excelerate Energy Northeast Gateway
L G. Freeport, TX: 1.5 Bcfd, (Cheniere/Freeport LNG Dev.)*
J H. Sabine, LA: 4.0 Bcfd (Cheniere/Sabine Pass LNG)*
A F I. Hackberry, LA: 1.8 Bcfd (Sempra Cameron LNG)*
J. Offshore Boston, MA: 0.4 Bcfd (GDF SUEZ Neptune LNG)
B K. Sabine Pass, TX: 2.0 Bcfd (ExxonMobil Golden Pass) (Phase I & II)
Canada
L. Saint John, NB: 1.0 Bcfd, (Repsol/Fort Reliance Canaport LNG)
Mexico
C M. Altamira, Tamulipas: 0.7 Bcfd, (Shell/Total/Mitsui Altamira LNG)
89
N N. Baja California, MX: 1.0 Bcfd, (Sempra Energia Costa AZul)
HD
G KI *Authorized to re-export delivered LNG
E
M US Jurisdiction
FERC
MARAD/USCG
As of September 26, 2011
Note: There is an existing import terminal in Peuelas, PR. It does not appear on this map since it can not serve or affect deliveries in the Lower
48 U.S. states.
90
Lewis
Pierre- Woodford Fayette ville Current shale plays
Niebrara Chattanooga
Monterey Bend Stacked plays
Avalon Floyd- Conasauga Shallowest/youngest
11 Neal 31
Barnett-
Barnett Intermediate depth/age
12 Woodford Tuscaloosa Deepest/oldest
Mixed shale & chalk play
Eagle Haynesville- Mixed shale & limestone play
Eagle Ford Ford Bossier Mixed shale & tight dolostone-
La Caslta siltstone-sandstone play
13
19 Prospective shale plays
Eagle Ford,
20 21 22 23 24 25 26 27 28 29 30 Basins
Tithonian
Pimlenta Pimlenta,
Tamaullpaa 17
18 N
Miles
14
16 15 Maltrata 0 200 400 600 800
ditioning cargoes to the Russian Sakhalin LNG Project. Confirming email from
Sakhalin LNG on file with author. On April 10, 2000 (DOE/FE Order No. 1580),
DOE/FE granted ConocoPhillips and Marathon blanket authorization to export
the equivalent of 10 Bcf of natural gas from the Kenai LNG facility to interna-
tional markets over a two-year period beginning on the date of the first export.
Kenai LNG sent the commissioning cargoes to Sakhalin pursuant to this Order.
4.Global LNG supply
4.1Overview of Natural Gas Resources
and Global LNG Supply
reserves of 38.4%. The full chart of the worlds proved natural gas reserves is avail-
able at http://www.bp.com. According to BP, proved reserves of natural gas are
generally taken to be those quantities that geological and engineering information
indicates with reasonable certainty can be recovered in the future from known
reservoirs under existing economic and operating conditions. The reserves-to-
production (R/P) ratio is determined by taking the reserves remaining at the end
of any year and dividing by the production for that year. The resulting ratio is
the length of time that those remaining reserves would last if production were to
continue at that rate.
3IEA WEO-2006.
92
Global LNG supply 93
The Pacific area including the Middle East has historically been
the largest LNG producing region in the world, although the ranking
of suppliers has shifted in recent years. In 2002, Indonesia was the
largest LNG exporter, followed by Algeria and Trinidad. In the early
94 Energy for the 21st century
Based on ten LNG projects that are under construction, are close to
completion, or have reached a final investment decision (FID) recently,
a second wave of LNG production capacity is on the way in the next
few years. According to the IEA, these new projects will add 85 bcm of
new LNG capacity so that total liquefaction capacity will be at least 458
bcm by 2017. Angola LNG is the first LNG project in Angola and will
be completed by early 2012, with capacity of 7.1 bcm. Two projects in
5Ibid. at p.242.
96 Energy for the 21st century
600
FIRST WAVE SECOND WAVE
500
400
bcm
300
200
100
0
2008 2009 2010 2011 2012 2013 2014 2015 201620
The trend from 2014 onwards represents the start of the second wave
of LNG production capacity additions. Based on currently proposed
projects, global LNG production capacity is expected to reach 540 bcm by
2020 (Figure 4.1).
6Ibid. at p.244.
Global LNG supply 97
Today, the tiny Persian Gulf country of Qatar is by far the largest LNG
exporter in the world with a combined capacity of 105 bcm (77 mtpa) of
LNG, or 28 percent of global liquefaction capacity.7 As of January 2011,
Qatars proven natural gas reserves stood at approximately 896 trillion
cubic feet (Tcf).8 Qatar holds almost 14 percent of total world natural
gas reserves and has the worlds third-largest reserves behind Russia
and Iran.9 The majority of Qatars natural gas is located in the massive
offshore North Field, which occupies an area roughly equivalent to Qatar
itself. The North Field is part of the worlds largest non-associated natural
gas field and is a geological extension of Irans South Pars field, which
holds an additional 450 Tcf of recoverable natural gas reserves. In 2010,
preliminary estimates from Qatar National Bank indicated that the oil and
gas sectors accounted for over half of Qatars 2010 GDP.10
As discussed in detail in Chapter 8, Qatars LNG production comes
from two LNG production projects at Ras Laffan Qatargas and
RasGas. Each project has seven LNG production trains with varying
capacities. Although each train has different owners, the primary owner
of all trains is Qatar Petroleum, the Qatari national oil company.11 With
the largest production capacity and a huge LNG tanker fleet, Qatar has
cient to meet projected increases in demand to 2030, more than half of the resources
are found in just three countries: Russia, Iran and Qatar (IEA WEO-2006).
10 EIA, Country Analysis Briefs, Qatar, http://www.eia.gov/countries/cab.
cfm?fips5QA.
11IEA MTOGM 2011, at p.185.
98 Energy for the 21st century
4.8Indonesia
Indonesia has long been an important LNG producer, exporting its first
cargo in 1977, and until being overtaken by Qatar was the largest LNG
producer in the world. Indonesia has two LNG export terminals, Arun
and Bontang, both of which are owned by Pertamina, the state oil and gas
company. The Arun plants are aging and exports are declining and could
cease altogether in 2014. As a result, the Bontang terminals are playing an
increasingly important role in meeting long-term commitments to existing
buyers and are developing new fields.13
In recent years, Indonesia took FID for the 2.7 bcm Donggi Senoro
LNG project, which is set to come online in 2014. However, Indonesias
future as a reliable energy supplier is a bit uncertain as a policy dispute has
12Ibid.
13IEA MTOGM 2011, at p.190.
Global LNG supply 99
raged over how much gas production should be reserved to meet increas-
ing domestic demand.14
4.9Malaysia
14Ibid.
15 EIA Country Analysis Brief, Malaysia, last updated, Dec. 2010, http://
www.eia.gov/countries/cab.cfm?fips5MY.
16Ibid.
17Ibid.
18Ibid.
19Ibid.
VIETNAM
Gulf of PHILIPPINES
THAILAND SPRATLY
Thailand
ISLANDS Sulu
Sea
Kudat
Kota
Kota Gumung
Baharu
Pulau Kinabalu Kinabalu
Pinang Kuala South China Sea Sandakan
Terengganu Palau Labuan Sabah
George Taiping
Town BRUNEI Lahad Datu Pulau
Ipoh Tawai Sebatik
Lumut KEPULAUAN Miri
KUALA Kuantan ANAMBAS KEPULAUAN
Strait of (INDONESIA) NATUNA Pulau Bunyu
LUMPUR
(INDONESIA)
100
Malacca Bintulu
Klang Seremban
Port Dickson Sibu Sarawak Celebes
Melaka Jahor Sea
Bahru Kuching Bonneo
SINGAPORE
INDONESIA
Equator INDONESIA
0 200 km
0 200 ml
Source: US EIA
Australia
China
Indonesia
Malaysia
India
0 20 40 60 80 100 120
Trillion cubic feet
Source: US EIA
Figure 4.3 Top five Asia-Pacific proven natural gas reserve holders 2010
20Ibid.
21Ibid.
22Ibid.
102 Energy for the 21st century
The Snhvit LNG project is the first offshore development in the Barents
Sea and the worlds northernmost LNG facility. Located outside of
Hammerfest in Northern Norway, the Hammerfest LNG terminal is also
Europes first LNG export facility. (See Figure 4.4.)
The gas field for the project is called Snow White Snhvit in
Norwegian (in Norway, energy projects are named after mythical
characters). The field lies 340 miles north of the Arctic Circle in an area
long considered out of reach for energy development due to the Barents
Seas shifting ice packs and hostile conditions, including powerful waves
and extreme cold. Although no energy company knew how to operate
in such a harsh environment, soaring global demand and high prices in
the early to mid-2000s led to energy companies going to the ends of
the earth to find new supplies.23 The Snhvit LNG project was one of
those ends of the earth projects undertaken mainly to supply natural
gas to the eastern states of the United States. At the time, Dominion
had even expanded its Cove Point, Maryland LNG import terminal to
accommodate the Arctic gas to come from Snhvit. While the United
States no longer expects to become a major LNG importer, Snhvit
remains a pioneering project that opens up LNG trade in Arctic waters.
This may be increasingly relevant as the warming Arctic opens up
more trade routes, including the Northern Sea Route and the famed
Northwest Passage.24
23 Jad Mouawad, A Quest for Energy in the Globes Remote Places, The New
Snhvit
Hammerfest
Harstad
NORWAY
Trondheim
temperature results in both the gas turbines and the LNG process working
more efficiently. In addition, and as with the Gorgon project, the Snhvit
development is based around a subsea gas production system which will
significantly reduce greenhouse gas emissions by the subsurface injection
of reservoir CO2.25
The Snhvit LNG project came on-stream in 2007 with a production
capacity of approximately 4.3 mtpa.26 According to Statoil, at full capac-
ity on Snhvit, 700,000 tonnes of CO2 will be stored per year, which equals
the emission volume from 280,000 cars.27
ncs/snoehvit/Pages/default.aspx.
27Statoil, Carbon Storage Started on Snhvit, http://www.statoil.com/en/
NewsAndMedia/News/2008/Pages/CarbonStorageStartedOnSnhvit.aspx.
28 EIA Country Analysis Briefs, Trinidad and Tobago (last updated March
2011), http://www.eia.gov/countries/cab.cfm?fips5TD.
29Ibid.
Global LNG supply 105
4.13Algeria
Algeria has long been one of the worlds largest LNG exporters and is
also a major pipeline supplier of natural gas to Western Europe via Spain
and Italy. In 1964, the worlds first commercial LNG plant, the Arzew
LNG plant in Algeria, came online and began deliveries to the United
Kingdom under a 15-year contract. Algerias Skikda plant came online
in 1972. In 2004, an explosion and fire destroyed several of the trains
at Skikda, which created an immediate need to replace lost natural
gas export capacity. Sonatrach contracted with KBR to design a new
LNG plant, which is supposed to offer more innovations and greater
efficiencies.31
Algeria currently supplies about 20 bcm of LNG and over 30 bcm of
pipeline gas exports to global gas markets. There are two trains under con-
struction in Algeria that are expected to be completed by 2013; however,
it is unclear whether these trains will add additional capacity or replace
older plants.32
30Ibid.
31 Kamel Bouzid, Pamela Roche, and David A. Coyle, Skikda LNG Train
4.14Libya
Although Libya has been exporting LNG since 1970, its plant at Marsa el
Brega has been producing only a nominal amount of LNG (see Appendix A)
and no plans have been announced for expansion of Libyas LNG capacity.
4.15 Nigeria
The Nigerian LNG (NLNG) project at Bonny Island has been con-
stantly expanded since it began commercial operation in 1999 and is a
joint venture of Shell, Total, Eni, and the Nigerian National Petroleum
Corporation (NNPC) (see Appendix A). Nigerian LNG currently has six
trains in operation with an overall capacity of approximately 22 mtpa of
LNG33 and plans are currently underway to build Train 7, which will lift
the total production capacity to over 30 mtpa of LNG.34
In 2009, Nigerias LNG exports plummeted as a result of political
unrest and sabotage. The situation improved in 2010 and LNG exports
came back to 2008 levels although two trains remain shut down. However,
a power supply problem in December 2010 reduced LNG production
significantly. Nigeria has several LNG projects under consideration,
including Brass LNG, Olokola LNG and Nigeria LNG Train 7. Although
there is great potential for Nigeria to become an even larger LNG sup-
plier, progress has been slow on recent projects due to the lack of a stable
financial and tax regime and political uncertainty. At this point, it seems
unlikely that any new projects will start producing before 2016.35
4.16 Egypt
technology.com/projects/bonny/.
34 Nigerian LNG Limited, http://www.nlng.com.
35IEA MTOGM 2011 at p.191.
36 EIA Country Analysis Briefs, Egypt (last updated July 2012), http://www.
eia.gov/cabs/Egypt/pdf.pdf.
Global LNG supply 107
2,500
Production
2,000 Consumption
Billion cubic feet
Exports
1,500
1,000
500
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: US EIA
37Ibid.
38 EIA Country Analysis Briefs, Egypt (update from Feb. 2011), http://www.
eia.gov/cabs/Egypt/pdf.pdf.
39The operating company, SEGAS, is controlled by Union Fenosa Gas in
conjunction with ENI of Italy (80%) and two state-owned Egyptian companies
Egyptian Natural Gas Holding Company (EGAS 10%) and Egyptian
General Petroleum Corporation (EGPC 10%). Union Fenosa Gas is owned in
a 50/50 partnership by Union Fenosa of Spain and Eni of Italy. Hydrocarbons-
technology.com, SEGAS Liquefied Natural Gas Complex, Damietta, http://www.
hydrocarbons-technology.com/projects/seagas/.
108 Energy for the 21st century
40Ibid.
41According to its website, BG Group has played a leading role in the devel-
opment of Egypts natural gas industry and is responsible for around a third of all
gas produced in Egypt. The Groups activities in Egypt span the gas chain from
exploration, through development and production, to LNG. BG Group, Egypt,
http://www.bg-group.com/OurBusiness/WhereWeOperate/Pages/pgEgypt.aspx.
42 Egyptian LNG, http://www.egyptianlng.com.
43The Egyptian LNG Company owns both the Egyptian LNG site
West Bank
Mediterranean Sea
Gaza Strip
Damietta Dead
Alexandria Port Said Sea
Mars ISRAEL
h Suez
Matru Tant
a
Canal JORDAN
Al Jizah Suez
CAIRO Sinai
Siwah Ban Suwayf
SAUDI
ARABIA
Al Minya
Al Sharm
Ghardaqah ash
t
Asyu Shaykh
LIBYA r
Nil
Bu
jah
e
Safa
Red
rijah
Al Kha Sea
Luxor
n
Aswa
Lake b
Hala
0 100 200 km Nasser
Triangle
0 100 200 ml
S U D A N
Source: US EIA
45 EIA Country Analysis Briefs, Egypt (update from Feb. 2011), http://www.
eia.gov/cabs/Egypt/pdf.pdf.
110 Energy for the 21st century
Other
5%
Kuwait
3%
Europe
Chile 51%
5%
Japan
6%
Korea
10% US
20%
Note: Europe: Spain (60%), France, Italy, Turkey, Belgium, UK, and Greece
Other: Taiwan, Mexico, India and China
Source: US EIA
and the SuezMediterranean (SUMED) Pipeline, two key routes for the
export of Persian Gulf oil and LNG46 (Figure 4.9).
The Suez Canal connects the Red Sea and the Gulf of Suez with the
Mediterranean Sea, spanning 120 miles. In 2011, 17,799 ships transited
through the Suez Canal, of which 20 percent were petroleum tankers and
6 percent were LNG tankers.47 With a width of only 1,000 feet at its nar-
rowest point, the Suez Canal is unable to handle the VLCC (very large
crude carrier) and ULCC (ultra large crude carrier) class crude oil tankers.
The Suez Canal Authority is continuing enhancement and enlargement
projects on the canal, and extended the depth to 66 ft in 2010 to allow over
60 percent of all tankers to use the canal.48
The 200-mile long SUMED Pipeline, or SuezMediterranean Pipeline,
46In addition, fees collected from operation of these two transit points are a
significant source of revenue for the Egyptian government. EIA Country Analysis
Briefs, Egypt (last updated July 2012), http://www.eia.gov/cabs/Egypt/pdf.pdf.
47Ibid.
48 EIA Country Analysis Briefs, Egypt (update from Feb. 2011), http://www.
eia.gov/cabs/Egypt/pdf.pdf.
Global LNG supply 111
MEDITTERRANEAN SEA
Alexandria
Suez
Sidi
Canal
Kerir
Terminal
Suez
SU ipel
p
M ine
Cairo
ED
EGYPT RED
Nile SEA
Ain
Sukhma
Terminal
provides an alternative to the Suez Canal for those cargoes too large to
transit the canal (laden VLCCs and larger). The pipeline has a capacity
of 2.3 million bbl/d and flows north from Ain Sukhna on the Red Sea
coast to Sidi Kerir on the Mediterranean. The SUMED is owned by Arab
Petroleum Pipeline Co., a joint venture between the Egyptian General
Petroleum Corporation (EGPC), Saudi Aramco, Abu Dhabis National
Oil Company (ADNOC), and Kuwaiti companies.49
According to the US EIA and the IEA, closure of the Suez Canal
and the SUMED Pipeline would divert ships around the southern tip of
Africa, the Cape of Good Hope, adding approximately 6,000 miles to
transit, increasing both costs and shipping time. Shipping around Africa
would add 15 days of transit to Europe and 810 days to the United
States.50
According to the IEA, the political unrest of 2011 that toppled the
49 EIA Country Analysis Briefs, Egypt (last updated July 2012), http://www.
eia.gov/cabs/Egypt/pdf.pdf.
50Ibid.
112 Energy for the 21st century
4.17Angola
According to the EIA, Angola had 10.9 trillion cubic feet (Tcf) of natural
gas reserves as of January 1, 2011 a significant increase from the 2007
estimated reserves of 2 Tcf. Natural gas production in Angola is tied
directly to oil production and is often vented or flared, with limited
volumes consumed domestically. In 2009, Angolas gross natural gas
production was approximately 357 billion cubic feet (Bcf). Of this, 244 Bcf
(67 percent) was vented or flared, 81 Bcf (23 percent) was re-injected to
aid in oil recovery and only 24 Bcf (7 percent) was marketed for domestic
consumption.52
Developments are underway to capture and market this natural gas
for domestic electricity generation and to export most of it in the form of
LNG. Chevron and state-owned Sonangol, together with other sharehold-
ers including Total, BP and Eni, are building the countrys first LNG plant
near Soyo in northern Angola. The plant is expected to be operational by
early 2012.53
The natural gas will come from several offshore fields and, according
to the partners, the project will process 1.1 billion cubic feet of associ-
ated gas per day and will eventually produce 5.2 million tons per year
of LNG and process up to 125 million cubic feet per day of gas for the
domestic market.54 Initially, the LNG was to be directed to the Gulf LNG
regasification plant in Pascagoula, Mississippi, where Sonangol holds a 20
percent share. However, given the current natural gas market conditions
in the United States (surplus production and lower prices), Angolan LNG
exports will likely be destined for Asian and European markets where
prices are higher.55
Equatorial Guineas natural gas production has grown rapidly over the
past decade but is currently starting to level off. According to the US EIA,
Equatorial Guinea had 1.3 trillion cubic feet (Tcf) of proven natural gas
reserves as of January 1, 2011, with the majority of the reserves located
offshore Bioko Island. From 2001 to 2009, natural gas production
increased rapidly from 1 billion cubic feet (Bcf) to 232 Bcf as new projects
came online. Domestic consumption over the same period went from 1 to
55 Bcf, increasing alongside of production until 2007, when the comple-
tion of the Punta Europa liquefied natural gas facility on Bioko Island
allowed for greater exports.56
Most of Equatorial Guineas natural gas production is exported in the
form of LNG. In May 2007, Marathon Oil Corporation and its partners
completed Train 1 of the $1.4 billion Punta Europa LNG facility on Bioko
Island. In 2009, Equatorial Guinea exported approximately 153 Bcf of
LNG, almost all of which went to Asia, mainly Japan (41 percent), South
Korea (36 percent) and Taiwan (16 percent). Smaller volumes that year
also went to India, China, France and Portugal. Initial LNG exports were
destined for the United States and in 2007 the US imported close to 18 Bcf
of LNG from Equatorial Guinea. However, since then, growing Asian
demand and weak US demand have shifted the dynamics of Equatorial
Guineas LNG markets. Plans for a second LNG train are underway with
an estimated start-up date of 2016.57
4.19 Cameroon
According to the IEA, GDF Suez is currently considering investing in
a 4.8 bcm LNG plant near Kribi in Cameroon.58 In June 2010, Foster
Wheeler AG announced that it had been awarded the contract by GDZ
Suez to carry out the pre-front-end engineering design (pre-FEED) for
the development of the onshore LNG plant and the offshore gas gather-
ing infrastructure. According to the announcement, the Cameroon LNG
project59 seeks to establish a national gas transportation network linking
Cameroons offshore gas resources with the state-sanctioned onshore
56 EIA Country Analysis Briefs, Equatorial Guinea (last updated Jan. 2011),
http://205.254.135.24/EMEU/cabs/Equatorial_Guinea/pdf.pdf.
57Ibid.
58IEA MTOGM 2011 at p.254.
59 Cameroon LNG, www.gdfsuez.com/document/?f5files/en/cameroun-uk.pdf.
114 Energy for the 21st century
60LNG World News, Foster Wheeler Awarded Contract by GDF Suez for
http://uk.reuters.com/article/2012/05/21/africa-gas-idUKL5E8GL2B320120521.
Global LNG supply 115
65Ibid., We can help vault Mozambique into being one of the worlds three
largest LNG exporters, citing Anadarko CEO Jim Hackett. See also Eastern El
Dorado?, The Economist, April 7, 2012, noting that At long last east Africa is
beginning to realize its energy potential.
5.Global LNG demand and emerging
demand markets
5.1OVERVIEW OF GLOBAL LNG DEMAND
Until about the late 1990s, LNG was a niche industry operating mostly in
the Asia-Pacific region. As the world entered the 21st century, however,
global demand for LNG surged in a perfect storm created by the
industrial and commercial boom around the world that resulted in an
ever-growing appetite for all energy resources.
Between 2000 and 2008, the LNG industry entered a period of rapid
growth with huge increases in supply coming from a growing number of
LNG producing countries. The number of LNG exporting countries grew
from 8 in 1996 to 15 at the beginning of 2008. The number of importing
countries also grew, with the United States expected to become one of the
largest LNG importers. To supply the growing number of LNG importing
and exporting countries, more players entered the LNG business and, as
indicated by the list in Appendix D, today there are quite a few companies
involved in the LNG business.
Between 2008 and 2009, the world endured the worst recession since the
Second World War1 with demand for all energy dropping significantly,
including global natural gas demand, which dropped 2 percent, the biggest
drop since the 1970s.2 As a result of weak demand due to the recession,
the wave of new LNG supply coming from recently completed projects,
and the unexpected surge in production of US shale gas, in 2009 there was
a sizable oversupply of LNG, with everyone in the natural gas industry
wondering how long the gas glut would last.3
In 2010, as global economies appeared to be emerging from the reces-
sion, global natural gas demand resumed its long-term upward trajectory
with the IEA projecting that natural gas will be the only fossil fuel for
which demand is higher in 2035 than in 2008.4 Most of the growth in gas
116
Global LNG demand and emerging demand markets 117
trade takes the form of LNG, with trade in LNG being expected to double
between 2008 and 2035.5 In its WEO-2010, the IEA predicted that the gas
glut would last into 2011 before starting to decline, with the excess supply
disappearing only by 2020.6
However, in early 2011, another perfect storm occurred in the
global LNG markets in the form of the unfortunate disaster at Japans
Fukushima nuclear plant, which led to Japan significantly increasing LNG
imports to make up for lost nuclear power. As a result of Japans nuclear
disaster, some countries that were considering increasing nuclear power
have indicated they will most likely switch from nuclear to natural gas to
replace, or supplement, their remaining nuclear fleet. Another unforeseen
event in the perfect storm of 2011 was the unrest in the Middle East,
which included the disruption of natural gas supplies from Libya.7
As discussed in detail in Chapter 1, this perfect storm of conditions
has led the IEA to predict that the coming decade may well be the Golden
Age of Gas, with the gas glut now expected to disappear much quicker
and most likely by 2015.8 While the ultimate wildcard for all natural gas
demand is the pace and strength of the global economic recovery,9 the IEA
nonetheless remains optimistic about the longer-term strength of LNG
markets with recent data suggesting that LNG demand remains strong.
Global gas demand reached an estimated 3,284 bcm in 2010, up almost
7.4 percent from its 2009 level, one of the highest growth rates recorded
over the past 40 years. As the first wave of new LNG was brought online,
global LNG trade increased by 25 percent in 2010, reaching 299 bcm, the
largest percentage increase ever noted. Global LNG trade now represents
9 percent of global gas demand.10
Growth in LNG demand is expected to continue over 201116 as most
regions of the world are expected to increase their use of natural gas and
import more LNG for a variety of reasons including economic growth,
environmental policies and fuel switching (Figure 5.1).
5Ibid.
6Ibid.
7IEA Medium-Term Oil and Gas Markets (MTOGM) 2011 at p.157, http://
www.iea.org/textbase/nppdf/stud/11/mtogm2011.pdf.
8Ibid.
9As this book goes to print, the outlook for the global economy is anything
but clear with concerns about another global economic recession mounting. Be
Afraid, The Economist, Oct. 1, 2011 (suggesting that unless political leaders act
more boldly, the world economy is likely to slip into a global recession. This article
also comments that the real reason to be afraid is that [a]t a time of enormous
problems, the politicians seem Lilliputian).
10IEA MTOGM 2011 at p.142.
118 Energy for the 21st century
Global
economic
growth
International Growth in
pipeline emerging
supply economies
LNG
demand
Domestic drivers
Environment
gas
policies
production
Regional
Fuel
market
switching
reforms
For the moment, the consensus seems to be that the markets are too dis-
tinct to converge anytime soon since the price of gas in Asia and most of
Europe is still priced against the cost of substitute fuels in the region. Over
time, and in light of the prospects of North American LNG exports (see
Chapter 10), this could change.
Despite the dominance of the Asia-Pacific and European markets in
terms of LNG demand, a number of other regions, such as Southeast Asia,
Latin America and the Middle East and North Africa (MENA) region,
are also emerging as LNG importers. While their share of LNG imports is
expected to remain small (4 percent of total LNG imports), the develop-
ment of additional demand markets is an interesting and important trend
that is worthy of discussion and is the focus of this chapter.
technology.com, http://www.hydrocarbons-technology.com/projects/thailandptt/.
120 Energy for the 21st century
With the world price of energy increasing constantly, Map Ta Phut is an example
of an LNG regasification facility being built by a country hedging its bets (not
wanting to be left behind in the rush for natural gas). Ibid.
15IEA MTOGM 2011.
16Randy Fabi, UPDATE 1-Thai PTT has not Scrapped LNG Deals with Qatar-
In recent years, gas demand in Latin America has been growing fast at 3.5
percent per year over 20002008 and represents approximately 20 percent
of the total primary energy supply. Despite rapid growth, however, Latin
American gas demand represents only about 4 percent of the total global
gas demand.29
Due to LNG exports from Trinidad and Tobago, the Latin American
region as a whole is a net gas exporter but several countries are looking to
increase their natural gas use, in part to meet increased energy demand, to
replace use of expensive oil products, and/or to reduce reliance on hydro
power, which has experienced problems due to irregular rainfall patterns.
Additionally, the region also suffers from natural gas supply shortages
of pipeline gas primarily due to policy and regulatory failures that have
limited investment and development of resources. As a result, a number
of countries in Latin America already import LNG and may increasingly
look to LNG to meet their natural gas needs.30 (See Figure 5.2.)
www.lngndustry.com.
27 Polskie LNG was established in 2007 by Polish Gas and Oil Company
Penuelas EcoElectrica
Altamira
Terminal da LNG de Altamira Point Fortin Atlantic LNG
Regasification plants
5.5.1 Argentina
Argentina has the largest gas market in Latin America with natural gas
reserves estimated at 428 bcm as of 2009. Argentinas natural gas sector
was opened up to private investment in the 1990s, which transformed the
country from a natural gas importer to a major gas exporter in the region.
124 Energy for the 21st century
The financial crisis of 200102 and the resulting devaluation of the peso
against the US dollar had a severe impact on Argentinas gas industry.
As a result of the crisis, gas prices were frozen while demand continued to
grow and production started stagnating due to underinvestment. Between
2001 and 2008, natural gas demand increased by 25 percent, with pro-
duction falling by 3.1 percent between 2006 and 2008. Gas shortages in
Argentina are particularly problematic since the country relies on natural
gas for 52 percent of its total energy supply.31
In 2008, Argentina began importing LNG to supplement domestic
supply and insufficient imports from Bolivia. Domestic gas shortages
have serious financial implications for the government, which spent an
estimated $7 billion on energy subsidies in 2008 and which also subsidizes
LNG imports.32 The federal government has recently sought to stimulate
natural gas production through a Gas Plus Program that allows producers
to obtain higher prices which the government hopes will also encourage
investment in unconventional gas projects.33
In the meantime, Argentina was planning to increase its natural gas
imports from Bolivia but it appears that Bolivia might be struggling
to meet the output requirements of the 20-year contract it signed with
Argentina in October 2006. For example, in 2009, Bolivia was able to
increase exports to Argentina only because of reduced demand from
Brazil. This called into question whether Bolivia could sufficiently increase
production to fill a new proposed pipeline linking Bolivias southern gas
fields to Argentinas Northern provinces.34
In order to ensure natural gas supply, in late 2009 Argentina began con-
struction of a new LNG terminal. The Escobar LNG terminal is located
on the Paran River and has the capacity to handle 500 million cubic feet
(mcf) of LNG a day and a peak capacity of 600mcf.35 It is the second ter-
minal to be built in Argentina (the first being the Bahia Blanca terminal)
and total investment in the Escobar project is estimated at $140$150m.
The terminal was jointly developed by Repsol YPF, state energy utility
Enarsa and Excelerate Energy. Repsol YPF and Enarsa jointly own the
facility.36
The facility features a 150,900m floating storage and regasification
31Ibid.
32Ibid.
33Ibid.
34Ibid.
35 Escobar LNG Terminal, Project Summary from hydrocarbons-technology.
com, http://www.hydrocarbons-technology.com/projects/escobar-terminal/.
36Ibid.
Global LNG demand and emerging demand markets 125
5.5.2 Bolivia
Bolivia has the second-largest natural gas reserves in Latin America after
Venezuela with an estimated 710 bcm at the end of 2009. Bolivia is also
the largest exporter of natural gas in the region although production has
been stagnating since the 2006 nationalization process with production
currently at 15 bcm, while 2008 contracted demand was around 17.5 bcm.
Bolivias primary export markets are Argentina and Brazil, which gener-
ally command higher prices than the domestic market.40
In May 2010, President Evo Morales enacted the announced nationali-
zation of four major electricity companies in Bolivia, some with foreign
participation. In addition to the nationalization, President Morales
37Ibid.
38Ibid.
39Ibid.
40IEA MTOGM 2010.
126 Energy for the 21st century
5.5.3 Brazil
Brazils natural gas imports have more than doubled over five years from
5.1 bcm in 2003 to 12 bcm in 2008. Gas demand is expected to continue to
grow due to an expected growth in gas-fired power generation and overall
growth in Brazils economy. Brazils gas production is also expected to
grow and should reach 50 bcm by 2019, with most of the increase coming
from recent pre-salt discoveries.
Petrobras is the largest producer of natural gas in Brazil and the
company controls almost 90 percent of Brazils natural gas reserves.
State-controlled Petrobras42 is looking at options to monetize associ-
ated natural gas when production from the Tupi pre-salt field starts
after 2016, but so far many foreign companies have been reluctant to
invest in the natural gas sector due to the perceived dominance of the
state-controlled company and the lack of a clear regulatory framework
for gas.43
Brazil imports natural gas from three primary sources from Bolivia
and Argentina and LNG primarily from Trinidad and Tobago. Bolivia
is by far Brazils biggest supplier and in 2008 99 percent of Brazils total
natural gas imports came from Bolivia via the Gasbol pipeline. Due to
Bolivias recent nationalizations, however, Brazil is eager to diversify
supply and may look more to LNG imports to meet seasonal demand for
natural gas.44
Brazil currently has two LNG regasification terminals the 2.0 bcm
Pecem terminal in the northeast, and the 4.8 bcm Guanabara Bay termi-
nal in the southeast near Rio de Janeiro. Both facilities were installed in
the past few years and both are floating regasification and storage units
(FRSUs) provided by Golar LNG. The Pecem terminal received its first
LNG cargo from Trinidad and Tobago in July 2008. The Guanabara Bay
41 Ibid.
42 Petrobras is a publicly traded corporation, the majority stockholder of
which is the Government of Brazil. Petrobras is active in the following sectors:
exploration and production, refining, oil and natural gas trade and transporta-
tion, petrochemicals, and derivatives, electric energy, biofuel and other renewable
energy source distribution. Petrobras, http://www.petrobras.com.br.
43IEA MTOGM 2010.
44Ibid.
Global LNG demand and emerging demand markets 127
terminal came online in May 2009. In 2009. Brazil received 0.7 bcm of
LNG, all from Trinidad and Tobago.45
Petrobras is planning a third offshore LNG terminal, the 2.2 bcm
Tergas terminal, which is expected to come online by 2013. Petrobras is
also considering building a floating LNG liquefaction plant in the offshore
Jupiter field, which could process associated gas coming from the pre-salt
fields. Were this to happen, Brazil could supply its own LNG import
terminals as well as export to other countries in Latin America.46
5.5.4 Chile
45Ibid.
46Ibid.
47Ibid.
48Ibid.
128 Energy for the 21st century
and the region, which is heavily dependent on gas and other fossil fuels.
The terminal has a send-out capacity of 2 bcm and an estimated cost of
$500 million. As of mid-2010, GNL Mejillones was considering building
permanent storage tanks.49
While it would seem logical for Chile to import LNG from Peru, a long-
standing border dispute between the countries has made this impossible.
Chile also has a border dispute with its neighbor to the northwest, Bolivia,
dating back to the 187983 War of the Pacific, that makes gas exports
from Bolivia to Chile unlikely in the near future.50
5.5.5 Colombia
5.5.6 Venezuela
Venezuela has the largest natural gas reserves in Latin America with 4.8 tcm
(2.7 percent of proven global gas reserves). Despite large reserves, however,
gas production in Venezuela has been declining from a peak of 31 bcm in
1998 to 23 bcm in 2009. While the state-owned PDVSA has ambitious plans
to increase production, it has not been able to reach its targets, in part due
to a lack of foreign investment after President Chavez announced plans to
nationalize various industries, including electricity and telecoms.53
In October 2009, the largest discovery in Venezuelas history was made
by Eni and Repsol the Perla field. This field is estimated to hold over 220
bcm, but it could hold more and might produce over 25 bcm/y. Although
49Ibid.
50Ibid.
51Ibid.
52Ibid.
53Ibid.
Global LNG demand and emerging demand markets 129
Eni and Repsol have a 50/50 JV on the field, PDVSA has plans to take 35
percent in the project.54
Venezuela has ambitious plans to develop three LNG liquefaction
trains with each train having a different holding structure, with PDVSA
having majority stakes in each, along with 11 different companies. This
different ownership could be an obstacle for the projects to reach FID and
it is unlikely that the projects will be operational in 2014 as planned.55
5.5.7 Peru
Despite relatively small gas reserves (415 bcm), Peru recently became the
second LNG exporter in Latin America, after Trinidad and Tobago, and
the first LNG exporter in South America. The Peruvian government is
optimistic about Perus ability to expand its reserves and recent discoveries
may aid in that.56 A detailed description of the Peru LNG project is found
in Chapter 9.
Perhaps one of the most surprising recent trends in the global gas markets
is that the Middle East/North Africa (MENA) region is currently faced
with what some industry leaders have called a natural gas puzzle.57 The
puzzle is that although the region as a whole holds 40 percent of the
worlds proven gas reserves, the reserves are not evenly distributed. This
results in an abundance of gas in some countries but a shortage of gas in
many countries in the MENA region.
While historically there has been a dearth of information about natural
gas markets in the MENA region, the so-called gas puzzle has resulted in
more analysis being done on these markets in recent years. According to the
54Ibid.
55Ibid.
56Ibid.
57Simon Webb and Eman Goma, Shell Says Middle East Needs to Solve Gas
IEA, natural gas demand growth in the MENA region has been at least 8
percent per year and often as much as 10 percent. Dubai and some areas of
Saudi Arabia had demand growth of 13 to 15 percent in 2008. The increased
demand is due in part to rapid economic growth, which has led to increased
demand for power generation driven by natural gas. Pricing policies in the
MENA region have also resulted in artificially low natural gas prices, which
has spurred economic growth but also encouraged more demand.58
According to the IEA, the installed electricity generating capacity in
the MENA region is about 200 Gigawatts (GW) and in 2008 the six Gulf
Cooperation Council (GCC) states of Saudi Arabia, Kuwait, United Arab
Emirates, Qatar, Bahrain and Oman accounted for 82 GW of installed
electricity capacity. Iran had about 50 GW of installed capacity and Egypt
had about 25 GW. Approximately 55 to 60 percent of the installed gener-
ating capacity in the MENA region is gas-fired. Small consumers such as
Bahrain and Qatar are 100 percent gas-fired, while larger consumers such
as Algeria and the United Arab Emirates (UAE) are 90 percent gas-fired.
Egypt is 75 percent gas-fired and Saudi Arabia relies on gas for about 45
percent of its electricity generation with the balance being provided for by
oil. Kuwait also generates about half of its power from oil.59
The Oxford Institute for Energy60 has recently published the first aca-
demic book providing a comprehensive analysis of natural gas markets
in the MENA region.61 The book concludes that, despite large reserves,
the majority of countries in the region are encountering serious difficul-
ties meeting rising demand for natural gas, projected by the authors to
be 67 percent per annum. The difficulties are due in part to very low
domestic gas prices (one-third to one-sixth of the cost of new domestic
production) that are just a fraction of the price of internationally traded
gas. While the low gas prices have helped spur economic growth, they have
also resulted in some countries having to import pipeline gas and LNG
to meet the growing demand. The book suggests that MENA countries
need to raise domestic gas prices to at least cost-based and eventually to
internationally traded levels.62
58IEA MTOGM 2010, Focus on Middle East and North Africa, at p.14.
59Ibid.
60The Oxford Institute for Energy specializes in advanced research into the
in the Middle East and North Africa, The Oxford Institute for Energy
Studies (2011), http://www.oxfordenergy.org/shop/natural-gas-markets-in-the-
middle-east-and-north-africa/.
62Ibid.
Global LNG demand and emerging demand markets 131
63Malcolm Brinded, Natural gas: changing the Middle East energy land-
Middle East and North Africa, The Oxford Institute for Energy Studies (2011),
http://www.oxfordenergy.org/shop/natural-gas-markets-in-the-middle-east-and-nor
th-africa/.
132 Energy for the 21st century
All countries in the MENA region face the problem of growing summer
peak power demand as more air conditioning is used during this time.
To meet this increased seasonal demand for power, Kuwait has turned to
LNG imports via a floating regasification facility with LNG supply coming
from various producers. Interestingly, one of the very first LNG cargoes
from the Sakhalin II project in eastern Russia was delivered to Kuwait.65
Like Kuwait, Dubai has started to import LNG in order to meet high
summer seasonal demand for natural gas. Bahrain is also planning an
offshore LNG terminal to meet seasonal demand. The LNG terminals in
Dubai and Kuwait are both FSRUs and the shorter building times made
the FSRU a practical option for both Kuwait and Dubai.66
With one of the largest gas reserves in the world, Iran would have great
potential to be a major natural gas producer were it not for the economic
sanctions from the UN, the US and the EU over Irans nuclear program.
As a result of the sanctions, Iran has limited access to the advanced tech-
nologies needed to successfully develop an LNG project and has faced
Iraq has approximately 3.2 tcm of proven gas reserves and thus has
the potential to become a significant gas producer and potentially an
exporter.68 However, Iraq has continued to struggle to boost its energy
production, with one of the biggest challenges being the continued delay in
passing an oil and gas law. Although the Iraqi Cabinet approved the Draft
Hydrocarbon Law in February 2007, disagreement over various provi-
sions and among various parties has prevented the Iraqi Parliament from
approving the law.69 Other challenges for the Iraqi energy sector include
a lack of critical infrastructure such as roads, bridges, gas transmission
networks and gas-fired power plants.70
Most of Iraqs natural gas resources are located in the South Eastern
Basrah province although there are also fields in the North and the West.
Iraq has never attempted to develop its natural gas resources, in part due
to years of sanctions, wars, and political unrest. Currently, only 2 bcm
of natural gas is used in the domestic market while an estimated 7 bcm
is flared or vented due to the lack of transport infrastructure and lack of
demand.71
According to the World Bank, Iraq loses $5 million a day by flaring
off associated gas and is one of the worlds biggest gas-flaring polluters.
According to data collected in conjunction with the World Bank-led
Global Gas Flaring Reduction Partnership,72 Iraqs flared gas has risen
to 10 bcm/year, up from 3 bcm/year in 1994, due to Iraqs increased oil
worldbank.org/WBSITE/EXTERNAL/TOPICS/EXTOGMC/EXTGGFR/0,,m
enuPK:578075~pagePK:64168427~piPK:64168435~theSitePK:578069,00.html.
73 Estimated Flared Volumes from Satellite Data, 20062010, World Bank,
www.iraqenergy.org/news/?detailof53953&content5Iraq-Needs-to-Cut-Flaring:-
World-Bank-.
75IEA MTOGM 2011 at p.239.
76Ibid.
77 Iraq Needs to Cut Flaring: World Bank, Bloomberg, Sept. 29, 2011, http://
www.iraqenergy.org/news/?detailof53953&content5Iraq-Needs-to-Cut-Flaring:-
World-Bank-.
78IEA MTOGM 2011 at p.239.
Global LNG demand and emerging demand markets 135
79Steven W. Popper, Energy Resiliency: A New Way for Israel to Tap into the
firmly established, it found that Israel should increase its use of natural gas
through pipeline imports and/or LNG imports. Since Israel did not have an
LNG terminal, the study recommended that Israel should plan for an LNG
terminal but delay construction until future demand and costs became
clearer.82
In October 2011, state-owned Israel Natural Gas Lines announced
it had signed a deal with Italian marine contractor Micoperi to build
an offshore floating LNG (FLNG) terminal costing approximately
$140 million.83 The 2.5 bcm terminal will be built some 10 km out from
the Mediterranean coastal city of Hadera and will be the unloading
point for ships carrying the natural gas, which will then be fed directly
into Israels underwater gas pipeline. Construction is due to begin in
the second half of 2012 and be completed by the end of the year. The
proposed FLNG terminal is viewed as a quick solution and of the
utmost strategic importance for the countrys ability to ensure a con-
tinuous energy supply to its power stations and to safeguard its energy
security.84
In the meantime, however, Israel could face a natural gas shortage
as early as the third quarter of 2012 since Israels sole working gas field
is nearly depleted and gas supplies from Egypt have been continuously
disrupted due to chaos and sabotage in the Sinai Peninsula. Although
natural gas production in Israel is set to soar in coming decades, produc-
tion from the Tamar field is not expected to begin until 2013 and produc-
tion from the even larger Leviathan field will not be online until about
2017.85
Thus, the offshore LNG terminal is being viewed as just one of Israels
stop-gap solutions. The government has also instructed a number of
energy companies exploring its territorial waters to speed up operations
and threatened to let their licenses expire if they do not meet their com-
mitments.86 Israel may also have to resort to burning more coal or diesel to
power its power plants, although these two options are less desirable from
a cost and environmental standpoint.87
82Ibid.
83Ari Rabinovitch, Israel Signs Deal for $140 mln Off-shore LNG
In 2006, it was widely expected that natural gas supply from indigenous
sources in the North American region would not keep pace with demand
over the longer term and, as a result, North America, and in particular the
US, was expected to be a major source of demand growth for LNG in the
21st century.
In its Annual Energy Outlook 2007, the US Energy Information
Administration (EIA) predicted that US LNG imports would grow from
0.6 trillion cubic feet in 2005 to 4.5 trillion cubic feet in 2030.88 According
to the EIA, the future direction of the global LNG market is one of the
key uncertainties [going forward]. With many new international players
entering LNG markets, competition for available supply is strong, and the
supplies available to the U.S. market may vary considerably from year to
year.89
This was consistent with some analysts who predicted that the US LNG
market would be a supply-push not a demand-pull market. In this
type of market, other regions will price LNG away from the US when they
need it but, since other regions lack significant storage, the US will attract
LNG supplies during times of low demand and will absorb the worlds
excess when there is nowhere else to put it.90
As discussed in detail in Chapters 1012, with the recent increase in
production of shale gas in the US, it now appears that, far from being a
large importer of LNG, the US may ultimately become a large exporter
of LNG!
National Petroleum Council (NPC) Global Oil & Gas Study (2007), http://www.
npc.org/Study_Topic_Papers/13-STG-LiquefiedNaturalGas.pdf.
3Ibid.
138
The globalization of LNG 139
In more recent years, global LNG trade patterns have shifted, with
more LNG being traded between the historically distinct LNG regions
and more players entering the market (see Appendix D for a list of compa-
nies with major holdings in LNG projects). The growth in LNG trade over
the past few years has led many to question whether the LNG markets
have become globalized and whether LNG could ever trade as a global
commodity. In order for this to happen, a number of factors would have
to converge including: (1) increased patterns and flow of international
trade of LNG; (2) the establishment of a single price; (3) liquid trading;
and (4) flexibility of supply.4 Of these, the establishment of a single price is
perhaps the most complicated and difficult to achieve due to differences in
the global pricing of natural gas, which is discussed in detail below.
Norway and supply to the US from Canada. Liquefied Natural Gas, Topic
Paper no. 13, Working Document of the National Petroleum Council (NPC)
Global Oil & Gas Study (2007), http://www.npc.org/Study_Topic_Papers/13-
STG-LiquefiedNaturalGas.pdf.
6IEA Medium-Term Oil and Gas Markets (MTOGM) 2011.
140 Energy for the 21st century
www.lngworldnews.com/lebanon-to-base-its-future-on-lng/.
10International Gas Union (IGU) World LNG Report 2011 at p.31.
11Ibid.
12Ibid. at p.32.
13Ibid.
14Ibid.
The globalization of LNG 141
1,500 50
LNG
Pipelines
1,200 Share of LNG 40
(right axis)
900 30
bcm
%
600 20
300 10
0 0
2000 2008 2020 2035
Source: IEA, World Energy Outlook 2010, OECD/IEA 2010, Figure 5.7, p.195
15IEAWEO-2010 at p.192.
16IEAWEO-2006, www.iea.org. Between 2002 and 2007, global LNG trade
expanded by around 50%. The global economic crisis in 200809 led to a sudden
and pronounced drop in global gas demand. The drop in demand coincided with
a huge increase of new LNG liquefaction capacity, which increased the supply of
gas globally and resulted in a supply glut for most of 200809, with many in the
industry wondering how long the supply glut would last. In 2010, the glut began
to dissipate in response to a rebound in gas demand, especially from Asia and
emerging economies, as well as cold weather across the Northern Hemisphere that
called on more gas for heating. IEA World Energy Outlook 2011, Special Report,
Are We Entering a Golden Age of Gas?, June 6, 2011, http://www.iea/org/weo/docs/
weo2011/WEO2011_GoldenAgeofGasReport.pdf (hereinafter IEA Golden Age
Report), at p.31.
142 Energy for the 21st century
11 50 62
4 15 22 83 98 138 6 40
11
9 5 15 9 11 21
16 5
5 8 36 60 26
32
7 18 29 44
41 45 49
143
4 10 27
14 18
5 16
6 11 41 43
Source: IEA, World Energy Outlook 2010, OECD/IEA 2010, Figure 5.6, p.194
Figure 6.2Inter-regional natural gas net trade flows between major regions in the New Policies Scenario (bcm)
144 Energy for the 21st century
600 Europe
Other Africa
500
Other
Middle East
400 Russia
Americas
bcm
300
Algeria
Indonesia
200
Nigeria
Source: IEA Golden Age Report 2011, OECD/IEA 2011, Figure 2.8, p.71
23Ibid.
24IEA Medium-Term Gas Market (MTGM) Report 2012. As an indication
of the growing importance of natural gas, the IEA for the first time has separated
oil from gas in its 2012 medium-term report and issued a separate report focused
entirely on gas.
25Ibid. noting that, in terms of pipelines, not much is happening apart from
emerged is that while the gas markets are globalizing, they are not
yet globalized since approximately two-thirds of global gas is still con-
sumed in the country where it is produced.27 Moreover, a truly global
LNG market continues to be hindered by the lack of a single pricing
structure for LNG, with natural gas remaining the most important com-
modity with no global market price yet.28 As such, prices in the various
LNG markets remain the balancing point between global gas markets
(Figure 6.4).
As inter-regional trade in LNG continues to grow, however,
the traditional pricing structures are being challenged and, as dis-
cussed below, there are a number of developments that might cause
the traditional pricing structure to change over time, with the possibil-
ity that LNG will one day trade as a global commodity more similar
to oil. For the near term, however, it is expected that the divergence
among regional gas prices will decline but remain a feature of global gas
markets.29
27Ibid. at pp.15860.
28IEA MTGM 2012.
29Ibid.
146 Energy for the 21st century
(BREE), Gas Market Report July 2012, www.bree.gov.au (hereinafter BREE Gas
Market Report 2012). This is the first of what is planned to be an annual report
on the current state and projected developments in international and domestic gas
markets. The Bureau of Resources and Energy Economics (BREE) is a profes-
sionally independent, economic and statistical research unit within the Australian
Governments Resources, Energy and Tourism (RET) portfolio. The Bureau was
formed on 1 July 2011 and its creation reflects the importance placed on resources
and energy by the Australian Government and the value of these sectors to the
Australian economy. BREE, www.bree.gov.au.
31 BREE Gas Market Report 2012 at p.42.
32Anthony J. Melling, Natural Gas Pricing and its Future: Europe as
PLNG 5 a 3 Pcrude 1 b
where
PLNG 5 price of LNG in US$/mmBtu (US$/GJ 1.055)
Pcrude 5 price of crude oil in US$/barrel
a 5 crude linkage slope
b 5 constant in US$/mmBtu (US$GJ 1.055).
Historically, there was little negotiation between parties over the slope
of the LNG contracts, with most disagreements centered on the value of
the constant b. Following the oil price declines of the 1980s, most new
LNG contracts incorporated floor and ceiling prices that determined the
range over which the contract formula could be applied.37 Since suppli-
ers had to make substantial investments in LNG liquefaction trains, a
pricing model developed that provided a floor price. For suppliers, this
floor limits the fall in the LNG price to a certain level even if the oil price
were to continue falling. Conversely, buyers are protected by a price
Gas Prices and Market Design (hereinafter IEA Nat. Gas Mkt. Review 2006),
http://www.iea.org/textbase/nppdf/free/2006/gasmarket2006.pdf.
34Anthony J. Melling, Natural Gas Pricing and its Future: Europe as
Pricing Issues, a Background Paper prepared for the National Bureau of Asian
Research, 2011 Pacific Energy Summit, available at http://www.jai-energy.com/
pubs/nbr.pdf.
36 BREE Gas Market Report 2012 at p.42.
37 BREE Gas Market Report 2012 at p.42.
148 Energy for the 21st century
cap, which restricts LNG price rises when oil prices rise above a certain
point.38
According to Poten & Partners study in the Kitimat LNG export
application, the Asia-Pacific LNG market is predominantly based
on long-term supply contracts based on the JCC price. In 2009, more
than 95 percent of total LNG deliveries were under such long-term
contracts.39 Long-term contracts are the norm in order to address both
buyer concerns with security of supply risks and the sellers insistence on
firm commercial arrangements to underpin construction and operation
of LNG liquefaction facility economics, including financing arrange-
ments.40 Unlike in the Atlantic Basin, historically, there are no liquid gas
markets in the Asia-Pacific region to provide a ready fall-back market for
buyers or sellers.
In North America, the gas market originally operated in a similar
manner to the European market with long-term, oil-based contracts.
When the North American gas markets were liberalized in the 1980s and
1990s, a hub system developed whereby natural gas is now traded at
over 40 principal centers, or hubs, spread across North America. The best
known is Henry Hub in Louisiana, which is the reference point for the
pricing of NYMEX gas futures contracts.41 In many countries, including
countries in the Middle East and North Africa (MENA), Latin America,
the former Soviet Union, most of the rest of Africa, gas prices are set
without any linkage to oil or costs and gas prices barely cover production
costs.42
In terms of price, the last few years can be analyzed as three different
stages. The first stage, from mid-2007 to mid-2008, represents the time
when gas market prices, along with other fuel prices, were increasing and
Prices
$/Mmbtu
16
US Henry Hub
Average German Import Price cif 14
UK NBP
Japan LNG cif
12
10
0
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11
traded based on an energy-equivalent value of gas vs. oil and the recent ratio of oil
150 Energy for the 21st century
to gas prices reflects the huge discount in the value of gas versus oil. The following
table illustrates the recent ratio between gas and oil prices:
25
20
15
10
0
0
12
10
10
11
11
2
-1
-1
l-1
-1
-1
-1
l-1
-1
-1
n-
n-
p-
n-
p-
ay
ar
ov
ar
ay
ov
ar
Ju
Ju
Ja
Ja
Se
Ja
Se
M
M
M
M
N
N
US Henry Hub Japan LNG France PEG
Canada AECO Germany BEB Hu
Netherlands TTF
Belgium Zeebrugge
Brent crude oil UK NBP
Source: US EIA
Figure 6.6Global spot natural gas and crude oil prices with average
monthly LNG prices in Japan, Jan. 2010March 2012
Throughout most of 2011, the Asian and European markets faced rising
natural gas prices, while the US HH price declined even further. However,
by June 2011, European gas prices were back to the level of October 2008
while US HH prices continued to fall.51 In 2011, US HH prices sunk to
their lowest levels in ten years, while Europes prices ultimately stabilized
at $8-10/MBtu with Japans LNG import price peaking at $17/MBtu by
late 2011.52 (see Figures 6.5 and 6.6.)
Since LNG is the glue linking global gas markets, the IEA has recently
analyzed how LNG arbitrage created a convergence between the markets
in 200910 and more recently why the convergence appears to have
51Ibid.
52IEA MTGM 2012.
152 Energy for the 21st century
ended.53 In 2007, the average US LNG import price was $0.1/MBtu higher
than the HH price. This increased to more than $1/MBtu in 2008 as LNG
went to the higher-priced NBP markets. Between 2007 and 2008, US
LNG imports dropped more than 50 percent, from 22 bcm to 10 bcm. In
mid-2009, the NBP and HH prices converged, the difference between the
HH price and the US LNG import price increased, and US LNG imports
increased slightly to 13 bcm. This continued up to the beginning of 2010
until the NBP and HH prices diverged again with the US LNG import
price moving above the HH price again.54
In analyzing the different LNG import prices, the IEA noted that
several countries (Trinidad and Tobago, and Egypt) export LNG to the
US at prices linked to HH. Qatar and Nigeria account for 21 percent of
US LNG imports with prices from those countries linked to NBP. As a
result, the average US LNG import price is somewhere between HH and
NBP, depending on import volumes from the respective supplier.55 The
delta between the LNG import price and the market price is an indication
that US LNG imports of 12 bcm in 2010 were at a minimum and that any
cargo that could be re-routed was. In other words, the only LNG that
would come to the US was under contract and couldnt be rerouted or
LNG that was necessary to avoid shutting down existing US terminals.56
In 2010, it became evident that LNG was no longer a price setter in the
US and that the US market had become almost immune from global price
developments with the US EIA noting that US net imports of natural gas
have fallen for three consecutive years,57 due largely to growing domestic
for them to be able to perform the primary functions of the receipt, storage and
regasification of LNG and send-out of natural gas. As such, a sufficient quantity
of LNG must be retained in the LNG storage and piping systems regardless of
whether or not a terminal is importing. This became a challenge for US import
terminals that faced dwindling imports as market conditions changed due to shale
gas production and higher priced LNG markets elsewhere. Donna J. Bailey, US
LNG Import Terminals the Perfect Storm, Liquefied Natural Gas: The Law and
Business of LNG, 2nd edn (2012) (ed. Paul Griffin), at p.166.
57 Between 2007 and 2010, annual net imports declined by about 1.2 trillion
cubic feet, or nearly one-third. Net imports by pipeline account for over 80%
of total net imports and come entirely from Canada (the United States is a net
exporter to Mexico). Net pipeline imports fell by 28%. Net imports in the form of
liquefied natural gas (LNG) were down nearly 50%. US EIA, Energy Today, April
1, 2011, US Natural Gas Imports Fall for Third Year in a Row, http://www.eia.gov/
todayinenergy/detail.cfm?id5770.
The globalization of LNG 153
25
20
trillion cubic feet
15
10 Consumption
Production
Net imports
5
0
1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Source: US EIA, Energy Today, April 1, 2011, US Natural Gas Imports Fall for Third
Year in a Row, http://www.eia.gov/todayinenergy/detail.cfm?id5770.
production from shale gas formations, which more than tripled between
2007 and 2010 (Figure 6.7).
According to the IEA, whether the price divergence continues into the
future depends on whether US production of shale gas is sustained and
also the continued development of LNG re-exports (Section 6.8) or the
development of new US export capacity (see Chapters 11 and 12).58
In recent years, the LNG markets have seen the emergence of a growing
spot and short-term LNG market, which generally includes spot contracts
and contracts of less than four years.59 Short-term and spot trade allows
divertible or uncommitted LNG to go to the highest value market in
response to changing market conditions. The short-term and spot market
began to emerge in the late 1990s and early 2000s. The LNG spot and
short-term market grew from virtually zero before 1990 to 1 percent in
1992, to 8 percent (400 Bcf or 8.4 million tons) in 2002.60 In 2006, nine
countries were active spot LNG exporters and 13 countries were spot
LNG importers.61
Due to divergent prices between the markets in the past few years, the
short-term LNG market has grown rapidly, and by 2009 the spot and
short-term market had grown to 16.3 percent of the world LNG trade (491
cargoes and 65.1 106 m3).62 In 2010, the short-term and spot trade jumped
up 40 percent from 2009 and accounted for 18.9 percent of the world LNG
trade (727 cargoes and 91.3 106 m3).63 Europe in particular attracted a
large number of spot cargoes due to the availability of uncommitted LNG
supply from the Middle East.64
In 2011, the spot and short-term market again recorded strong growth,
reaching 61.2 Mt (994 cargoes) and more than 25 percent of the total LNG
trade.65 Asia attracted almost 70 percent of the global spot and short-
term volumes primarily due to Japans increased LNG need following the
March 2011 Fukushima disaster. Spot and short-term LNG imports into
Korea almost doubled (10.7 Mt) and they almost tripled for China and
India, with these two countries importing a combined 6.5 MT of LNG.66
By the end of 2011, 21 countries were active spot LNG exporters and
25 countries were spot LNG importers. The growing number of countries
looking to participate in the spot market is indicative of the increased
desire for flexibility to cope with market changes or unforeseen events
such as Fukushima as well as the increased number of countries now
participating in the LNG markets. Going forward, short-term trade is
expected to continue to grow both in absolute terms and as a share of total
trade67 although the availability of future spot LNG cargoes is a source of
much speculation.68 In 2012, Angola LNG is expected to deliver its entire
production of 7 bcm as spot cargoes. Although several Australian projects
are expected to come online in the next few years, most of the capacity has
60IEA.
61IGU World LNG Report 2011 at p.16.
62GIIGNL, The LNG Industry 2010, www.giignl.org.
63Ibid.
64Ibid. at p.3.
65GIIGNL, The LNG Industry 2011, www.giignl.org.
66Ibid.
67Stephen Thompson, Poten & Partners, Inc., The New LNG Trading
been contracted for by Asian buyers and any available spot cargoes would
most likely go to Asia.69 For the near term, it appears that additional
sources of flexible LNG are most likely to come from the US and Canada
where several LNG export projects are planned.70 In particular, the con-
tracts for Chenieres Sabine Pass Liquefaction project do not require a
destination clause and are based on spot indexation.71
Re-exports of LNG occur when foreign LNG shipments are offloaded into
the above-ground storage tanks located on-site at the imports terminals and
then stored while waiting for price signals to dictate whether to deliver the
LNG to the higher-paying markets in Asia, Europe, and South America.72
As an indication that re-exports may be a growing and profitable busi-
ness opportunity, in 2011 there were over 40 cargoes reloaded, compared
with 19 cargoes in 2010. The re-exported volumes went to 13 countries,
with cargoes being re-exported from the Atlantic Basin to Europe, Asia
and South America. (See Table 6.1.)
The ability to re-export LNG has allowed US LNG importers in par-
ticular to take advantage of the arbitrage opportunity between the US
and other markets in recent years. For example, in 2010 the US LNG
import price was around $5/Mbtu whereas the LNG price in Asia was
around $1011/Mbtu. With marginal operation costs of storage and
reloading into LNG tankers, the main cost to re-export would be ship-
ping to the new destination. Assuming freight to Asia is around $3/Mbtu,
LNG re-exports would be a potential solution to under-utilized import
terminals.73
At least in the US, the re-export business appears to be quite profitable
even taking into account regasification and storage costs. For example, in
2011, the average landed price for US LNG imports was $7.5/MBtu, com-
pared to an average FOB price for re-exports of $9.3/MBtu.74 Re-exports
2011 for the Australian projects see GIIGNL, The LNG Industry 2011, at p.6.
70IEA MTGM 2012.
71Ibid.
72 US EIA, Today in Energy, Re-exports of Liquefied Natural Gas Rose
14
Freeport
12 Sabine Pass
10
billion cubic feet
0
Dec. 09 Mar. 10 June. 10 Sept. 10 Dec. 10 Mar. 11
Source: US EIA, Today in Energy, Re-exports of Liquefied Natural Gas Rose rapidly in
Early Winter, June 6, 2011
Just as the LNG markets and trading have evolved over the past
decade, so too have the contracts for LNG, with both buyers and sellers
searching for more flexibility and shorter-term contracts becoming more
common. Nonetheless, long-term (1525 years) sale and purchase agree-
ments (SPAs) have historically been the cornerstone of the commercial
arrangements between LNG buyers and sellers and remain so today and
for the foreseeable future.76
The SPA is the key economic driver in an LNG project, and the agreement
underpinning much of the LNG project financing. For example, SPAs
typically provide most, if not all, of the revenues for an upstream LNG
project and also provide anchor supplies for development of LNG regasi-
fication facilities.77 In fact, new LNG trains are typically not launched
without at least some long-term contract coverage. SPAs also have firm
take-or-pay obligations for buyers and firm deliver-or-pay obligations for
sellers.
Although there is generally a common group of core issues included
in every SPA, a model agreement does not exist, owing to the diversity
of participants involved in supply and offtake and the variety of com-
mercial models and gas markets.78 Nonetheless, some of the key issues,
such as quantities and price review, warrant a brief discussion here.
Quantities
The quantity clause sets forth the quantity obligations of the seller and the
buyer as well as the terms of delivery. For example, the seller may be obli-
gated to make the LNG available for delivery at its facilities with the buyer
providing for the LNG shipping namely, free on board (FOB) as per
Incoterms.79 If the seller is providing the LNG shipping to the buyers
facilities, then the term is delivery at terminal (DAT) or delivery at
place (DAP), as per Incoterms 2010.80 The primary obligations set out
in the quantity clause include:81
Sales Agreements (MSAs) and their Value in a Destination Flexible LNG Market,
Presentation to the CWC Group, LNG Contracting, Pricing and Trading
Workshop B, San Antonio, TX, April 21, 2008.
78Susan H. Farmer and Harry W. Sullivan, LNG Sale and Purchase
Agreements, Liquefied Natural Gas: The Law and Business of LNG, 2nd edn
(2012) (ed. Paul Griffin), at p.29. While contracts and project financing are critical
elements of LNG projects, a detailed discussion of these issues is beyond the scope
of this book. For a useful book on these issues, see Paul Griffin (ed.), Liquefied
Natural Gas: The Law and Business of LNG, Globe Business Publishing Ltd.,
2012. Tusiani & Shearer, LNG: A Non-Technical Guide, Chapter 12, also pro-
vides an excellent discussion of the upstream gas supply agreements.
79Susan H. Farmer and Harry W. Sullivan, LNG Sale and Purchase
Agreements, Liquefied Natural Gas: The Law and Business of LNG, 2nd edn
(2012) (ed. Paul Griffin), at p.32. Incoterms is the International Chamber of
Commerces rules on the use of domestic and international trade terms and was
originally created in 1936 with the most recent publication Incoterms 2010. Ibid.
80Ibid. Noting that the former delivery ex-ship or DES term was deleted
in Incoterms 2010 and that the current rule is either DAT or DAP. However,
parties can still continue to use DES so long as the long-term SPA refers to
Incoterms 2000. Ibid.
81Ibid. at pp.323.
The globalization of LNG 159
any requirements for the buyer to take delivery (make good) the
quantities previously exercised as downward flexibility
the buyers obligation to take or pay for a minimum quantity of
LNG
the parties obligations with respect to force majeure make-up
quantities
the parties rights and obligations with respect to quantities in excess
of the ACQ
the buyers right or the sellers obligation to take or supply make-
up quantities of LNG for any take-or-pay payments made by the
buyer.
Duration
Long-term SPAs generally are 2025 years in length, which reflects the
substantial investment required for LNG facilities. As the LNG indus-
try has expanded and matured, there are more mid-term deals ranging
from 3 to 15 years.85 This reflects the fact that that many of the major
LNG players are either supplying from a portfolio of supply sources and
82Ibid. at p.33.
83Ibid.
84Ibid.
85See GIIGNL, The LNG Industry 2011, Long-Term Contracts concluded
Price
As previously discussed, unlike crude oil, natural gas and LNG are not
priced on an international market basis, with most LNG being priced on
a long-term basis of 20 years or more. The contractual and confidential
nature of LNG pricing coupled with a lack of transparency of individual
cargo prices means that a wide range of prices might exist even within the
same country or region. For example, an LNG contract entered into many
years ago may still be in effect under far different pricing structures that
existed at the time.87
Historically, some Asian buyers have been able to introduce price caps
or S-curves into their pricing mechanisms, which protect them against
very high JCC prices and, in return, protect sellers against very low JCC
prices. In addition, SPAs with Japanese and Korean buyers are generally
viewed as incorporating the principle of price review or price reopen-
ers for extraordinary circumstances.88
Agreements, at p.36.
87Ibid. at p.40.
88Ibid. at p.42.
89Ibid. at p.43.
90Ibid. at pp.434.
The globalization of LNG 161
or reopener clauses still remain a key clause of most long-term LNG SPAs
and many, if not all, LNG suppliers and buyers enter into negotiations
without fully grasping how difficult it is to negotiate such clauses, espe-
cially if they are to be enforceable if invoked.91 As such, the following are
key elements that must be addressed with regard to negotiating a price
reopener clause:92
91Ibid. at p.44.
92Ibid. at p.45.
93Ibid.
94Ibid.
162 Energy for the 21st century
6.9.2 Other LNG Contracts and the Terminal Use Agreement (TUA)
In more recent years, new forms of master sales agreements (MSAs) have
been utilized to address the commercial relationships developing under the
growing LNG spot trade. MSAs typically consist of a main MSA that sets
forth the General Terms and Conditions and a shorter Confirmation
Jr. and their drafting committee held more than 15 meetings and 5 workshops in 7
countries on 5 continents over a several year period in order to develop and final-
ize the MSA. The drafting committee was composed of more than 150 industry
representatives, including members from many of the major LNG sellers, buyers,
transporters and traders worldwide.
102AIPN, Press Release, 2012 LNG Master Sale and Purchase Agreement
The contracts entered into between Cheniere and four companies for
Chenieres Sabine Pass Liquefaction project (Figure 6.9) represent an
unusual contract structure wherein the buyers agree to purchase an annual
contract quantity of LNG and pay Sabine Pass Liquefaction a fixed sales
charge of between $2.25/MBtu and $3.00/MBtu for the full contract quan-
tity, regardless of whether the buyer purchases any cargoes of LNG. The
fixed sales charge will be paid ratably on a monthly basis, and 15 percent
of the fixed sales charge will be subject to annual adjustment for inflation.
104The LNG MSPA 2012 and other model contracts are available complimen-
tary to AIPN members, and may be purchased by non-members for a nominal fee
on AIPNs website, www.aipn.org.
105 Baker Botts Press Release, New Model LNG MSA Will Promote
If the buyer purchases LNG cargoes, then the buyer will also pay Sabine
Pass Liquefaction a contract sales price for each MMBtu of LNG deliv-
ered under the SPA. The contract sales price will be equal to 115 percent
of the final settlement price for the New York Mercantile Exchange Henry
Hub natural gas futures contract for the month in which the relevant cargo
is scheduled.106
The buyer will have the right to cancel all or any part of a scheduled
cargo of LNG by a timely advance notice, in which case the buyer will
continue to be obligated to pay the full monthly fixed sales charge but will
forfeit its right to receive the cancelled quantity and will not be obligated
to pay the contract sales price for the forfeited quantity.
Most unusual is the fact that buyers will receive bi-directional capacity
rights (such as the right to use both import and export services). In addi-
tion, there is no destination clause so buyers are free to ship LNG to any
location not prohibited by law, providing for true destination flexibility.
106A summary of the key terms of Chenieres export SPA with BG Group can
be found in Chapter 12. Chenieres contract with BG Group was submitted to the
Securities and Exchange Commission (SEC) with Chenieres SEC 8-K filing on
October 26, 2011, and is available at www.cheniereenergypartners.com.
107IEA MTOGM 2011 at p.185.
108GIIGNL, The LNG Industry 2011 www.giignl.org.
109While global natural gas trade increased by only 4% in 2011, LNG ship-
ments grew by 10.1% with Qatar (134.8%) accounting for virtually all (87.7%)
of the increase. Pipeline shipments grew by just 1.3%. BP Statistical Review of
World Energy 2012, Natural Gas Trade Movements, http://www.bp.com/extended
sectiongenericarticle.do?categoryId59041232&contentId57075237.
75.65
38.31
10.83
48.3
12.36 20.2
4.87 8.3
109.02 6.67
20.07
8.63 4.2 6.89
4.28 30.59
5.3 15.27
2.62 3.04
5.36
10.05
2.6 8.2
6.75
22.74
167
3.7
USA
Canada
Mexico
4.6
S & Cent. America
Europe
Former Soviet Union
Middle East Trade flows (bcm)
Africa Natural gas
Asia Pacific LNG
66.4
32.0
23.5
29.1 9.8
88.0
26.6 16.8 12.1
3.9 35.2
44.1 19.8
15.7 10.2 5.0 19.0
4.4 14.3
17.4 41.3
14.1 7.1
17.3
3.8 8.6
13.5
168
6.7
6.3
9.7 3.0
7.6
US
Canada
S. & Cent. America
Europe & Eurasia
Middle East
Trade flows (billion cubic metres)
Africa
Pipeline gas
Asia Pacific
LNG
Traditional Evolving
Source: Pat Roberts, CWC Dynamic Insights Report, World LNG Series Asia Pacific
Summit, September 1921, 2011, Singapore, citing Stephen Del Regno, Managing Director
Asia Region, Chevron Global Gas.
114Ibid.
The globalization of LNG 171
Some of these factors have already been discussed in the chapters per-
taining to the Golden Age of Gas and elsewhere throughout this book.
For that reason, this chapter focuses primarily on the environmental and
safety issues and the role of LNG in a carbon-constrained world.
172
Safety and environmental sustainability of LNG 173
The IFC EHS LNG Guidelines contain the performance levels and meas-
ures that are generally considered to be achievable in new facilities by exist-
ing technology at reasonable costs. The applicability of the IFC EHS LNG
Guidelines should be tailored to the hazards and risks established for each
project on the basis of the results of an environmental assessment in which
site-specific variables are taken into account. When host country regula-
tions differ from the levels and measures presented in the IFC EHS LNG
Guidelines, projects are expected to achieve whichever is more stringent.3
The IFC EHS LNG Guidelines provide that the following environmen-
tal issues associated with LNG facilities should be considered as part of a
comprehensive assessment and management program:
While the LNG tanker industry can claim a record of relative safety since
LNG shipping began in 1959, the safety record of onshore LNG terminals
is a bit more mixed. In 1944, an accident at one of the United States first
LNG facilities in Ohio killed 128 people and led to public fears about the
safety of LNG that still persist today. While technology has made LNG
Safety and environmental sustainability of LNG 175
Terrorism hazards
LNG tankers and land-based facilities could be vulnerable to terrorist
attacks, including physical attacks on LNG tankers or tankers that are
U.S. Energy Policy: Infrastructure and Market Issues, Jan. 31, 2006, http://www.
cnie.org/NLE/CRSreports/06feb/RL32386.pdf, citing Junnola, Jill et al., Fatal
Explosion Rocks Algerias Skikda LNG Complex. Oil Daily, Jan. 21, 2004, p.6.
176 Energy for the 21st century
In 2003, it was anticipated that much of the growth in demand for LNG
would come from the United States, where LNG was expected to fill the
supply gap caused by rising demand for natural gas coupled with falling
indigenous natural gas reserves in the United States and Canada. While
forecasts varied, many analysts expected LNG to account for 12 to 21
percent of total US gas supply by 2025, up from approximately 3 percent
in 2005.7
Energy experts also suggested that the United States would need to
rapidly invest in additional regasification terminals to accommodate the
U.S. Energy Policy: Infrastructure and Market Issues, Jan. 31, 2006, http://www.
cnie.org/NLE/CRSreports/06feb/RL32386.pdf.
Safety and environmental sustainability of LNG 177
8Daniel Yergin and Michael Stoppard, The Next Prize, Foreign Affairs, Vol.
U.S. Energy Policy: Infrastructure and Market Issues, Jan. 31, 2006, http://www.
cnie.org/NLE/CRSreports/06feb/RL32386.pdf.
10Open access required terminal owners to offer services on a first come, first
served basis, and could not discriminate against service requests to protect their
own market activities.
11 Federal Energy Regulatory Commission (FERC), Press release, R-04-3,
(P.L. 96-129) but these acts were subsequently combined and recodified
as the Pipeline Safety Act of 1994 (P.L. 102-508). The acts were further
amended by the Pipeline Safety Improvement Act of 2002 (P.L. 107-355)
and the Pipeline Safety Improvement Act of 2006 (P.L. 109-468). Under
the resulting statutory scheme, DOT is charged with issuing minimum
safety standards for the siting, design, construction, and operation of
LNG facilities.13
The Energy Policy Act of 2005 ( 311(c)) explicitly preserved states
authorities in LNG siting decisions under the Federal Water Pollution
Control Act, the Coastal Zone Management Act of 1972, and other
federal laws pursuant to which states could influence the siting of an LNG
project by attaching various conditions or by denying certification.14 For
example, under the Federal Water Pollution Control Act, often referred to
as the Clean Water Act (CWA), states have the authority to develop and
enforce their own water quality standards.15 Any federal permit applicant
for a project that may discharge pollutants into navigable waters must
provide the permitting agency with a certification from the state in which
the discharge originates or will originate that the discharge is in compli-
ance with the applicable provisions of the CWA, including the states
water quality standards.16
Despite the regulatory changes and encouragement by many US energy
experts and politicians (see Chapter 3), the proposed construction of new
LNG import terminals in the United States generated considerable public
opposition in many of the communities where the terminals were pro-
posed. Choosing acceptable sites for new LNG terminals was particularly
challenging since many developers sought to build terminals near major
consuming markets in California and the Northeast to avoid pipeline bot-
tlenecks and to minimize transportation costs. However, those proposals
struggled for approval due to community concerns about the safety and
environmental impact of LNG facilities.17
For example, in California several proposed LNG terminals were
Natural Gas (LNG) Import Terminals: Siting, Safety, and Regulation (RL 32205),
Feb. 24, 2009.
14Ibid.
15 33 U.S.C. 1251(a),(b).
16Ibid. at 1341(a).
17 Paul W. Parfomak, Cong. Research Serv., Liquefied Natural Gas (LNG)
in U.S. Energy Policy: Infrastructure and Market Issues (RL32386), Jan. 31, 2006,
http://www.cnie.org/NLE/CRSreports/06feb/RL32386.pdf. As was noted at the
time, LNG terminal opposition is not unlike that experienced by some other types
of industrial and utility facilities. Ibid.
Safety and environmental sustainability of LNG 179
18See Sierra Club, Huge Victory Against Offshore LNG Terminal, available
Consistent with the Long Island Sound Coastal Management Program, New York
Dept. of State Press Release, Apr. 10, 2008, available at http://www.dos.state.
ny.us/pres/pr2008/41008.htm.
20 FERC Approves Broadwater LNG Project Subject to Safety, Environmental
Liquefied Natural Gas, Media Advisory (April 24, 2008), available at http://www.
lngfacts.org/Media-Center/042408_media_advisory.asp.
24IPIECA Workshop Report, Natural Gas as a Climate Change Solution:
Although LNG burns cleanly, concerns have been raised that the envi-
ronmental impact and emissions associated with LNG production may
nullify the clean-burning benefits of LNG. To date, there is limited inde-
pendent research that analyzes the environmental impact of the entire
life-cycle emissions of LNG and most environmental impact statements
(EIS) tend to focus on just one aspect of the LNG supply chain, such as
the emissions associated with the liquefaction or regasification process.
But at least one study, the Heede Cabrillo Study (discussed in detail
below) has suggested that the entire supply chain emissions or life-cycle
emissions from production through end-use of the delivered natural gas
might be quite significant and should be considered in any environmen-
tal impact report.26 As this book goes to print, more attention is being
paid to life-cycle emissions and this appears to be the growing standard,
for the Cabrillo Deepwater Port: Natural Gas from Australia to California, com-
missioned by California Coastal Protection Network & Environmental Defense
Center (Santa Barbara, CA), http://www.climatemitigation.com/publications/
LNGrptMay06.pdf (hereinafter Heede Cabrillo Study).
182 Energy for the 21st century
although much more research and studies are needed with regard to
LNG.
In the Heede study, an analysis was conducted of the life-cycle emis-
sions resulting from BHP Billitons proposed Cabrillo LNG terminal
off the coast of southern California. In its permit application to the US
Coast Guard and the State of California, BHP estimated greenhouse gas
emissions only from the operation of its proposed Cabrillo Deepwater
Port. The Heede study was commissioned to estimate the entire life-cycle
emissions of the project from the production platform offshore Western
Australia and across the Pacific Ocean to Southern California, including
combustion by end-users in Southern California.27
The purpose of the Heede Cabrillo Study was not to attribute the entire
supply chain emissions to BHP but, rather, to fully account for all the
emissions attributable to the proposed project from start to finish from
production to combustion. The study ultimately found that the supply
chain emissions from production through end-use of the delivered natural
gas [were] equal to 4.3 to 4.9 percent of Californias total GHG emissions,
and 5.3 to 5.9 percent of CO2 emissions using EIA emissions data.28
The largest component of the supply chain emissions was the combus-
tion of the natural gas delivered to the Southern Californian utility and its
end-users. The emissions estimates for this segment ranged from 15.82 to
15.89 MtCO2-eq plus 0.58 to 0.72 MtCO2-eq of methane for an average
total estimate of 16.50 MtCO2-eq per year, or 72 percent of the total
emissions.29
While not the largest component of emissions, the most relevant find-
ings for LNG processing are the emissions estimates for the processing
segment and the transportation segment. The emissions estimates for the
processing segment range from 1.97 to 3.17 MtCO2-eq for an average of
2.69 MtCO2-eq per year, or 11.8 percent of the total. The emissions esti-
mates for the transportation segment range from a low of 1.80 MtCO2-eq
to a high of 2.37 MtCO2-eq for an average of 2.09 MtCO2-eq per year, or
9.2 percent of the total.30
A major limitation of the Heede Study is that it is based on estimates
assuming industry best practices or, in some cases, improvements over
standard practice or industry benchmarks. The estimates were used since
the facilities had not been designed or built and Heede did not have access
In much of the world, coal is a plentiful resource and therefore is the domi-
nant fuel source for electrical power production. Natural gas, and LNG
as a supplement to domestic natural gas supplies, is increasingly playing
a larger role in electrical power generation due to the perceived emissions
benefits. At least two studies have accessed the GHG emissions from LNG
versus coal-fired power plants and have reached different conclusions.
A study by researchers at Carnegie Mellon found that LNG imported
from foreign countries to be used for electricity generation could have
35 percent higher life-cycle greenhouse gas emissions than coal used
in advanced power plant technologies.32 The Carnegie Mellon study
analyzed the effects of the additional air emissions from the LNG/SNG
life-cycle on the overall emissions from electricity generation in the United
States. The study found that with current electricity generation technolo-
gies, natural gas life-cycle GHG emissions are generally lower than coal
life-cycle emissions, even when increased LNG imports are included.
However, the range of life-cycle GHG emissions of electricity generated
with LNG is significantly closer to the range of emissions from coal than
the life-cycle emissions of natural gas produced in North America. The
study also found that upstream GHG emissions of NG/LNG/SNG33
have a higher impact in the total life-cycle emissions than upstream coal
emissions.34
31See Sierra Club, Huge Victory Against Offshore LNG Terminal, available
cycle Air Emissions of Coal, Domestic Natural Gas, LNG, and SNG for Electricity
Generation, Environmental Science Technology, 41 (17), 629096, available at
http://pubs.acs.org/cgi-bin/abstract.cgi/esthag/2007/41/i17/abs/es063031o.html
(hereinafter Jaramillo Life-cycle Study 2007).
33 NG 5 natural gas, LNG 5 liquefied natural gas, SNG 5 synthetic natural
35Ibid.
36 Pace, Life Cycle Assessment of GHG Emissions from LNG and Coal
Study, made available September 15, 2011, Paper no. 4-2, Life-cycle Emissions of
Natural Gas and Coal in the Power Sector, Prepared by the Life-Cycle Analysis
Team of the Carbon and Other End-Use Emissions Subgroup, http://www.npc.
org/Prudent_Development-Topic_Papers/4-2_Life-Cycle_Emissions_Coal_and_
Gas_in_Power_Paper.pdf.
Safety and environmental sustainability of LNG 185
Table 7.1Life-cycle emissions of coal power plants and LNG (Ibs CO2e/
MWh)
Until recently, there have been very limited public data on emis-
sions from LNG projects. New projects in Australia should provide
some of the missing information. For example, Australia is plan-
ning a massive expansion in LNG liquefaction with several major
projects underway including the massive Gorgon and Wheatstone
projects. Going forward, assessing the environmental sustainability of
LNG will mainly be driven by analysis of the data coming from the
planned Australian LNG projects, primarily because Australia has a
well-developed environmental and regulatory framework that is also
transparent.
Since many of the Australian projects are still under construction, they
are only just starting to shed some light on the potential emissions from
LNG projects around the world. For example, the Wheatstone Draft EIS,
which was released in July 2010, offered the following glimpse of what the
emissions might be in that project as well as other LNG projects around
the globe.39 For the Wheatstone project, it is estimated that the annual
greenhouse gas emissions from the project may increase Australia and
1
0.9
Tonnes CO2e/tonnes LNG 0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
de
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in 3)
ta G
(3 R as
W C s
At ats e)
LN el n P NG
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ia )
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Sn nd
t
vi
( 1 ra j e c
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A a
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LN
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TP 4
oh
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TP G
(T relu
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a
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C nL
G f (T ro
l
M as
Is
D ns
P
tis
w
a
i
ra
ur
ig
o
lf
G
he
h
G
tS
LN
to st
es
ds We
ne
W
to
th
G th
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or
or
la
N
N
la
G
Gorgon48
The A$37 billion project includes a A$2 billion investment to pump 3.3
million tonnes of CO2 stripped from the raw gas back into a deep natural
reservoir. The Gorgon gas field has a high CO2 content of between 13
and 14 percent, but capturing part of the CO2 helps lower the projects
emissions intensity to about 350 kilograms per tonne of LNG shipped.
Wheatstone
The gas fields tapped for the Wheatstone project have a much lower CO2
content than Gorgon and the 2010 Draft EIS indicated that the lack
of commercially viable reservoirs nearby and low CO2 content made
re-injection of the stripped CO2 unfeasible. Estimated emissions intensity
for the project is 370 kg of CO2-e per tonne of LNG.
Pluto
The Pluto gas field has a CO2 content of 2 percent and the company says
the emissions intensity of the project is about 320 kg of greenhouse gas
pollution per tonne of LNG produced. The company has signed a deal
worth nearly A$100 million to create tree plantations to offset emissions
from the project.
Browse
Emissions from the project are estimated to be higher because of the high
CO2 content of the raw gas from the three main fields at 10 percent. The
company says it is looking at re-injecting CO2 back into underground rock
formations.
Ichthys
The Ichthys project will tap two main gas fields with 8 percent and 17
percent CO2 content. About a third of the projects total carbon emis-
sions will come from venting the stripped CO2 into the atmosphere,
although energy efficiency steps might reduce emissions on this project
over time.
Prelude
Gladstone (GLNG)
In terms of countering claims that the new LNG projects planned for
Australia will increase Australias emissions, for its part the industry
maintains that LNG can actually reduce overall emissions on a global
basis with the contention that for every tonne of greenhouse gas emissions
generated by LNG production in Australia, between 4.5 and 9 tonnes are
avoided in Asia when this gas is substituted for coal in electricity genera-
tion.49 In support of its position, the LNG industry primarily relies on the
WorleyParsons study referenced in the Wheatstone Draft EIS and most
recently modified for public release in March 2011.50
The study, entitled Greenhouse Gas Emissions Study of Australian
LNG, provides a comparison of Australian LNG and Australian black
coal in terms of life-cycle greenhouse gas emissions, which includes the
entire process from extraction and processing in Australia through to an
end-use of combustion in China for power generation.51
http://www.appea.com.au/policy/climate-change/how-gas-minimises-greenhouse-
emissions.html, and see Chevron Australia, Gorgon Project, Greenhouse Gas
Management, http://www.chevronaustralia.com/ourbusinesses/gorgon/environ-
mentalresponsibility/greenhousegasmanagement.aspx, Gorgon can help reduce
net greenhouse gases worldwide by displacing other fossil fuels. Gorgon LNG sold
globally will result in about 45 million ton[n]es less global greenhouse emissions
per year, compared to the use of coal.
50WorleyParsons GHG LNG Study.
51Ibid.
Safety and environmental sustainability of LNG 191
Notes:
1. This shows that through the utilization of LNG for a new power generation plant in
China in place of coal, 5.5 tonnes of CO2-e are saved globally, at the expense of every
tonne of CO2-e emitted in Australia.
2.This shows that through the replacement of a current coal-fired power generation
plant in China with a LNG power plant, 9.5 tonnes of CO2-e are saved globally, at the
expense of every tonne of CO2-e emitted in Australia.
of the Australian projects are being announced with details yet to follow. Matt
(Chambers), Gorgon Project Profitable Despite Cost Blowout, Says Chevron,
The Australian, Dec. 1, 2012, http://www.theaustralian.com.au/business/mining-
energy/gorgon-project-profitable-despite-cost-blowout-says-chevron/story-ebfrg9
df-1226527781201.
194 Energy for the 21st century
7.5ENHANCING ENVIRONMENTAL
SUSTAINABILITY IN THE LNG INDUSTRY
While the Australian projects offer valuable insight into LNG emissions,
much more analysis is needed of those projects, as well as other new
projects around the world. Looking ahead, it is important that the LNG
industry continues to utilize best practices to optimize energy efficiency
and reduce greenhouse gas emissions. Although the ways in which the
LNG industry can enhance environmental sustainability vary project by
project,62 in general some of the most significant advancements can be
achieved with methane mitigation and improved efficiencies in processing
and transportation.
Gorgon project.
63Methane to Markets, Global Methane Emissions and Mitigation
from oil and gas operations. Credits from the flexible mechanisms can be
used in the European Union Emissions Trading System (EU ETS) or sold
in the carbon market. Under the EU ETS fuel switching from coal-fired
electricity production to natural gas-fired electricity production may be
promoted where the incremental rise in costs is met or exceeded by the
value of carbon credits.65
Methane savings in the LNG sector can come from the use of centrifu-
gal compressor seals and by implementing a directed inspection and main-
tenance (DI&M) program. Other LNG emission prevention opportunities
include improved connect/disconnect practices, improved tank pressure
management, improved vapor recovery system maintenance and avail-
ability, and strict enforcement of ship venting rules.73
73
ConocoPhillips Nat Gas STAR Program.
74Tusiani,
Michael D. and Shearer, Gordon (2007), LNG: A Nontechnical
Guide, PennWell Books.
200 Energy for the 21st century
75Ibid.
76Ibid.
77 ExxonMobil Corp. News, A Sea Change for LNG Carriers, available
available about methane emissions from the natural gas industry, including
LNG. For example, building on the prior workshops, the IPIECA held another
workshop in 2012 that focused on recent estimates of life-cycle GHG emissions
Safety and environmental sustainability of LNG 201
For more than 30 years, the size of LNG ships remained virtually
unchanged with capacity of about 140,000 cubic meters. In 2001, joint
venture partners Qatar Petroleum and ExxonMobil wanted to expand
beyond the primarily Asian market for Qatars LNG and thus needed to
develop a better way to deliver Qatars LNG to more distant ports. Since
shipping accounts for about one-third of the cost of LNG, a new class of
carrier that was more efficient needed to be designed and built.
Over the course of several years, the design team settled on two similar
ship platforms called the Q-Flex (Q for Qatar and Flex for the flexibility
to access most LNG ports) and the slightly larger Q-Max (Max for the
largest ship that can use the Qatar LNG terminal). The new large LNG
ship technologies include a number of industry breakthroughs and signifi-
cant enhancements, including increased ship size, onboard reliquefaction
units, slow-speed diesel engines, twin propellers and rudders, and the latest
in hull and antifouling protection and improved fire-protection systems.
The Q-Flex carries 50 percent more LNG than the average carrier
operating today while the Q-Max transports 80 percent more. The Q-Max
carriers are longer than three football fields, tower twenty stories tall from
keel to masthead and are equipped with the largest membrane contain-
ment tanks ever built. With a total capacity of up to 266,000 cubic meters,
each ship carries enough natural gas to meet the energy needs of 70,000 US
homes for one year.
The innovative Q-Max ships carry up to 80 percent more cargo, yet
require approximately 40 percent less energy per unit of cargo than con-
ventional LNG carriers due to economies of scale and efficiency of the
engines. The end result of these new-generation ships is a 2030 percent
reduction in transportation cost with improved efficiency and emission
reductions. Improved efficiency and emission reduction are key as the
shipping industry is certain to encounter more stringent guidelines from
the International Maritime Organization (IMO) going forward with
recent measures to reduce GHG emissions from international shipping.79
(See Chapter 12.)
from natural gas production, transport and use, in relation to competing systems
such as gas and coal fired power generation. There was also special considera-
tion of the implications for gas from unconventional sources and LNG systems.
IPIECA Workshop Report, The Expanding Role of Natural Gas: Comparing Life-
Cycle Greenhouse Gas Emissions (2012), http://www.ipieca.org/event/20111202/
expanding-role-natural-gas-comparing-life-cycle-greenhouse-gas-emissions.
79IMO MEPC, 59th Session, July 1317, 2009, IMO Environment
202 Energy for the 21st century
The LNG receiving or import terminal is the final link in the LNG chain
and the point of connection to the consumers. Whereas the liquefaction
plants serve as enormous refrigerators to cool natural gas into a liquid,
the import terminals regasify or warm the gas back up so that it can be
sent through the gas pipeline system. All baseload onshore LNG import
terminals basically feature the following components: tanker berthing and
unloading facilities, storage tanks, a regasification system, facilities to
handle vapor and boil-off gas, high-pressure LNG pumps, a metering and
pressure regulation station, gas delivery infrastructure, gas odorization,
calorific value control and LNG truck loading facilities.
While there are many aspects of efficiencies to be gained at import
terminals, the design of more efficient ambient air vaporizers, which heat
the LNG into its gaseous state, has received the most focus. There are
essentially two designs of ambient air vaporizers:
1 Qatar is a small Middle Eastern peninsula bordering the Persian Gulf and
Saudi Arabia. According to the US CIA World Factbook, Qatar has been ruled
by the Al Thani family since the mid-1800s and has transformed itself from a poor
British protectorate noted mainly for pearling into an independent state with
significant oil and natural gas revenues. During the late 1980s and early 1990s,
the Qatari economy was crippled by a continuous siphoning-off of petroleum
revenues by the Amir, who had ruled the country since 1972. His son, the current
Amir Hamad bin Khalifa Al Thani, overthrew him in a bloodless coup in 1995.
Qatar has not experienced the level of unrest or violence seen in Tunisia, Egypt,
Libya and other Middle East and North Africa (MENA) countries in 201011,
due in part to the fact that its energy sector has fueled the Qatari economy and
resulted in Qatar having the highest per capita income in the world. Doha,
Qatar, is the home of the Al Jazeera news network and also the Gas Exporting
Countries Forum (GECF), which is discussed in Chapter 12. US CIA World
Factbook, Qatar, https://www.cia.gov/library/publications/the-world-factbook/
geos/qa.html.
204
Global LNG mega projects and players 205
Russia 1,680.0
Iran 1,045.7
Qatar 895.8
Source: US EIA
Qatar, with proven natural gas reserves of approximately 896 Tcf, cur-
rently holds the third-largest gas reserves in the world behind Russia and
Iran2 (Figure 8.1). The majority of Qatars natural gas is located in the
massive offshore North Field, which occupies an area roughly equiva-
lent to Qatar itself. The North Field is part of the worlds largest non-
associated natural gas field and is a geological extension of Irans South
Pars field, which holds an additional 450 Tcf of recoverable natural gas
reserves (Figure 8.2). In recent years, Qatars energy-fueled GDP growth
and small population have catapulted the country toward the top of the
global per capita GDP rankings with a 2009 estimate of $121,700.3
Although Qatar has been exporting LNG only since 1997, government
emphasis on the LNG sector in terms of both making investments
and attracting foreign investors resulted in the rapid development of
cfm?fips5QA, last updated Jan. 2011. Qatar holds almost 14% of the worlds total
natural gas reserves.
3 Christopher M. Blanchard, Qatar: Background and U.S. Relations,
South Pars
North Field
Maritime border
of Qatar and Iran
Persian Gulf
Qatar
Natural gas field
Oil field
Oil & gas field
Source: US EIA
Qatars LNG capacity, thus enabling Qatar to become the worlds largest
LNG producer from 2006.4 Qatars position as the worlds largest LNG
exporter was solidified in December 2010 when Qatar announced that it
had reached its long-stated goal of combined LNG production capacity
of 77 million tonnes per annum (mtpa).5 In February 2011, Qatargas and
Shell announced that the first cargo of LNG from Qatargas 4 Project
cfm?fips5QA.
8 EIA Country Analysis Briefs, Qatar, http://www.eia.gov/countries/cab.
cfm?fips5QA.
9Ibid.
10 Qatargas Operating Company Ltd.,http://www.qatargas.com.
208 Energy for the 21st century
LNG liquefaction capacity of 3,750 Bcf/y (77 MMt/y). Five of these trains
were added in 2009 and 2010. RasGas III, Train 7, with a liquefaction
capacity of 380 Bcf/y (7.8 MMt/y) of LNG began operations in February
2010. Qatargas III, Train 6, came online in November 2010 with the same
liquefaction capacity. In March 2011, the inauguration of Qatargas IV,
Train 7, completed Qatars monumental cycle of LNG infrastructure
expansion.11 (See Table 8.1.)
cfm?fips5QA.
Global LNG mega projects and players 209
8.3.1 Qatargas 1
QatarGas/Media_Center/QG%20Corporate%20Brochure%20Sep%202011%20
-%20EN.pdf.
210 Energy for the 21st century
Source: Qatargas
The Qatargas 2 (QG2) project is the worlds first fully integrated value
chain LNG venture. It includes two world-class LNG mega trains, each
with a capacity of 7.8 million tonnes per annum (MTA) of LNG and 0.85
MTA of liquefied petroleum gas (LPG), condensate production of 90,000
bpd, a fleet of 14 Q-Flex and Q-Max ships and Europes largest LNG
receiving terminal South Hook.
available at http://www.qatargas.com.
Global LNG mega projects and players 211
8.3.3 Qatargas 3
The significance and role of Qatargas in world LNG markets was high-
lighted after Japan lost most of its nuclear power after the March 2011
tsunami and Fukushima disaster. Qatargas was able to step in quickly to
support its long-term foundation customers in Japan and committed to
supply additional LNG volumes equivalent to over 60 conventional LNG
cargoes to Japan. According to Qatargas, 60 conventional LNG cargoes
represent approximately 4 million tonnes of LNG, which will generate
approximately 28 terrawatt-hours (TWh) of electricity, or enough to meet
the average electricity consumption of five million Japanese households
for a year.14 The ability to swiftly secure the additional LNG supplies for
Japan demonstrates Qatargass ability to respond to sudden changes in
the market and also highlights the important role Qatargas plays as the
worlds largest LNG supplier.
www.rasgas.com.
16RasGas, About RasGas, http://www.rasgas.com/L_2.cfm?L2_ID51.
214 Energy for the 21st century
in March 2007 took Qatars LNG production capacity to 20.7 Mta and
firmly placed Qatar at the top of the list of global LNG producers. The
LNG from Train 5 is largely exported to RasGass growing portfolio of
customers in Europe.
Trains 3, 4 and 5 each have a capacity of 4.7 Mta, representing a per
train increase of 40 percent over Trains 1 and 2. Together the three trains
form part of the first RasGas expansion project, known as RGX, and
individually each marks a number of major technological and commercial
milestones. Trains 3, 4 and 5 represent one of the largest and most innova-
tive LNG projects ever completed and set the pace for the development
of RasGass two mega trains: Trains 6 and 7.
Train 6 was RasGass first in a new generation of LNG mega trains. Each
of these new trains is capable of producing 7.8 Mta of LNG. RasGas
Train 6 produced its first LNG in July 2009. The following month its first
cargo, a 212,000m3 shipment of LNG, was loaded aboard the RasGas
Q-Flex tanker Al Utouriya. The new train was formally inaugurated in
October 2009 and the start-up of Train 6 boosted RasGass LNG produc-
tion capacity to 28.5 Mta.
Train 6 forms part of the RasGas Expansion Phase 2 Project (RGX2),
a multi-billion dollar expansion project that brought the companys LNG
production capacity to approximately 37 Mta in 2010, with the comple-
tion of seven operational trains. The new mega trains build on the success
of existing RasGas expansion projects in terms of technology, design,
project specifications, existing infrastructure and location. Train 6 is fed
by an expansion to RasGass offshore facilities that also serves Train 7,
including two offshore 12-well platforms and two 100 km 38-inch export
pipelines to the shore. Each pipeline has an eventual transmission capacity
of up to 2.1 Bscfd. Helium recovered from the raw input stream will supply
a second Qatar helium refining plant.
As well as generating 15.6 Mta of LNG, the two trains together produce
110,000 barrels per day of condensate and 1.5 Mta of liquefied petroleum
gas (LPG). A significant amount of the LNG produced by Train 7 was
expected to be shipped to the United States aboard RasGass own char-
tered LNG carriers, which deliver to the new Golden Pass regasification
terminal in Texas.
www.rasgas.com.
216 Energy for the 21st century
The prospects for further growth in Qatari LNG production beyond 2012
are clouded by the uncertainty created by a moratorium on new export
projects, which was imposed in 2005, while the effect of existing projects
on North Field reservoirs was studied. Most recently, Qatari government
officials have indicated that they do not anticipate building any more
LNG facilities in the near term, and that any additional capacity increases
will be the result of improvements in the existing facilities.18 It is worth
noting that, in addition to its LNG projects, Qatar is the supplier for the
Dolphin Project and also commissioned the worlds biggest GTL plant,
Oryx, in 2006.
18Although Qatars most recent train additions were originally intended with
US markets as the primary target, low US gas prices due to the shale gas boom
have significantly reduced US demand for imported LNG. For example, in the
first ten months of 2010, the United States had imported only 33 Bcf of LNG from
Qatar. The reduced demand from the US has caused Qatar to pursue LNG con-
tracts with other countries particularly China and India. EIA Country Analysis
Briefs, Qatar, http://www.eia.gov/countries/cab.cfm?fips5QA.
19Dolphin Energy, http://www.dolphinenergy.com/.
20Ibid.
21Oxy, Dolphin Gas Project, www.oxy.com.
Global LNG mega projects and players 217
Sea
lines
Ras Laffan
Export line
DOHA Dubai
QATAR Taweelah
ABU DHABI
UAE
Qatar, though it has a design capacity of 3.2 Bcf/d. Dolphin Energy has
been trying to secure additional Qatari gas to meet the rapidly growing
demand for gas in the UAE, but increased supplies from Qatar are
uncertain.22
cfm?fips5QA.
23 EIA Country Analysis Briefs, Qatar, http://www.eia.gov/countries/cab.
Steam
REFORMING
Natural gas Synthesis FISCHER
gas TROPSCH
SYNTHESIS
Pure
oxygen
HYDROGEN
PRODUCTION
AIR Hydrogen UNIT
SEPARATION
UNIT
LPG
HYDROTREATING/
CRACKING FT
NAPHTHA
products
DIESEL
use 1.6 Bcf/d of natural gas feedstock to produce 140,000 bbl/d of GTL
products as well as 120,000 bbl/d of associated condensate and LPG.24
The Pearl GTL project is being developed in two phases. The first phase
started up in early 2011 and exported the first commercial shipment of gas
oil in June 2011. Phase 2 of the plant started up in early November 2011
by bringing in sour gas from offshore wells. The whole plant is currently
ramping up towards full production by mid-2012.25 In addition to being
the largest GTL plant in the world, the Pearl project will also be the first
integrated GTL operation, meaning it will have upstream natural gas
production integrated with the onshore conversion plant.26
cfm?fips5QA.
25Shell, Pearl GTL An Overview, http://www.shell.com/home/content/
aboutshell/our_strategy/major_projects_2/pearl/overview/.
26 EIA Country Analysis Briefs, Qatar, http://www.eia.gov/countries/cab.
cfm?fips5QA.
Global LNG mega projects and players 219
articles/RG34_En_Energising%20Qatar_LR.pdf.
28 Qatar Petroleum, Barzan Gas Project, http://www.qp.com.qa/en/homepage/
qpactivities/epsa_dpsa/20-3767916404.aspx.
29 Energising Qatar, RasGas Magazine, http://www.rasgas.com/rg/files/
articles/RG34_En_Energising%20Qatar_LR.pdf.
220 Energy for the 21st century
Australia.
32Deloitte Access Economics, Advancing Australia: Harnessing our
300
World
250 Australia
200
150
Mt
100
50
0
Existing Committed/under construction
way, about two-thirds of the total world LNG liquefaction capacity cur-
rently under construction is located in Australia33 (Figure8.5).
With the massive amount of LNG capacity under construction, Australia
is projected to become the worlds second-largest exporter of LNG, behind
Qatar, as early as 201516.34 According to the Australian Petroleum
Production & Exploration Association (APPEA),35 the Australian LNG
industry is targeting production of at least 60 million tonnes per annum
(BREE), Gas Market Report July 2012, www.bree.gov.au, (hereinafter BREE Gas
Market Report 2012). This is the first of what is planned to be an annual report
on the current state and projected developments in international and domestic gas
markets. The Bureau of Resources and Energy Economics (BREE) is a profes-
sionally independent, economic and statistical research unit within the Australian
Governments Resources, Energy and Tourism (RET) portfolio. The Bureau was
formed on 1 July 2011 and its creation reflects the importance placed on resources
and energy by the Australian Government and the value of these sectors to the
Australian economy. BREE, www.bree.gov.au.
34 BREE Gas Market Report 2012.
35The Australian Petroleum Production & Exploration Association Ltd
(APPEA) is the peak national body representing Australias upstream oil and gas
exploration and production industry. APPEA, http://www.appea.com.au/about/
appea.html.
222 Energy for the 21st century
(mtpa) by 2020, up from 2009 production of 16.71 mtpa.36 The IEA fore-
casts that by 2016, Australias LNG production capacity should reach
75.8 bcm/y (55.7 mtpa) of LNG, making it the worlds second-largest
LNG exporter after Qatar.37 Moreover, there are a number of other
LNG projects under consideration which, if brought into operation,
could increase Australias LNG capacity to over 100 Mt and could make
Australia the worlds largest LNG exporter by the end of the decade.38
Australias potential as a major LNG exporter is underpinned by
several significant factors. First, Australias petroleum, natural gas and
coal reserves are so significant relative to its domestic demand that it is
one of only three member states of the Organisation for Economic Co-
operation and Development (OECD) that are net energy exporters.39
According to the Oil & Gas Journal, as of January 2011, Australias
proven natural gas reserves are 110 Tcf, making Australia the twelfth-
largest holder of conventional natural gas reserves in the world. Australia
also has significant unconventional natural gas reserves such as shale gas
and coal bed methane.40
Second, Australias stable political environment has made it success-
ful in attracting foreign investment to develop capital-intensive LNG
projects.41 Australias management of oil exploration and production is
divided between the states and the Federal (Commonwealth) govern-
ments. Australias states manage the applications for onshore exploration
and production projects, while the Commonwealth shares jurisdiction
over Australias offshore projects with the adjacent state or territory.
The Department of Resources, Energy and Tourism (RET) and the
Ministerial Council on Energy (MCE) function as regulatory bodies over
Australias oil and gas sector. In place of a national oil company, the
Australian government supports privately held Australian companies,
of which the largest are Woodside Petroleum and Santos. ExxonMobil
is the largest foreign oil producer; other international oil companies
36APPEA, http://www.appea.com.au/industry/lng.html.
37IEA Medium-Term oil and Gas Markets (MTOGM) 2011 at p.246. The
IEAs forecast does not include the Prelude FLNG, which is expected to start
operations in 2017.
38 BREE Gas Market Report 2012.
39Martin Ferguson, Australian Minister for Resources and Energy and
Minister for Tourism, Australias Energy and Resources Future, June 23, 2010,
available at http://minister.ret.gov.au/MediaCentre/Speeches/Pages/Australis%27
sEnergyandResourcesFuture.aspx. Canada and Norway are the other two OECD
members that are net energy exporters.
40 EIA Country Analysis Briefs, Australia.
41IEA MOTGM 2011.
Global LNG mega projects and players 223
Darwin LNG
Prelude FLNG
AustraliaPacific LNG
Source: APPEA
Each cargo provides a total tax contribution of about $8.7 million (based
on industry averages), comprising $4.9 million in company tax and $3.8
million in associated production taxes such as royalties and resource rent
payments.
The Pluto LNG project was approved for development in July 2007 and
will process gas from the Pluto and Xena gas fields, located about 190 km
northwest of Karratha in Western Australia, into LNG and condensate.
The Pluto and Xena gas fields are estimated to contain 4.8 trillion cubic feet
(Tcf) of dry gas reserves and an additional 0.25 Tcf of contingent resources.
Pluto LNG is expected to come online in 2012 with a single 4.3 mtpa
LNG processing train but there are tentative plans to add further trains.49
Our-Business/Pluto/Pages/default.aspx.
49According to reports, Woodside Petroleum Ltd.s A$15 billion Pluto
226 Energy for the 21st century
8.9.2 Gorgon52
facilities began production of LNG in May 2012 with the lead-up to the first sales
cargo, although no date for the shipment has been announced. Rick Wilkinson,
Woodside Starts Pluto LNG Production, Explores for more Reserves, Oil&Gas
Journal, May 7, 2012, http://www.ogj.com/articles/2012/05/woodside-starts-pluto-
lng-production-explores-for-more-reserves.html.
50 EIA Country Analysis Briefs, Australia, http://205.254.135.7/countries/
country-data.cfm?fips5AS.
51Ross Kelly, Woodside Delays Orders for Pluto LNG Expansion, Wall Street
nesses/gorgon.aspx.
53 Chevron Australia, Business Portfolio, http://www.chevron.com/countries/
australia/businessportfolio/.
54 Chevron Press Release, Chevron Makes Final Investment Decision to
esses/gorgon.aspx.
57 EIA Country Analysis Briefs, Australia.
58 For example, General Electric (GE) is supplying the project with more than
$1 billion in heavy duty mining and LNG equipment. In July 2012, GE announced
it had won another $600 million contract to provide Chevron with mission critical
services at Gorgon for the next 22 years. Among the equipment GE is supply-
ing are five 2,300 ton power generation modules that will produce a combined
650 megawatts of electricity for the Barrow Island terminal and heavy-duty gas
turbines that will drive Gorgons refrigeration units that turn the natural gas into
LNG. GE subsea technology such as wellheads, pipeline termination systems
and other equipment will help move gas through an underwater pipeline network
that measures hundreds of miles long. GE will also power Chevrons unique
CO2 sequestration system that will pipe carbon dioxide into empty gas wells.
GE Reports, Gorgontuan: New $600 Million LNG Services Deal with Chevron in
Australia Brings GEs Total to $1.8 Billion, July 20, 2012, http://www.gereports.
com/gorgontuan/.
228 Energy for the 21st century
lo/Jansz
Gorgon
Su
b
to B sea t Barrow Island
arr ie-ba
ow
Isla ck Gas Plant
nd Karratha
y
ur
nb line
Co main
u e
to
B p
nn lan to Pi
ec er s
tio d pi l Ga
m a
Da tur
n
Na
Thevenard Island
Onslow
Perth
a tmosphere, the carbon dioxide will be injected into the Dupuy saline
reservoir below Barrow Island59 (Figure 8.9).
The CO2 injection location is on the central eastern coast of Barrow
Island near the gas processing plant. The CO2 injection wells will be direc-
tionally drilled from surface locations to reduce the surface area impact
and monitoring wells will provide a sample point within the injection
area.
Once the CO2 is injected into the subsurface, it will continue to move
through the host reservoir, driven by the injection pressure and natural buoy-
ancy until it becomes trapped. According to Chevron, there are four mecha-
nisms that can trap injected CO2 within the host reservoir: solution trapping;
CO2 is separated
from natural gas
Gas
CO2
GAS from
reservoir
fed to plant
CO2 is compressed
and injected 2.5 km
underground into
Dupuy Formation
chevronaustralia.com/ourbusinesses/gorgon/environmentalresponsibility/carbon
dioxideinjection.aspx.
61 Chevron, Next Magazine, Issue 4, November 2010, http://www.chevron.
com/documents/pdf/nextissue4.pdf.
62 Chevron Press Release, Chevron Makes Final Investment Decision to
230 Energy for the 21st century
The greenhouse efficiency of the LNG component of the reference case for the
Gorgon Development is 0.353 tonnes of CO2e per tonne LNG. This efficiency
includes all emissions related to the production of the natural gas from the off-
shore fields, the energy required to inject reservoir CO2 and the volume of reser-
voir CO2 vented. As such, it represents the greenhouse efficiency of the overall
LNG component of the proposed Development, not just the manufacture of
LNG.64
Emissions, http://www.chevronaustralia.com/ourbusinesses/gorgon/environment
alresponsibility/greenhousegasmanagement.aspx.
66 Chevron, Next Magazine, Issue 4, November 2010, http://www.chevron.
com/documents/pdf/nextissue4.pdf.
67 Chevron Australia, Gorgon, Environmental Approvals, http://www.chev
Global LNG mega projects and players 231
0.7
Australian LNG developments
0.075
0.6
0.59
Development
Tonnes CO2e/tonnes LNG
0.075
0.5 0.075 International LNG developments
0.075
Gorgon
0.49
0.2 0.22
0.1
0.0
North West
Shelf(1998)
North West
Shelf(2003)
North West
Shelf Train 4
North West
Shelf Project
Darwin LNG
10 MTPA Design
Gorgon
Development
Snohvit
Oman LNG
Nigeria LNG
Atlantic LNG
RasGas
Qatargas
Source: Chevron Australia, Draft Environmental Impact Statement/Environmental
Review and Management Programme for the Gorgon Development, p.617, http://www.
chevronaustralia.com/Libraries/Chevron_Documents/gorgon_ch13_LR.pdf.sflb.ashx.
groups have challenged the project from its inception citing numerous
environmental concerns and, in particular, concerns about the projects
impact on the Australian flatback sea turtle, which nests on the beaches
near the project.68 While some are opposed to the project, significant
opposition has failed to materialize, in part due to Gorgons remote
Western Australian location and the general acceptance of lucrative
energy and mining projects.69
ronaustralia.com/ourbusinesses/gorgon/environmentalresponsibility/environment
alapprovals.aspx.
68Sea Turtle Restoration Project, Threats to Endangered Sea Turtles from
Oil and Gas Exposed in Chevron Alternative Annual Report and Ads: International
Activists Call for Halt to Natural Gas Facilities on Turtle Beaches, http://www.
seaturtles.org/article.php?id51622. See also The Wilderness Society of Western
Australia, www.wilderness.org.au and Save The Kimberley, www.savethekimber
ley.com.
69As one reporter has noted, Its frankly a challenge to rally opposition to a
project on an island almost no one is allowed to set foot on in a territory four times
the size of Texas but home to only 2 million people. Mining for iron, copper, gold
232 Energy for the 21st century
1.0
0.9
0.08
0.8
0.7 0.20
Tonnes CO2e/tonnes LNG
0.6 0.06
0.5
0.89 0.20
0.4
0.3 0.07
0.2
0.35
0.1
0.0
Agreement
1998 Concept
Greenhouse
Challenge
Use of
subsea
production
system
LNG
technology
improvement
Improved
waste heat
recovery
Reservoir CO2
injection
Reference case
emissions
efficiency
8.9.3 Wheatstone70
and coal is the keystone of the Western Australia economy. Flush with cash from
mining and energy projects (a unionized welder can bring home $500,000 a year),
the citizenry is relatively sanguine about environmental damage. Christopher
Helman, Drilling into Eden, Forbes Magazine, August 22, 2011, http://www.forbes.
com/forbes/2011/0822/features-chevron-barrow-island-natural-gas-drilling-eden.
html.
70 Chevron, Wheatstone, http://www.chevronaustralia.com/ourbusinesses/
wheatstone.aspx.
Global LNG mega projects and players 233
and Apache joined the project as gas suppliers from their nearby Julimar
and Brunello fields, which will extend the life of the project. Wheatstone
is supported by long-term LNG sales contracts with Tepco and
Kogas.71
Gas will be processed at an onshore facility located at Ashburton
North, 12 km west of Onslow in Western Australias Pilbara region.
The foundation project will include two LNG trains with a combined
capacity of 8.9 million tonnes per year and a domestic gas plant with
a targeted completion date of 2016.72 While some concerns were raised
in 2011 about potential cost increases and labor shortages in Australia
that could negatively impact planned LNG projects, in September
2011 Chevron took a final investment decision (FID) on the A$29
billion Wheatstone project.73 Chevron indicated that construction on
Wheatstone was to begin immediately with an estimated start-up date
of 2016.74
According to analysts at Wood Mackenzie,75 Australia could have 73
million tonnes a year of capacity once all the projects that are producing or
have been sanctioned, including Wheatstone, are taken into account. This
compares with 77 million tonnes a year of capacity in Qatar. However, if
the Japanese Ichthys project is sanctioned by the end of 2011 as expected,
Australia could achieve 81.4 millon tonnes a year of capacity by 201718,
surpassing Qatar.76
With projects like Wheatstone, the Australian economy is likely to
remain strong if recent years are any indication. For example, in the
first half of 2011, higher prices and greater volumes pushed the value of
Australias LNG exports up 34 percent to A$10.5 billion. The Australian
governments Bureau of Resources and Energy Economics has forecast a
further 11 percent increase to A$11.6 billion in 201112.77
the worlds energy and metals industries. Wood Mackenzie website, http://www.
woodmacresearch.com/cgi-bin/wmprod/portal/energy/aboutEnergy.jsp.
76 Peter Smith and Sylvia Pfeifer, Chevron Approves A$29bn Australia LNG
Australia also seems likely to become the first country in the world to host
a floating LNG liquefaction project. Shell Development Australia will use
a specially designed ship the largest floating structure ever built with
LNG production facilities to develop its Prelude gas field off the north
coast of Western Australia. This project is expected to begin producing 3.5
mtpa from 2016 or 2017.78 For additional discussion about FLNG and the
Prelude project, see Chapter 12.
There are several other LNG projects in the planning stage in Australia
with some aimed at taking FID in late 2011 or later79 (Table 8.3).
Some projects have secured buyers and are in advanced stages of obtain-
ing permits. For example, Woodsides Browse LNG is in talks with Asian
customers and aims to finalize contract terms in 2011.80 The Australian
state environmental approval for Browse was granted in December 2010
and is now proceeding to the Australian Federal government approval
process. Shell and PetroChina are jointly developing the CS CSG project
after Arrow Energys board of directors and shareholders approved a
takeover bid in 2010.81
The Bonaparte project is a 2.7 bcm floating LNG project that GDF
Suez expects to take FID on in 2014. The pre-FEED contract was
awarded in 2011 and this project could reinforce GDF Suezs position in
the Asia-Pacific region after signing short-term contracts with Kogas and
CNOOC.82 Woodsides Greater Sunrise project seems to be facing chal-
lenges as East Timor continues to insist that the project be built on East
Timors national territory, although the project sponsors are looking at a
floating option due to project economics.83
The Icthys project, located off the northwest coast in the Browse Basin,
is now expected to begin construction in early 2012. The project is led by
Japans INPEX (74 percent) and Total (26 percent). A 528-mile undersea
Project Partners (share) Expected Capacity LNG buyers Sales volume Start-up CAPEX ($b)*
FID (bcm) (bcm)
Wheatstone Chevron 80%, 2011 11.7 Tokyo Electric, 5.6 2016 29.0
Apache 13%, Kogas, Kyushu 2.7
Kufpec 7% Electric 1.1
Australia ConocoPhillips 50%, 2011 6.1 plus Sinopec 5.8 20151 19.6
Pacific LNG Origin 50%
Pluto Train2 Woodside 100% 2011 6.5 None yet N/A 2016 15.3
Ichthys Inpex 76%, Total 24% 2011 10.9 None yet N/A 20161 30.8
Browse Woodside 50%, 2012 16.3 Osaka Gas, CPC 1.6 20161
235
Chevron 16.7%, 4.1
BP 16.7%BHP and
Shell 8.3% each
CS CSG Shell 50%, 2012 10.8 plus Petro China, Shell 5.4 20161
PetroChina 50% 5.4
Greater Sunrise Woodside 33.4%, 2012 6.8 None yet N/A 20161
shell 26.6%,
ConocoPhillips 30%,
OG 20%
Bonaparte GDF Suez 60%, 2014 2.7 None yet N/A 2018
Santos 40%
pipeline will connect the gas fields to a new export LNG terminal to be
built near Darwin. The project is expected to come on-stream in 2016, with
an expected production of 380 Bcf of LNG and 19 million barrels of LPG
per year, as well as 100,000 bbl/d of condensate. The Australian govern-
ment gave environmental approval in June 2011 and the final investment
decision is expected in the fourth quarter of 2011.84
The Australian government believes that CSG can play an important role
in regional development by bringing infrastructure and investment to
parts of rural and regional Queensland and NSW, and by providing new
jobs and strengthening and diversifying regional economies. The CSG
industry has already become a major source of employment and income
in parts of inland south Queensland. Several Queensland and NSW CSG
companies have built or are planning to build significant gas-fired power
stations and associated infrastructure near regional centers. Over the next
two decades, the CSG industry is likely to spend as much as $6 billion
on NSW gas field developments and a further $3.9 billion of operating
spending, according to a report commissioned by APPEA.95
According to APPEA, the Commonwealth Scientific and Industrial
Research Organisation (CSIRO)96 has estimated eastern Australias CSG
resources to be more than 250 trillion cubic feet; this is enough to power
a city of one million people for 5,000 years and more than enough to
feed Australias domestic and export CSG projects for many decades to
come.97 Nonetheless, the CSG industry has recently come under greater
scrutiny as cost blow-outs have been announced amid doubts about the
CSG industrys ability to supply enough gas to the three LNG export
projects based on CSG.98
94APPEA, http://www.appea.com.au/industry/csg/introduction.html.
95APPEA, Economic Significance of Coal Seam Gas in New South Wales.
96The Commonwealth Scientific and Industrial Research
Organisation (CSIRO) is Australias national science agency and one of the
largest and most diverse research agencies in the world. CSIRO, http://www.csiro.
au.
97APPEA, http://www.appea.com.au/csg/about-csg/what-is-csg.html.
98Matt Chambers, CSG Industry in Crisis as Gas Plays Face $20bn
farmland, but experts say Bligh is unlikely to do so, given the huge amount
of investment and jobs involved.104
New South Wales, where the coal seam gas industry is still relatively
new, has extended an existing moratorium on hydraulic fracturing through
the end of 2011.105 The Australian Green party is currently leading the
charge to impose more stringent regulations on CSG development and
recently introduced legislation that would allow farmers to refuse to have
coal seam gas drilling on their land.106 Analysts say the recent tightening
of regulations in Queensland is unlikely to affect projects significantly, but
the growing public opposition to the coal seam gas sector could be a factor
down the road and might lead to project delays and higher costs.107
For its part, the Australian CSG industry contends that the CSG indus-
try has been around for decades and it has been a significant source of gas
production in Queensland for more than ten years.108 Moreover, industry
and government have a detailed knowledge of the hydraulic fracturing
process and of the chemicals being used. Water and sand comprise more
than 99 percent of the volume of fracking fluid and companies must
identify the chemicals being used in any fracking operation and detail any
likely interactions with the water and rock formations in the area being
fracked.
In terms of landowners issues, the industry notes that by law companies
must notify landholders before entering their land. They are generally
required to give at least ten business days notice before entering land for
any form of activity. For any activities entailing some form of disturbance
of the land, companies must have a negotiated conduct and compensation
agreement with the landholder.
The industry also maintains that wells are constructed in a way that
ensures there can be no migration of gas to neighboring bores and aqui-
fers. A recent wellhead safety report in Queensland surveyed more than
2,900 wells and found only 35 leaks of concern. These leaks posed no
threat to human health but the companies were required to rectify them.
In terms of arguments that the CSG production activity could cause the
Great Artesian Basin to dry up, threatening farming activity, the industry
maintains that given the huge volume of water held in the Great Artesian
104Ibid.
105Ibid.
106Ibid.
107Rebekah Kebede, Insight: Australias Coal-seam Gas Industry Feels
The projects in Qatar demonstrate how vision and technology can trans-
form a country into the worlds largest LNG exporter. Similarly, the huge
waves of LNG projects underway in Australia demonstrate vision and
technologies that will propel the LNG industry to even greater achieve-
ments. At the same time, however, the Australian projects are challenged
by many environmental and emissions concerns and, for that reason, these
projects will no doubt be studied well into the 21st century.
While Qatar and Australia are global leaders in LNG, a number of
other countries have recently stepped onto the world LNG stage for the
first time, including Russia, Peru, Yemen, and Papua New Guinea. These
new projects present numerous opportunities and challenges that differ
significantly from those presented in Qatar and Australia. For example,
in Russia, the challenges of working through an opaque bureaucracy
that requires many layers of approvals can delay or even derail projects.
Russia also demonstrates the difficulties of working in extremely harsh
Arctic conditions. The Peru, Yemen, and Papua New Guinea LNG
projects highlight the opportunities and challenges associated with bring-
ing natural gas to the global market while balancing economic growth,
environmental protection and social development demands.
Russia is a key player in the global energy markets and is a major exporter
of oil and natural gas. Over the past decade, most of Russias economic
growth has been driven by its energy exports. Natural gas exports remain a
major driver of Russias gas industry since most of the industrys revenues
come from exports, whereas natural gas for the domestic market is sold
242
New players and projects 243
According to the Oil & Gas Journal, Russia holds the worlds largest
natural gas reserves, with 1,680 trillion cubic feet (Tcf) or approximately
48 trillion cubic meters (tcm)4 (Figure 9.1). Russias reserves account for
about a quarter of the worlds total proven reserves, with the majority of
these reserves located in Western Siberia, with the Yamburg, Urengoy,
and Medvezhye fields alone accounting for about 45 percent of Russias
total reserves.5
eia.gov/EMEU/cabs/Russia/.
4Ibid. Most recently, the IEA has indicated that proven reserves of natural
gas in Russia are generally quoted to be about 45 tcm with varying estimates
including: 45 tcm, BP, 2011; 48 tcm in O&GJ; 46 tcm in Cedigaz, 2011; and 48
tcm in Government of Russia, 2009. IEA WEO-2011. A useful website for metric
conversions is www.metric-conversions.org.
5 EIA Country Analysis Brief, Russia (Nov. 2010), available at http://www.
eia.gov/EMEU/cabs/Russia/.
244 Energy for the 21st century
1,800 1,680
1,600
1,400
Trillion cubic feet
1,200 1,046
1,000 899
800
600
400 265 263 245 176
199 185 159
200
0
Iran
Saudi Arabia
Russia
Qatar
Turkmenistan
United States
Abu Dhabi
Nigeria
Venezuela
Algeria
Source: US EIA
Russia has been the worlds long-standing leader in terms of natural gas
production. However, in 2009, and largely due to the increase in shale gas
production, the United States overtook Russia and became the worlds
largest natural gas producer with production of 21 Tcf versus Russias
production of 19.3 Tcf, although Russia was still the worlds largest
exporter of natural gas (7.3 Tcf).6 According to the BP Statistical Review
of World Energy 2012, the United States remains the worlds top natural
gas producer for the third consecutive year. (See Chapter 11, Table 11.1.)
6Ibid.
7Ibid.
New players and projects 245
1,600
1,432
1,400
1,200
Billion cubic feet (Bcf)
1,000
800
600 532
367
400
248
196 184
200 133 124 110
0
Iran
Iraq
Saudi Arabia
Russia
Nigeria
Algeria
Kazakhstan
Libya
Angola
Source: US EIA
Russia supplies Europe with most of its natural gas and, in particular,
supplies significant amounts of natural gas to the Commonwealth of
Independent States (CIS).8 Germany is the biggest export market with
a 33.4 percent share.9 In addition, Gazprom, through its subsidiary
Gazexport, exports natural gas to Turkey, Japan, and other Asian coun-
tries.10 According to published data, in 2009 Russia exported more than
6.5 Tcf of natural gas, which includes 4.5 Tcf to Eastern and Western
Europe and 2.2 Tcf to CIS countries.11 The share of Russias natural gas
exports as a percentage of Russias gas output was the highest in 1999,
amounting to 33.5 percent.12 While this percentage has dropped in recent
8Ibid.
9Interfax, Corporate News Agency, Russias Gas Industry in 20102011, July 2011.
10 EIA Country Analysis Brief, Russia (Nov. 2010), available at http://www.
eia.gov/EMEU/cabs/Russia/.
11Ibid.
12Interfax, Corporate News Agency, Russias Gas Industry in 20102011, July
2011.
246 Energy for the 21st century
Yamal-Europe II
A proposed expansion of the current 1 Tcf Yamal-Europe I, which carries
natural gas from Russia to Poland and Germany via Belarus, would add
another 1 Tcf of capacity. Gazprom and Poland currently disagree on
the exact route of the second branch as it travels through Poland, with
Gazprom wanting a route via southeastern Poland to Slovakia and on to
Central Europe, while Poland wants the branch to travel through its own
country and then on to Germany.17
13Ibid. Other major natural gas suppliers to Europe include Norway (19%),
eia.gov/EMEU/cabs/Russia/.
15Ibid.
16Ibid.
17Ibid.
New players and projects 247
South Stream
The first component of the South Stream project plans to send natural gas
from the same starting point as the Blue Stream pipeline at Beregovaya
for 560 miles under the Black Sea, achieving a maximum water depth of
over 6,500 feet. The second, onshore component will cross Bulgaria with
two alternatives: one directed towards the northwest, crossing Serbia and
Hungary and linking with existing gas pipelines from Russia; and the other
directed to the southwest through Greece and Albania, linking directly to
the Italian network. As a result of the RussiaUkraine disputes, the pipe-
line will be constructed through Turkeys waters, avoiding Ukraines terri-
tory altogether. Gazprom expects the pipeline to be completed by 2015.18
18Ibid.
19Ibid.
20 Josh Posaner, What Does Nord Stream Mean for Europe? Interfax Global
+ Sakhalin-5
+ (East Shmidtovski)
Sakhalin-4
(West Shmidtovski) Sakhalin-5 (Lopukhovsky)
Sea of Okhotsk
Sakhalin Islan
Sakhalin-6 (Pogranichnoye)
Petrosakh
OKRUZHNOYE
Sakhalin-8
+ +
Sakhalin-6 (Varvarinski)
aky
Terpeniya
Takm
Bay
Sakhalin-7
k-4
Sakhalin-9
ov
ar
ab
Kh
10
Prigorodnoye
20
rch
Ma
Sakhalin LNG
ce
Aniva
-i
ck
Bay
Pe
Sakhalin Island is a former penal colony located on the Far East side of
Russia and is a major oil and gas producing area. It is also the location of
Russias first LNG terminal Sakhalin LNG.23 (See Figure 9.3.)
23 EIA, Country Analysis Brief, Sakhalin Island (last updated June 2011),
available at http://www.eia.gov/emeu/cabs/Sakhalin/pdf.pdf.
New players and projects 249
Sakhalin I25
The Sakhalin I project is led and operated by Exxon Neftegaz, a subsidi-
ary of ExxonMobil, which holds a 30 percent interest. Other participants
include: Russian oil company Rosneft acting via its affiliates RN-Astra
(8.5 percent) and Sakhalinmorneftegas-Shelf (11.5 percent); Japanese
consortium SODECO (30 percent), and Indian state-owned oil company
ONGC Videsh Ltd. (20 percent).26
Due to its harsh Arctic climate, Sakhalin-1 is one of the most challeng-
ing projects in the world. Although they were discovered several decades
ago, the Sakhalin-1 fields were not developed until new technologies
became available as a result of the partnerships between Russian and
international companies.27 The first phase of the project development is
already underway and Exxon Neftegaz is extracting resources from both
the Chayvo and Odoptu fields. Commercial production of oil and natural
gas in the Odoptu field began in September 2010, offsetting the declining
output from the projects Chayvo field. Subsequent phases of the project
will include the development of the Arkutun-Dagi field as well as Phase
II of the Chayvo development. The Arkutun-Dagi field development
will help maintain production as the Chayvo field production naturally
declines. According to Exxon Neftegaz, oil production is expected to begin
in 2014. Phase II of the Chayvo field will allow for expanded natural gas
production for both domestic consumption and exports.28
So far, the mode of natural gas exports from Sakhalin 1 has not
been decided, but the project is supplying natural gas to the local area.
24Ibid.
25 Exxon Neftegas Limited, Sakhalin-1, http://www.sakhalin-1.com/Sakhalin/
Russia-English/Upstream/default.aspx.
26Ibid.
27Ibid.
28 EIA, Country Analysis Brief, Sakhalin Island (last updated June 2011),
available at http://www.eia.gov/emeu/cabs/Sakhalin/pdf.pdf.
250 Energy for the 21st century
ExxonMobil would like to send the natural gas to the south via pipeline
to China, but other shareholders and Gazprom would rather market the
natural gas as LNG via Sakhalin II, which would require an expansion of
the facilities there.29
29Ibid.
30Sakhalin Energy, http://www.sakhalinenergy.com/en/.
31 EIA, Country Analysis Brief, Sakhalin Island (last updated June 2011),
available at http://www.eia.gov/emeu/cabs/Sakhalin/pdf.pdf.
32Shell News Release, Sakhalin II Gears up for Full Production, May 20, 2009,
available at http://www.shell.com/home/content/media/news_and_media_releases/
archive/2009/sakhalin_20052009.html.
33 EIA, Country Analysis Brief, Sakhalin Island (last updated June 2011),
Sakhalin III
The Kirinskoye and Veninskoye blocks in the Sakhalin III project are
estimated to contain 1.5 billion barrels of oil and 2.7 Tcf of natural gas
in commercial and technical reserves. The Veninskoye block, with oil
reserves of 1.4 billion barrels, will be developed by a Rosneft-Sinopec
consortium, with four wells drilled so far. Once exploration has been
completed, production could start from the Veninskoye field in 2017.
Gazprom began exploration drilling at the Kirinskoye offshore field in
July 2009, and it is the first Sakhalin project to be carried out completely
by a Russian firm. The company plans to deliver natural gas produced
at the field to the Sakhalin-Khabarivsk-Vladivostok gas system by 2014.
available at http://money.cnn.com/magazines/fortune/fortune_archive/2007/
02/05/8399125/index3.htm.
35Ibid.
36Interestingly, Sakhalin received a commissioning cargo in October 2007
from the tiny Kenai LNG facility in Kenai, Alaska, when Marathon Oils
Arctic Sun berthed at Sakhalin Island. Since Alaskan LNG is mainly methane,
it was ideally suited for the initial commissioning and testing of the Sakhalin
LNG plant. Sakhalin Energy, Alaska to Aniva ... Second LNG Shipment
Arrives! (Oct. 2007), available at http://www.sakhalinenergy.ru/en/default.
asp?p5channel&c51&n5230.
37Sakhalin Energy, In 2010 Sakhalin Energy Produced 100 LNG
Sakhalin IVVI
Areas of Sakhalin Island lying to the north and southeast of Sakhalin I
and II are at various preliminary stages of development and have thus
far shown mixed results. The Rosneft-BP efforts in the East and West
Shmidtovski fields have been disappointing. However, exploration in the
Kaigansko-Vasyugan continues with promising results.39
Two gas mega projects are currently underway in Russia, the Yamal
LNG project and the Shtokman project.40 The Yamal LNG project was
launched in late 2008 in response to output declines in the Yamburg,
Urengoy, and Medvezhye fields.41 The Yamal project is being developed
by Novatek, Russias largest independent natural gas producer and the
second-largest natural gas producer in Russia after Gazprom.42
In 2010, Novatek accounted for approximately 6 percent of the natural
gas produced in Russia, providing approximately 10 percent of total
natural gas deliveries through the UGSS (United Gas Supply System)
to the domestic market. Novatek is currently required to sell 100 percent
of its natural gas to customers in the Russian Federation and its main
customers are power generation companies, industrial users, regional gas
distributors and wholesale gas traders.43
As an independent natural gas producer, Novatek is not subject to the
governments regulation of natural gas prices; however, the regulated
price as set by the Federal Tariff Service (FTS) significantly influences the
market conditions in Novateks regions of delivery as well as the price in its
natural gas contracts with end-customers and wholesale traders. Novatek
transports its natural gas through its own pipelines into the UGSS, which it
then uses to deliver its gas to end-customers in accordance with the relevant
38 EIA, Country Analysis Brief, Sakhalin Island (last updated June 2011),
available at http://www.eia.gov/emeu/cabs/Sakhalin/pdf.pdf.
39Ibid.
40IEA WEO-2011.
41Ibid.
42 Novatek, About Us, available at http://www.novatek.ru/en/about/general/.
43Ibid.
Table 9.1 Sakhalin project summary
253
Gas reserve 16.9 Tcf (Source: Wood 14.2 Tcf (Source: 49 Tcf (Source: 19 Tcf, 1 Tcf 15.217.7 Tcf n/a
estimate Mackenzie) Wood Mackenzie) Gazprom) in west
Schmidt
(Source:
Roseneft)
Primary Exxon Nefttegaz Gazprom (50%), Roseneft(49.8%), BP (49%), Elvary Urals
project (30%), Sakhalin Energy Chinese Sinopec Rosneft (51%) Neftegas: Energy (via
developers SODECO (30%), Investment (25.1%) and BP (49%), Petrosakh),
ONGC Videsh (20%), Company:Shell Sakhaliskaya Rosneft (51%) Alfa Eco
Sakhalinmo meftegaz (27.5%), Mitsui Neftyanaya
(11.5%), and (12.5%), Kompaniya(25.1%)
RN Astra (8.5%) Mitsubishi(10%)
Source: US EIA
254 Energy for the 21st century
44Ibid.
45 Novatek, South-Tambeyskoye Field, available at http://www.novatek.ru/
en/business/projects/stambeyskoye/.
46O&GJ Editors, Yamal LNG Awards Concept Contract, Oil & Gas Journal,
en/business/projects/stambeyskoye/.
New players and projects 255
The giant Shtokman gas field is estimated to be one of the worlds largest
natural gas deposits with reserve estimates of 3.8 trillion cubic meters of
49Ibid.
50 Jacob Gronholt-Pedersen, Novatek Exercises Option to Buy 49% Stake in
BA R E N T S S E A
Shtokman field
N O RWAY
TERIBERKA
MURMANSK
SWEDEN
FINLAND
RU S S I A
ST. PETERSBURG
NORD STREAM
ESTONIA
L AT V I A
BALTIC SEA L I T H UA N I A
MOSCOW
B E L A RU S
Source: Gazprom
natural gas and about 37m tonnes of gas condensate.53 The Shtokman
field is located in the Russian-controlled sector of the Barents Sea, about
370 miles (500 km) north of the Kola Peninsula (Figure 9.4).
Although the Shtokman gas field was identified in 1988, it was not
developed due to the extreme Arctic conditions where the field is locat-
ed.54 The Arctic climate and the harsh, stormy environment leave a
com/projects/shtokman_gas_project/.
54According to the project developers, the Shtokman gas field was identified
com/projects/shtokman_gas_project/.
56Shtokman Project, http://shtokman.ru/en/.
57 Shtokman Gas Project, available at http://www.hydrocarbons-technology.
com/projects/shtokman_gas_project/.
58Ibid.
59Gazprom, Shtokman Project, available at http://www.gazprom.com/
production/projects/deposits/shp/.
60Shtokman Project, http://shtokman.ru/en/.
258 Energy for the 21st century
as a resource base to supply natural gas via the new Nord Stream pipeline
to Western Europe, as well as for the production of Russian LNG for
overseas markets.61 It should be noted that the US was one of the markets
the Shtokman project was targeting but, as noted in other chapters, with
the production of shale gas, it now appears that the US will not be a major
LNG importer.
The Shtokman field was expected to come on-stream by 201315, with
estimated development costs between $12 and $25 billion for the first
phase and a $50 billion overall investment. The first gas was expected in
2013 at 11 bcm a day along with 205,000 t of gas condensate per year and
the first LNG was expected in 2014 at 7.5 MTA.62 However, in February
2010, the project development schedule was postponed for three years due
to a decrease in demand for gas in European markets. It is now expected
that gas production from Shtokman will start in 2016. The first LNG
production has been postponed until 2017 due to changes in the targeted
US LNG market.63
Reaching a final investment decision (FID) for Shtokman has always
been viewed as a difficult aim as the partners weigh uncertainty about
demand and prices and, as this book goes to print, the FID for the
Shtokman project has yet to be made after several delays.64 Among the
many challenges is the problem of where the gas will be marketed and
how to transport it. Sevmorneftegaz and the Shtokman Development
Company are working on the phase I development (design and construc-
tion) of the Shtokman infrastructure. This will include a production
complex, a pipeline network and an LNG plant. The gas was initially
destined for the US market as LNG export but Gazprom has also indi-
cated that it wants to export some of the produced gas to Europe via the
Nord Stream pipeline. However, this will require a pipeline spur from the
Shtokman field to the Murmansk Oblast and then via Kola Peninsula to
Volkhov in the Leningrad Oblast.
A Gazprom representative indicated at a major energy conference in
November 2011 that Shtokman will go ahead. However, it is a matter
of timing. It will be underpinned by long-term contracts. We are working
61Ibid.
62 hydrocarbons-technology.com, Shtokman Gas Project, available at http://
www.hydrocarbons-technology.com/projects/shtokman_gas_project/.
63Ibid.
64See Josh Lewis, Shtokman FID Delayed Again, Upstream, March 30,
hard to make that timing as soon as possible. For the time being we remain
positive. However, challenges remain for the project.65
Other challenges include the fact that Shtokmans foreign shareholders,
Total and Statoil, have said repeatedly that the project needs tax breaks
similar to the Yamal LNG project, which received breaks on the natural
resource extraction tax and local taxes, as well as a zero percent export
duty.66 Analysts have questioned whether government financial aid will
be available for both Yamal and Shtokman, since the cost of Novateks
Yamal LNG project alone is estimated to reach 24 billion ($33 billion).67
Statoil CEO Helge Lund has said repeatedly that Statoil cannot arrive at
an FID without aclear definition ofthe fiscal regime forthe project, which
may not be economically viable without significant tax breaks.68
Peru LNG69 became the worlds newest LNG exporter in June 2010, and
joined the club of LNG exporters as its 18th member.70 The Peru LNG
pipeline and liquefaction project located at Pampa Melchorita is the
largest industrial project ever undertaken in Perus history.71 It is also the
65Leigh Elston and Ahmed Mehdi, Challenges Remain for Giant Shtokman
able at http://www.themoscowtimes.com/business/article/no-shtokman-clarity-
this-year/448685.html#ixzz1fGrC8JEL.
69 Peru LNG, www.perulng.com.
70 Peru LNG was officially inaugurated on June 10, 2010, when Repsol
delivered its first LNG shipment, onto the Barcelona Knutsen tanker. Repsol
Press Release, Repsol Delivers its First Cargo from the Peru LNG Plant, June 24,
2010, http://www.repsol.com/es_en/corporacion/prensa/notas-de-prensa/ultimas-
notas/24062010-repsol-primer-cargamento-gnl-peru.aspx.
71 CB&I, a leading engineering firm, engineered the liquefaction plant and
first LNG plant in South America and was the only LNG project world-
wide that took an affirmative final investment decision in 2006.72
The Peru LNG project is made up of two major segments. The first
segment, and a major element of the project, was the construction of a
34-inch diameter pipeline for the transportation of natural gas from the
Camisea gas field located in the Andes Mountains east of Ayacucho to
the LNG plant at Pampa Melchorita on the coast.73 Development of the
408 km pipeline began in 2005 and faced numerous challenges including
difficult terrain conditions, landslides, altitude considerations, govern-
ment regulations, and difficult environmental and ecological conditions.
The ultimate route evaluated by Gulf Interstate Engineering and various
specialists follows an undulating route, winding along narrow mountain
ridges through the Andes Mountains with near inaccessible locations and
terrain conditions that are considered the toughest in the world when
engineering and constructing a pipeline project of this sort.74 The pipeline
ends at the LNG Plant at Pampa Melchorita, located on the coast. (See
Figure 9.5.)
BRAZIL
PERU
Existing pipelines
Campo Malvinas
Lima
Source: www.hydrocarbons-technology.com
76Ibid.
77Ibid.
78 CB&I Factsheet, LNG Production Facility, Pampa Melchorita, Peru. CB&I
the project was designed and constructed for a high seismic region and
the project site experienced an 8.0 Richter scale earthquake during
construction.79
CBI.com.
New players and projects 263
LNG received a two-year credit line of $75 million for short-term financial
needs to export the LNG.82
In addition, the International Finance Corporation (IFC) approved a
$300 million loan for the Peru LNG project in June 2008. The IFC also
advised Peru LNG on numerous environmental issues to ensure that
communities surrounding the project site were protected.83 According to
the IFC, Peru LNG will enhance opportunities for local businesses to sell
goods and services to the project and raise peoples incomes and job pros-
pects. IFC is developing programs to engage local communities in moni-
toring the effects the project will have on their lives and is also establish-
ing training for nearby municipalities to make best use of the significant
new revenues they will receive as a result of the project. These programs
build on IFCs experience with similar initiatives in some of Perus poorest
regions. The Peru LNG project is expected to help generate significant tax
and incremental royalty payments to the government, equivalent to over
1.5 percent of current state revenues, and the project is expected to make
Peru a net gas exporter after operations begin in 2010.84
technology.com/projects/peru-lng/.
83International Finance Corporation, World Bank Group, Peru LNG
Project, http://www.ifc.org/ifcext/plng.nsf/content/Home.
84International Finance Corporation, World Bank Group, Peru LNG
Project, http://www.ifc.org/ifcext/plng.nsf/content/Home.
85 Jeremy M. Sharp, CRS Report for Congress (RL34170), Yemen:
One of the few bright spots in Yemen is the Yemen LNG project.91
Launched in 2005, the $4.5 billion Yemen LNG project is the largest
86 EIA Country Analysis Briefs, Yemen (last updated Feb. 2011), available at
http://www.eia.gov/emeu/cabs/Yemen/pdf.pdf.
87 EIA Country Analysis Brief, Yemen.
88 Jeremy M. Sharp, CRS Report for Congress (RL34170), Yemen:
attack against the USS Cole in 2000 (while docked at a Yemeni port) coupled with
the attacks of September 11, 2001, a year later officially made Yemen a front in the
so-called war on terror. CRS Report RL34170, Yemen.
90 EIA Country Analysis Brief, Yemen.
91According to information posted on Yemen LNGs website, Yemen LNG
SADAH
AL MAHRAH
Al JAWF
HADRAMAWT AL Ghaydah
HAJJAHAMRAN Al Hazm
MARiB
AL MAHWIT Sanaa
Marib
AL HUDAYDAH SHABWAH AL Mukalla
DHAMAR Arabian Sea
Dhamar Ataq
Red Al Hudaydah
AL BAYDA
Sea IBB
Ibb Al Bayda
AD DAI
Taizz ABYAN
265
TAIZZ LAHIJ
Lahij
ERITREA Aden
Gulf of Aden Socotra
Bab al Mandab
DJIBOUTI
SOMALIA
energies/natural-gas-/processing/projects-and-achievements/yemen-lng-940894.
html. Total is the lead partner with a 39.62% interest, alongside Hunt, 17.22%;
Yemen Gas Company, 16.73%; SK Corporation, 9.55%; Korea Gas Corporation,
6%; Hyundai Corporation, 5.88%; and GASSP, the General Authority for Social
Security and Pensions, Yemens largest social security organization, 5%.
94Total, Yemen LNG Project.
95Ibid.
96World Bank, Yemen Quarterly Economic Review (Spring 2010), available
at http://siteresources.worldbank.org/INTYEMEN/Resources/2010_YEU.pdf.
Yemen Quarterly Economic Review is a quarterly report produced by the World
Bank Country Office in Sanaa. It consists of several sections covering major
political, social and economic developments. It also provides information on
ongoing World Bank operations in Yemen, key indicators in Yemen, and a list of
conferences and donor activities.
97 EIA, Country Analysis Brief, Yemen.
New players and projects 267
at http://siteresources.worldbank.org/INTYEMEN/Resources/2010_YEU.pdf.
99Ibid.
100In February 2010, the first LNG tanker from Yemen arrived in the USs
Boston Harbor despite protests from Bostons Mayor that LNG from Yemen
should not be allowed due to security risks. According to the US Coast Guard,
extra security measures for the tanker were put in place due to Yemens strong ties
to Al Qaeda, including boarding the tanker out at sea to inspect it for proper docu-
mentation and possible stowaways. Kathleen McNerney, Yemeni LNG Tanker
Arrives Safely in Boston Harbor, WBUR, Boston NPR, Feb 23, 2010, available at
http://www.wbur.org/2010/02/23/lng-tanker.
101 EIA Country Analysis Brief, Yemen.
268 Energy for the 21st century
revenues. Yemen also signed 20-year contracts with GDF Suez Company
and lead developer, Total.102
More recently, the unrest in the Arab World (commonly referred to as the
Arab Spring) in early 2011 focused increased international attention on
Yemen as sustained mass protests and an assassination attempt on President
Saleh caused him to flee to Saudi Arabia,103 and later led to his official
ousting, creating a power vacuum in the country.104 Despite the unrest, in
March 2011, it was reported that Yemen LNG had loaded the 100th LNG
carrier at Balhaf and that production capacity had reached 6.7 MT.105
As this book goes to print, Yemeni soldiers have been deployed to protect
the gas pipeline feeding the Yemen LNG export terminal as the country
tries to shield its biggest industrial asset from attacks by armed groups
that have repeatedly sabotaged Yemens oil and gas pipelines, causing fuel
shortages and slashing export earnings for the impoverished country.106
102Ibid.
103 UPI, Yemen: Saleh and New Guard Play for Time, Nov. 16, 2011,
available at http://www.upi.com/Top_News/Special/2011/11/16/Yemen-Saleh-
and-new-guard-play-for-time/UPI-78121321460685/#ixzz1du1XKOxj.
104Sami Aboudi, Yemens Saleh Faces Music after 33 Years in Power,
www.lngworldnews.com/yemen-lng-loads-100th-cargo/.
106Mohammed Ghobari and Daniel Fineren,Yemen sends soldiers to protect
helps to create and maintain US jobs by financing the sale of US exports, primarily
to emerging markets throughout the world, by providing loan guarantees, export
credit insurance and direct loans. More information is available on the Banks web
site at www.exim.gov.
108 Ex-Im Bank Press Release dated December 14, 2009, Ex-Im Bank
Financing for Papua New Guinea LNG Project to Generate Significant Revenue
for Island Nation, While Employing Workers at Dozens of American Companies,
New players and projects 269
It is expected that over 9 Tcf of gas will be produced and sold over the life of
the project. The Project will supply four major LNG customers in the Asia-
Pacific region under long-term sales agreements: China Petroleum and
Chemical Corporation (Sinopec), Osaka Gas Company Limited, the Tokyo
Electric Power Company, Inc, and Chinese Petroleum Corporation.113
The original Project sponsors are: ExxonMobil, which, through its
subsidiary Esso Highlands Limited, will be the operator of the project
with a 33.2 percent interest; Oil Search Limited (29 percent), Papua New
Guineas largest oil and gas producer and operator; National Petroleum
Company Papua New Guinea (16.6 percent), owned by the Papua New
available at http://www.exim.gov/pressrelease_print.cfm/8F2036C5-C2D5-A3DB-
0E90CFB3EFBC0262/ (hereinafter Ex-Im Bank Press Release).
109The original cost estimate for the PNG LNG Project was $18.3 billion.
More recent cost estimates indicate that The investment for the initial phase of
the Project, excluding shipping costs, is estimated at US$15.7 billion. PNG LNG,
www.http://pnglng.com/project/index.htm.
110 Ex-Im Bank Press Release.
111 Papua New Guinea Liquefied Natural Gas Project, Quarterly
CONSTRUCTION
LNG Plant (C2 & EPC3) C2 Early Works LNG Plant, LNG Tanks & Marine
Drilling Mobilize
271
Implementation
Commissioning & Start Up
Future
2 Angore Field Development
Note: This was the project schedule at the time of the 1Q 2010 Report but may not be the current schedule. It is provided here for illustrative
purposes.
The Project sponsors and lenders maintain that the Project has the poten-
tial to transform the economy of Papua New Guinea by, among other
economic benefits, boosting GDP and export earnings, providing employ-
ment opportunities, and providing royalty payments to landowners.115
In fall 2009, the State of Papua New Guinea, representatives of Project
area landowners, and various provincial and local level governments
executed the Project License based Benefit Sharing Agreement as a first
step in the allocation and sharing of the revenues associated with the
Project. In general, the agreement outlines the sharing of revenue streams
from royalties, development taxes and equity dividends totaling approxi-
mately US$5.6$7.5 billion over the Project life. Under the agreement, a
portion of the states project equity will go to landowners and provincial
governments. In addition, US$432 million was committed over the next ten
years for infrastructure development such as roads, bridges, airports and
townships.116
The PNG LNG Project secured financing from various export credit
agencies and commercial banks and these lenders require the Project
to conform to a number of environmental and social principles and
114Ibid.
115Ibid.
116Ibid.
ENVIRONMENTAL AND SOCIAL MANAGEMENT PLAN (ESMP)
Environmental Ecology Raw Materials Air Emissions Cultural Resettlement Impacts Community Strategy Labor and
Monitoring Heritage Policy Summary Worker
Erosion and Waste Framework Health and Stakeholder Conditions
Wood, Plant, Sediment
Environmental Chance Finds Safety
Pathogen Control Water (Contractor) Strategy
Performance and Pest Protocol Camp
Resettlement
Indicators Noise and Action Plans* Action Plan*
Reinstatement Acid Sulfate Vibration Salvage Health, Safety Procurement
Soils Protocol and Security Development and Supply
Induced Spill Prevention (Company) Support*
Access
273
Hazardous National
Quarantine Infrastructure
Material Content*
Biodiversity
Strategy* Dredging
Hydrotest
Project
Standards
The PNG LNG Project is a great resource for learning more about
environmental issues associated with LNG projects and numerous envi-
ronmental documents have been made publicly available and are easily
117Ibid.
118 Ex-Im Bank, Papua New Guinea LNG Project AP084099XX Environmental
efficiency are the reservoir CO2 content (a higher CO2 content equates to
more CO2 removal prior to liquefaction) and ambient temperature (com-
pressor efficiency is favored by cooler temperatures). Other technological
and process factors that influence greenhouse gas intensity include: the
choice of liquefaction technology; the power generation source, technol-
ogy and configuration; waste heat recovery; and the acid gas removal
process.
Placed in context, the EIS noted that PNG contributes only a small
proportion (less than 0.2 percent) of worldwide carbon dioxide emis-
sions. In general, emissions in PNG have increased from 2.58 Mt in
2001 to 4.35 Mt in 2005. As a comparison, Australias CO2 emissions
from fossil fuel combustion increased from 367 Mt in 2001 to 407 Mt in
2005.125
PNG ratified the United Nations Framework Convention on Climate
Change (UNFCC) in 1993 and the Kyoto Protocol in 2002. In March
2008, PNG entered into a cooperative agreement with Australia to reduce
greenhouse gas emissions from deforestation: the Papua New Guinea
Australia Forest Carbon Partnership. Nearly two-thirds of PNGs land
area is forested (more than 29 million hectares).
Additionally, Papua New Guineas rainforests are being targeted for
carbon emission reduction schemes under the reduced emissions from
deforestation and degradation (REDD) mechanism provided for under
the UNFCC and Kyoto. The REDD mechanism is aimed at offsetting
carbon emissions by protection of forest that would otherwise have been
degraded by logging or other means.
The EIS for the PNG LNG Project found that while the Project will be a
contributor to Papua New Guineas total emissions, in a global context,
the production and export of LNG from this project will represent a
reduction in global greenhouse gas emissions compared to if customers
were to use other fossil fuel sources for their energy requirements (e.g.,
coal, fuel oil or diesel).126 This statement is supported by the following
assertions:127
125
EIS, Chapter 26.1.
126
EIS, Chapter 26.6, Residual Assessment.
127 PNG LNG, Greenhouse Gas Emissions, Factsheet, http://pnglng.com/
media/pdfs/publications/PNG_LNG_Greenhouse_14.pdf.
278 Energy for the 21st century
In May 2010, PNG LNG issued the first quarterly report131 indicating
that with the completion of the financing arrangements, the Project was
now moving into the full execution phase. Managing Director of Esso
Highlands, Peter Graham, commented that the Project sponsors are
developing this challenging project in a manner that reflects our high
standards in business and operational integrity, and importantly in safety,
security, health, environmental and social management. He stressed that
The benefits that flow from the project will support the PNG govern-
ments objective to strengthen its economy and infrastructure base for the
benefit of its people. This is the first in a series of reports that details our
progress in this challenging project.132
In September 2010, the numerous challenges the Project faces became
more evident when local villagers attacked the Project, burning heavy
machinery and using high-powered weapons to damage construction
equipment near the site.133
Papua New Guineas minister of planning and development has
acknowledged that there has been infighting among the landown-
ers affected by the Project, but maintained that the Project is still
expected to stay within the original cost estimate and start exporting
LNG in 2014. According to the minister, some of the approximately
60,000 landowners affected by the Project question the division of
benefitsfromtheProject with some LNG benefit-sharing negotiations
resulting in violence as various tribal groups argue over a share of the
Project.134
The September 2010 incident was not the first one for the Project. News
accounts have indicated that in Feburary 2010 Esso Highlands stopped
work after four people were killed when fighting broke out over a land
dispute. In mid-August 2010, issues with landowners forced a shutdown of
some work activities.135
cwire/2010/03/10/10climatewire-ex-im-bank-approves-new-scrutiny-of-fossil-
f-82557.html.
131 PNG 1Q 2010 Report.
132 Jane Dawson, PNG LNG Report Shows Progress in Challenging
While some have suggested that the Southern Highlands area of Papua
New Guinea where most of the conflicts have been centered are too diverse
for widespread insurrection, some local leaders have expressed concern
that the benefits of the LNG Project will fall short of expectations, leading
locals to turn their anger on the foreign energy companies building the
Project. Others have called into question whether Papua New Guinea
is ready to manage the potential wealth that might be generated by the
Project and still others have expressed concern about possible corruption
within the government that will result in a windfall for some, but not the
masses.136
In order to stem further conflicts, the United States has offered to
provide whatever help it can to help the country manage its coming
resource revenues, including assisting with the creation of a sovereign
wealth fund.137 In a visit to Papua New Guinea in November 2010, US
Secretary of State Hillary Clinton said, There is a phrase resource curse
where ... an abundance of natural resources like oil and gas or gold or
minerals, if they are not handled right can actually (make) a country
poorer instead of richer. As such, Secretary Clinton said the US was
ready to help PNG translate its natural resources into widespread pros-
perity. Secretary Clinton also noted that the United States would soon
be breaking ground on a new embassy in PNG and that the US wants
to provide technical training for the countrys scientists and engineers as
well as job training so that it is PNG residents who take the jobs that are
created.138
In the meantime, the Project is progressing from a construction stand-
point but the conflicts are ongoing. In January 2011, Esso Highlands
again shut down some work after a group of people entered a Project
camp in the Southern Highlands area.139 In May 2011, a group of land-
owners in the Highlands area threatened to shut down the Project if the
PNG government did not take action on a long list of grievances. The
com/Business_News/Energy-Resources/2010/11/04/US-offers-help-for-Papua-New-
Guinea-LNG/UPI-22931288892042/#ixzz1divFA2uH.
138Ibid.
139 Jonty Rushforth, ExxonMobil Subsidiary Halts Some PNG LNG Work after
impetus for this recent threat appears to have been the death of Tuguba
Chief Himuni Homoko. Chief Himuni Homoko had been fighting for his
Tuguba tribe over the way in which the government is handling the terms
of the main revenue sharing agreement the Kokopo agreement. While
a bit unclear, it appears that the primary claim is that the government of
PNG is not distributing funds quickly enough, as opposed to a grievance
with the actual project.140
As of the time of this writing, it appears that the conflicts in Papua New
Guinea can be managed so as not to become obstacles to the Project.141
However, this will require much effort on everyones part so that the con-
flicts do not turn into another Bougainville.142
onshore pipeline has reached a significant milestone, with 50% of the LNG gas
pipeline now welded. The 292-kilometre onshore pipeline is being constructed
to transport the gas from the Hides Gas Conditioning Plant, which is cur-
rently under construction, down to the Omati area where it will connect to the
offshore pipeline. Elsewhere in the Project, progress is being made to meet first
gas in 2014 with the first LNG tank roof installed and the 2.4km jetty trestle
nearing completion at the LNG Plant site, and the offshore pipeline construc-
tion almost finished. ExxonMobil Media Release, Onshore Pipeline Reaches
Halfway Milestone, May22, 2012, http://pnglng.com/media/pdfs/media_releases/
media_release20120523-PipelineReachesHalfwayMilestone.pdf.
142Australia Network News, In-depth with the Chairman of Bougainville
Although natural gas seems poised to enter the golden age, this may
ultimately depend on whether countries around the globe develop the
vast resources of unconventional gas shale gas, tight gas and coal
bed methane that exist in almost every region of the world.1 Since the
development of unconventional gas resources is different and more chal-
lenging than conventional resource development, a basic understanding
of the different types of gas reservoirs is helpful in order to appreciate
the difficulties involved in extracting natural gas from certain types of
reservoirs. In general, gas reservoirs are classified as conventional or
unconventional based on the following.2
1IEA, Golden Rules for a Golden Age of Gas, World Energy Outlook Special
282
The role of shale gas in the Golden Age of Gas 283
interconnected pore spaces and are thus permeable in nature, the gas flows
naturally to the wellbore.6
In recent years, there has been a dramatic increase in both the production
of shale gas in the United States and the potential for worldwide shale
6Ibid.
7SeeGround Water Prot. Council, Modern Shale Gas Primer, at 15.
8Ibid.see Chesapeake Energy, Hydraulic Fracturing Fact Sheet 1 (2010),
http://www.chk.com/Media/CorpMediaKits/Hydraulic_Fracturing_Fact_Sheet.
pdf (hereinafter Hydraulic Fracturing Fact Sheet).
9 Enerdynamics, The Rise of Unconventional Gas, The Energy Insider, Sept.
18, 2007, at 4.
10Ground Water Prot. Council, Modern Shale Gas Primer, at 15.
11Ibid., at 14.
12Ibid. at 16.
13Ibid.
14Ibid.
284 Energy for the 21st century
exploration/hydraulicfracturing/shale_gas.cfm.
16See Halliburton, U.S. Shale Gas: an Unconventional Resource,
Unconventional Challenges 1 (2008), http://www.halliburton.com/public/solutions/
contents/Shale/related_docs/H063771.pdf.
17The hydraulic fracturing technology has been so successful that energy
experts have called this the most significant energy innovation so far of this
century. Mary Lashley Barcella and David Hobbs, Fueling North Americas
Energy Future, Wall St J., Mar. 10, 2010, at A10.
18See Am. Petroleum Inst., Hydraulic Fracturing, http://www.api.org/
at A1.
20See Leta Smith and Peter Jackson, Is Unconventional Gas Going Global?,
The trick that has enabled companies to unlock natural gas from shale
rock involves the combination of two production technologies horizontal
drilling and hydraulic fracturing.24 Although these two technologies have
been around for decades, the combination of the two, coupled with
technological advances in equipment and cost reductions, was the key to
unlocking the vast reserves of shale gas in North America.25
Horizontal drilling has been instrumental in increasing production
volumes from all forms of natural gas and oil wells and is used extensively
in shale gas production.26 Horizontal drilling involves drilling a vertical
well to intersect the shale formations found at various depths ranging from
1,000 to more than 13,000 feet. Before the targeted depth is reached, the
well is deviated, or turned to achieve a horizontal wellbore within the shale
formation. Wells can be oriented in a direction that is designed to maximize
at 3.
22See Hannah Wiseman, Untested Waters: The Rise of Hydraulic Fracturing
in Oil and Gas Production and the Need to Revisit Regulation, 20 Fordham Envtl L.
Rev. 115, 116 (2009).
23IEA Golden Rules Report at p.9.
24See Coastal Oil & Gas Corp. v. Garza Energy Trust, 268 S.W. 3d 1, 6 (Tex.
2008) (Texas Supreme Court describing the fracking process); see also Hydraulic
Fracturing Fact Sheet, at 27.
25See US Energy Info. Admin., Annual Energy Outlook 2010, http://www.
eia.doe.gov/oiaf/aeo/pdf/trend_4.pdf.
26Ground Water Prot. Council, Modern Shale Gas Primer at ES-3.
286 Energy for the 21st century
the number of natural fractures present in the shale and these natural
fractures can provide pathways for the gas to flow into the wellbore.
Horizontal drilling provides greater exposure to the shale formation, which
in turn optimizes natural gas recovery and improves well economics.27
Once the targeted area is reached by horizontal drilling, hydraulic
fracturing is then used to help produce the gas reservoir. Beginning at the
tow of the long horizontal section of the well, segments of the wellbore are
isolated, the casing is perforated and hydraulic fracturing fluid is pumped
under high pressure (thousands of pounds per square inch) through
the perforations, cracking the shale and creating one or more fractures
that extend out into the surrounding rock.28 These fractures continue to
propagate for hundreds of feet or so until the pumping ceases. Proppants,
the most common being sand, are carried along in the hydraulic fractur-
ing fluids and these proppants open the fracture after pumping stops and
the pressure is relieved. The propped fracture is only a fraction of an inch
wide, held open by the grains of sand and hydraulic fracturing fluids. The
hydraulic fracturing process and the resulting fracturing creates the path-
ways for the oil and gas to enter the wellbore so the fluids can be pumped
to the surface.29 (See Figure 10.1.)
The hydraulic fracturing of shale gas wells is performed in numerous
stages with each stage using a series of different volumes and composi-
tions of fracturing fluids.30 A typical shale gas well may involve four or
more stages that use millions of gallons of water-based fracturing fluids
mixed with a variety of proppant materials and chemical additives.31 This
process raises a number of issues in terms of water usage and availability
and chemical composition.
Disinfectant, sterilization
Eliminates bacteria in
Glutaraldehyde the water
of medical and dental
equipment
Thickener in cosmetics,
Thickens the water to
Guar Gum suspend the sand
baked goods, ice cream,
toothpaste, sauces
hazardous, but are safe when properly handled.36 The service compa-
nies that provide these additives have developed a number of different
combinations to be used depending on the well characteristics.37
36Ibid. at 62.
37Ibid.
38 US Dept of State, Global Shale Gas Initiative (GSGI), http://www.state.
gov/s/ciea/gsgi/index.htm.
39American Clean Skies Foundation, http://www.cleanskies.org/resources-
supply.html.
The role of shale gas in the Golden Age of Gas 289
40Intl Energy Agency, Press Release, The Time Has Come to Make the Hard
Choices Needed to Combat Climate Change and Enhance Global Energy Security,
Says the Latest IEA World Energy Outlook, Nov. 10, 2009, http://www.iea.org/
press/pressdetail.asp?PRESS_REL_ID5294. See also Amy Myers Jaffe, Shale Gas
Will Rock the World, Wall St J., May 10, 2010, available at http://online.wsj.com/
article/SB10001424052702303491304575187880596301668.html.
41Ibid., citing the July 2008 study, North American Natural Gas Supply
U.S. Natural Gas Resource Base, June 18, 2009, available at http://www.mines.
edu/Potential-Gas-Committee-reports-unprecedented-increase-in-magnitude-of-
U.S.-natural-gas-resource-base.
43 US Energy Information Admin., Annual Energy Outlook (AEO) 2011 (US
25
20 49%
23% Shale gas
15
26%
Alaska
Tight gas 21%
10 2% 9%
Non-associated offshore
9% 7%
Coalbed methane 1%
5 10%
Associated with oil 7%
7%
21% Non-associated onshore 9%
0
1990 1995 2000 2005 2010 2015 2020 2025 2030 2035
In the United States, shale gas exists in most of the lower 48 states.46 The
most active shale basins to date are the Barnett Shale, the Haynesville/
44 US EIA, Review of Emerging Resources: U.S. Shale Gas and Shale Oil
http://www.eia.doe.gov/oil_gas/rpd/shale_gas.pdf.
The role of shale gas in the Golden Age of Gas 291
Source: US EIA
Bossier Shale, the Antrim Shale, the Fayetteville Shale, the Marcellus
Shale, the Eagle Ford, and the New Albany Shale.47 (See Figure 10.4.)
The Barnett Shale is located in the Fort Worth Basin of north central
Texas and was the first major shale play in the United States.48 The promi-
nence of the Barnett Shale and its record as one the busiest shale gas plays
(home to more than 10,000 wells) in the United States is undisputed.49
As one of the first of the modern shale plays, the Barnett Shale was the
testing grounds for proving that the combined technologies of horizontal
drilling and hydraulic fracturing could lead to the successful and economi-
cal development of shale gas.50 With over 10,000 wells drilled to date, the
Barnett Shale is widely considered the gold standard of US shale plays,
having produced over 5 Tcf of natural gas.51
The success of the Barnett Shale grabbed the industrys attention and
as production in the Barnett matured, natural gas producers looked to
extrapolate the lessons learned in the Barnett to the other shale gas forma-
tions present across the United States and Canada.52 The development of
the Fayetteville Shale, which is situated in the Arkoma Basin of northern
Arkansas and eastern Oklahoma, began in the early 2000s.53 Companies
who had reaped the success of the Barnett Shale were looking forward to
applying the same techniques to similar formations, or new shale plays.54
These companies quickly recognized the parallels between the Barnett and
Fayetteville Shales similar age of the formation and geologic character.
Lessons learned from the horizontal drilling and hydraulic fracturing tech-
niques employed in the Barnett assisted in the commercial viability of the
Fayetteville Shale,55 where more than 1,000 wells now exist.56
The Haynesville/Bossier shale play is mainly found in North Louisiana
but also touches parts of East Texas.57 Although there has already been
exploratory drilling and testing for several years, the full extent of the
play will only be known after several more years of development are
completed.58
The Marcellus Shale is the most expansive shale gas play59 covering six
states in the northeastern United States: New York, Pennsylvania, Ohio,
Maryland, West Virginia, and Virginia.60 Range Resources Corporation
was the first company to drill economically producing wells in the
Marcellus formation, with their success attributable to the use of horizon-
tal drilling and hydraulic fracturing techniques, the same techniques used
in the Barnett Shale in Texas.61 Widely considered one of the most prom-
ising shale plays in the US, the Marcellus Shale has also been the center
of environmental controversy, with New York having an effective mora-
torium on shale gas development pending further environmental review.
Other shale plays in the US include the Woodford Shale in south central
Oklahoma, which is at an early stage of development62 and the New
Albany Shale located in the Illinois Basin and covering portions of Illinois,
Indiana and Kentucky.63 The Antrim Shale is in the Michigan Basin64 and
next to the Barnett Shale; the Antrim Shale has been one of the most
actively developed shale gas plays.65 Most of its expansion took place in
the late 1980s.66 As opposed to other gas shale plays in the United States,
the Antrim has a shallow depth and small stratisgraphic thickness.67
More recent developments in the US include a focus on liquids-rich
shale plays such as the Eagle Ford as US natural gas producers seek to lev-
erage liquids and light oil reserves to maximize the value of the production
stream in gas shales. With the US Henry Hub price remaining persistently
low (less than $4.00/Mcf), liquids-rich hybrid plays offer higher rates of
return. For example, in some cases, there may be oil molecules valued at
$15.00/Mcf versus $4.00/Mcf for gas with NGLs being valued somewhere
in between. For this reason, the focus on liquids-rich plays in the US, and
in particular the Eagle Ford, seems likely to continue into the future.68
Canada has significant petroleum, natural gas, and coal reserves,69 and
along with Australia and Norway it is one of only three member-states of
the Organisation for Economic Co-operation and Development (OECD)
that are net energy exporters.70 Canada is the largest source of US energy
imports, as nearly all of its oil and gas exports go to the United States.71
Recognizing the importance of energy trade, both the US and Canada,
63Ibid. at 24.
64Ibid. at 23.
65Ibid.
66Ibid.
67Ibid.
68 Paula Dittrick, Focus: Unconventional Oil & Gas: Industry Expects Rapid
Gains in Eagle Ford Shale Output, Oil & Gas Journal, July 4, 2011, available
at http://www.ogj.com/articles/print/volume-109/issue-27/general-interest/focus-
unconventional-oil-gas-industry-expects.html, noting that energy analysts Bentek
Energy LLC believes the Eagle Ford stands above the crowd of multiple US
unconventional oil and gas plays because of its high liquids potential and access to
crude and natural gas liquids markets.
69See Country Analysis Briefs: Canada, infra note 71.
70Martin Ferguson, Austl. Minister for Res. and Energy and Minister for
Tourism, Australias Energy and Resources Future (June 23, 2010), available at
http://minister.ret.gov.au/MediaCentre/Speeches/Pages/Australia%27sEnergyand
ResourcesFuture.aspx.
71 Energy Info. Admin., Country Analysis Briefs, Canada, http://www.eia.
294 Energy for the 21st century
www.csug.ca/index.php?option5com_content&task5view&id560&Itemid566.
74Ibid.
75See Country Analysis Briefs: Canada, supra note 71; see also Gary Park, Gas
Revolution No. 2: Canadian Shale, Pipeline & Gas J., May 2010, available at http://
pipelineandgasjournal.com/gas-revolution-no-2-canadian-shale?page5show.
76See Unconventional Gas Facts.
77 Can. Socy for Unconventional Gas, Shale Gas, http://www.csug.ca/index.
php?option5com_content&task5view&id560&Itemid566#shale.
78Ibid.
79 F.M. Dawson, Cross Canada Check Up: Unconventional Gas Emerging
Source: Michael Dawson, President, Can. Socy for Unconventional Gas, Shale
Gas Plays in Canada: Opportunities from Coast to Coast, Lecture at the Developing
Natural Gas Conference April 7, 2009, available at http://www.csug.ca/images/CSUG_
presentations/2009/Hart_energy_conf_Presentation_final.pdf.
(SeeTable 10.1.) The marketable portion is between 700 and 1300 TCF, of
which 357 TCF are conventional and between 376 (low case) and 947 TCF
(high case) are unconventional.80
This estimate is significantly higher than prior estimates that did not
include potential unconventional resources, but it may still underestimate
80 Paul Wells, CSUG Report Pegs Canadas Natural Gas in Place at Almost
4,000 tcf, Oil & Gas Inquirer, June 2010, available at http://www.oilandgasin-
quirer.com/printer.asp?article5profiler%2F100610%2FPRO2010_UA0002.html.
296 Energy for the 21st century
the true value of Canadas gas reserves.81 A lack of available data on some
emerging shale gas plays resulted in those plays being excluded from the
total.82 This additional natural gas will likely play a major role in shaping
Canadas long-term natural gas supply.83
According to the IEA, there are only limited studies estimating global
unconventional gas resources and major work is still needed to refine and
expand [the] data.88 With few exceptions, unconventional gas resources
81Ibid.
82See ibid.
83See Cross Canada Check Up, at 3.
84Smith and Jackson.
85Ibid.
86Ibid.
87See Intl Energy Agency, Medium-Term Oil & Gas Markets 185 (2010)
500
450
400
350
300
tcm
250
200
150
100
50
0
Tight gas Coal bed methane Shale gas
Europe Latin America FSU
Sub-Saharan Africa Middle East and North Africa North America
Asia Pacific
around the world have largely been overlooked and understudied and
most have not been appraised in any systematic way.89
In terms of existing regional estimates of global unconventional gas poten-
tial, Asia Pacific and North America have the highest, with 274 TCM and
233 TCM respectively followed by [the former Soviet Union] with 155 TCM,
Latin America [with] 98 TCM and [the Middle East-North Africa region
with] 95 TCM.90 Though significant attention has been devoted to Europes
potential unconventional gas resources, so far, they are estimated at only 35
TCM.91 The IEA notes that shale gas represents half of this global potential
and is especially present in Asia and North America while CBM is mainly in
[the former Soviet Union] and tight gas is quite evenly distributed between
the regions92 (Figure 10.6). However, these numbers should be considered
with caution as not all of this gas will be recoverable.93
89Ibid. at 186.
90Ibid. at 185; see Susan L. Sakmar, Recent Development, The Status of the
Draft Iraq Oil and Gas Law; 30 Hous. J. Intl L. 289, 295 n. 35 (2008) (noting Iraqs
fairly significant gas reserves).
91IEA MTOGM 2010 at 185.
92Ibid.
93Ibid. The IEA has estimated that around 380 tcm would be recoverable
94Ibid. at 187.
95Ibid. at 188.
96Ibid. at 1889.
97Ibid. at 189.
98Ibid. at 188.
99Ibid. at 189.
100Ibid. at 190.
The role of shale gas in the Golden Age of Gas 299
Austria OMV
Belgium European Gas, Transcor Astra Group
Bulgaria CBM Energy
France European Gas Ltd Total, Egdon Resources, Mouvoil,
Schueppbach Energy LLC, Dale Gas
Partners, Eagle Energy Ltd, Bridgeoil
Ltd., Diamoco Energy
Wintershall ExxonMobil,
Germany ExxonMobil
ExxonMobil
MOL, Falcon,
Hungary
ExxonMobil
Italy Ind. Resources plc
Poland Composite Energy, EurEnergy Aurelian ExxonMobil, ConocoPhilips, Lane
Energy, Talisman, Chevron, Aurelian,
FX Energy
FX Energy
Romania Falcon, Galaxy Aurelian, FX Energy
Sweden Shell
UK Island Gas, Composite Energy
BG, Nexen, Marathon
Turkey TransAtlantic Petroleum, TPAO
Preliminary work, exploration, assessment of seismic data
Wells drilled
Production
region looking to replicate the US shale gas revolution. While there are
many challenges that could prevent an unconventional gas boom hap-
pening in Europe, recently there has been a lot of activity and interest in
shale gas in Austria, Bulgaria, France, Germany, Italy, Poland, Romania,
Spain, Sweden, and the United Kingdom. International oil companies,
which were largely absent from early shale gas development in the United
States, have been more proactive in Europe. Many major oil companies,
including ExxonMobil, Shell, Chevron, ConocoPhillips, Marathon, and
Total, are present in one or more European countries.101 (See Figure 10.7.)
In most European countries, most of these developments are at the
very early stages and seismic data are just barely being compiled.102 The
IEA notes that only a few European countries are actually producing
101Ibid. at 19091.
102Ibid. at 190.
300 Energy for the 21st century
103Ibid.
104Ibid. at 191.
105Ibid.
106Robin Pagnamenta, Dash for Polands Gas Could End Russian Stranglehold
on Access to LNG Terminals in the European Union and the United States, 31 Hous.
J. Intl L. 343, 354 (2009).
109 Pagnamenta (quoting Oisin Fanning, executive chairman of San Leon
Energy, a British company that has secured three license areas in Poland); see also
Dinakar Sethuraman, Exxon, Chevron Land Grab for Europe Shale Gas, JP
Morgan Says, Bloomberg Businessweek, Feb. 11, 2010, available at http://www.
businessweek.com/news/2010-02-11/exxon-chevron-land-grab-for-europe-shale-
gas-jpmorgan-says.html.
110IEA MTOGM 2010 at 191.
111See generally Ibid. at 192.
112Ibid. at 186.
The role of shale gas in the Golden Age of Gas 301
Continent Technically
recoverable (Tcf)
North America (non-US) Canada, Mexico 1,069
US 862
Total North America 1,931
Africa Morocco, Algeria, Tunisia, 1,042
Libya, Mauritania, Western,
Sahara, South Africa
Asia China, India, Pakistan 1,404
Australia 396
Europe France, Germany, 624
Netherlands, Sweden, Norway,
Denmark, UK, Poland,
Lithuania, Ukraine, Turkey
South America Colombia, Venezuela, 1,225
Argentina, Bolivia, Brazil, Chile,
Uruguay, Paraguay
Total 6,622
Total without US 5,760
verseas.114 The issues raised by the IEA that may impact the develop-
o
ment of global unconventional gas resources include:115
Gas Initiative, US Diplomatic Mission to Warsaw, Poland (Aug. 24, 2010), http://
poland.usembassy.gov/shalegas.html
125 Briefing on the GSGI Conference.
The role of shale gas in the Golden Age of Gas 305
The development of shale gas in the United States has been widely recog-
nized as one of the most promising trends in the US in terms both of job
creation and economic benefits and of its resulting increase in the domestic
126Ibid.
127To date, there appears to be only limited activity related to the GSGI and it
remains to be seen whether this initiative gains in prominence. The GSGI has been
renamed the Unconventional Gas Technical Engagement Program (UGTEP). US
Dept of State, Unconventional Gas Technical Engagement Program (UGTEP),
available at http://www.state.gov/s/ciea/ugtep/index.htm.
128See IEA MTOGM 2010 at 1867; see also Amy Westervelt, Shale
Natural Gas Extraction from the Marcellus Shale Formation, 34 Wm & Mary Envtl
L. & Poly Rev. 999, 1022 (2010) (describing the complex legal obstacles inherent
in shale gas development).
132Since the US has thus far been the leader in shale gas development,
this section focuses on environmental issues in the US with the view that other
306 Energy for the 21st century
c ountries may face similar issues should they choose to develop their own shale
gas resources.
133IHS Report (2012), Americas New Energy Future: The Unconventional Oil
State Regulation, Groundwater Protection, and the Ill-conceived FRAC Act, 6 Okla.
J. L. & Tech. 49, 6 (2010).
136As shale goes global, concerns have been raised in other countries as well.
See e.g., Monique Beau Din, Shale-gas Opposition is Growing, Survey Concludes,
The Gazette (Montreal), Feb. 16, 2011, at A6; Exploration Ban in France Extended,
Calgary Herald (Can.), Jan. 20, 2011, at B4.
137API Freeing Up Energy.
138See ibid.
139 Drinking Water Impact Study at 7-5.
140Ibid. at 7-6.
The role of shale gas in the Golden Age of Gas 307
Despite the industrys claims that hydraulic fracturing is a safe and proven
technology, environmental organizations, public health groups, and local
communities have expressed numerous concerns about the potential
environmental impacts of the use of hydraulic fracturing around the coun-
try.144 There have been many allegations that hydraulic fracturing has led
to the contamination of drinking water in many communities.145 This has
led to increased calls for federal regulation of hydraulic fracturing under
the Safe Drinking Water Act (SDWA) that would provide a minimum
federal floor for drinking water protection in the states engaged in drilling
shale gas.146
The nonprofit, investigative journalism organization ProPublica has an
extensive investigation of hydraulic fracturing underway.147 According
to that investigation, numerous states have reported cases involving
spills of hazardous materials or other occurrences of water contaminated
by oil or gas operations.148 There are also hundreds of cases of water
Drinking Water Contamination, Switchboard: Natl Res. Def. Council Staff Blog,
Oct. 4, 2010, http://switchboard.nrdc.org/blogs/amall/incidents_where_hydrau-
lic_frac.html (listing incidents of drinking water contamination and supporting
regulation of hydraulic fracturing under the Safe Drinking Water Act).
145Ibid.
146Ibid.
147See Buried Secrets: Gas Drillings Environmental Threat, ProPublica, http://
Concerns have also been raised pertaining to the large volumes of water
needed during the hydraulic fracturing process, and the disposal of the
flowback or wastewater from fracturing operations.153 A recent US
Geological Survey (USGS) report noted these concerns with regard to
water resources and gas production in the Marcellus Shale.154 According
to the USGS report, many regional and local water management agen-
cies [in the Marcellus Shale region] are concerned about where such large
volumes of water will be obtained, and what the possible consequences
might be for local water supplies.155
Chesapeake Energy Corp., one of the most active drillers in the
Marcellus Shale,156 candidly admits water is an essential component of
its deep shale gas development.157 According to the company, fracturing
Confirms Decision Not to Drill for Natural Gas in the New York City Watershed
(Oct. 28, 2009) available at http://www.chk.com/news/articles/pages/1347788.aspx.
157 Chesapeake Energy (2010), Fact Sheet: Water Use in Marcellus Deep
The role of shale gas in the Golden Age of Gas 309
Although growing, the report calculated water used for the Barnett Shale
accounted for only 3 percent of the total groundwater used.169 The TWDB
report makes predictions of future water needs for the area, including
Barnett Shale development.170 These estimate an increase in the ground-
water used from 3 percent in 2005 to 713 percent in 2025.171
169Ibid.
170Ibid.
171Ibid. at 3.
172 ExxonMobil to Boost Unconventional Focus by Acquiring XTO, Oil & Gas
J., Dec. 21, 2009, at 31; see Natural Gas Helps Exxon and Shell Lift Profits, N.Y.
Times, July 30, 2010, at B4.
173 ExxonMobil website, www.exxonmobil.com.
174 XTO Energy website, www.xtoenergy.com.
175 ExxonMobil to Boost Unconventional Focus by Acquiring XTO, supra note
172.
176 The ExxonMobil-XTO Merger: Impact on U.S. Energy Markets: Hearing
Before the Subcomm. on Energy and Envt of the H. Comm. on Energy and
Commerce, 111th Cong. 53 (2010) (statement of Rex Tillerson, CEO, ExxonMobil
Corp.), available at http://energycommerce.house.gov/Press_111/20100120/
transcript_01202010_ee.pdf.
177 Katie Howell, House Panel Looks into Effects of Exxon-XTO Merger, N.Y.
179Ibid.
180Tom Doggett, Exxon-XTO Merger Draws Scrutiny from Congress, Reuters,
As the undisputed leader in shale gas development, the US also has the
most experience with the regulatory framework to govern the shale gas
industry. As other countries assess their shale gas resources, they will
also need to assess whether they have the sufficient regulatory frame-
work in place to manage shale gas development. In this regard, the US
framework could prove to be a useful starting point for some countries
and, for that reason, an overview of the US regulatory framework is
provided below.
As previously noted, hydraulic fracturing is a water intensive
technology that raises many issues related to the environmental protec-
tion of US water supplies. The gas industry believes that existing state
regulations are adequate to protect water resources during the devel-
opment of shale gas resources.186 This view is shared by the Ground
Water Protection Council (GWPC), which represents state groundwater
protection agencies and underground injection control (UIC) program
administrators.187 However, there is a growing contingent of landowners,
environmental groups and citizen groups calling for federal regulation
and further investigation of hydraulic fracturing due to concerns about
water usage and possible contamination issues.188 While an analysis of
individual existing state laws is beyond the scope of this chapter, there
are several important federal regulations that are relevant and discussed
in detail below.
186 Hydraulic Fracturing Fact Sheet, supra note 8; see Hannah Wiseman,
http://www.gwpc.org/about_us/about_us.htm.
188See Mireya Navarro, 8,000 People? E.P.A. Defers Hearing on Fracking,
Green: a Blog about Energy and the Envt, Aug. 10, 2010, 5:28 p.m., http://
green.blogs.nytimes.com/2010/08/8000.people-e-p-a-defers-hearing-on-fracking;
see also Mike Soraghan, BP, Others Push Against Federal Regulation of
Fracturing, N.Y. Times, Mar. 23, 2010, available at http://www.nytimes.com/
gwire/2010/03/23/23greenwire-b p-o thers-p ush-a gainst-f ederal-r egulation-o f-
f-95671.html.
The role of shale gas in the Golden Age of Gas 313
The SDWA189 is the primary federal law for protecting public water
supplies from harmful contaminants.190 Enacted in 1974,191 and broadly
amended in 1986 and 1996,192 the SDWA is administered through a
variety of programs that regulate contaminants in public water supplies,
provide funding for infrastructure projects, protect underground sources
of drinking water, and promote the capacity of water systems to comply
with SDWA regulations.193
The EPA is the federal agency responsible for administering the
SDWA194 but a federalstate structure exists in which the EPA may del-
egate primary enforcement and implementation authority (primacy) for
the drinking water program to states and tribes.195 The state-administered
Public Water Supply Supervision (PWSS) program remains the basic
program for regulating public water systems,196 and the EPA has delegated
primacy for this program to all states, except Wyoming and the District of
Columbia (which SDWA defines as a state).197 The EPA has responsibil-
ity for implementing the PWSS program in these two jurisdictions and
throughout most Indian lands.198
A second key component of the SDWA requires the EPA to regulate
the underground injection of fluids to protect underground sources of
drinking water.199 In terms of oil and gas drilling, the UIC program
regulations specify siting, construction, operation, closure, financial
responsibility, and other requirements for owners and operators of injec-
tion wells.200 Thirty-three states (including West Virginia, Ohio, and
epa.gov/lawsregs/rulesregs/sdwa/index.cfm.
191Ibid.
192Ibid.
193See generally Envtl Prot. Agency Office of Water, Understanding the
1446).
314 Energy for the 21st century
Texas) have assumed primacy for the UIC program.201 The EPA has lead
implementation and enforcement authority in ten states, including New
York and Pennsylvania, and authority is shared in the remainder of the
states.202
Notwithstanding the SDWAs general mandate to control the
underground injection of fluids to protect underground sources of
drinking water, the law specifically states that EPA regulations for state
UIC programs may not prescribe requirements which interfere with
or impede ... any underground injection for the secondary or tertiary
recovery of oil or natural gas, unless such requirements are essential to
assure that underground sources of drinking water will not be endan-
gered by such injection.203 Consequently, the EPA has not regulated gas
production wells, and historically has not considered hydraulic fractur-
ing to fall within the regulatory definition of underground injection.204
201Ibid.
202See ibid. To receive primacy, a state must demonstrate to the EPA that its
UIC program is at least as stringent as the federal standards. Ibid. For Class II
wells, states must demonstrate that their programs are effective in preventing pol-
lution of underground sources of drinking water. Ibid. at 37, n. 77.
203Safe Drinking Water Act, 42 U.S.C. 300h(b)(2) (2005).
204Andrews et al., supra note 130, at 37.
205Deweese, supra note 135, at 10.
206 Legal Envtl Assistance Found. v. Envtl Prot. Agency, 118 F.3d 1467, 1477
208 Legal Envtl Assistance Found. v. Envtl Prot. Agency, 118 F.3d 1467 (11th
Cir. 1997).
209Drinking Water Impact Study, at ES-1.
210Ibid.
211Ibid. at 4-1.
212Ibid. at 4-12.
213Mike Soraghan, Natural Gas Drillers Protest Nomination of Fracking
Critics for EPA Review Panel, N.Y. Times, Sept. 30, 2010, available at http://
www.nytimes.com/gwire/2010/09/30/30greenwire-natural-gas-drillers-protest-
nomination-of-fra-98647.html.
214 Energy Policy Act of 2005, Pub. L. No. 109-58, 119 Stat. 594 (2005).
215Ibid. 322.
216See Safe Drinking Water Act 1421, 42 U.S.C. 300h.
217 The Halliburton Loophole, New York Times Editorial, Nov. 2, 2009, http://
www.nytimes.com/2009/11/03/opinion/03tue3.html?_r53&th&emc5t.
316 Energy for the 21st century
As shale gas development spread across the US, so too did public concern
about the safety and environmental impact of hydraulic fracturing. These
concerns ultimately made their way to the US Congress where companion
bills H.R. 2766 and S. 1215 were introduced in 2009 in an effort to amend
the SDWA to include hydraulic fracturing.218 Representative Diana
DeGette introduced H.R. 2766 on June 9, 2009, and Senator Robert Casey
Jr. introduced S. 1215 as the Fracturing Responsibility and Awareness of
Chemicals Act (or FRAC Act).219
The FRAC Act would amend the SDWA definition of underground
injection to expressly include the underground injection of fluids or
propping agents used for hydraulic fracturing in oil and gas operation
and production activities.220 The bill would also require public disclosure
of the chemical constituents (but not the proprietary chemical formulas)
used in the fracturing process.221 As of October 23, 2010, H.R. 2766 had
69 co-sponsors but ultimately the FRAC Act did not reach the house floor
before the 111th Congress recessed.222 The FRAC Act was re-introduced
in the 112th Congress223 but is unlikely to pass before the 112th Congress
adjourns but could be re-introduced in the 113th Congress.
Con. Res. 1215, 111th Cong. (2009); Fracturing Responsibility and Awareness of
Chemicals (FRAC) Act, H.R. Con. Res. 2766, 111th Cong. (2009).
219S. 1215; H.R. 2766.
220S. 1215 2(a); H.R. 2766 2(a).
221S. 1215 2(b).; H.R. 2766 2(b).
222 Bill Summary and Status, H.R. 2766, 111th Congress (2009), The Library
225Ibid.
226Letter from Rep. Henry A. Waxman, Chairman, Comm. on Energy
and Commerce, to 10 Oil and Gas Companies, July 19, 2010, available at
http://energycommerce.house.gov/documents/20100719/Letters.Hydraulic.
Fracturing.07.19.2010.pdf; see also Press Release, Comm. on Energy and
Commerce, Committee Requests More Details on Hydraulic Fracturing
Practices, July 19, 2010, available at http://energycommerce.house.gov/index.
php?option5com_content&view5article&id52079:committee-requests
-more-details-on-hydraulic-fracturing-practices&catid5154:correspondence
&Itemid555 (hereinafter Committee Requests More Details).
227 Committee Requests More Details.
228Department of the Interior, Environment, and Related Agencies
Appropriations Act, H. Rep. 111-316, at 109 (2010); Envtl Prot. Agency, Hydraulic
Fracturing, http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/
index.cfm (hereinafter Hydraulic Fracturing Overview).
229Ibid.
318 Energy for the 21st century
230Ibid.
231 Envtl Prot. Agency, Opportunity for Stakeholder Input on EPAs Hydraulic
Fracturing Research Study: Criteria for Selecting Case Studies, 1 (July 15, 2010),
http://www.epa.gov/safewater/uic/pdfs/hydrofrac_casestudies.pdf (hereinafter
Opportunity for Stakeholder Input).
232Ibid. at 2.
233Ibid.
234Ibid.
The role of shale gas in the Golden Age of Gas 319
study review panel235 and the EPA subsequently submitted its draft study
plan to the SAB for review.236 On November 2, 2011, the EPA released
details of its hydraulic fracturing study plan.237 As set forth in the study,
the EPA will focus on the entire hydraulic fracturing water life-cycle, from
water acquisition to wastewater treatment and disposal.
The EPA will use a case study approach and has selected seven case
studies that it believes will provide the most useful information about
the potential impacts of hydraulic fracturing on drinking water resources
under a variety of circumstances. Two sites are prospective case studies
where the EPA will monitor key aspects of the hydraulic fracturing
process at future hydraulic fracturing sites. Five sites are retrospective case
studies, which will investigate reported drinking water contamination due
to hydraulic fracturing operations at existing sites. The EPA is expected to
issue its first report of findings in 2012 and its final report in 2014.
While the EPA study is ongoing, there are a number of other activities
underway by the EPA that could impact shale gas development going
forward.238
235 Envtl Prot. Agency Sci. Advisory Bd, Members of the Hydraulic Fracturing
development and a detailed discussion of all actions underway is beyond the scope
of this book. For illustrative purposes, two EPA actions pertaining to effluent
guidelines and diesel use are discussed here.
239 EPA Fact Sheet, EPA Initiates a Rulemaking to Set Discharge Standards for
water, may be produced from a single well within the first 30 days fol-
lowing fracturing. These produced waters generally contain elevated salt
content (often expressed as total dissolved solids, or TDS), many times
higher than that contained in sea water, conventional pollutants, organics,
metals, and NORM (naturally occurring radioactive material). Additional
data show that flowback waters contain concentrations of some of the
fracturing fluid additives.
While some of the shale gas wastewater is re-used or re-injected, a
significant amount still requires disposal. Some shale gas wastewater is
transported to public and private treatment plants, many of which are not
properly equipped to treat this type of wastewater. As a result, pollutants
are discharged into surface waters such as rivers, lakes or streams where
they can directly impact aquatic life and drinking water sources.
As part of the rulemaking process, the EPA plans to reach out to
affected stakeholders to collect relevant data and information. The EPA
also plans to collect financial data on the shale gas industry to determine
the affordability of treatment options for produced water.
of Water, http://water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/
wells_hydroreg.cfm#safehyfr.
241Tom Zeller, Gas Drilling Technique is Labeled Violation, N.Y. Times,
242 US EPA, Underground Injection Control Guidance for Permitting Oil and
Natural Gas Hydraulic Fracturing Activities Using Diesel Fuels, available at http://
water.epa.gov/type/groundwater/uic/class2/hydraulicfracturing/wells_hydroout.
cfm.
243 N.Y. Dept. of Envtl Conservation, Marcellus Shale, http://www.dec.
ny.gov/energy/46288.html.
244Ibid.
245Ibid.
246Ibid.
247Ibid.
248Ibid.
249See Range Resources, Press Release, Range Resources Announces Voluntary
322 Energy for the 21st century
On March 31, 2011, President Barack Obama stated that recent innova-
tions have given us [the US] the opportunity to tap large reserves perhaps
a centurys worth of shale gas.254 In order to facilitate this development
and ensure adequate environmental protections were in place, President
Obama tasked the US Secretary of Energy, Steven Chu, to create a sub-
committee of the Secretary of Energy Advisory Board (SEAB) to make
recommendations to address the environmental and safety issues that had
been raised pertaining to shale gas development in the US.
Progress, Oil & Gas Journal, Nov. 21, 2011, available at http://www.ogj.com/arti
cles/print/volume-109/issue-47/general-interest/shale-gas-subcommittee-reviews-
industry.html.
253 US Dept. of Energy, Secretary of Energy Advisory Board (SEAB), Shale
255Ibid. at p.1.
256Ibid. at p.5.
257Ibid. at pp.89 (emphasis in the original).
258Ibid. at p.8.
259Ibid. at 89.
260Ibid. at 910.
261Ibid. at 8.
324 Energy for the 21st century
325
326 Energy for the 21st century
One of the most dramatic impacts of the US shale gas revolution is the sur-
prising shift of the worlds top gas producing countries. For over a decade,
the Russian Federation held the top spot as the number one producer of
natural gas in the world. According to the BP Statistical Review of World
Energy 2012, in 2011 the US surpassed Russia as the worlds top natural
gas producer for the third consecutive year.4 (See Table 11.1.)
2Ibid.
3IEA WEO-2010.
4 BP Statistical Review of World Energy, June 2012, www.bp/com/statisi-
calreview. BP issues its statistical review of world energy every year and it is an
excellent source of statistical data for all energy sources, including natural gas and
LNG. It is worth noting that, according to BP, the US is also the worlds largest
consumer of natural gas with 2011 consumption of 690.1 bcm or 21.5% of the
worlds total. Ibid.
The impact of shale gas on global gas markets 327
Table 11.1Worlds top ten natural gas producers, 200511 (in billion
cubic meters)
Rank Country 2011 2011 2010 2009 2008 2007 2006 2005
(2011) % of
total
1 United States 651.3 20.0 611.0 582.8 570.8 545.6 524.0 511.1
2 Russia 607.0 18.5 588.9 527.7 601.7 592.0 595.2 580.1
3 Canada 160.5 4.9 159.8 163.9 176.4 182.5 188.4 187.1
4 Iran 151.8 4.6 138.5 131.2 116.3 111.9 108.6 103.5
5 Qatar 146.8 4.5 116.7 89.3 77.0 63.2 50.7 45.8
6 China 102.5 3.1 96.8 85.3 80.3 69.2 58.6 49.3
7 Norway 101.4 3.1 106.4 103.7 99.3 89.7 87.6 85.0
8 Saudi Arabia 99.2 3.0 83.9 78.5 80.4 74.4 73.5 71.2
9 Algeria 78.0 2.4 80.4 79.6 85.8 84.8 84.5 88.2
10 Indonesia 75.6 2.3 82.0 71.9 69.7 67.6 70.3 71.2
The surge in US shale gas production over the past several years has
led numerous companies in the US and Canada to seek authorization
to export LNG in order to take advantage of the arbitrage opportunity
resulting from the current supply overhang of shale gas and the price dif-
ferentials between global gas markets. At least one expert has referred to
the price differential due to shale gas production as the shale spread and
has defined the various shale spreads as shown in Table 11.2.
By early 2010, it was increasingly apparent that the shale spreads were
creating a market opportunity for US LNG exports. At the time, LNG
sold to European markets at the UK National Balancing Point (NBP)
6 Jessica Hatcher, Questions Remain over Angola LNG Export Plans to the
US, Interfax, Natural Gas Review, Nov. 23, 2011, citing, CWC World LNG
Conference, Rome, Italy.
7Ibid.
8Ibid.
9 Chevrons Angola LNG Cargoes to Rely on Spot Markets, Argus Media,
Source: Christopher Goncalves, Vice President, Charles River Associates, Chasing the
Shale Spread: Potential New Markets for LNG, Presentation to the CWC 12th Annual
World LNG Summit, November 1417, 2011, Rome, Italy.
was trading at about a $5.00 MMBtu premium over gas traded at the US
Henry Hub price. (See Figure 11.1.)
The first US company to seize the opportunity created by the shale
spreads was Cheniere Energy, which announced in June 2010 that it was
initiating a project to add liquefaction facilities to its existing Sabine Pass
LNG import terminal.10 The addition of liquefaction would make Sabine
Pass LNG the worlds first bi-directional facility capable of both importing
and exporting LNG. At the time, Cheniere expected to offer customers the
bi-directional services for a capacity fee of approximately $1.40 to $1.75/
MMBtu, which would provide customers the option to either import or
export natural gas and would offer buyers an attractive opportunity to
buy US sourced natural gas at prices indexed to Henry Hub (Figure 11.2).
10 Cheniere Energy Partners, L.P., Press Release dated June 3, 2010, Cheniere
Energy Partners Initiating Project to Add Liquefaction Capabilities at the Sabine Pass
LNG Terminal, http://phx.corporate-ir.net/phoenix.zhtml?c5207560&p5irol-
newsArticle&ID51434470&highlight5. At the time, Chenieres Chairman and
CEO, Charif Souki summarized the market opportunity for US LNG exports as
follows: We believe current market fundamentals have created an opportunity
for the U.S. to offer natural gas to global markets at competitive prices. The U.S.
is experiencing an increase in natural gas production, primarily driven by uncon-
ventional gas plays, while natural gas demand in the U.S. continues to lag behind
market projections. Due to the depth of the markets in South Louisiana with an
abundance of supply and existing pipeline infrastructure, we can provide an addi-
tional outlet for U.S. natural gas production while offering a low cost source of
supply for global buyers seeking alternatives to oil-indexed contracts. The ability
to buy or sell natural gas in one of the worlds most liquid natural gas markets
provides industry players with a very powerful tool to manage their portfolios.
On Oct. 1, US Henry Hub price
$/MMBtu 2006, the
UK National Balancing Point (NBP)
Langeled With less
18 Norway gas-on-gas
pipeline competition, In 2008, US
16 opened. UK UK/EU shale Starting April
2007 pipeline markets production 2010, UK/EU
14 imports reacted more doubled, markets rallied,
climbed 57% quickly to oils tumbling offering a
over 2006 steep rise to Henry Hub ~$5/MMBtu
12 prices as US
pummeling UK $147/bbl. premium over US
prices. economy Henry Hub.
10 softened.
330
6
Jul06
Jul07
Jul08
Jul09
Jul10
Jul11
Apr06
Oct06
Apr07
Oct07
Apr08
Oct08
Apr09
Oct09
Apr10
Oct10
Apr11
Jan06
Jan07
Jan08
Jan09
Jan10
Jan11
fee
Fuel surcharge:
Source: Cheniere Energy Partners, L.P. Cheniere Energy, Inc., Proposed Sabine Pass
LNG Facility Expansion Adding Liquefaction Capabilities, Presentation dated June 4,
2010.
Source: Cheniere Energy Partners, L.P. Cheniere Energy, Inc., Proposed Sabine Pass
LNG Facility Expansion Adding Liquefaction Capabilities, Presentation dated June 4,
2010.
available at http://www.fossil.energy.gov/programs/gasregulation/authorizations/
Orders_Issued_2010/10_111sabine.pdf.
13 Cheniere Annual Report 2005, available at http://library.corporate-ir.net/
library/10/101/101667/items/213342/Cheniere_2005_Annual_Report.pdf.
14 Clifford Krauss, U.S. Company, in Reversal, Wants to Export Natural Gas,
the Sabine Pass River on the border between Texas and Louisiana, in Cameron
Parish, Louisiana. It is located at the widest point on the Sabine River Navigation
Channel, only 3.7 nautical miles from the open water and 23 nautical miles from
the outer buoy. The channel is maintained at a depth of 40 feet and is not subject to
tidal limitations. The terminal has two docks that are recessed far enough so that
no part of the LNG vessel will protrude into the open waterway while docked.
17 Cheniere Annual Report 2005, available at http://library.corporate-ir.net/
library/10/101/101667/items/213342/Cheniere_2005_Annual_Report.pdf.
18 U.S. Dept. of Energy, DOE Docket No. FE-08-77-LNG, Sabine Pass LNG
334 Energy for the 21st century
up to 400 LNG vessels per year ranging in size from 125,000 cubic meters
(m3) to up to 266,000 m3, including the Q-max class vessels which are
authorized to transit through the Sabine Pass Channel to the terminal.19
Phase 1 of Sabine Pass LNG commenced service in April 2008 with
an initial 2.6 Bcf/d of send-out capacity and 10 Bcf of storage capacity.20
Phase 2 was completed in mid-2009 and gave Sabine Pass a total send-out
capacity of 4.0 Bcf/d and 16.8 Bcf of storage capacity, thus making the
Sabine Pass terminal the largest receiving terminal, by regasification
capacity, in the world.21
According to Chenieres corporate filings, the entire 4.0 Bcf/d of
regasification capacity at Sabine Pass was originally reserved under three
20-year, firm commitment terminal use agreements (TUAs) that require
payment regardless of whether or not the contracting parties use the
terminal.22 The initial three contracts are as follows:
Total Gas and Power North America, Inc. (Total) has reserved
approximately 1.0 Bcf/d of regasification capacity and has agreed to
make monthly capacity payments to Sabine Pass LNG of approxi-
mately $125 million per year for 20 years commencing April 1, 2009.
Chevron U.S.A., Inc. (Chevron) has reserved approximately 1.0
Bcf/d of regasification capacity and has agreed to make monthly
capacity payments to Sabine Pass LNG of approximately $125
million per year for 20 years commencing July 1, 2009.
Chenieres wholly-owned subsidiary, Cheniere Marketing, reserved
the remaining 2.0 Bcf/d of regasification capacity, and is entitled
to use any capacity not utilized by Total and Chevron. Cheniere
Marketing began making its TUA capacity reservation fee payments
in the fourth quarter of 2008 and is required to make capacity pay-
ments totaling approximately $250 million per year from January 1,
2009, through at least September 30, 2028. Cheniere has guaranteed
Cheniere Marketings obligations under its TUA.
com/LNG_terminals/sabine_pass_lng.shtml.
22 Cheniere Energy, Inc., 2009 Annual Report, Form 10-K, available at http://
www.cheniere.com/corporate/2009_Cheniere_Annual_Report.pdf.
The impact of shale gas on global gas markets 335
Under each of these TUAs, Sabine Pass LNG is entitled to retain 2 percent
of the LNG delivered for the customers account for its own use as fuel for
revaporization and self-generated power at the Sabine Pass LNG receiving
terminal.
Although Cheniere ultimately won the race to construct the first new
LNG import terminal in the US,23 the dynamic LNG market had already
shifted by the time Sabine Pass was completed and Cheniere found that
very little LNG was coming to the US as suppliers sought higher paying
Asian and European LNG market destinations.24 In light of changing
market dynamics, by late 2008 it was evident that one of Chenieres
key assets, the 2.0 Bcf/d of regasification capacity reserved by Cheniere
Marketing, was essentially unused or underutilized capacity that needed
to be monetized in some way.25
In August 2008, Cheniere Marketing, Inc., applied to the Office of
Fossil Energy of the Department of Energy (DOE/FE) requesting
blanket authorization to export LNG that previously had been imported
from foreign sources.26 The application sought approval to export up to
64 Bcf over a two-year period from the Sabine Pass LNG terminal to the
United Kingdom, France, Portugal, Spain, Belgium, Turkey, Italy, Brazil,
states that Chenieres key assets include the 2 Bcf/d of regasification capacity at
the Sabine Pass LNG receiving terminal and that Chenieres strategy continues
to be to maximize the value of [its] assests by monetizing [its] capacity by enter-
ing into long-term TUAs, [and] developing a portfolio of long-term, short-term
and spot LNG purchase agreements.
26 Cheniere Marketing, Inc., Application for Blanket Authorization to Export
Imported Liquefied Natural Gas, Docket No. 08-77-LNG (Aug. 8, 2008). Chenieres
application was pursuant to Section 3 of the Natural Gas Act, 15 U.S.C. 717b,
and Part 590 of the Department of Energys regulations, 10 C.F.R. Part 590
(2008). All of the filings are available at http://www.fossil.energy.gov/programs/
gasregulation/authorizations/Cheniere_Marketing_08-77-LNG.html.
336 Energy for the 21st century
Grain LNG, Platts LNG Daily, Nov. 19, 2010, available at http://www.platts.com/
RSSFeedDetailedNews/RSSFeed/NaturalGas/8201994.
30 US Dept. of Energy, LNG Imports Nov. 2010, Monthly Report (revised
Grain LNG, Platts LNG Daily, Nov. 19, 2010, available at http://www.platts.com/
RSSFeedDetailedNews/RSSFeed/NaturalGas/8201994.
32Ibid.
33 Center of Energy Economics (CEE), Brief History of LNG, available at
http://www.beg.utexas.edu/energyecon/lng/LNG_introduction _06.php.
The impact of shale gas on global gas markets 337
On August 11, 2010, Sabine Pass filed the first part of a two-phased export
application with the Office of Fossil Energy (FE) of the US Department
of Energy (DOE) under section 3 of the Natural Gas Act (NGA)34 for the
long-term, multi-contract authorization to export up to 16 mtpa of LNG
(803 billion cubic feet (Bcf) per year) for a 30-year term to any nation that
the US has a free trade area agreement (FTA) with currently or in the
future requiring the national treatment for trade in natural gas and LNG.35
Sabine Pass submitted its application under section 3(c) of the NGA
which, as amended by the US Energy Policy Act of 1992,36 requires DOE/
FE to grant, on an expedited basis, an application for the exportation of
natural gas if there is an FTA in effect requiring national treatment for
trade in natural gas.37 If an FTA is in force, then such exports are deemed
to be in the public interest and must be granted without modification or
delay.38 Applications for export authorization absent an FTA require
DOE/FE to review and analyze whether such exports are consistent with
the public interest.39 Since Sabine Passs application fell under NGA
tion/authorizations/sect.pdf.
35 US Dept. of Energy, Application of Sabine Pass Liquefaction, LLC to
On September 7, 2010, Sabine Pass filed the second part of its two-phased
export application seeking long-term, multi-contract authorization to
export up to 16 million tonnes per annum (mtpa) of domestically pro-
duced LNG for a 20-year period to countries other than those that have
negotiated FTAs with the US that are members of the World Trade
Organization (WTO Countries) and those countries that do not hold
membership in the WTO (non-WTO countries) and with which trade is
not prohibited by US law or policy.41
In its application, Sabine Pass requested that DOE/FE review its request
to export LNG to WTO countries under the same standard of review
applicable to FTA countries and specifically requested that DOE/FE
conduct its review under the standards set forth in section 3(c) of the NGA,
15 U.S.C. 717b(c) instead of section 3(a) of the NGA, 15 U.S.C. 717b(a).42
2833 (Sept. 7, 2010). The DOE/FE order authorizes LNG exports to the follow-
ing FTA countries: Australia, Bahrain, Singapore, Dominican Republic, El
Salvador, Guatemala, Honduras, Nicaragua, Chile, Morocco, Canada, Mexico,
Oman, Peru, Singapore (sic) and Jordan, and to any nation which DOE subse-
quently identifies publicly (currently at http://www.fossil.energy.gov/programs/gas
regulation/authorizations/How_to_Obtain_Authorizations.html) as having
entered into a free trade agreement providing for national treatment for trade in
natural gas, provided that the destination nation has the capacity to import LNG.
41Sabine Pass Liquefaction, LLC, FE Docket No. 10-111-LNG, Application
43Application at 23-29.
44Sabine Pass Liquefaction, LLC, FE Docket No. 10-111-LNG, Opinion and
Order Denying Request for Review under Section 3(c) of the Natural Gas Act, Oct.
21, 2010, at 3, available at http://www.fossil.energy.gov/programs/gasregulation/
authorizations/Orders_Issued_2010/Sabine10_111dkt.html.
45Opinion and Order at 6.
46Opinion and Order at 7.
47Opinion and Order at 8.
48Opinion and Order at 4.
49Opinion and Order at 4-5, Order No. 1473, note 42 at 13, citing Panhandle
Producers and Royalty Owners Assoc. v. ERA, 822 F.2d 1105, 111 (DC Cir. 1987).
50 Policy Guidelines and Delegation Orders Relating to the Regulation of
1. The project will stimulate the local, regional, and national economies
by creating jobs, increased economic activity and tax revenues.
2. The project will play an influential role in contributing to the growth
of natural gas production in the US and a reduced reliance on foreign
sources of oil.
3. LNG exports will further President Obamas National Export
Initiative by improving the balance of payments with the rest of the
world, thereby reducing the overall trade deficit.
4. Exports of LNG will raise domestic natural gas productive capacity
and promote stability in domestic natural gas pricing.
5. Exports of LNG will promote liberalization of the global gas market
by fostering increased liquidity and trade at prices established by
market forces.
6. Exports of LNG will advance national security and the security of US
allies through diversification of global natural gas supplies.
2010).
The impact of shale gas on global gas markets 341
Application, filed December 13, 2010, by Senators James Inhofe and Mary
Landrieu andRepresentativesDan Boren and Charles Boustany along with other
Members of Congress, available at http://www.fossil.energy.gov/programs/gasreg-
ulation/authorizations/Orders_Issued_2010/congressional_delagates_12_13_10.
pdf. Other letters of support are listed on the Sabine Pass Docket page at
http://www.fossil.energy.gov/programs/gasregulation/authorizations/Orders_
Issued_2010/Sabine10_111dkt.html#Sabine%20Pass.
55See Letter from James C. Johnson, Senior Vice President Marketing,
promote the interests of manufacturing companies for which the availability, use
and cost of energy, power or feedstock play a significant role in their ability to
compete in domestic and world markets. About IECA, available at http://www.
ieca-us.com/about.html.
58APGA is the national, non-profit association of publicly owned natural gas
distribution systems and has over 700 members in 36 states. About APGA, avail-
able at http://www.apga.org.
59IECA Motion to Intervene: FE Docket No. 10-111-LNG, Sabine Pass
are not in the public interest since such exports have the potential to increase
demand and thereby the price of natural gas for the manufacturing sector
and the public. IECA further claimed that increased natural gas prices
erode US manufacturing competitiveness and could lead to further job
losses in the manufacturing sector. While IECA acknowledged that recent
estimates of US natural gas reserves had increased, IECA maintained that
there were still many uncertainties that could reduce natural gas supplies,
especially over the 20-year approval period that Sabine Pass is seeking in its
export application.60 IECA also argued that Sabine Pass is seeking export
approval for a significant amount of natural gas as much as .803 trillion
cubic feet per year for a 20 year period [which is] equivalent to 3.54 percent
of 2009 US demand; 13.4 percent of industrial demand; 17.1 percent of
residential demand and 11.6 percent of electric sector demand.61
In response, Sabine Pass filed an Answer to IECAs Motion contending
that IECAs motion was unsupported by any empirical market studies or
other data and therefore failed to overcome the statutory presumption in
favor of granting the application.62
On March 4, 2011 the American Public Gas Association (APGA) filed
a late Motion to Intervene in the Sabine Pass proceeding.63 Although
DOE/FE ultimately issued a procedural order denying APGAs late filed
motion, resulting in APGA not being a party to the proceeding, DOE/FE
nonetheless reviewed APGAs submission so that a complete evaluation of
all relevant arguments was conducted in light of the precedential nature
of [the] proceeding.64
On May 20, 2011, DOE/FE issued its Opinion and Order in the Sabine Pass
case.65 In its summary of findings and conclusions, DOE/FE found that
Sabine Pass had submitted substantial evidence showing an existing and
a projected future supply of domestic natural gas sufficient to simultane-
ously support the proposed export and domestic natural gas demand both
currently and over the 20-year term of the requested authorization.66
The studies submitted by Sabine Pass indicated a modest increase in
the domestic market price for natural gas through 2035, which reflected,
according to DOE/FE, the costs of additional domestic production for
LNG exports as opposed to an increase in price due to an alleged conver-
gence of domestic natural gas prices with international gas prices linked
Export Liquefied Natural Gas from Sabine Pass LNG Terminal to Non-Free
Trade Agreement Nations, DOE/FE Order No. 2961, May 20, 2011, FE Docket
No. 10-111-LNG, Sabine Pass Liquefaction, LLC, Application for Long-Term
Authorization to Export Liquefied Natural Gas, available at http://www.fossil.
energy.gov/programs/gasregulation/authorizations/Orders_Issued_2011/ord2961.
pdf.
65 Opinion and Order Conditionally Granting Long-Term Authorization to
Export Liquefied Natural Gas from Sabine Pass LNG Terminal to Non-Free
Trade Agreement Nations, DOE/FE Order No. 2961, May 20, 2011, FE Docket
No. 10-111-LNG, Sabine Pass Liquefaction, LLC, Application for Long-Term
Authorization to Export Liquefied Natural Gas, available at http://www.fossil.
energy.gov/programs/gasregulation/authorizations/Orders_Issued_2011/ord2961.
pdf.
66Ibid. at p.29.
344 Energy for the 21st century
to oil.67 Significantly, DOE/FE noted that the opposing parties had not
submitted any contrary studies.68
DOE/FE also found that the approval of the requested authorization
would not threaten US energy security and that Sabine Pass had pointed
to a number of significant economic and public benefits that would ensue
from the granting of the application.69 These benefits included potentially
significant job creation70 due to the construction of the project as well
as improving the US balance of payments through the exportation of
approximately 2 Bcf/d of natural gas, valued by the applicant at approxi-
mately $5 billion, and the displacement of $1.7 billion in natural gas
liquids imports.71 While the opponents had alleged a number of negative
consequences to the public, they did not refute the alleged benefits of the
project.72
While DOE/FE found that Sabine Pass had provided substantial evidence
supporting its export application, it also recognized that no person can
unqualifiedly warrant either that the present conditions that have yielded
67Ibid.
68Ibid.
69Ibid. at p.30.
70 Chenieres Sabine Pass project appeared to have considerable support
from both federal and local governments. For example, according to US Energy
Secretary, Steven Chu, Our long term economic strength depends on safely and
responsibly harnessing Americas domestic energy resources while developing new
and innovative clean energy technologies ... [The Sabine Pass] project reflects a
broad, all of the above approach that will put Americans to work producing the
energy the world needs. US Senator Mary Landrieu said, Cheniere Energys
plan to transform its existing terminal into a facility that can both import and
export liquefied natural gas is a precedent-setting breakthrough that will bring
substantial economic benefits to southwest Louisiana. DOE Press Release,
Energy Department Approves Gulf Coast Exports of Liquefied Natural Gas:
Conditional Authorization for Sabine Pass LNG Terminal Could Bring Thousands
of Jobs, May 20, 2011, http://www.fossil.energy.gov/news/techlines/2011/11023-
DOE_Approves_LNG_Export_Applicatio.html.
71 Opinion and Order Conditionally Granting Long-Term Authorization to
Export Liquefied Natural Gas from Sabine Pass LNG Terminal to Non-Free
Trade Agreement Nations, DOE/FE Order No. 2961, May 20, 2011, FE Docket
No. 10-111-LNG, Sabine Pass Liquefaction, LLC, Application for Long-Term
Authorization to Export Liquefied Natural Gas, available at http://www.fossil.
energy.gov/programs/gasregulation/authorizations/Orders_Issued_2011/ord2961.
pdf, at p.30.
72Ibid.
The impact of shale gas on global gas markets 345
73Ibid. at 31.
74Ibid.
75Ibid.
76Ibid. at 32.
77Ibid.
78Sabine Pass applied for authorization to export up to the equivalent of 16
mtpa of LNG, which is approximately 2.2 Bcf/d or 803 Bcf per year.
79Ibid. at 42.
346 Energy for the 21st century
gypartners.com/liquefaction_project/ferc_process.html.
The impact of shale gas on global gas markets 347
[t]he goal for Cheniere will be to lock in a Henry Hub/Japanese Crude Cocktail
price spread of future cash flows in order to get the right backing. Securing
supplies at a low enough price will be key in carrying the project forward. Any
terminal looking to export US gas would face a major hurdle: finding producers
willing to sell their gas below the $6/MMBtu breakeven price necessary to keep
such projects economically viable in 2015 and beyond.86
Timing might also be of the essence since any export terminal faces a
rapidly-closing window to meet Asian particularly Chinese demand,
82Ibid.
83Ibid.
84Samantha Santa Maria, US LNG Export Proposals May Be Too
Pass facilities with one of the largest capital investments in Louisiana history.
Louisiana Economic Development, News Release July 19, 2011, Cheniere Energy
Announces More Than $6 Billion Natural Gas Facility in Louisiana, http://www.
louisianaeconomicdevelopment.com/led-news/news-releases/cheniere-energy-
announces-more-than-$6-billion-natural-gas-facility-in-louisiana.aspx.
86Samantha Santa Maria, US LNG Export Proposals May Be Too
as China ramps up its shale production. Acting fast is thus a necessity for
future US exporters to build a new value-creating, successful LNG export
facility.87 Suffice it to say, back in 2010 and 2011, many experts were
skeptical about Chenieres export plans and the feasibility of US LNG
exports in general.88 As discussed in detail in Chapter12, Chenieres export
project started to gain traction in 2012.
87Ibid.
88 Edward McAllister, Pricing and Politics to Scupper US LNG Export Plan,
Reuters, June 16, 2010, quoting analysts calling into question the economics
of Chenieres export plan, available at http://www.forexpros.com/news/general-
news/analysis-pricing-and-politics-to-scupper-us-lng-export-plan-142980. See also
Ryan Dezember, Cheniere Doubles Down on Its LNG Bet, Wall Street Journal,
May 23, 2011, noting that Cheniere was wagering big again and that Chenieres
export project faced challenges even with DOEs approval.
89 Canada National Energy Board (NEB), Natural Gas How Canadian
Sustained Growth, Profiler, 2011 Gas & Oil Expo Publication, June 2011.
The impact of shale gas on global gas markets 349
4
US$/MMBtu
1
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
2009 2010 2011 2012
Henry Hub AECO Dawn
lower than Henry Hub since Canadas natural gas is now desperately in
need of a market, having lost the US as its primary market.92 According
to Canadas National Energy Board (NEB), prices for natural gas have
declined over the first quarter of 2012, averaging US$2.96/MMBtu at
Dawn in Ontario (top line), US$2.53/MMBtu at Henry Hub (middle
line) and $2.12/GJ at AECO in Alberta (bottom line) from January to
March 201293 (Figure 11.4). According to the NEB, prices for the second
quarter of 2012 for these hub points could move lower by about $0.50 due
to an excess volume of gas in storage and reduced demand due to mild
weather.94
92Rebecca Penty, Canada Must Invest $50 Billion to Stay in LNG Race:
The loss of the US as Canadas main market, coupled with growing sup-
plies of shale gas and low prices, has led to Canada seeking to export its
natural gas as LNG, with Asia being the prime market. One of the most sig-
nificant hurdles for Canada is the need to build the Pacific Trail Pipelines,
which will carry gas from the gas fields to the port of Kitimat where, as
discussed in detail below, several LNG export projects are planned.95
According to some experts, Canada does not really have any choice but
to export its gas as LNG and must move quickly before other competitors
move in.96 At the same time, Canada itself is expected to produce large
amounts of shale gas that will need a market. These dynamics mean that
Canada will need to look to new customers to monetize its natural gas
reserves, with the Asia-Pacific market being the prime target.97
In recent years, Asia-Pacific markets, led by emerging economies like
China and India, have been driving global economic growth. Despite the
incredible growth in these countries and their high demand for all goods,
particularly energy resources, the Asia-Pacific region currently imports
very little from Canada. For example, Canada accounted for just 1.1%
of Chinas total imports in 2008 and its share of the Chinese markets has
fallen since 1988. Western Canadas share of Canadian exports to China
has also fallen over the same period (from 72.5% to 66.3%).98 With
in the natural gas markets. Demand for natural gas tends to be lower as milder
temperatures reduce the need for space heating or cooling. Natural gas prices tend
to move in response to the need to withdraw gas from storage to avoid penalties
and the pace of the storage refill. Mild winter temperatures in 2012 combined
with strong production of natural gas are resulting in record storage inventories
in Canada and the US and are causing prices to decline. The price of natural gas
at the Henry Hub pricing point throughout the April to June 2012 outlook period
is expected to be US$1.75 to2.50/MMBtu but could fluctuate in response to cold
spells or an early onset of hot temperatures.
95 Justine Hunter, Kitimat Weighs Up the Risks of Oil and Gas, The Globe
Sustained Growth, Profiler, 2011 Gas & Oil Expo Publication, June 2011.
98 Canada West Foundation Publication, Window on the West: A Look at
Life and Policy in Western Canada, March 2011, at p.5. Canada West Foundation
website, www.cwf.ca.
The impact of shale gas on global gas markets 351
Life and Policy in Western Canada, March 2011, www.cwf.ca, Forging closer
economic ties with Asia-Pacific and with China and India in particular could
ensure the long-term prosperity of western Canada for years to come.
100 Natural Resources Canada, http://www.nrcan.gc.ca/eneene/sources/natnat/
imppro-eng.php.
101Ibid.
102The Proposed Douglas Channel LNG project is a barge-based liquefac-
tion plant which will be fabricated and assembled in a shipyard and then towed
to its permanent location in British Columbia on the west bank of the Douglas
Channel. This project is much smaller than the proposed Kitimat LNG project
and calls for up to 125 million cubic feet of gas per day, or approximately 900,000
tonnes per annum of LNG. Douglas Channel LNG, http://douglaschannelenergy.
com/?page_id542. The Applicant for the Douglas Channel project is BC LNG
Export Co-operative LLC (BC LNG), which was formed to purchase LNG at
the outlet of the LNG facility. The LNG facility will be developed and owned by
Douglas Channel LNG and operated by Douglas Channel Energy Partnership.
National Energy Board (NEB), Application of BC LNG Export Co-operative
LLC, March 8, 2011, https://www.neb-one.gc.ca/ll-eng/livelink.exe/fetch/2000/9
0466/94153/552726/674445/674203/704633/674343/B1-2-_BC_LNG_Export_Co-
operative_LLC_Application_-_A1Y0J3_.pdf?nodeid5674344&vernum50.
103 For example, in October 2011, Shell announced it had acquired the Kitimat
Marine Terminal, in Kitimat, British Columbia, from Cenovus Energy Inc and
is now exploring the potential for an LNG export terminal on the site. LNG
World News, Shell Buys Site for LNG Export Project, Oct. 21, 2011, http://www.
352 Energy for the 21st century
lngworldnews.com/canada-shell-buys-site-for-lng-export-project/. As discussed
in Chapter 12, Shell has recently announced plans for a proposed LNG export
terminal.
104 Natural Resources Canada, http://www.nrcan.gc.ca/eneene/sources/natnat/
imppro-eng.php.
105Apache Canada Ltd. is a subsidiary of Apache Corporation and is one of
Canadas top oil and gas producers with operations in Alberta, British Columbia,
and Saskatchewan. www.apachecorp.com/Canada.
106 EOG Resources Canada Inc. is a wholly owned subsidiary of EOG
Resources, Inc., which is one of the largest independent (non-integrated) oil and
natural gas companies in the United States. www.eogresources.com.
107 Encana is a leading North American natural gas producer focused on
growing its portfolio of natural gas resource plays in key basins from northeast
British Columbia to east Texas and Louisiana. www.encana.com.
108 Kitimat LNG, Ownership, http://kitimatlngfacility.com/Project/project_
ownership.aspx.
109 Kitimat LNG, Project Site, http://kitimatlngfacility.com/Project/project_
Kitimat LNG will include natural gas liquefaction, LNG storage and
marine on-loading facilities. Natural gas will be delivered via a pipeline
lateral of approximately 14 kilometers from the Pacific Trail Pipelines,111
which will connect to the existing Spectra Energy Westcoast Pipeline
system. The proximity of Kitimat LNG to existing pipeline infrastructure
is one of the key advantages of the project and ensures a ready supply of
natural gas.112
The feed gas for Kitimat LNG will come from Apaches and EOG
Resources fields in British Columbia and Alberta, which contain approxi-
mately 19 trillion cubic feet (Tcf) of combined marketable/technically
recoverable natural gas resources. The initial LNG plant capacity will be
5 million metric tons per annum (mmtpa) of LNG output with potential
capacity expansion to 10 mmtpa or more. The projected number of
shipments is five to seven per month.113
According to a project update, Kitimat LNG is currently carrying out
a front-end engineering and design (FEED) study,114 which is expected
to provide certainty around project design, construction timelines, costs
and labor force requirements. The study is scheduled for completion in
late 2011 or early 2012. Kitimat LNG expects to be in a position to make
a final investment decision (FID) on the facility near the end of 2011 or
for the sale of their equity in Kitimat LNG, and also will receive long-term,
regular lease and property tax payments combine[d] with the employment and
business opportunities associated with the project to provide a greater measure
of economic stability, Kitimat LNG, Press Release, Canada, BC, Join Haisla
Nation and Kitimat LNG Partners in Marking Project Go-Ahead; A Very Big
Day for Our People Says Chief Councilor Pollard, March 9, 2011, http://media-
center.kitimatlngfacility.com/Mediacenter/view_press_release.aspx?PressRelease.
ItemID52807.
111In February 2011, Kitimat LNG Partners entered into an agreement to
project_description.aspx.
113 Kitimat LNG, Project Summary, http://kitimatlngfacility.com/index.aspx.
114 Kitimat LNG awarded the FEED contract to KBR, noting that KBR
early in 2012. Once the FID is granted, construction of the Kitimat LNG
facility is expected to begin in 2012, with commercial operations expected
to start in late 2015.115
The Kitimat LNG Terminals initial processing capacity in 2015 will be
approximately 19,800 103m3/d (700 MMcf/d) with a send-out capacity of
up to 5 million tonnes per year (5MMt/y) of LNG (natural gas equivalent
of approximately 6,600,000 103m3/y (234 Bcf/y)) (Phase 1). The approxi-
mate cost of Phase 1 is $3 billion. An additional train is currently pro-
posed for the 201718 timeframe at a cost of an incremental $1.5 billion,
although this timing could be accelerated based on market conditions and
engineering studies (Phase 2). This expansion will double the process-
ing capacity of the Kitimat LNG Terminal to 39,600 103m3/d (1.4 Bcf/d)
with a send-out capacity of 10 MMt/y of LNG (natural gas equivalent of
approximately 13,300,000 103m3/y (468 Bcf/y)).116
cility.com/Resources/Upload/ProjectUpdate/Files/2811/Kitimat%20LNG%20
Nwsltr-%20Sept%2013.pdf.
116 National Energy Board, Application by KM LNG Operating General
Part VI (Oil and Gas) Regulations, for the purpose of accessing offshore
markets. The application also noted that since the NEBs Filing Manual
does not expressly contemplate offshore LNG exports, KM LNG was
therefore applying the Filing Manual by taking into account the unique
circumstances presented as compared to a conventional onshore pipeline-
transmitted export to the US.119
In its application, KM LNG acknowledged that the application was
in response to a rapidly changing North American gas market and the
previously unforeseen abundance of shale gas driven by recent technologi-
cal advances. The majority of the gas sought to be exported under KM
LNGs license would be sourced from Northeast British Columbia, a
region widely considered to hold significant gas resources, although it is in
a relatively early stage of development.120
KM LNGs export application noted that gas production will be liq-
uefied at the Kitimat LNG Terminal and directly transported by LNG
carriers, primarily to Asia-Pacific markets. According to KM LNG,
Asia-Pacific presently represents a new, long-term and stable market for
Canadian natural gas supply, with the Kitimat LNG Terminal well posi-
tioned to take advantage of the growing Asian demand for LNG.
KM LNG also stated that, unlike continental North American natural
gas markets served by onshore pipelines, Asia-Pacific LNG buyers
are seeking long-term secure gas supply arrangements with regulatory
certainty before committing to long-term contractual commitments.
Therefore, KM LNG was seeking a long-term gas export license prior to
completing gas export sales contracts. This contrasts with the National
Energy Board Part VI (Oil and Gas) Regulations requirement for gas
export sales contract information as part of the gas export.
Lastly, KM LNG indicated that it had retained energy consultants
Poten & Partners Inc. (Poten)121 to provide an independent assessment
(Kitimat LNG Market Assessment) of the international demand for
LNG relevant to the potential for the Kitimat LNG Terminal to meet
some of this demand, especially in the Asia-Pacific market.122
119Ibid. at p.4.
120Ibid. at pp.34 (quoted directly from the application).
121 Poten & Partners is a global broker and commercial advisor for the energy
and ocean transportation industries and they are recognized leaders in LNG, crude
and petroleum products, liquefied petroleum gas (LPG), fuel oil, naphtha and
asphalt market sectors. Poten & Partners, http://www.poten.com.
122 National Energy Board, Application by KM LNG Operating General
(a) The Asia Pacific region is the natural market for the Kitimat
LNG Terminal due to its location. Strong LNG demand growth is
expected in the Asia Pacific region due primarily to growth in gas for
power generation in China, Japan, South Korea and Taiwan. LNG
demand is expected to grow in Asia Pacific an average of 3.25%/year
during the 20142035 period.
(b) The largest supply shortfall is projected for the period 20142018
and it is anticipated that Japan, South Korea, Taiwan and China
will need additional LNG supplies to fill this supply gap in
thetimeperiod when the Kitimat LNG Terminal is scheduled to
start operation. These countries are currently seeking secure long-
term supply contracts with proponents whose projects are most
likely to commence commercial operations during the 20142018
period.
(c) The Kitimat LNG Terminal is well positioned to capture long-
term market share given that it meets the qualities valued by
Asia Pacific buyers including: (1) security of a long-term contract
backed by long-term supply commitments from Apache and EOG;
(2) a diversification of supply previously relied on by the market;
(3) high likelihood of the project being built and operational to
meet the forecasted demand/supply gap; (4) political stability and
regulatory certainty in British Columbia, and in Canada generally;
and (5) strong equity players in the project, namely Apache and
EOG.
/657379/657474/670503/657060/B1-3_-_KM_LNG_Application_-A1W6S5.pdf?
nodeid5657064&vernum50.
123Ibid. at pp.67.
124 KM LNG retained Ziff Energy Group, a premier consulting practice,
providing leading edge long-term forecasts for the gas industry, benchmarking
reports, and oil and gas production consulting, http://www.ziffenergy.com, and
Mr Roland Priddle, a well-established energy expert and inductee of the Canadian
Petroleum Hall of Fame, http://www.canadianpetroleumhalloffame.ca/roland-
priddle.html.
The impact of shale gas on global gas markets 357
gas prices and the Canadian gas-producing sector would be able to meet
Canadian energy demand even with the proposed exports.125
128 National Energy Board (NEB), Reasons for Decision in the Matter of KM
The Board recognizes that forecast demand growth for LNG in the Asia Pacific
region provides a new opportunity for Canadian producers to diversify their
export markets. The Board also recognizes that long-term oil-indexed sales
contracts could provide for higher netbacks to Canadian producers. While the
Board noted the existence of competing sources of global LNG, given the size
of Canadas natural gas resource, proximity to markets in Asia and Canadas
stable political and regulatory environment, the Board was of the view that
KM LNG has the opportunity to compete in the global LNG market. Having
regard to the size and potential growth of the Asia Pacific market, the Board
concluded that the proposed export volume is likely to flow.129
129Ibid.
12.Emerging issues in the LNG
industry
12.1OVERVIEW
As this book goes to print, there are a number of emerging issues that
highlight some of the opportunities and challenges the industry will
encounter in the coming decades, although there will no doubt be many
more than can be envisioned at the time of this writing, with new poten-
tial issues emerging on an almost daily basis.1 Perhaps one of the most
dramatic opportunities is the possibility of North American LNG exports,
which was discussed in detail in Chapter 11 but, because of its potential
significance, is highlighted again in this chapter with a discussion of the
most recent developments (Section 12.2). A related emerging issue that
may make US LNG exports more viable is the expansion of the Panama
Canal, which will allow larger ships to transit the canal upon its expected
completion in 2014 (Section 12.3).
On the technical side, one of the key emerging issues is the development
of the worlds first floating LNG (FLNG) liquefaction terminal, the Shell
Prelude project. If successful, the Prelude project could pave the way for
other floating LNG projects, which are expected to be a growing segment
in the global LNG industry (Section 12.4).
In terms of market developments, the role of the Gas Exporting
360
Emerging issues in the LNG industry 361
of 2015 is unrealistic, that its $4 billion price tag for liquefaction facilities was
to be taken with a grain of salt, and that LNG buyers would be hard-pressed
to find US producers willing to sell gas forward at prices below $6/MMBtu for
2015 or 2016. Samantha Santa Maria, US LNG Export Proposals May Be
Too Optimistic: SocGen Analyst, Platts, May 25, 2011, http://www.platts.com/
RSSFeedDetailedNews/RSSFeed/NaturalGas/6135424 (quoting Socit Gnrale
analyst Laurent Key).
4 Edward McAllister, Pricing and Politics to Scupper US LNG Export
exports are now much brighter due to higher than expected Japanese
demand coupled with a widening of the shale spreads. For example,
in April 2012, Japan alone consumed a record amount of 4.56 million
tonnes of LNG equivalent, primarily due to increased use of natural gas
for electricity generation after Japans loss of nuclear power due to the
Fukushima disaster in 2011.5 Going forward, Japans demand for LNG
is expected to remain strong since the Fukushima crisis has eroded public
confidence in nuclear power and prevented the restart of Japans nuclear
reactors.6
At the same time, US shale gas production has continued to grow,
keeping Henry Hub prices at ten-year lows of about $2/MMBtu as of
May 2012, while Asian LNG prices are at four-year highs of around $18/
MMBtu.7 These spreads make US LNG exports much more attractive
with at least one major consulting firm opining that a spread of just $4
for Europe and $6 for Asia would justify the infrastructure investment
for US LNG exporters.8 As indicated in Figure 12.1, Cheniere expects
to be able to deliver LNG from the US to the Americas, Europe or Asia
for$79/MMBtu. Since most LNG prices around the world are linked
to an oil-based index, global LNG prices are expected to continue to
trade in a range of $1123/MMBtu, assuming oil remains at $100/bbl
or higher. If Chenieres estimates are correct, then US LNG exports
would be competitive at prices in the range of $79/MMBtu to most
destinations.
363
Henry Hub $ 3.00 $ 3.00 $ 3.00
Capacity charge 3.00 3.00 3.00
Shipping 0.75 1.25 3.00
Fuel/basis 0.35 0.35 0.35
Delivered cost $ 7.10 $ 7.60 $ 9.35
Source: Cheniere Energy Partners, L.P., Corporate Presentation dated June 2012.
Source: Cheniere Energy Partners, L.P., Corporate Presentation dated June 2011
are responsible for securing the feed gas at prevailing Henry Hub prices
and delivering the feed gas to Sabine Pass for liquefaction processing and
shipping (FOB) from Sabine Pass to any destination permitted under
export licenses. (See Figure 12.2.)
9 Cheniere Energy Partners, Press Release, Oct. 26, 2011, Cheniere and BG
Exchange Commission (SEC) with Chenieres SEC 8-K filing on October 26, 2011,
and is available at www.cheniereenergypartners.com.
366 Energy for the 21st century
Liquefaction, also entered into a lump sum turnkey contract with Bechtel Oil, Gas
and Chemicals, Inc. (Bechtel) for the engineering, procurement and construc-
tion (EPC) of the first two liquefaction trains at the Sabine Pass LNG terminal.
Cheniere Energy Partners, PR Newswire, Press Release, Nov. 14, 2011, Cheniere
Partners Enters into Lump Sum Turnkey Contract with Bechtel, http://www.
prnewswire.com/news-releases/cheniere-partners-enters-into-lump-sum-turnkey-
contract-with-bechtel-133799293.html.
12 Cheniere Energy Partners, PR Newswire, Press Release, Nov. 21, 2011,
Cheniere and Gas Natural Fenosa Sign 20-Year LNG Sale and Purchase Agreement,
http://www.prnewswire.com/news-releases/cheniere-and-gas-natural-fenosa-sign-
20-year-lng-sale-and-purchase-agreement-134267813.html.
13 BG Group Press Release, BG Group to Increase LNG Volumes from Sabine
no security of supply issues since the US gas market is well supplied and
highly liquid.15
In addition to the additional volumes contracted for by BG, Cheniere
has most recently entered into an SPA with KOGAS for 3.5 mtpa,
commencing with the start of train three operations. As the largest
LNG importer in the world, KOGAS is viewed as a strong addition to
Chenieres portfolio of customers for its liquefaction project.16 Cheniere
has also entered into a contract with GAIL (India) Ltd. that commences
with the start of train four operations,17 bringing the total long-term
take-or pay style contracts for Sabine Pass exports to approximately 16
mtpa. (See Figure 12.3.)
In April 2012, Chenieres Sabine Pass Liquefaction project received
regulatory approval from the Federal Energy Regulatory Commission
(FERC), thus becoming the first LNG export project to receive FERC
approval.18 In its order, FERC found that since the proposed liquefac-
tion project was located entirely within the footprint of the previously
approved and operating Sabine Pass LNG terminal site, the environmen-
tal impacts were limited and well defined. Nonetheless, FERCs order
was subject to Sabine Pass adhering to 55 mitigation measures to limit the
environmental impact of the new facility and also required the project to
be complete and made available for service within five years of the date of
issuance of the order.19
As this book goes to print, financing the approximately $4.5 to 5.0
billion project appears to be the final milestone for Chenieres Sabine
Pass Liquefaction project (Table 12.1). Cheniere has indicated that it
intends to finance the project with a combination of debt and equity. In
15 Cheniere Primed to Sanction Sabine Pass Project, ICIS Heren Global LNG
20-Year LNG Sale and Purchase Agreement, Jan. 30, 2012, http://phx.corporate-ir.
net/phoenix.zhtml?c5207560&p5irol-newsArticle&ID51653972&highlight5.
17 Cheniere Energy Partners, L.P., News Release, Cheniere and GAIL India Sign
20-Year LNG Sale and Purchase Agreement, Dec. 22, 2011, http://phx.corporate-ir.
net/phoenix.zhtml?c5207560&p5irol-newsArticle&ID51638423&highlight5.
Commencement of construction for the third (KOGAS) and fourth (GAIL) trains
is subject to, but not limited to, entering into an EPC contract, obtaining financing
and Cheniere Partners making a final investment decision.
18 Federal Energy Regulatory Commission (FERC), News Release, FERC
Equity for Sabine Pass Liquefaction Project, May 15, 2012, http://phx.corporate-ir.
net/phoenix.zhtml?c5207560&p5irol-newsArticle&ID51695942&highlight5.
22 Cheniere Energy Partners, L.P., News Release, Cheniere Engages
Eight Joint Lead Arrangers to Arrange the Debt Financing for the Sabine Pass
Liquefaction Project, April 16, 2012, http://phx.corporate-ir.net/phoenix.
zhtml?c5207560&p5irol-newsArticle&ID51683242&highlight5.
370 Energy for the 21st century
23In October 2011, Standard & Poors issued a report indicating that
Chenieres contract with BG Group would probably not avoid a cash crunch that
threatened to trigger a default on debt maturing in May 2012. As of June 30, 2011,
Cheniere had $162.6 million in cash and a $298 million debt payment due in May
2012. Cheniere has $3.14 billion in outstanding debt, most of it from the largely
idle regasification terminal it built to import natural gas. Joe Carroll, Chenieres
BG Agreement May Not Prevent Default, S&P Says, Bloomberg, Oct. 31, 2011,
http://www.bloomberg.com.
24According to Michelle Michot Foss, chief energy economist at the
University of Texas Center for Energy Economics, while the arbitrage opportunity
for exports is huge (shipping 18 mtpa of LNG is worth approximately $1.7 billion
at todays prices) it is tricky because no one is positioned to take advantage
of the opportunity right now. By the time an export terminal can be built, the
opportunity might disappear as competition increases or market conditions
change. Joe Carroll, LNG Export Plant Verges on U.S. Approval Amid Shale Glut,
Bloomberg Businessweek, April 13, 2012, http://www.businessweek.com/printer/
articles/43480?type5bloomberg.
25As Chenieres project has advanced, the interest among buyers has also
increased, with other projects also gaining traction. For example, in April 2012,
Sempra Energy announced that it had signed a commercial development agree-
ment with Mitsubishi Corporation and Mitsui & Co., Ltd. to develop and construct
an LNG export facility at the site of Sempras existing import terminal, Cameron
LNG, in Hackberry, LA. Sempra Energy Media Release, Sempra Energy Unit
Signs Commercial Development Agreements with Mitsubishi Corporation, Mitsui &
Co., Ltd. to Develop Louisiana Liquefaction Facility, Apr 17, 2012, http://sempra.
mediaroom.com/index.php?s519080&item5126964.
26 For example, in March 2012, the State of Alaska reached a settlement
with Exxon Mobil Corp and its partners to develop a huge, long-fallow oil
and gas field, possibly paving the way for a $26 billion pipeline and an export
plant for liquefied natural gas. Yereth Rosen, Alaska, Exxon Deal Opens
Way for LNG Exports, Reuters, March 30, 2012, http://www.reuters.com/assets/
print?aid5USBRE82T12I20120330.
Emerging issues in the LNG industry 371
While the market opportunity for US LNG exports seems to have solidi-
fied, concerns about the effect of US LNG exports on the domestic price
of natural gas began to mount in late 2011. While many factors can have
a bearing on the price of domestic gas, exports are likely to have an effect
since they represent an additional source of demand. At the same time,
over the long run, an increase in demand is also likely to increase supply.
The extent to which the price of natural gas interacts with its supply and
demand has been a cause of much speculation in the US, which in turn led
to a US Senate Subcommittee hearing in November 2011 to address the
issues raised by the possibility of US LNG exports.28
At the outset of the hearing, it was noted that the last time the Senate
held a hearing on LNG was in 2005, when the US was anticipating the
need to import growing quantities of LNG, whereas the current hearing
was to discuss the role that LNG exports might play in the US energy
future. As stated in the opening statement, there were two main objectives
of the hearing. The first was to understand the laws and regulations that
govern LNG exports. Those laws were put into place assuming the United
States would be an importing country, not an exporting country.29
Accordingly, US policy makers considered whether it made sense to take a
new look at existing US laws in light of the new market situation.
The second objective was to understand how exports might affect the
domestic natural gas market. While the implications of increased gas
exports for US job creation and the balance of payments could be very
positive, it was also noted that U.S. energy security requires reliable and
27Richard Nemec, LNG Exports: The Newest Economic Engine, or a Fad That
30Ibid.
31Ibid.
32 Kate Winston, Senators Question Price Impact of LNG Exports, Platts
At the hearing, DOE also noted that when it approved the Sabine Pass
export application, it indicated that DOE has a continued duty to monitor
the cumulative impact of such exports. DOE was mindful of the fact that
there was a growing interest in exporting domestically produced LNG
and that DOE had four other long-term applications pending before it to
export US-produced LNG to countries with which the United States does
not have a free trade agreement.36
The volumes of LNG that could be authorized for export in those
non-free trade agreement applications, including the 2.2 Bcf/d author-
ized for export in Sabine Pass, would total 6.6 Bcf/d, which represents 10
percent of total current domestic natural gas daily consumption in the
United States. Consistent with the Natural Gas Act, DOE has already
granted authorization from these five facilities to export the same volume
to free trade agreement countries but has not ruled on the non-free trade
applications yet.37
In order to address the potential cumulative impact of granting the
pending export applications, DOE indicated at the Senate hearing that
it had commissioned two studies. One study will be conducted by DOEs
Energy Information Administration (EIA) and will look at the price
increase that will result from an incremental increase in demand for
exports. A private contractor, who will use the EIA data to study the net
impact of exports on the economy, including job creation and the US
balance of trade, will do the second study. Taken together, the studies will
address the impacts of additional natural gas exports on domestic energy
consumption, production, and prices, as well as the cumulative impact on
the U.S. economy, including the effect on gross domestic product, jobs
creation, and balance of trade, among other factors.38
Committee on Energy and Natural Resources, United States Senate, The Department
of Energys Role in Liquefied Natural Gas Export Applications, Nov. 8, 2011, avail-
able at http://energy.senate.gov/public/_files/SmithDOETestimony110811.pdf.
36Ibid.
37Ibid.
38 Kate Winston, Senators Question Price Impact of LNG Exports,
pending before it but noted that the two pricing studies were an important
component of a sound evidentiary record on which DOE would ultimately
base its decision on further US LNG exports.39
In January 2012, the US EIA issued the first study analyzing the impact
of US LNG exports on the domestic energy market. As requested by
DOE, the EIAs study looked at how specified scenarios of natural gas
exports could affect the US energy markets, focusing on consumption,
production, and prices. The study was not intended to give an estimate of
what LNG exports would likely be in the future, but to assume that the
levels of exports would be either 6 Bcf/d or 12 Bcf/d, discounting other
possible scenarios. In summary, the US EIA concluded that increased
natural gas exports lead to higher domestic natural gas prices, increased
domestic natural gas production, reduced domestic natural gas consump-
tion, and increased natural gas imports from Canada via pipeline.40
In terms of the impact of exports on US natural gas prices, the EIA
noted at the outset that US natural gas prices are expected to increase
even before considering the possibility of additional exports. Nonetheless,
increased natural gas exports are expected to lead to higher domestic
natural gas prices, with the amount dependent on the ultimate level
of exports and the rate at which increased exports are phased in. For
example, under the low/slow scenario, it is assumed that 6 Bcf/d of exports
are phased in at a rate of 1 Bcf/d per year over six years. Under this sce-
nario, the wellhead price impacts peak at about 14 percent ($0.70/Mcf) in
2022 but the wellhead price differential falls below 10 percent by about
2026.41 Although the impact of LNG exports varies depending on the
assumptions about resource availability and economic growth, the basic
assumption remains the same: higher export levels would lead to higher
prices, rapid increases in exports would lead to sharp price increases,
and slower export increases would lead to slower but more lasting price
increases.42
In contrast to the potentially severe impacts on price found in the EIA
study, an independent assessment done by Deloitte MarketPoint LLC
(DMP) found that any price increase resulting from US LNG exports
would be quite minimal.43 In the DMP assessment, Deloitte applied its
39Ibid.
40 US EIA, Effect of Increased Natural Gas Exports on Domestic Energy
Notes:
6 bcf/day of LNG exports (unless otherwise noted)
* Price impact figure for EIA study reflects the reference case, low-slow export scenario.
** The Navigant study did not analyze exports of 6 bcf/day.
*** Navigant (2010 and 2012) and ICF International studies are based on Henry Hub
price.
Source: Dr Charles K. Ebinger, Liquid Markets: Assessing the Case for U.S. Exports of
LNG, the Brookings Institution Energy Security Initiative, Presentation dated May 11, 2012
States, Deloitte MarketPoint LLC and the Deloitte Center of Energy Solutions
(Dec. 2011), available at http://www.deloittemarketpoint.com/Papers/Papers.
aspx#3.
44Ibid. at p.2.
45The Brookings Institution, Liquid Markets: Assessing the Case for U.S.
376 Energy for the 21st century
The study recommends that U.S. policy makers should refrain from introduc-
ing legislation or regulations that would either promote or limit additional
exports of LNG from the United States. The nature of the LNG sector, both
the costs associated with producing, processing, and shipping the gas, and the
global market in which it will compete, will place upper bounds on the amount
of LNG that will be economic to export. Incremental increases in the price
of domestic gas (as a result of domestic demand or export) negatively impact
the economics of each additional proposed export project, which even with
government approval will still require private financing and interested buyers.
Efforts to intervene in the market by policy makers are likely to result in
subsidies to consumers at the expense of producers, and to lead to unintended
consequences. They are also likely to weaken the position of the United States
as a supporter of a global trading system characterized by the free flow of goods
and capital.46
While the various studies are analyzed and additional studies are no
doubt underway by a variety of groups, numerous export applications
remain pending at DOE with the most recent news indicating that political
opposition to US LNG exports may be growing. Adding to the uncertainty
about the future of US LNG exports was the March 2012 announcement
by DOE that the much-anticipated second study on the impact of LNG
exports on the US gas market, originally expected in early 2012, is now
delayed until sometime later in 2012.47
While the length of time DOE has taken in considering the remaining
export applications has caused a level of market uncertainty for the projects
awaiting approval, it has also allowed more time for other opponents to
voice concerns about the impact of US LNG exports. For example, US
Representative Ed Markey (DemocratMassachusetts) has introduced two
bills in the US Congress with the stated purpose of protecting US consumers
from increased natural gas prices and ensuring that Americas natural gas
stays in America.48 The first bill, the North America Natural Gas Security
and Consumer Protection Act,49 would preclude FERC from approving
new LNG export terminals. The second bill, the Keep American Natural
Gas Here Act,50 would require natural gas extracted from federal lands to
be resold only to American consumers. Subsequent to FERCs approval of
Chenieres Sabine Pass, Congressman Markey issued a press release contin-
uing to express his concern that US LNG exports would increase domestic
prices for natural gas, which would harm individual as well as industrial
users of natural gas such as the steel, plastics, and fertilizer industries.51
Congressman Markey is not alone in his view that America should
exploit her competitive advantage with lower natural gas prices to create
jobs in the United States,52 with leaders from other industries calling on
the US to use its cheap natural gas to convert to products for export, as
opposed to exporting the natural resource itself. For example, the CEO of
Dow Chemical has argued that US LNG exports should be limited since
there is up to eight times more value in using Americas abundant and
cheap natural gas as the raw material to create high-value products that
can be exported, as opposed to simply exporting the natural gas itself.53
bills/112/hr4024.
50 H.R. 4025, 112th Cong., 2nd Sess. (2012), http://www.govtrack.us/congress/
bills/112/hr4025.
51 Congressman Ed Markey, Press Release, April 17, 2012, Markey Sabine
LNG Export Facility Approval Would Help Export US Manufacturing Jobs, http://
markey.house.gov/press-r elease/markey-s abine-lng-export-facility-approval-
would-help-export-us-manufacturing-jobs.
52 Kate Winston, Senators Question Price Impact of LNG Exports,
in October 2011 to export LNG to countries that have free trade agreements with
the United States, it is one of the pending projects awaiting DOE approval to
export to WTO nations. Dominion Cove LNG, http://www.dom.com/business/
gas-transmission/cove-point/index.jsp.
56Sierra Clubs Motion to Intervene, Protest, and Comments, In the Matter of
Dominion Cove Point LNG, LP., FE Docket No. 11-128-LNG (Feb. 6, 2012), http://
www.fossil.energy.gov/programs/gasregulation/authorizations/2011_applications/
Motion_to_Intervene_Sierra_Club_02_06_12.pdf. The Sierra Club and Dominion
also appear to be in dispute over whether Dominion even has a right to construct
its export facilities. The Sierra Club alleges that a 2005 agreement with Dominion
precludes the export project in its entirety but Dominion claims otherwise and is
seeking a declaratory judgment that the prior agreement does not preclude the
export project. See Sierra Club Letter to Paul E. Ruppert, Senior Vice President
Transmission, Dominion, April 26, 2012, http://content.sierraclub.org/sites/default/
files/documents/4_26_12_DCP_Cease_and_Desist_Letter.pdf (stating that a 2005
settlement between the Sierra Club and Dominion seeks to protect the area sur-
rounding Cove Point and precludes the expansion of the facility for exports due to
the environmental impacts), and Dominion Press Release, May 18, 2012, Dominion
Files Lawsuit to Confirm Right to Construct Cove Point Natural Gas Liquefaction
Project, http://www.prnewswire.com/news-releases/dominion-files-lawsuit-to-
confirm-right-to-construct-cove-point-natural-gas-liquefaction-project-152047405.
html (stating that Dominion would seek judicial declaratory judgment that the 2005
agreement with the Sierra Club does not preclude constructing an export facility).
57Sierra Clubs Motion to Intervene, Protest, and Comments, In the Matter
of Dominion Cove Point LNG, LP., FE Docket No. 11-128-LNG (Feb. 6, 2012), at
p.47, http://www.fossil.energy.gov/programs/gasregulation/authorizations/2011_
applications/Motion_to_Intervene_Sierra_Club_02_06_12.pdf.
Emerging issues in the LNG industry 379
Prospects for Increased Exports of Liquefied Natural Gas from the United States,
Energy Security Initiative, Brookings Institution, Jan. 2012, http://www.brookings.
edu/~/media/research/files/papers/2012/1/natural%20gas%20ebinger/natural_
gas_ebinger_2.pdf.
60 US Government Further Delays LNG Export Decision, ICIS Heren, March
export licenses and have expressed the view that the market should dictate
whether US LNG exports happen or not.62 For example, at the November
2011 Senate hearing, Senator Lisa Murkowski (RepublicanAlaska) indi-
cated she is inclined to let the market sort out the issue. Our proper
course wont be sweeping legislation or layers of new regulation. Instead,
it will be to ensure a degree of comfort that our newfound energy security
can be maintained under current export rules.63
While the debate over LNG exports in the US continues, it appears that
LNG export projects in Canada may be gaining an advantage with strong
government support64 amidst a growing recognition that Canadas LNG
export projects should move forward with haste to exploit the market
advantage that now exists.65
With the final investment decision (FID) still pending on Kitimat LNG
as this book goes to print, it is unlikely that Kitimat LNG will become
operational by 2015 as originally planned. There are, however, a number
of encouraging developments that will help the project move forward. One
positive development was the NEBs approval of Kitimat LNG, which
was considered momentous since it was the first LNG export license
considered by the board and the first LNG project to move forward since
several had collapsed in the 1980s.66
62Tennille Tracy, U.S. Gas Exports Put on Back Burner, May 31, 2012, Wall
for Kitimat Terminal, The Globe and Mail, May 15, 2012, http://www.the-
globaandmail.com.
66Vaughn Palmer, Opinion: Kitimat LNG Export Project Gliding Along with
Asia might cost C$5 per thousand cubic feet, which raises questions about
theprofitability of the Kitimat project. Kitimat believes shipping will cost C$34
per thousand cubic feet. Gary Park, Kogas Cuts EnCana Deal, Farm-in Gives
Lift to Kitimat Plans; Kogas Could Spend C$1.1B over 5 Years, Petroleum News,
March 7, 2010, http://www.petroleumnews.com/pntruncate/248230748.shtml.
69Ibid.
70Shell Press Release, Shell and Partners Announce LNG Project in Canada,
design (FEED) work on the project in 2013 with FID on the estimated
$9.613.2 billion project expected sometime in 2015.71
One of the issues that has been raised regarding the proposed North
American LNG export projects is whether they can compete with other
LNG projects, especially the mega projects in Qatar and Australia.
According to Chenieres analysis, the range of liquefaction costs for many
of the global LNG projects is $2002,000 per ton, with several of the
Australian projects at the higher end of the range and Chenieres Sabine
Pass Liquefaction project estimated to be $400 per ton (Figure 12.4).
In a research report analyzing the competitiveness of North American
LNG exports, Barclays Capital (BarCap) concluded that US LNG exports
from the Gulf Coast might be competitive with other global LNG projects,
but it is likely to be at the higher end of the supply curve.72 The BarCap
report found while US Gulf Coast LNG exports might be competitive with
the costly Australian projects, they would have a much harder time compet-
ing with Qatari projects. This is because the revenue the Qatari projects
earn from selling the natural gas liquids (NGLs) associated with the feed
gas in Qatar covers not only the upstream costs of development but also
the majority of the capital costs of liquefaction. As such, the Qatari projects
yield a breakeven LNG cost as low as the cost of operation.73 Whether or
not Qatar can maintain its competitive advantage in the longer term remains
to be seen given the recent focus on liquids-rich US shale plays74 as well as
a moratorium Qatar has on developing additional LNG capacity pending a
study on the sustainability of the North Field due to be completed in 2013.75
71 Nathan Vanderklippe, Shell Urges Quick Action to Secure LNG Markets for
Kitimat Terminal, The Globe and Mail, May 15, 2012, http://www.theglobaand-
mail.com.
72 Barclays Capital, Natural Gas Weekly Kaleidoscope, Can North American
from dry gas to liquids-rich plays that improve the plays economics. Ben DuBose, WPC
12: US Shale Gas Development Shifts from Dry to Liquids, Hydrocarbon Processing,
March 29, 2012, http://www.hydrocarbonprocessing.com/Article/3004044/WPC-12-
US-shale-gas-development-shifts-from-dry-to-liquids.html?Print5true, noting that
US shale plays are rapidly shifting away from dry gas towards areas with NGLs to take
advantage of the extremely high spread between US oil and gas plays.
75 Qatars LNG Threat, Zawya.com, May 17, 2012, http://www.zawya.com/
Emerging issues in the LNG industry 383
Notes: Projects costs per ton are total project costs divided by mtpa capacity of LGN
trains. Figures do not attempt to isolate, where applicable, the cost of liquefaction
facilitieswithin a major LNG complex. Chart includes a representative sample of
liquefaction facilities and does not include all liquefaction facilities existing or under
construction.
Source: Cheniere Energy Partners, L.P., Corporate Presentation dated June 2011
Figure 12.4 Estimated liquefaction project costs for global LNG projects
Other experts have indicated that whether or not North American LNG
exports can compete beyond 2015 is far less certain as more uncontracted
LNG supply will come online at this time at prices that are yet to be deter-
mined (Figure 12.5).
In addition, a number of so-called wildcard factors could also weigh
heavily on the shale spreads that have existed in recent years. These factors
could push US prices up and global prices down, which could impact the
ability of North American LNG exports to compete on a global basis. (See
Figure 12.6.)
Bcfd
30
20
10
384
0
2010 2015 2020
Notes:
Uncontracted capacity equals CRA projected liquefaction capacity minus contracted capacity including both LNG SPA and LNG MOU/HOA/
LOO agreements in place. It does not reflect spot LNG trade. The liquefaction capacity reflects CRA research and judgement as to project status,
timing, and delays.
Charles Rivers Associates (CRA) (www.crai.com) is a leading global consulting firm that offers economic, financial, and business management
expertise to major law firms, corporations, accounting firms, and governments around the world. These conclusions are based on independent
research, and publicly available material, and do not reflect or represent the views of Charles River Associates or any of the organizations with
which the author is affiliated. Neither the author nor Charles River Associates accept a duty of care or liability of any kind whatsoever to any
party, or any responsibility for damages, if any, suffered by any party as a result of decisions made, or not made, or actions taken, or not taken,
based on these materials.
Source: Christopher Concalves, Vice President, Charles River Associates (CRA), Chasing the Shale Spread: Potential New Markets for LNG,
Presentation to the CWC 12th Annual World LNG Summit, November 1417, 2011, Rome
385
New regasification / LNG demand growth NA 7.621.4
Source: Christopher Goncalves, Vice President, Charles River Associates, Presentation to the CWC 12th Annual World LNG Summit,
November 1417, 2011
At the US Senate hearing regarding US LNG exports, the issue was raised
whether US exports would definitively link US gas prices to higher inter-
national prices. Some of the related questions that have been raised are:
countries around the world, it will become increasingly necessary for its pricing
to reconnect with economic and market fundamentals, rather than continue to
be determined by crude oil and oil product prices, or politically-driven subsidies.
Jonathan Stern (ed.), The Pricing of Internationally Traded Gas, The Oxford
Institute for Energy Studies (2012), www.oxfordenergy.org.
78 Kate Winston, Senators Question Price Impact of LNG Exports, Platts
the US, natural gas will remain an inherently local domestic commod-
ity, especially since there is not the infrastructure in place at the moment
to allow prices in the US to become coupled with prices in Asia.79
More recently, some experts have also opined that LNG exports from
the US if and when they happen would have little if any effect on the
European gas supply. While the immediate effect of shale gas develop-
ment in the US was to divert LNG shipments away from the US, the
markets have already absorbed that effect.80 Moreover, according to some
analysts, since natural gas is currently at a price disadvantage to coal in
Europe, and with the likely demand-depressing effects of the ongoing
financial crisis, Europe is unlikely to attract much US-produced LNG, no
matter how much or how little liquefaction eventually gets built there.81
For now, with export terminals not even yet built, it remains to be seen
what the prospects will be for North American LNG exports. Nonetheless,
a few energy analysts are already forecasting that, while there may be a
short-term window for North American LNG exports, after 2018 North
American LNG exports, particularly from the US, will be limited by
competition and demand.82
An emerging issue that may open up new trade routes for LNG, includ-
ing making US LNG exports more viable, is the expansion of the
Panama Canal, which is targeted for completion in 2014. In 2006, the
government of Panama announced plans to expand the Panama Canal
to accommodate increased trade between China and the West and also
to accommodate the advent of much larger ships that currently cannot
79Ibid., quoting Christopher Smith, Deputy Assistant Secretary for Oil and
Source: Rodolfo Sabonge, Vice President, Market Research and Analysis, Panama
Canal Authority, The Panama Canal Expansion: Further Developing Trade Integration,
Presentation to the University of Texas Center for Transportation Research Annual
Symposium, April 2011, available at http://www.utexas.edu/research/ctr/symposium/
symp_2011/Panama_2011.pdf
transit the canal due to size.83 As envisioned, the $5.25 billion expansion
project will double the canals capacity by creating a new lane of traffic
along the canal through the construction of a new set of locks that will
allow more ships to transit through the Panama Canal trade routes.84 (See
Figure12.7.)
The Panama Canal expansion is also designed to open up new trades
that are not coming through the canal today, such as LNG. Currently,
only about 6 percent of the worlds LNG fleet can use the canal. As shown
in Figure 12.8, the expansion will increase the existing locks maximum
vessel size to accommodate typical LNG vessel sizes of 150,000180,000
cubic meters. According to the Panama Canal Authority, the maximum
83 John Lyons, Panama Takes Step Toward Expanding the Canal, Wall Street
eng/expansion/index.html.
Emerging issues in the LNG industry 389
LNG vessel
vessel size that will fit the new locks is 366 meters long (LOA), 49 meters
wide (beam) and 15.2 meters draft. To the extent that an LNG vessel
meets these dimensions, it will be able to transit the new locks.85 Once the
expansion is completed, it is expected that about 80 percent of the worlds
LNG fleet will be able to fit through the locks.86 The only exceptions to the
LNG carrier feet appear to be the mega ships such as the Q-Max (266,000
cubic meters) and the Q-Flex (210,000 cubic meters), which are larger than
180,000 cubic meters and also wider than 49 meters.87
Some analysts have also stated that the expansion of the Panama Canal
will give US Gulf coast LNG exporters, such as Cheniere, direct access to
May 8, 2012, email communication with author (on file with author).
86 Special Report: LNG Update: Panama Canal Expansion Will Loosen LNG
Trade, Oil & Gas Journal, March 15, 2010, available at http://www.ogj.com/
articles/prnt/volume-108/issue-10/technology/special-report-lng-update-panam-ca
nal-expansion-will-loosen-lng-trade.html.
87Zeus Development Corporation Conference, LNG: Panama, Suez Canals
On the technical side, one of the key emerging issues is the growing role
of floating LNG (FLNG) production facilities. The term FLNG includes
both floating regasification and liquefaction facilities.92 In terms of
FLNG regasification, there are currently eight terminals in operation
Symposium, April 2011, Panama Canal Expansion and World Trade, Presentation
of Mr Rodolfo Sabonge, http://www.utexas.edu/research/ctr.symposium/
symp_2011/Panama_2011.pdf.
90 Panama Canal Expansion to Boost LNG Trade, The Oil Daily, April 15,
for crude oil tanker traffic through the expanded Panama Canal might prove to
be cost prohibitive despite the expansions opportunity for more efficient trade.
Gibson Consultancy and Research, Panama No Shortcut for Tankers, July 22,
2011, available at www.gibson.co.uk.com.
92Other floating structures also exist such as floating production storage and
offloading (FPSO) and floating storage and regasification unit (FSRU). There are
Emerging issues in the LNG industry 391
Dominican Republic
LNG opportunity
costs ($/MMBtu) 2020
Annual avg. $10.1715.27
$1.29
Brazil LNG
Panama Canal opportunity costs
Tool Fee: $0.08 $0.46
($/MMBtu) 2020
Annual avg. $10.5115.61
$0.80
$0.70
Argentina LNG
Chile LNG
opportunity costs
opportunity costs $0.94 ($/MMBtu) 2020
($/MMBtu)1 2020
Annual avg. $10.6515.75
Annual avg. $10.4915.59
Note: LNG opportunity costs are calculated by US Gulf costs FOB netback prices for
Japan plus shipping costs to various markets. Panama Canal toll fees apply to Japan and
Chile shipping costs.
throughout the world, in the US, Brazil, the UK, Kuwait and Argentina.93
A key benefit of FLNG regasification is that the facility can be quickly
constructed to meet seasonal, peak, or short-term demand. For example,
Kuwait imports LNG through an FLNG terminal in order to satisfy peak
summer demand for LNG.94 Other countries including the United Arab
Emirates (UAE), Pakistan, Bangladesh and Indonesia are expected to
also gravity based structures (GBS), which are not very common. A discussion of
these other floating structures is beyond the scope of this book.
93 Floating LNG Terminals Technological Innovation and Low Cost
Monetization of Offshore Gas Reserves Will Play Key Role in Global LNG Industry
Growth, GlobalData Report, July 2011.
94Ibid., noting that in 2010 Kuwait National Petroleum Co. chartered
12.4.2 Shell Prelude the Worlds Most Closely Watched FLNG Project
Monetization of Offshore Gas Reserves Will Play Key Role in Global LNG Industry
Growth, GlobalData Report, July 2011.
96World Gas Conference 2012, Floating LNG: The Way Forward, New
home/content/aboutshell/our_strategy/major_projects_2/prelude_flng/overview/.
99Andrew Burrell, $12bn Prelude Floating Plant has Shell Fired for LNG, The
Emerging issues in the LNG industry 393
It is being closely watched because if Shell can prove that FLNG liquefac-
tion is economically viable and operationally reliable, then it could open
the door for more FLNG projects in areas where the natural gas reserves
have been stranded due to the lack of appropriate onshore plant sites or
the high costs of pipeline transportation from offshore.100
The Prelude FLNG facility will produce an estimated 3 Tcf of gas
and equivalent resources from the Prelude field, which was discovered
by Shell in 2007 and is approximately 125 miles off the coast of Western
Australia.101 The first production of approximately 3.6 million tonnes per
year of LNG is expected by 2017.102 When constructed, the Prelude FLNG
facility will be the worlds largest offshore FLNG facility ever built, meas-
uring 1,062 ft (488 m) long by 243 ft (74 m) wide, and comparable in size to
many of the worlds most iconic structures103 (see Figure 12.10).
The practical realization of FLNG requires the successful integration of
many complex technological elements. Even though each element is based
on existing technology, the ability to mix them optimally and integrate
them wholly is required. Moreover, there are numerous technological
issues unique to floating facilities, such as the impact on the capacity of
liquefaction due to wave vibration (declining liquefaction efficiency, low-
ering plant operation rates, shortened life-cycles and potential accidents);
an impact on storage (potential accidents due to sloshing liquid levels in
tanks); and an impact on shipping (lowering operation rates and higher
potential accidents).104
Construction of Shells Prelude project will take place at Samsung Heavy
Industries Geoje Shipyard in South Korea, which is one of the few loca-
tions in the world with a dry dock large enough to accommodate a facility
html.
800 m
700 m
600 m
500 m
400 m
300 m
200 m
394
100 m
Sydney Opera London Eye Taj Mahal N Seoul Eiffel Tower Petronas Shell FLNG Taipei 101 Willis Ostankino Canton Tower Tokyo Sky Burj Khalifa
House London Agra Tower Paris Towers facility Taipei Tower Tower Guangzhou Tree Dubai
Sydney Seoul Kuala Lumpur (top view) Chicago Moscow Tokyo
Figure 12.10Length of Shell Prelude compared with heights of major structures worldwide
Emerging issues in the LNG industry 395
In May 2001, the GECF109 held its first ministerial meeting in Tehran,
Iran, to enhance cooperation between the major gas producing countries,
including Algeria, Brunei, Iran, Indonesia, Malaysia, Nigeria, Oman,
co.kr/Eng/pr/shipyard01.aspx.
106 Joel Parshall, Shell to Build Worlds First Floating LNG Facility,
Qatar, Russia, Norway and Turkmenistan. Between 2001 and 2008, the
GECF operated as a loose association with seemingly very limited coordi-
nation and without a clear mandate. Although ministerial meetings were
held yearly, the countries participating in the meetings tended to vary,
with little detail about the meetings made public. As an informational
organization without a secretariat, the GECF also received very little
international recognition although many speculated whether the GECF
would operate as a Gas OPEC.110
This speculation continued throughout the early to mid-2000s, with
most analysts concluding that the GECF was unlikely to become
an OPEC-like cartel, for a number of reasons. First, the GECF had
too many members with competing interests such that the ability to
constrain new supply projects in the near term was unlikely. Second,
it was likely to take a decade or more before the GECF members
could collectively assert sustainable monopoly power over the worlds
gas markets, although a swing gas producer such as Qatar or Russia
could potentially influence markets by manipulating supplies. Lastly,
since the worlds natural gas markets were still primarily regional and
lacking a single pricing structure, it would be difficult for any cartel
to significantly influence price.111 In addition to these factors, much
of the early questions regarding the motives of the GECF appeared
to be driven by the fact that since very little official information was
made available by the GECF, its mission and motives were ripe for
speculation.112
110Ronald Soligo and Amy Myers Jaffe, Market Structure in the New Gas
Really a Gas OPEC in the Making?, Oxford Institute for Energy Studies (June
2006); Monika Ehrman, Competition is a Sin: An Evaluation of the Formation and
Effects of a Natural Gas OPEC, 27 Energy L.J. 175 (2006).
112 Hadi Hallouche, The Gas Exporting Countries Forum: Is it Really a Gas
OPEC in the Making?, Oxford Institute for Energy Studies (June 2006).
Emerging issues in the LNG industry 397
for the GECF the Agreement on the functioning of the GECF and the
Statute of the GECF.113
The GECF became operational on October 1, 2009, when five member
countries deposited their ratification instruments: Russia, Qatar, Libya,
the Republic of Trinidad and Tobago, and Algeria. In March 2010, two
more countries joined the GECF Egypt and the Republic of Equatorial
Guinea, followed by Venezuela, Nigeria, Iran and Bolivia.114 In addition
to the 11 regular members, three other countries have observer status at
the GECF Kazakhstan, the Netherlands, and Norway. Together, the 11
members of the GECF control about 70 percent of the worlds natural gas
reserves.115
Since 2008, the GECF has continued to evolve as an organization and
expand its influence in the worlds natural gas markets. These efforts
have been aided by the appointment of the Russian national Leonid
Bokhanovsky as Secretary General in late 2009. In October 2010, the
GECF was invited to participate in the JODI Gas Data Transparency
Conference. JODI stands for the Joint Organisations Data Initiative,
which was first launched for oil in 2001 with the goal of increasing trans-
parency in world oil markets. The initiative was later extended to gas
markets. The JODI Gas Data Transparency Conference invited the GECF
in recognition of its work in establishing a data collection mechanism and
its increased role in joining inter-organizational efforts to enhance gas
data transparency.116 The IEA has also recognized the cooperation of the
GECF in the JODI Gas initiative.117
While not necessarily significant events, these two instances indicate
that the GECF is stepping up to take a more active role in international
dialogue concerning global gas markets. Moreover, these events also
show that other international organizations are beginning to recognize
GECF, to the 12th IEF Ministerial & 4th IEBF, Cancun, Mexico, March 3031, 2010,
available at http://www.ief.org/Events/Documents/CancunPresentationBook.pdf.
114Ibid.
115Gas Exporting Countries Forum, www.gecforum.org.
116 Joint Organisations Data Initiative (JODI), Gas Data Transparency
Head, Energy Statistics Division, The Role of the IEA in Strengthening International
Cooperation, IEA, Paris, April 1314, 2011.
398 Energy for the 21st century
The stated objectives of the GECF are to support the sovereign rights
of member countries over their natural gas resources and their abilities
to independently plan and manage the sustainable, efficient and envi-
ronmentally conscious development, use and conservation of natural gas
resources for the benefit of their peoples.118 These objectives are pro-
moted through the exchange of experience, views and information focused
on the following key goals of the GECF:
Despite the rather benign stated objectives, the GECFs actions and
statements have always been scrutinized for indications of cartel-like
behavior, with some members of the GECF more likely to be willing to try
to influence global gas markets than others. For example, in March 2010,
Russians Prime Minister Vladimir Putin indicated that Russia expects
the GECF to become the gas equivalent of the OPEC oil cartel and an
effective tool for coordinating the international gas industry.120
In April 2010, Algeria proposed that GECF member countries reduce
For the moment, the main goal of the GECF appears to be maintaining
the traditional gasoil parity. Prior to the global economic crisis of 2008,
there was a growing spot trade of LNG largely due to high LNG prices
in Asia and Europe. Following the economic crisis in 200809, oil and
gas demand dropped causing prices to drop as well. For the most part,
201011 was characterized by low natural gas prices and rising oil prices.
This led to a de-linking of the historical gasoil parity of approximately
101 (for example, at $100 per barrel of oil, natural gas should trade at
$10).
Many have questioned whether this de-linking is a trend that is likely to
continue and, if so, whether the traditional oil-linked gas markets Asia
and Europe will seek to renegotiate existing long-term oil-linked con-
tracts or otherwise take advantage of lower spot market prices of natural
gas. The IEA has questioned whether this de-linking is a separation or
a divorce.
121IEA WEO-2010, p.196, The GECF seeks oil price parity and ponders how
to achieve it.
122Gulf Times, Gas Exporters Study Opec for LNG Market Model, Oct. 25,
There is no doubt that the GECF has come of age in the past two years
although it is still not as transparent an organization as many would like.
This may change over time as the organization continues to take shape. In
the meantime, the GECF is increasing its participation as an international
organization in a number of forums and this trend is likely to continue in
the future.
For its part, the US has largely viewed the GECF as an ineffective
organization that is unlikely to significantly affect gas markets. Moreover,
US Congressional analysts have expressed the view that the the current
structure of natural gas markets (that is, long-term contracts and pipe-
lines connecting individual sellers to specific buyers) is not conducive to
supply or price manipulation, and significant changes would need to be
made to how natural gas is bought and sold before the GECF could have
influence.124
For the moment, it thus appears that the GECFs role is merely to
facilitate information sharing and dialogue among the main gas exporters.
The main question, however, is whether the GECF will evolve over time
into an OPEC-like cartel. Although the GECF could seek a more proac-
tive role on market and pricing related issues in the future, its ultimate
ability to operate as a cartel is probably limited by the relative ease with
which other fuels can substitute for natural gas.125 Moreover, a gas cartel
makes less sense than a cartel for oil since gas exports generally require
the construction of capital-intensive pipelines or LNG facilities anchored
More than ever before, LNG has the opportunity to win the race to fuel
the heavy-duty fleets of the 21st century as ships, trains, trucks and buses
search for low-cost, cleaner-burning and abundant fuels. In some areas,
such as shipping, the switch to LNG fuels is largely being driven by the
enforcement of IMO (International Maritime Organization) emission
standards. As the world continues to find new solutions to reduce emis-
sions, LNG as a fuel is likely to gain even wider acceptance in the coming
decades as a fuel for more and more types of vehicles.
Protection Committee, 58th Session, July 28, 2008 (MEPC 58/4/5), Prevention of
Air Pollution from Ships.
127International Maritime Organization (IMO), Air Pollution and Greenhouse
402 Energy for the 21st century
force on May 19, 2005, and a revised Annex VI with tighter emission limits
was adopted in October 2008 and entered into force on July 1, 2010.128
In general, the revised Annex VI sets limits on NOx and SOx emissions
from ship exhausts, and prohibits deliberate emissions of ozone depleting
substances. The IMO emission standards are commonly referred to as
Tiers I, II, and III and the requirements are divided into two categories:
global requirements, and more stringent requirements applicable to ships
in geographically limited Emission Control Areas (ECAs). An ECA can
be designated for SOx, and PM, or for NOx, or for all three types of emis-
sions from ships. The Baltic Sea and the North Sea are already enforced as
ECAs. The US coastlines will be enforced as an ECA starting in 2012 and
other areas are under consideration.129
In order to comply with the new IMO SOx and NOx emission reduction
limits, shipowners currently have three options if they want to continue
sailing in ECAs starting from 2015. They can switch to a low-sulfur fuel,
install an exhaust gas scrubber, or switch to LNG as a shipping fuel.130
While switching to a low-sulfur fuel requires only minor modifications to
the ships fuel system, the availability of low-sulfur fuel is already limited
and rising demand is expected to increase its price. An exhaust gas scrub-
ber can be installed to remove sulfur from the engine exhaust by using
chemicals or saltwater but scrubbers require significant ship alterations.
Moreover, scrubbers also increase power consumption, which leads to an
increase in CO2 emissions.131
Accordingly, the third alternative, to use LNG as a fuel, is emerging as
potentially the best option to meet the new IMO regulations. Since LNG
is a clean-burning fuel, no additional abatement measures are required
in order to meet the ECA requirements for ships fueled with LNG.
2011, http://www.dnv.com/resources/reports/greener_shipping_north_america.asp.
DNV is a global provider of risk management services with the purpose of safe-
guarding life, property and the environment. DNV has done extensive work and
analysis on LNG as a shipping fuel.
130Ibid.
131Ibid.
Emerging issues in the LNG industry 403
132Ibid.
133IMO, Breakthrough at IMO: Adoption of the First Ever Global and Legally
http://www.dnv.com/resources/reports/greener_shipping_north_america.asp.
136DNV, Greener Shipping in the Baltic Sea, June 2010, available at http://www.
dnv.com/industry/maritime/publicationsanddownloads/publications/updates/
lng/2010/01_2010/balticsea.asp.
404 Energy for the 21st century
137Det Norske Veritas (DNV), Greener Shipping in North America, Feb. 2011,
available at http://www.dnv.com/resources/reports/greener_shipping_north_
america.asp.
138Ibid.
139DNV, Greener Shipping in the Baltic Sea, June 2010, http://www.dnv.com/
industry/maritime/publicationsanddownloads/publications/updates/lng/2010/01_
2010/balticsea.asp.
140Ibid.
141Zeus Development Corporation, LNG-Fueled Marine Industry at 48 Ships
and Growing, Zeus Conference to Examine Implications, Dec. 13, 2011, Marketwire,
available at www.marketwire.com. Additional information about the LNG-fueled
shipping industry can be found at Zeus Development Corporation, http://www.
zeusintel.com/WLNGF2012.
142DNV, LNG as Ship Fuel is Gaining Momentum, available at http://www.
dnv.com/press_area/press_releases/2011/lngasshipfuelisgainingmomentum.asp.
Emerging issues in the LNG industry 405
cars, vans, buses, trucks, trains, and even airplanes. Due to the fact that
natural gas has low energy density at atmospheric pressure and tempera-
ture compared to liquid fuels, compression or liquefaction is needed to
reach an acceptable vehicle range. In general, light-duty vehicles, such
as passenger cars, use CNG or are converted gasoline-powered vehicles.
Heavy-duty vehicles (HDVs) require more energy to run and thus tend to
use LNG to maintain an acceptable range.143
Despite the fact that natural gas vehicle (NGV) technology has been
around for a long time and is well established in some countries, world-
wide the use of natural gas in the road transport sector remains negligible
but has the potential to grow in the coming years.144 According to the
IEA, in 2008 there were an estimated 9.6 million NGVs on the roads,
mainly in Pakistan, Argentina, Brazil, India, Iran and Italy. The majority
of NGVs are passenger cars but buses account for more of the consump-
tion.145 In most cases, NGVs were introduced as a means of monetizing
abundant local supplies, but more recently the environmental benefits of
natural gas over gasoline and diesel have increased demand for natural gas
in the transportation sector. This is especially the case in some large cities
throughout the world that have begun to use natural gas for all public
vehicles such as buses.146
Despite the potential environmental benefits of NGVs, expanding the
NGV fleet globally has faced numerous barriers throughout the years.
One barrier is that natural gas must be stored in cylinders on the vehicle,
which reduces overall vehicle storage space. However, the more significant
barrier is the chicken-and-egg problem identified in the section above
regarding LNG as a shipping fuel the absence of an existing fuel distri-
bution network has tended to discourage the uptake of NGVs. For this
reason, public buses and other fleet vehicles have tended to dominate the
use of NGVs. It is possible, however, that more stringent emission stand-
ards could encourage faster deployment of NGVs, especially in countries
with abundant natural gas resources and low prices.147
This is starting to take shape in the United States as a result of the
abundance of low-priced gas resulting from the shale gas revolution in
recent years. The US is a particularly interesting and relevant market
and the legislation would expand the NGV tax incentive to help offset an
NGVs incremental cost, subject to caps depending upon vehicle size.149
According to Clean Energy,150 a leading provider of natural gas fuel for
transportation in North America, the backing by the US Congress is criti-
cal to helping the owners of the approximately eight million heavy-duty
trucks in the US convert from diesel to cleaner-burning, less expensive
natural gas. In some US markets, natural gas is $1.50 per gallon less
expensive than diesel or gasoline, which would significantly reduce costs
for vehicle and fleet owners. Moreover, natural gas could reduce green-
house gas emissions up to 30% in light-duty vehicles and 23% in medium
to heavy-duty vehicles. Lastly, and driven primarily by the increase in
shale gas development, natural gas is a secure North American energy
source with 98% of the natural gas consumed produced in the U.S. and
Canada.151
Aside from the economics and policy support that may be needed to spur
investment in natural gas transportation, other factors are also important
such as having champions major companies in a certain industry who
take the lead will cause others to follow.152 The rise of shale gas in the US
combined with the increased availability of LNG means that natural gas
producers in the US find themselves more and more looking for demand
in an oversupplied market. So, obviously, any new market presenting itself
can certainly count on a healthy interest from gas producers, who can help
to drive NGV market development by either investing directly or actively
supporting lobbying or PR/marketing campaigns.153 This development is
illustrated by a number of recent industry activities.
For example, EnCanas Natural Gas Vehicles Drive Project is convert-
ing several fleet vehicles to natural gas, purchasing natural gas-powered
Honda Civic GX vehicles for employee use and embarking on a consumer-
and industry-focused education campaign about natural gas as a trans-
portation fuel.154 More recently, one of the largest producers of natural
149 Clean Energy Supports 2011 Natural Gas Act, LNG World News,
2011, http://www.lngworldnews.com/usa-clean-energy-supports-2011-nat-gas-act/.
152IEA Working Paper, The Contribution of Natural Gas Vehicles to Sustainable
program-unveiled-by-encana.
408 Energy for the 21st century
155 Ben Casselman, Chesapeake will Invest in Uses for Natural Gas, Wall Street
somewhat skeptical of natural gas vehicle proposals, arguing that while con-
verting from oil to natural gas could provide some environmental benefits, gas
drilling has its own environmental risks. According to a vehicle analyst for the
Natural Resources Defense Council, Improving vehicle efficiency is the cleanest,
fastest and cheapest way to cut our oil consumption and carbon pollution from
transportation.
159See Clarissa Kell-Holland, Could LNG be a Lifeline for Truckers? Land
Line Magazine, March/April 2009, noting that trucking companies are increas-
ingly using LNG to fuel their fleets and that more LNG infrastructure is being
built.
Emerging issues in the LNG industry 409
million in funding for 132 LNG trucks (currently they have 400 LNG
trucks) plus $1 million for two LNG fuel stations.160
In the US, more LNG refueling stations and networks have been
emerging, albeit slowly, over the past few years, with station builder Clean
Energy recently reporting that it currently builds one station per week.161
In terms of LNG infrastructure there are 60 fuel stations, eight production
plants plus landfill LNG sites. The stationary characteristic of the LNG
market is illustrated by the fact that 54 percent of the market consists of
transit buses, 30 percent refuse vehicles, 12 percent port applications and
only 4 percent road use, although the industry expects the latter to grow
substantially in the next few years as it targets the fleet of, in total, three
million trucks in the United States.162
California has a high concentration of LNG and CNG stations, with
many in and around Los Angeles, which converted its refuse trucks fleet to
LNG a few years ago. To illustrate the costs involved, an LNG project for
the city of San Bernardino received $1.7 million in grants, of which $1.23
million was used for the LNG refueling station and $492,000 was used to
purchase 20 LNG trucks.163
While it remains to be seen how many fleets will convert to LNG,
the initial results look promising. For example, in April 2011, the US
Department of Energy (DOE) announced the National Clean Fleets
Partnership, which is a publicprivate effort to help large companies
reduce diesel and gasoline use.164 Each of the partners involved has
already shown a commitment to using clean energy technologies and
reducing petroleum use. For example, Ryder announced it will use hun-
dreds of heavy-duty LNG trucks and build out additional infrastructure,
such as LNG fueling stations and two additional maintenance facilities,
to support them. This project alone is expected to save 1.5 million gallons
of diesel.165
http://energy.gov/articles/fact-sheet-national-clean-fleets-partnership.
165 Six New Corporations Join the National Clean Fleets Partnership, July 7,
traded on July 16, 2012, with the contract settling on the ICIS East Asia Index
(EAX) for physical LNG. The deal was done for September 2012 at $13.90/
MMBtu. Up to this point, there has been a very small over-the-counter swaps
market for LNG, with a limited pool of counterparties and no clearing services,
so this swap could signify more active clearing and broking which could accelerate
liquidity growth in the LNG market in the coming years. Worlds First Cleared
410
Conclusion 411
challenges4 for the global gas industry and there will no doubt be many
more by the time this book is published.
Regardless of the issues that may arise, however, over the past decade
the LNG industry has adapted and evolved to accommodate various
market forces, geopolitical realities and technological advances and there
is no doubt that the industry will continue to seize the opportunities and
meet the challenges of the 21st century.
LNG Swap Trades Settles on ICIS East Asia Index, ICIS Heren, www.icis.com/
energy.
4In May 2012, Argentina announced the seizure and nationalization of a 51
percent stake in Argentinas energy company, YPF SA, from majority stakeholder
Repsol YPF SA. While Repsol has canceled LNG cargoes to Argentina, the ulti-
mate impact on global gas markets remains unclear. Alejandro Lifschitz, Exclusive:
Repsol Cancels LNG Cargoes to Argentina, Reuters, May 18, 2012, http://www.
reuters.com/article/2012/05/18/us-repsol-argentina-idUSBRE84H0SI20120518
(noting that Argentina relies on LNG imports to meet 2030 percent of domestic
natural gas consumption and that Repsol had agreed to supply Argentina with
10 LNG cargoes in 2012). See also Zaida Espana, IEA Says Firms May Avoid
Argentina after YPF Seizure, Reuters, May 11, 2012, http://www.reuters.com/
article/2012/05/11/us-iea-repsol-idUSBRE84A0HO20120511.
APPENDICES
Appendix AWorldwide Liquefaction Plants
Country Location Status No. Liquefaction Liquefaction Storage Storage Owners Start-up
of capacity capacity tanks* capacity year
trains 106 t bcm** m 3* and
per year* train
412
ATLANTIC
BASIN
Algeria Arzew GL 4Z O 3 0.93 1.5 3 33,000 Sonatrach 1964
Algeria Arzew GL 1Z O 6 8.19 11.2 3 300,000 Sonatrach 1978
Algeria Arzew GL 2Z O 6 7.98 10.9 3 300,000 Sonatrach 1981
Algeria Arzew GL 3Z C 1 4.7 6.4 Sonatrach 2012
(Gassi Touil)
Algeria Skikda GL 1K O 3 3.13 4.3 5 308,000 Sonatrach 1972
Algeria Skikda C 1 4.5 6.1 Sonatrach 201213
Angola LNG Soyo C 1 5.2 7.1 360,000 Sonangol, 2012
Chevron, ENI,
Total, BP
Cameroon Kribi A 1 3.5 4.8 Socit 2016
Nationale des
Hydrocarbures
(NOC), GDF
Suez
Egypt (Segas) Damietta O 1 5 6.5 2 300,000 SEGAS 2005
Egypt LNG Idku O 2 7.2 9.8 2 280,000 Egyptian LNG 2005
T1&2 (BG, Petronas,
EGPC, EGAS,
GDF Suez)
Equatorial Bioko Island O 1 3.7 4.6 2 272,000 EG LNG 2007
New Guinea (Marathon,
Mitsui,
Sonagas,
413
Marubeni)
Equatorial EG LNG T2 P 6 EG LNG 2016
New Guinea (Marathon,
GEPetrol.
Mitsui,
Marubeni,
E.On, Union
Fenosa Gas)
Libya Marsa el Brega O 3 0.6 1 2 96,000 Sirte Oil Co. 1970
(NOC)
Libya Mellitah P 5.2 Eni 2016
Nigeria Bonny Island O 3 9.6 3 252,600 Nigeria LNG 1999
(NNPC, Shell, 2000
Total, ENI)
Country Location Status No. Liquefaction Liquefaction Storage Storage Owners Start-up
of capacity capacity tanks* capacity year
trains 106 t bcm** m3* and
per year* train
ATLANTIC
BASIN
Nigeria Bonny Island O 2 8.1 Nigeria LNG 2006
(NNPC, Shell,
Total, ENI)
Nigeria Bonny Island O 1 4 1 84,200 Nigeria LNG 2008
(NNPC, Shell,
Total, ENI)
Nigeria NLNG P 1 8.4 10.9 NNPC, Shell, 20131
414
Train 7 BP, Total
Nigeria Brass LNG P 2 10 13.6 NNPC, ENI, 2014
ConocoPhillips,
Total)
Olokola LNG P 4 20 NNPC, Chevron, 20131
Shell, BG
Norway Hammerfest O 1 4.3 5.6 2 250,000 Snhvit AG 2007
(StatoilHydro,
Total, GDF
Suez, RWE-
DEA, Hess
Trinidad & Atlantic LNG O 1 3.3 4.5 4 520,000 Atlantic LNG 1999
Tobago Point Fortin (BP, BG, GDF
T1 Suez, Repsol,
NGC)
Trinidad & Atlantic LNG O 2 6.6 9 Atlantic LNG 2002
Tobago Point Fortin (BP, BG, Train2
T2 Repsol) 2003
Train 3
Trinidad & Atlantic LNG O 1 5.2 7.1 BP, BG, 2006
Tobago Point Fortin Repsol, NGC Train 4
T3
MIDDLE
EAST
Abu Dhabi Das Island O 3 5.6 7.9 3 240,000 ADGAS 1977
(ADNOC, BP, Trains
Total, Mitsui) 1 and
2 1994
415
Train 3
Oman Qalhat O 2 7.1 9.8 2 240,000 Oman LNG 2000
(Oman govt., Trains 1
Shell, Total, and 2
Korea LNG
Mitsubishi,
Mitsui, Partex,
Itochu)
Oman Qalhat O 1 3.6 4.9 Qalhat LNG 2006
(Oman govt.,
Oman LNG,
Itochu, Mitsub
ishi, Union
Fenosa Gas,
Osaka Gas)
Country Location Status No. Liquefaction Liquefaction Storage Storage Owners Start-up
of capacity capacity tanks* capacity year
trains 106 t bcm** m 3* and
per year* train
MIDDLE
EAST
Qatar Ras Laffan O 2 6.4 4 340,000 Qatargas (QP, 1999
(Qatargas ExxonMobil,
1 -T1&T2 Total,
Marubeni,
Mitsui)
Qatar Ras Laffan O 1 3.1 Ras Laffan 1999
(Qatargas LNG (QP,
416
1 -T3) ExxonMobil,
total,
Marubeni,
Mitsui)
Qatar Ras Laffan O 1 7.8 10.6 8 1,160,000 QP, 2009
(Qatargas ExxonMobil)
2-T4)
Qatar Ras Laffan O 1 7.8 10.6 Qatargas 2009
(Qatargas II (QP,
2-T5) ExxonMobil,
Total)
Qatar Ras Laffan O 1 7.8 10.6 QP, Conoco, 2010
(Qatargas Mitsuil
3-T6)
Qatar Ras Laffan O 1 7.8 10.6 2011
(Qatargas
4-T7)
Qatar Ras Laffan O 2 6.6 9 6 840,000 QP, 1999
(RasGas ExxonMobil, 2000
1 -T1&T2) Kogas, Itochu,
Nissho Iwai,
LNG Japan
Qatar Ras Laffan O 1 4.7 6.4 QP, 2004
(RasGas ExxonMobil
2 -T3)
Qatar Ras Laffan O 1 4.7 6.4 QP, 2005
(RasGas ExxonMobil
2 -T4)
417
Qatar Ras Laffan O 1 4.7 6.4 QP, 2007
(RasGas ExxonMobil
2 -T5)
Qatar Ras Laffan O 1 7.8 10.6 QP, 2009
(RasGas ExxonMobil
3 -T6)
Qatar Ras Laffan O 1 7.8 10.6 QP, 2010
(RasGas ExxonMobil
3 -T7)
Yemen Bal Haf O 2 6.7 9.2 2 140,000 Yemen LNG 2009
(T1&T2) (Total, Yemen Train1
govt., Hunt 2010
Oil, SK, Kogas, Train 2
Hyundai,
GASSP)
Country Location Status No. Liquefaction Liquefaction Storage Storage Owners Start-up
of capacity capacity tanks* capacity year
trains 106 t bcm** m 3* and
per year* train
Pacific
Basin
Australia Withnell Bay, O 4 12.1 4 260,000 Northwest Shelf 1989
WA (Woodside,
Shell, BHP,
BP, Chevron,
Mitsubishi/
Mitsui)
Australia Withnell Bay, O 1 4.3 1 65,000 Woodside, 2008
418
WA Shell, BHP,
BP, Chevron,
Australia Japan
LNG
Australia Darwin LNG O 1 3.4 4.5 1 188,000 Darwin LNG 2006
Wickham (ConocoPhil-
Point, NT lips, ENI,
Santos, Inpex,
TEPCo, Tokyo
Gas)
Australia Pluto LNG C 3 12.9 19.5 Pluto LNG 2012
Burrup (Woodside, Train1
Peninsula, Tokyo Gas, 2013
WA Kansai Electric) Train2
2014
Train 3
Australia Gorgon LNG C 3 15 20.4 Gorgon LNG 2014
Barrow Island (Chevron, Shell,
ExxonMobil,
Tokyo Gas,
Osaka Gas,
Chubu Electric)
Australia Queensland C 2 8.5 11.6 Queensland 2014
Curtis Curtis Curtis LNG Trains 1
Island, (BG, CNOOC and 2
Queensland (T1), Tokyo
Gas (T2)
Australia Gladstone C 2 7.8 10.6 Gladstone 2015
LNG LNG (Santos; Trains 1
Gladstone, Petronas; and 2
419
QLD Kogas; Total)
Australia Wheatstone C 2 8.9 11.7 Wheatstone 2016
LNG LNG (Chevron, Trains 1
Ashburton Shell, Apache and 2
North, WA Julimar,
KUFPEC)
Australia Prelude P 3.6 4.9 Shell 2016
(floating) Development
Browse Basin (Australia)
Proprietary Ltd.
Australia Icthys LNG P 2 8.01 10.9 Inpex (76%); 2016
Blaydi Point, Total (24%) Train1
Darwin 2017
Harbor, NT Train 2
Country Location Status No. Liquefaction Liquefaction Storage Storage Owners Start-up
of capacity capacity tanks* capacity year
trains 106 t bcm** m 3* and
per year* train
Pacific
Basin
Australia Australia P 2 9 Australia 2015
Pacific LNG Pacific LNG, Train1
Curtis Island, Gladstone 2016
QLD (ConocoPhil- Train 2
lips, Origin
Energy, Sinopec
420
Corp.)
Brunei Lumut O 5 7.2 9.8 3 195,000 Brunei LNG 1973
(Brunei
govt., Shell,
Mitsubishi)
Canada Port of P 1 5 6.8 Kitimat LNG 2015
Kitimat, BC (Apache Corp.,
EOG Resources,
Encana)
Indonesia Blang Lancang O 3 4.75 4 508,000 PT Arun 197879
Arun (Pertamina,
ExxonMobil,
JILC)
Indonesia Bontang - O 8 22.2 29.4 6 630,000 PT Badak 197798
Badak (Badak (Pertamina,
A-H) VICO, Total,
JILCO
Indonesia Tangguh O 2 7.6 10.3 2 340,000 Govt Indonesia 2009
Indonesia Masela (Abadi P 1 2.5 Inpex Holdings 2018
field; FLNG) 90%; Energi Train 1
Mega Persada
(PT EMP
Energi) 10%
Indonesia Masela P 1 2 TBA
Train 2
Indonesia Sulawesi C 1 2 Donggi-Senoro 2014
(Mitsubishi, PT
Pertamina, PT
Medco Energi
421
International)
Malaysia Bintulu O 3 8.1 6 445,000 Malaysia 1983
MLNG 1 LNG Sdn Bhd
(Satu) (Petronas, Shell,
Mitsubishi)
Malaysia Bintulu O 3 7.8 Malaysia LNG 1995
MLNG 2 Dua (Petronas,
(Dua) Shell,
Mitsubishi,
Sarawak State
Gvnt)
Malaysia Bintulu O 2 6.8 Malaysia LNG 2003
MLNG 3 Tiga (Petronas,
(Tiga) Shell, Nippon
Country Location Status No. Liquefaction Liquefaction Storage Storage Owners Start-up
of capacity capacity tanks* capacity year
trains 106 t bcm** m 3* and
per year* train
Pacific
Basin
Oil, Diamond
Gas, Sarawak
State Gvnt)
Papua New Port Moresby C 1 6.6 ExxonMobil, 2014
Guinea Oil Search, Train 1
Santos, AGL,
Nippon Oil,
422
Eda Oil, local
interests
Papua New Napa Napa P 2 4 InterOil Corp., 2015
Guinea Pacific LNG Trains 1
Operations and 2
Ltd., Petromin
PNG Holdings
Ltd.
Papua New Papua New P 3 DSME, Hough 2014
Guinea Guinea LNG, Petromin
(floating) LNG
Peru Peru LNG O 1 4.45 2 260,000 Hunt Oil, SK 2010
-Melchorita Corp. Repsol,
Marubeni
Russia Sakhalin 2 O 2 9.6 2 200,000 Sakhalin 2009
Sakhalin Investment
Island Co. (Gazprom,
Shell, Mitsui,
Mitsubishi)
Russia Shtokman P 2 7.5 OAO Gazprom, 20141
LNG Total SA,
Teriberka, Statoil
Murmansk
Russia Yamal P 15 Yamal LNG 20161
LNG South (Novatek 51%,
Tambey, Total 20%)
Yamal
423
Peninsula
US/Alaska Kenai LNG O 2 1.4 3 108,000 ConocoPhillips, 1969
Kenai, Alaska Marathon
US Sabine Pass P 4 18 Cheniere 2015/16
Sabine, LA Energy Trains1
Partners, and 2
Sabine Pass 2017/18
Liquefaction Trains 3
and 4
Notes: * Capacity data from GIIGNL; ** bcm capacity from IEA. O Operation; C Construction; P Proposed; A Announced
Sources: GIIGNL World LNG 2010; IEA MTOGM 2010; O&GJ 2012 LNG World Trade Map
Appendix BLNG Carrier Fleet (as of Nov. 11, 2011)
IMO no. Name LiqCub Blt Blt Mth Subtype Commercial owner
9377547 ASEEM 154,800 2009 11 3J/QGTC/SCI
9307176 AL DEEBEL 145,130 2005 10 3J/QShip
9298399 AL THAKHIRA 145,702 2005 10 3J/QShip
9285952 LUSAIL 145,000 2005 6 3J/QShip
9256200 FUWAIRIT 138,200 2004 1 3J/QShip
9253703 RAAHI 138,076 2004 12 3J/QShip/SCI
9250713 DISHA 136,025 2004 1 3J/QShip/SCI
9334076 EJNAN 145,000 2007 1 4J/Qatar Gas Transport
8013950 WILPOWER 125,929 1983 8 Awilco LNG
8125832 WILGAS 126,975 1984 7 Awilco LNG
424
8014409 WILENERGY 125,542 1983 10 Awilco LNG
9425277 METHANE PATRICIA CAMILA 170,683 2010 10 BG Group
9516129 METHANE BECKI ANNE 170,678 2010 9 BG Group
9520376 METHANE MICKIE HARPER 170,684 2010 12 BG Group
9412880 METHANE JULIA LOUISE 170,723 2010 3 BG Group
9321744 METHANE HEATHER SALLY 145,611 2007 6 BG Group
9321768 METHANE ALISON VICTORIA 145,578 2007 5 BG Group
9307188 METHANE RITA ANDREA 145,644 2006 3 BG Group
9321770 METHANE NILE EAGLE 145,598 2007 12 BG Group
9321756 METHANE SHIRLEY ELISABETH 145,488 2007 3 BG Group
9307190 METHANE JANE ELIZABETH 145,644 2006 6 BG Group
9307205 METHANE LYDON VOLNEY 145,644 2006 8 BG Group
9256793 METHANE KARI ELIN 138,267 2004 6 BG Group
7390181 LNG AQUARIUS 126,750 1977 6 BGT/MOL/LJ
7390167 LNG TAURUS 126,750 1979 8 BGT/MOL/LJ
7413232 LNG LIBRA 126,750 1979 4 BGT/MOL/LJ
7390208 LNG CAPRICORN 126,750 1978 6 BGT/MOL/LJ
7390193 LNG ARIES 126,750 1977 12 BGT/MOL/LJ
9333620 BRITISH DIAMOND 151,945 2008 10 BP
9333606 BRITISH RUBY 151,945 2008 6 BP
9333618 BRITISH SAPPHIRE 151,945 2008 9 BP
9333591 BRITISH EMERALD 151,945 2007 7 BP
9238040 BRITISH INNOVATOR 136,135 2003 2 BP
9250191 BRITISH MERCHANT 138,000 2003 7 BP
9238038 BRITISH TRADER 138,248 2002 11 BP
7347768 BELANAK 75,000 1975 7 FSU Brunei Shell Tankers
9496305 ARKAT 147,000 2011 2 Brunei Shell Tankers
9496317 AMALI 147,000 2011 8 Brunei Shell Tankers
425
9210828 ABADI 136,912 2002 6 Brunei Shell Tankers
7121633 BEBATIK 75,056 1972 10 Brunei Shell Tankers
7347732 BILIS 77,731 1975 4 Brunei Shell Tankers
7359785 BUBUK 77,679 1975 10 Brunei Shell Tankers
9368302 BW GDF SUEZ PARIS 162,400 2009 8 BW Gas
9368314 BW GDF SUEZ BRUSSELS 162,400 2009 6 BW Gas
9230062 BW SUEZ BOSTON 138,059 2003 1 BW Gas
9243148 BW SUEZ EVERETT 138,028 2003 6 BW Gas
9256597 BERGE ARZEW 138,089 2004 7 BW Gas
8210209 KOTO 125,454 1984 1 BW Gas
9269960 LNG LOKOJA 148,471 2006 11 BW Gas/Marubeni
9311567 LNG KANO 148,565 2007 1 BW Gas/Marubeni
9311579 LNG ONDO 148,478 2007 9 BW Gas/Marubeni
9311581 LNG IMO 148,399 2008 6 BW Gas/Marubeni
IMO no. Name LiqCub Blt Blt Mth Subtype Commercial owner
9267003 LNG OYO 145,842 2005 12 BW Gas/Marubeni
9266994 LNG ENUGU 145,926 2005 11 BW Gas/Marubeni
9266982 LNG RIVER ORASHI 145,914 2004 12 BW Gas/Marubeni
9267015 LNG BENUE 145,952 2006 3 BW Gas/Marubeni
9275359 MUSCAT LNG 145,000 2004 4 Cardiff Marine
7229447 ISABELLA 35,491 1975 4 Chemikalien Seetransport
7328243 ANNABELLA 35,491 1975 Chemikalien Seetransport
9369473 DAPENG STAR 147,210 2009 11 China LNG Shipping
9305128 MIN LU 147,210 2009 8 China LNG Shipping
9308479 DAPENG SUN 147,210 2008 4 China LNG Shipping
9308481 DAPENG MOON 147,210 2008 7 China LNG Shipping
9305116 MIN RONG 147,210 2009 2 China LNG Shipping
SHINJU MARU No. 2
426
9433884 2,536 2008 10 Chuo Kaiun
7357452 METHANIA 131,235 1978 10 Distrigas
9323687 CLEAN ENERGY 149,700 2007 3 Dynagas
9315692 CLEAN POWER 149,700 2007 7 Dynagas
9317999 CLEAN FORCE 149,700 2007 11 Dynagas
9433717 CASTILLO DE SANTISTEBAN 173,600 2010 8 Elcano
9236418 CASTILLO DE VILLALBA 138,000 2003 10 Elcano
9064085 LNG LERICI 63,957 1998 3 ENI
9064073 LNG PORTOVENERE 63,993 1997 4 ENI
6905616 LNG PALMARIA 39,691 1969 10 ENI
6928632 LNG ELBA 39,795 1970 6 ENI
9389643 EXPEDIENT 150,900 2010 4 REGAS Excelerate
9444649 EXEMPLAR 150,900 2010 9 REGAS Excelerate
9381134 EXQUISITE 150,900 2009 10 REGAS Excelerate
9252539 EXCELLENCE 138,120 2005 4 REGAS Excelerate
9239616 EXCELSIOR 138,074 2005 1 REGAS Exmar
9230050 EXCALIBUR 138,034 2002 10 Exmar
9361079 EXPLORER 150,981 2008 4 REGAS Exmar/Excelerate
9361445 EXPRESS 150,900 2009 4 REGAS Exmar/Excelerate
9322255 EXCELERATE 138,074 2006 10 REGAS Exmar/Excelerate
9246621 EXCEL 138,134 2003 9 Exmar/Mitsui OSK
9352860 GASLOG SAVANNAH 154,984 2010 5 GasLog
9355604 GASLOG SINGAPORE 155,006 2010 7 GasLog
9306495 PROVALYS 154,472 2006 11 GDF Suez
7391214 MATTHEW 126,540 1979 6 GDF Suez
9269207 GDF SUEZ GLOBAL ENERGY 74,130 2004 11 GDF Suez
7390179 LNG VIRGO 126,750 1979 12 General Dynamics
7390143 LNG GEMINI 126,750 1976 9 General Dynamics
7390155 LNG LEO 126,750 1978 12 General Dynamics
427
9256614 GOLAR WINTER 138,250 2004 3 FSRU Golar LNG
7373327 GOLAR SPIRIT 129,013 1981 9 FSRU Golar LNG
7382744 LNG KHANNUR 125,003 1977 7 FSRU Golar LNG
7361922 GOLAR FREEZE 125,858 1977 2 FSRU Golar LNG
9303560 GOLAR GRAND 145,700 2006 1 Golar LNG
9320374 GOLAR MARIA 145,700 2006 6 Golar LNG
9256767 GOLAR VIKING 140,207 2005 1 Golar LNG
9253715 METHANE PRINCESS 138,000 2003 8 Golar LNG
9165011 GOLAR MAZO 135,225 1999 12 Golar LNG
9253105 GOLAR ARCTIC 138,538 2003 12 Golar LNG
7382720 HILLI 124,890 1975 12 Golar LNG
7382732 GIMI 124,872 1976 12 Golar LNG
7361934 GANDRIA 125,904 1977 10 Golar LNG/Bluewater
Energy
IMO no. Name LiqCub Blt Blt Mth Subtype Commercial owner
9155078 HANJIN MUSCAT 138,366 1999 7 Hanjin Shipping
9176010 HANJIN SUR 138,333 2000 1 Hanjin Shipping
9176008 HANJIN RAS LAFFAN 138,214 2000 7 Hanjin Shipping
9061928 HANJIN PYEONG TAEK 138,366 1995 9 Hanjin Shipping
8706155 EKAPUTRA 136,400 1989 1 Humpuss Trans
9060534 SURYA AKI 19,538 1996 3 Humpuss Trans
7411961 RAMDANE ABANE 126,190 1981 7 Hyproc
7400704 MOURAD DIDOUCHE 126,130 1980 12 Hyproc
7400663 LARBI BEN MHIDI 129,767 1977 6 Hyproc
7359955 MOSTEFA BEN BOULAID 125,260 1976 8 Hyproc
7400675 BACHIR CHIHANI 129,767 1979 2 Hyproc
9372999 HYUNDAI ECOPIA 145,000 2008 11 Hyundai Merchant Marine
428
9155157 HYUNDAI COSMOPIA 137,415 2000 1 Hyundai Merchant Marine
9155145 HYUNDAI TECHNOPIA 137,415 1999 7 Hyundai Merchant Marine
9179581 HYUNDAI AQUAPIA 137,415 2000 3 Hyundai Merchant Marine
9183269 HYUNDAI OCEANPIA 137,415 2000 7 Hyundai Merchant Marine
9018555 HYUNDAI UTOPIA 125,182 1994 6 Hyundai Merchant Marine
9075333 HYUNDAI GREENPIA 125,000 1996 11 Hyundai Merchant Marine
9317200 NORTH PIONEER 2,513 2005 11 Iino Gas Transport
9247194 SK SUNRISE 138,270 2003 10 Iino/Itochu
9360790 AL ORAIQ 210,000 2008 6 J5/Qatar Gas Transport
9360829 UMM AL AMAD 210,100 2008 9 J5/Qatar Gas Transport
9360817 FRAIHA 210,000 2008 8 J5/Qatar Gas Transport
9360805 MURWAB 210,100 2008 6 J5/Qatar Gas Transport
9360843 AL THUMAMA 216,200 2008 4 J5/Qatar Gas Transport
9360855 AL SAHLA 216,200 2008 6 J5/Qatar Gas Transport
9360867 AL UTOURIYA 216,200 2008 9 J5/Qatar Gas Transport
9338266 AL AAMRIYA 210,000 2008 5 J5/Qatar Gas Transport
9330745 NEVA RIVER 145,394 2007 12 K Line
9355379 TANGGUH PALUNG 154,810 2009 3 K Line/Meratus
9349007 TANGGUH FOJA 154,810 2008 11 K Line/Meratus
9349019 TANGGUH JAYA 154,967 2008 12 K Line/Meratus
9276389 ARCTIC DISCOVERER 142,612 2006 2 K Line/Mitsui & Co.
9275335 ARCTIC VOYAGER 142,759 2006 7 K Line/Mitsui & Co.
9350927 TRINITY GLORY 154,200 2009 3 K Line/Mitsui & Co./Shoei
9329291 LNG EBISU 145,000 2008 9 Kansai Electric/Mitsui
OSK/Iino Kaiun
9351971 PACIFIC ENLIGHTEN 145,000 2009 3 KE/Tepco/NYK/MOL/MC
9401295 BARCELONA KNUTSEN 173,400 2010 4 Knutsen O.A.S. Shipping
9477593 RIBERA DEL DUERO KNUTSEN 173,400 2010 11 Knutsen O.A.S. Shipping
429
9434266 VALENCIA KNUTSEN 173,400 2010 8 Knutsen O.A.S. Shipping
9414632 SEVILLA KNUTSEN 173,400 2010 6 Knutsen O.A.S. Shipping
9338797 SESTAO KNUTSEN 138,000 2007 11 Knutsen O.A.S. Shipping
9326603 IBERICA KNUTSEN 138,000 2006 8 Knutsen O.A.S. Shipping
9246578 CADIZ KNUTSEN 138,826 2004 6 Knutsen O.A.S. Shipping
9236432 BILBAO KNUTSEN 138,000 2004 2 Knutsen O.A.S. Shipping
9275074 PIONEER KNUTSEN 1,100 2004 3 Knutsen O.A.S. Shipping
9373010 K. MUGUNGWHA 151,812 2008 10 Korea Line
9373008 K JASMINE 151,800 2008 5 Korea Line
9157636 K ACACIA 138,017 2000 1 Korea Line
9186584 K FREESIA 138,015 2000 6 Korea Line
7428433 TENAGA EMPAT 128,354 1981 3 FSU MISC
9331660 SERI BALHAF 157,720 2009 1 MISC
9331672 SERI BALQIS 157,610 2009 3 MISC
IMO no. Name LiqCub Blt Blt Mth Subtype Commercial owner
9331658 SERI BIJAKSANA 152,900 2008 4 MISC
9331646 SERI BEGAWAN 152,900 2008 1 MISC
9321665 SERI ANGKASA 145,130 2006 12 MISC
9293844 SERI AMANAH 145,709 2006 3 MISC
9321653 SERI ANGGUN 145,731 2006 11 MISC
9261205 PUTERI MUTIARA SATU 137,595 2005 4 MISC
9248502 PUTERI FIRUS SATU 137,489 2004 8 MISC
9211872 PUTERI DELIMA SATU 137,489 2003 10 MISC
9245031 PUTERI ZAMRUD SATU 137,100 2004 1 MISC
9229647 PUTERI NILAM SATU 137,489 2003 9 MISC
9213416 PUTERI INTAN SATU 137,489 2002 8 MISC
9030838 PUTERI ZAMRUD 130,358 1996 7 MISC
PUTERI DELIMA
430
9030814 130,405 1994 12 MISC
9030826 PUTERI NILAM 130,405 1995 7 MISC
9030840 PUTERI FIRUS 130,358 1997 5 MISC
9030802 PUTERI INTAN 130,405 1994 7 MISC
9331634 SERI BAKTI 152,944 2007 6 MISC
9329679 SERI AYU 145,894 2007 10 MISC
9293832 SERI ALAM 145,572 2005 9 MISC
7428445 TENAGA LIMA 130,000 1981 3 MISC
7428471 TENAGA TIGA 130,000 1982 1 MISC
7428457 TENAGA SATU 130,000 1979 2 MISC
7428469 TENAGA DUA 130,000 1981 8 MISC
9320386 SIMAISMA 145,700 2006 7 Maran Gas Maritime
9331048 MARAN GAS CORONIS 145,700 2007 7 Maran Gas Maritime
9302499 RASGAS ASCLEPIUS 142,906 2005 6 Maran Gas Maritime
9324435 AL JASSASIYA 145,700 2007 5 Maran Gas Maritime
9308431 UMM BAB 142,891 2005 11 Maran Gas Maritime
9016492 AMAN BINTULU 18,927 1993 10 MISC/NYK
9134323 AMAN SENDAI 18,928 1997 5 MISC/NYK
9161510 AMAN HAKATA 18,942 1998 11 MISC/NYK
9274226 ENERGY PROGRESS 147,558 2006 11 Mitsui O.S.K.
9256602 LNG PIONEER 138,121 2005 7 Mitsui O.S.K.
8125868 WAKABA MARU 127,209 1985 4 Mitsui O.S.K.
9187356 SURYA SATSUMA 23,096 2000 10 Mitsui O.S.K.
9385673 GDF SUEZ NEPTUNE 145,130 2009 11 REGAS Mitsui OSK/Hoegh LNG
9390680 GDF SUEZ CAPE ANN 145,130 2010 6 REGAS Mitsui OSK/Hoegh LNG
9271248 ARCTIC PRINCESS 147,835 2005 1 Mitsui OSK/Hoegh LNG
9284192 ARCTIC LADY 147,208 2006 4 Mitsui OSK/Hoegh LNG
7320344 NORMAN LADY 87,994 1973 Mitsui OSK/Hoegh LNG
9349942 SUN ARROWS 19,176 2007 11 MOL/Hiroshima Gas
431
9361639 BEN BADIS 177,300 2010 11 MOL/Itochu
9360922 ABDELKADER 177,000 2010 2 MOL/Itochu
9275347 LALLA FATMA NSOUMER 145,445 2004 10 MOL/Itochu/Sonatrach/
Hyproc
9324344 CHEIKH BOUAMAMA 75,558 2008 7 MOL/Itochu/Sonatrach/
Hyproc
9324332 CHEIKH EL MOKRANI 75,759 2007 6 MOL/Itochu/Sonatrach/
Hyproc
9085649 AL ZUBARAH 137,573 1996 12 MOL/NYK/K Line/Iino
9132741 AL BIDDA 135,279 1999 11 MOL/NYK/K Line/Iino
9086734 AL RAYYAN 135,358 1997 3 MOL/NYK/K Line/Iino
9085625 AL WAJBAH 137,308 1997 5 MOL/NYK/K Line/Iino
9085651 BROOG 137,529 1998 5 MOL/NYK/K Line/Iino
9085637 DOHA 137,262 1999 6 MOL/NYK/K Line/Iino
IMO no. Name LiqCub Blt Blt Mth Subtype Commercial owner
9132818 ZEKREET 137,482 1998 12 MOL/NYK/K Line/Iino
9086746 AL WAKRAH 137,568 1998 12 MOL/NYK/K Line/Iino
9132791 AL JASRA 135,169 2000 7 MOL/NYK/K Line/Iino
9085613 AL KHOR 137,354 1996 12 MOL/NYK/K Line/Iino
9338929 GRAND MEREYA 145,963 2008 10 MOL/Primorsk
9375721 GDF SUEZ POINT FORTIN 154,914 2010 2 MOL/Sumitomo/LNG
Japan
9315719 GRACE BARLERIA 149,700 2007 9 NYK
9322803 LNG BORNO 149,600 2007 9 NYK
9322815 LNG OGUN 149,600 2007 6 NYK
9074640 AL HAMRA 137,000 1996 12 National Gas Shipping
(NGSCO)
MUBARAZ
432
9074626 135,000 1996 1 National Gas Shipping
(NGSCO)
9074638 MRAWEH 135,000 1996 5 National Gas Shipping
(NGSCO)
9074652 UMM AL ASHTAN 137,000 1997 5 National Gas Shipping
(NGSCO)
9035852 SHAHAMAH 135,496 1994 10 National Gas Shipping
(NGSCO)
9038452 GHASHA 137,514 1995 6 National Gas Shipping
(NGSCO)
9035864 ISH 137,512 1995 11 National Gas Shipping
(NGSCO)
9038440 AL KHAZNAH 135,496 1994 5 National Gas Shipping
(NGSCO)
7708948 LNG BONNY 132,588 1981 12 Nigeria LNG
9241267 LNG BAYELSA 137,500 2003 2 Nigeria LNG
9216298 LNG RIVERS 137,500 2002 6 Nigeria LNG
9216303 LNG SOKOTO 137,425 2002 8 Nigeria LNG
9262211 LNG ADAMAWA 138,437 2005 6 Nigeria LNG
9262209 LNG AKWA IBOM 141,500 2004 11 Nigeria LNG
9262223 LNG CROSS RIVER 141,000 2005 9 Nigeria LNG
9262235 LNG RIVER NIGER 141,000 2006 6 Nigeria LNG
7360124 LNG LAGOS 122,255 1976 12 Nigeria LNG
7619587 LNG EDO 126,530 1980 5 Nigeria LNG
7702401 LNG FINIMA 132,588 1984 1 Nigeria LNG
7619575 LNG ABUJA 126,530 1980 9 Nigeria LNG
7360136 LNG PORT HARCOURT 122,255 1977 10 Nigeria LNG
9260603 SHINJU MARU No. 1 2,513 2003 7 NS United Kaiun Kaisha
9250725 NORTHWEST SWAN 140,500 2004 4 NWS LNG Shipping
433
8913174 NORTHWEST SEAEAGLE 125,541 1992 11 NWS LNG Shipping
9045132 NORTHWEST STORMPETREL 125,525 1994 12 NWS LNG Shipping
8608872 NORTHWEST SANDERLING 127,525 1989 4 NWS LNG Shipping
8608705 NORTHWEST SHEARWATER 127,500 1991 9 NWS LNG Shipping
8913150 NORTHWEST SANDPIPER 125,042 1993 2 NWS LNG Shipping
8608884 NORTHWEST SNIPE 127,747 1990 10 NWS LNG Shipping
9320075 GASELYS 154,472 2007 3 NYK/GDF Suez
9323675 GRACE COSMOS 141,000 2008 3 NYK/MBK
9315707 GRACE ACACIA 149,700 2007 2 NYK/MBK
9475208 SOYO 160,000 2011 8 NYK/MBK/Teekay
9490959 MALANJE 160,000 2011 9 NYK/MBK/Teekay
9490961 LOBITO 160,000 2011 10 NYK/MBK/Teekay
9403657 TAITAR No. 4 145,333 2010 10 NYK/Mitsu & Co./CPC
9403645 TAITAR No. 2 147,000 2009 12 NYK/Mitsu & Co./CPC
IMO no. Name LiqCub Blt Blt Mth Subtype Commercial owner
9403671 TAITAR No. 3 145,000 2010 1 NYK/Mitsu & Co./CPC
9403669 TAITAR No. 1 145,000 2009 9 NYK/Mitsu & Co./CPC
9043677 DWIPUTRA 127,386 1994 3 NYK/MOL
8014473 SENSHU MARU 127,167 1984 2 NYK/MOL/K Line
8702941 LNG SWIFT 127,580 1989 8 NYK/MOL/K Line
8110203 ECHIGO MARU 125,568 1983 8 NYK/MOL/K Line
8701791 NORTHWEST SWALLOW 127,544 1989 11 NYK/MOL/K Line
9265500 DUKHAN 137,661 2004 10 NYK/MOL/KL/MBK/
Qatar Shipping
9020766 LNG VESTA 127,547 1994 6 NYK/MOL/KL/OG/TG/
THG
9006681 LNG FLORA 127,705 1993 3 NYK/MOL/KL/OG/TG/
434
THG
9483877 ENERGY HORIZON 177,000 2011 9 NYK/Tokyo Gas
9405588 ENERGY CONFIDENCE 153,000 2009 5 NYK/Tokyo Gas
9200316 LNG JAMAL 133,333 2000 10 OG/NYK/MOL/KLine
9253284 GOLAR FROST 138,830 2004 6 FSRU OLT
9326689 IBRA LNG 148,176 2006 8 Oman Shipping
9300817 SALALAH LNG 145,000 2005 12 Oman Shipping
9294264 NIZWA LNG 145,469 2005 12 Oman Shipping
9317315 IBRI LNG 145,173 2006 7 Oman Shipping
9210816 SOHAR LNG 137,248 2001 10 Oman Shipping
9341689 LNG JUPITER 155,999 2009 6 Osaka Gas/NYK
9341299 LNG BARKA 153,643 2008 12 Osaka Gas/NYK
9277620 LNG DREAM 145,254 2006 9 Osaka Gas/NYK
9337743 AL HAMLA 216,200 2008 2 OSG/QGTC
9337705 AL GATTARA 216,280 2007 11 OSG/QGTC
9337731 TEMBEK 216,200 2007 11 OSG/QGTC
9337717 AL GHARRAFA 216,200 2007 1 OSG/QGTC
9337975 DUHAIL 210,000 2008 1 Pronav/QGTC
9337963 AL SAFLIYA 210,000 2007 10 Pronav/QGTC
9337987 AL GHARIYA 210,000 2008 1 Pronav/QGTC
9337951 AL RUWAIS 210,000 2007 10 Pronav/QGTC
9388819 LIJMILIYA 261,700 2008 12 QGTC
9372743 AL GHUWAIRIYA 261,700 2008 12 QGTC
9388821 AL SAMRIYA 261,700 2009 2 QGTC
9397315 AL MAFYAR 266,000 2009 4 QGTC
9397298 AL MAYEDA 266,000 2009 3 QGTC
9443413 RASHEEDA 266,276 2010 8 QGTC
9397303 MEKAINES 266,000 2009 3 QGTC
9443683 AL DAFNA 266,000 2009 9 QGTC
435
9388833 BU SAMRA 266,000 2008 12 QGTC
9337755 MOZAH 266,000 2008 9 QGTC
9372731 UMM SLAL 266,000 2008 11 QGTC
9443401 AAMIRA 266,237 2010 4 QGTC
9418365 SHAGRA 266,000 2009 11 QGTC
9431214 ZARGA 266,433 2010 3 QGTC
9431123 AL KARAANA 210,100 2009 10 QGTC
9360831 AL SHEEHANIYA 210,100 2009 2 QGTC
9431147 AL BAHIYA 210,100 2010 1 QGTC
9431111 AL KHATTIYA 210,100 2009 7 QGTC
9397353 ONAIZA 210,100 2009 3 QGTC
9397341 AL SADD 210,100 2009 3 QGTC
9431135 AL NUAMAN 210,100 2009 10 QGTC
9397286 AL GHASHAMIYA 266,000 2009 4 QGTC
IMO no. Name LiqCub Blt Blt Mth Subtype Commercial owner
9397339 AL REKAYYAT 216,200 2009 6 QGTC
9337729 MESAIMEER 216,200 2009 3 QGTC
9397327 AL KHARAITIYAT 216,200 2009 6 QGTC
7391197 LNG DELTA 124,014 1978 5 Shell
9253222 GEMMATA 135,269 2004 1 Shell
9236626 GALLINA 135,269 2002 12 Shell
9236614 GALEA 135,269 2002 9 Shell
7391202 GALEOMMA 124,014 1978 12 Shell
9319404 TRINITY ARROW 154,982 2008 3 Shoei
9157624 SK SUMMIT 135,244 1999 8 SK Shipping
9180231 SK SPLENDOR 135,603 2000 3 SK Shipping
9180243 SK STELLAR 138,540 2000 12 SK Shipping
SK SUPREME
436
9157739 135,490 2000 1 SK Shipping
9038816 Y. K. SOVEREIGN 127,125 1994 12 SK Shipping
9468437 NORGAS UNIKUM 12,000 2011 6 Skaugen I.M.
9468449 BAHRAIN VISION 12,000 2011 10 Skaugen I.M.
9378278 NORGAS INNOVATION 10,000 2010 1 Skaugen I.M.
9378292 NORGAS INVENTION 10,000 2011 1 Skaugen I.M.
9378280 NORGAS CREATION 10,000 2010 8 Skaugen I.M.
9482299 SONANGOL ETOSHA 160,500 2011 11 SONANGOL
9475600 SONANGOL SAMBIZANGA 160,500 2011 10 SONANGOL
6910702 SCF ARCTIC 71,651 1969 Sovcomflot
6901892 SCF POLAR 71,650 1969 9 Sovcomflot
9325893 TANGGUH TOWUTI 145,700 2008 10 Sovcomflot/NYK
9334284 TANGGUH BATUR 145,700 2008 12 Sovcomflot/NYK
9338955 GRAND ANIVA 145,000 2008 1 Sovcomflot/NYK
9332054 GRAND ELENA 145,580 2007 10 Sovcomflot/NYK
9383900 STENA CRYSTAL SKY 171,800 2011 5 Stena
9413327 STENA CLEAR SKY 171,800 2011 5 Stena
9315393 STENA BLUE SKY 145,700 2006 6 Stena
9372963 STX KOLT 145,700 2008 11 STX Pan Ocean
9390185 STX FRONTIER 153,000 2010 4 STX Pan Ocean
9361990 TANGGUH SAGO 155,000 2009 3 Teekay
9230048 HISPANIA SPIRIT 138,517 2002 8 Teekay
9333632 TANGGUH HIRI 155,000 2008 11 Teekay
9247364 GALICIA SPIRIT 140,624 2004 7 Teekay
9259276 MADRID SPIRIT 138,000 2004 12 Teekay
9236420 CATALUNYA SPIRIT 138,000 2003 8 Teekay
9001784 ARCTIC SPIRIT 89,089 1993 12 Teekay
9001772 POLAR SPIRIT 88,996 1993 6 Teekay
9342487 MAERSK MAGELLAN 165,500 2009 3 Teekay LNG Partners
437
9339260 MAERSK ARWA 165,500 2008 9 Teekay LNG Partners
9336737 MAERSK METHANE 165,500 2008 2 Teekay LNG Partners
9336749 MAERSK MARIB 165,500 2008 5 Teekay LNG Partners
9369899 WOODSIDE DONALDSON 165,500 2009 10 Teekay LNG Partners
9369904 MAERSK MERIDIAN 165,500 2010 1 Teekay LNG Partners
9321732 MAERSK QATAR 145,130 2006 4 Teekay LNG Partners
9255854 MAERSK RAS LAFFAN 138,270 2004 3 Teekay LNG Partners
9360893 AL SHAMAL 217,000 2008 6 Teekay/QGTC
9360908 AL KHUWAIR 217,000 2008 6 Teekay/QGTC
9360879 AL HUWAILA 217,000 2008 5 Teekay/QGTC
9360881 AL KHARSAAH 217,000 2008 6 Teekay/QGTC
9325697 AL AREESH 151,700 2007 1 Teekay/QGTC
9325702 AL DAAYEN 151,700 2007 3 Teekay/QGTC
9325685 AL MARROUNA 151,816 2006 9 Teekay/QGTC
IMO no. Name LiqCub Blt Blt Mth Subtype Commercial owner
9247962 PACIFIC NOTUS 137,006 2003 9 Tokyo Electric/NYK/
Mitsubishi Corp
9343106 ALTO ACRUX 147,798 2008 3 Tokyo Electric/NYK/
Mitsubishi Corp
9376294 CYGNUS PASSAGE 145,000 2009 1 Tokyo Electric/NYK/
Mitsubishi Corp
9264910 PACIFIC EURUS 135,000 2006 3 Tokyo Electric/NYK/
Mitsubishi Corp
9269180 ENERGY ADVANCE 147,624 2005 3 Tokyo Gas
9355264 ENERGY NAVIGATOR 147,558 2008 6 Tokyo LNG/Mitsui OSK
9245720 ENERGY FRONTIER 147,599 2003 9 Tokyo LNG/Mitsui OSK
9324277 NEO ENERGY 146,735 2007 2 Tsakos
KAKUREI MARU
438
9469235 2,512 2008 11 Tsurumi Sunmarine
7359670 TRANSGAS 129,323 1977 12 Unknown
9404584 CORAL METHANE 7,350 2009 4 Veder A.
Under Construction
9486738 STX JINHAE 5003 160,000 2015 4 Anangel Shipping Ent.
9486740 STX JINHAE 5004 160,000 2015 4 Anangel Shipping Ent.
9627966 DAEWOO 2290 160,500 2014 2 Awilco LNG
9627954 DAEWOO 2289 160,500 2013 9 Awilco LNG
9645970 HYUNDAI 2580 155,000 2013 9 BW Gas
9640437 HYUNDAI 2571 155,000 2014 11 BW Gas
9640645 HYUNDAI 2572 155,000 2015 3 BW Gas
9636711 DAEWOO 2297 159,000 2014 3 Cardiff Marine
9636735 DAEWOO 2400 159,000 2014 7 Cardiff Marine
9636747 DAEWOO 2401 159,000 2014 9 Cardiff Marine
9636723 DAEWOO 2298 159,000 2014 5 Cardiff Marine
9610779 SAMSUNG 1942 160,000 2015 5 Chevron
9610767 SAMSUNG 1941 160,000 2015 2 Chevron
9606950 SAMSUNG 1921 154,800 2013 12 Chevron
9606948 SAMSUNG 1920 154,800 2013 10 Chevron
9583677 SHEN HAI 147,210 2012 11 China LNG Shipping
9629586 HYUNDAI 2556 155,000 2013 7 Dynagas
9637492 HYUNDAI 2558 155,000 2014 3 Dynagas
9629598 HYUNDAI 2557 155,000 2013 10 Dynagas
9637507 HYUNDAI 2565 155,000 2014 8 Dynagas
9638525 DAEWOO 2402 173,400 2014 5 FSRU Excelerate
9480356 SAMSUNG 1839 220,000 2012 4 FLNG FLEX LNG
9438107 SAMSUNG 1762 220,000 2014 11 FLNG FLEX LNG
9514573 SAMSUNG 1850 220,000 2012 9 FLNG FLEX LNG
439
9438092 SAMSUNG 1761 220,000 2013 9 FLNG FLEX LNG
9638915 SAMSUNG 2044 155,000 2014 10 GasLog
9634098 SAMSUNG 2042 155,000 2014 3 GasLog
9600528 SAMSUNG 1946 155,000 2013 3 GasLog
9626285 SAMSUNG 2017 155,000 2013 7 GasLog
9634086 SAMSUNG 2041 155,000 2013 12 GasLog
9600530 SAMSUNG 1947 155,000 2013 6 GasLog
9638903 SAMSUNG 2043 155,000 2014 6 GasLog
9626273 SAMSUNG 2016 155,000 2013 5 GasLog
9637765 SAMSUNG 170,000 2013 9 REGAS Golar LNG
9626027 SAMSUNG 2026 160,000 2014 4 Golar LNG
9635315 SAMSUNG 2047 160,000 2014 7 Golar LNG
9624926 SAMSUNG 2022 160,000 2013 7 Golar LNG
9624940 SAMSUNG 2024 160,000 2014 1 Golar LNG
IMO no. Name LiqCub Blt Blt Mth Subtype Commercial owner
Under Construction
9637325 SAMSUNG 2048 160,000 2014 9 Golar LNG
9624914 SAMSUNG 2021 160,000 2013 4 Golar LNG
9624938 SAMSUNG 2023 160,000 2013 10 Golar LNG
9626039 SAMSUNG 2027 160,000 2014 8 Golar LNG
9629536 HYUNDAI ULSAN 2549 170,000 2014 2 FSRU Hoegh L. & Co.
9629524 HYUNDAI ULSAN 2548 170,000 2013 12 FSRU Hoegh L. & Co.
9627497 DAEWOO 2291 156,000 2014 6 Maran Gas Maritime
9633173 DAEWOO 2296 156,000 2013 12 Maran Gas Maritime
440
9627502 DAEWOO 2292 156,000 2015 6 Maran Gas Maritime
9633161 DAEWOO 2295 156,000 2013 10 Maran Gas Maritime
9627485 DAEWOO 2288 156,000 2013 6 Maran Gas Maritime
9633434 HYUNDAI SAMHO S625 156,000 2014 4 Maran Gas Maritime
9633422 HYUNDAI SAMHO S624 156,000 2013 12 Maran Gas Maritime
9613161 HUDONG ZHONGHUA 170,000 2016 4 Mitsui O.S.K.
9613135 HUDONG ZHONGHUA 170,000 2014 5 Mitsui O.S.K.
9613159 HUDONG ZHONGHUA 170,000 2015 9 Mitsui O.S.K.
9613147 HUDONG ZHONGHUA 170,000 2015 1 Mitsui O.S.K.
9645736 MITSUBISHI NAGASAKI 153,000 2014 4 Mitsui O.S.K.
9645748 MITSUBISHI NAGASAKI 153,000 2015 2 Mitsui O.S.K.
9540716 KAWASAKI 1665 177,000 2013 1 NYK
9607760 MITSUBISHI NAGASAKI 145,000 2013 6 NYK
9621077 MITSUBISHI NAGASAKI 2289 145,400 2014 2 NYK
9491812 CUBAL 160,000 2012 1 NYK/MBK/Teekay
9468451 DINGHENG JIANGSU 2007-003 12,000 2012 2 Skaugen I.M.
9468463 DINGHENG JIANGSU 2007-004 12,000 2012 6 Skaugen I.M.
9378307 NORGAS CONCEPTION 10,000 2011 11 Skaugen I.M.
9482304 SONANGOL BENGUELA 160,500 2011 12 SONANGOL
441
9630004 STX JINHAE 1910 170,200 2013 8 Sovcomflot
9630028 STX JINHAE 1911 170,200 2014 3 Sovcomflot
9644421 DAEWOO 171,800 2015 2 Stena
9644419 DAEWOO 171,800 2014 2 Stena
9636785 SAMSUNG 2045 160,000 2013 12 Thenamaris
9636797 SAMSUNG 2046 160,000 2014 3 Thenamaris
9640023 SAMSUNG 2049 160,000 2014 7 Thenamaris
9617698 MEYER WERFT 665 15,000 2012 12 Veder A.
Source: EA Gibson
Appendix CWorldwide LNG Regasification Terminals
Location/site/ No. of Total No. of Nominal Capacity, Status Start- Principal owner
project storage storage vaporizers send-out million up year
tanks capacity (excluding capacity tpy*
in cm back-up in NG
(liq) capacity) bcm/y
France Fos-sur-Mer 3 150,000 15 5.5 5.1 O 1972 Elengy (GDF
(Fos Tonkin) Suez)
Montoir de 3 360,000 11 10 7.5 O 1980 Elengy (GDF
Bretagne Suez)
Montoir de 1.8 C 2015
Bretagne
442
expansion
Fos-Cavaou 3 330,000 4 8.25 6.0 O 2009 Socit du
2010 Terminal
Methanier Fos
Cavaou (GDF
Suez, Total SA)
Antifer, 6.5 A 2015 Gaz de
La Havre Normandie
(Poweo 73%;
CIM SNC
27%)
Dunkerque 5.8 C 2015 EDF 65%;
Fluxys 25%;
Total 10%
Spain Barcelona 6 540,000 13 17.08 12.5 O 1968, Enagas
2009
Huelva 4 460,000 9 11.83 8.6 O 1988; Enagas
2008
Cartagena 4 437,000 9 11.8 8.6 O 1989, Enagas
2009
Bilbao 2 300,000 4 7 5.9 O 2003 BBG (Enagas,
EVE, RREFF)
Mugardos 2 300,000 3 3.6 2.6 O 2007 Reganosa
(El Ferrol) Group, Union
Fenosa,
Endesa,
Sonatrach,
443
local companies
Sagunto 3 450,000 5 8.76 6.3 O 2007, Union Fenosa,
2009 Iberdrola,
Oman Oil,
Osaka Gas
El Musel, Gijon 5.1 C 2013 Enagas
Palos de la 3.0 A 2015 Energas
Frontera
(Andalusia)
Italy Panigaglia 2 100,000 4 3.32 2.5 O 1969 GNL Italia
Rovigo 5 8 5.8 O 2009 Adriatic LNG
(Atlantic LNG) (ExxonMobil,
QP, Edison)
Location/site/ No. of Total No. of Nominal Capacity, Status Start- Principal owner
project storage storage vaporizers send-out million up year
tanks capacity (excluding capacity tpy*
in cm back-up in NG
(liq) capacity) bcm/y
Livorno (FRSU) 2.73.4 C 20111 OLT Offshore
LNG Toscana
SPA (Endesa,
IRIDE, ASA,
OLT-E, Golar)
Porto Empedocle 5.8 A 2016 Nuove Energie
(Enel 90%;
Siderurgica
444
Investimenti
Group 10%)
Belgium Zeebrugge 4 380,000 11 9 6.6 O 1987 GDF Suez,
Publigaz,
Fluxys
Turkey Marmara Ereglisi 3 255,000 7 6.2 4.8 O 1992 Botas
Aliaga/Izmir 2 280,000 5 6 4.4 O 2006 Egegaz
Greece Revithoussa 2 130,000 6 5 2.3 O 2000 Depa S.A.
Portugal Sines 2 240,000 5 5.2 4.00 O 2004 Ren Atlantico
Sines Expansion 1 150,000 2009
Project 2012
United Kingdom Isle of Grain 8 1,000,000 14 19.5 14.8 O 2005 National Grid
Teesside 1 138,000 3.0 O 2007 Excelerate Energy
(GasPort)
Milford Haven 5 775,000 15 21 15.6 O 2009 South Hook
(South Hook LNG (QP,
LNG) ExxonMobil,
Total)
Milford Haven 2 320,000 6 6 6.6 O 2009 Dragon LNG
(Dragon LNG) (BG, Petronas,
4Gas)
Walney Island, 5.8 A 2013 Port Meridan
FLNG Energy (Hoegh
LNG)
Netherlands* Gate LNG 8.8 O 2011 Gasunie, Vopak,
445
Dong Energy,
Essent,
OMV Gas
International,
E.ON Ruhrgas
Poland* winoujcie 1.0 C 2014 PGNiG
Canada St. John, NB 3 160,000 8 10 7.5 O 2009 Canaport LNG
(Canaport (Irving Oil,
LNG) Repsol)
United States Everett, Mass. 2 155,000 4 6.9 6.1 O 1971 GDF Suez LNG
Elba Island, Ga. 5 535,000 11 16.3 11.4 O 1978 Southern
2010 LNG (El Paso)
(restarted 2001,
Location/site/ No. of Total No. of Nominal Capacity, Status Start- Principal owner
project storage storage vaporizers send-out million up year
tanks capacity (excluding capacity tpy*
in cm back-up in NG
(liq) capacity) bcm/y
expanded
2006&2010)
Lake Charles, La. 4 425,000 14 24.3 14.0 O 1982 Trunkline
(Southern
Union)
Cove Point, Md. 5 380,000 10 10.74 13.8 O 1978 Dominion Cove
2003 Point (restarted
2003)
446
Gulf Gateway, 1 150,000 4.6 3.3 Clsd 2005 Excelerate Energy
offshore (facility retired
Louisiana 2011)
Northeast 1 150,000 4.6 3.0 O 2008 Excelerate Energy
Gateway,
offshore Mass.
Freeport, Tex. 2 330,694 7 18 11.4 O 2008 Freeport LNG
(Freeport Development
LNG) (Michael
Smith,
ConocoPhil-
lips)
Hackberry, La. 3 480,000 10 15.5 11.4 O 2009 Cameron LNG
(Cameron (Sempra)
LNG)
Sabine Pass, 3 480,000 16 27 30.5 O 2008 Cheniere Energy
La (Cheniere).
Sabine Pass, Tex 5 775,000 9.8 15.6 O 2010 Golden Pass
(Golden Pass) (ExxonMobil,
QP,
ConocoPhil-
lips)
Neptune LNG, 2 290,000 3.9 3.8 O 2010 GDF Suez LNG
offshore Mass.
Pascagoula, 5.0 O 2011 Gulf LNG
Miss. (Gulf Energy (GE
LNG) Energy Finan.
Ser., Sonangol,
447
El Paso)
Dominican Andres (Punta 1 160,000 2 2.32 1.8 O 2003 AE SAndres
Republic Caucedo) Corp.
Mexico Altamira, 2 300,000 5 7.8 3.8 O 2006 Shell (50%),
Tamulipas Total (25%),
Mitsui (25%)
Enseada, 2 320,000 6 10.33 7.5 O 2008 Energa Costa
Baja California Azul (Sempra)
(Energia Costa
Azul)
Enseada, 7.5 A TBD
Baja California
expansion
Location/site/ No. of Total No. of Nominal Capacity, Status Start- Principal owner
project storage storage vaporizers send-out million up year
tanks capacity (excluding capacity tpy*
in cm back-up in NG
(liq) capacity) bcm/y
Manzanillo, 3.8 O 2011 Terminal de GNL
Colima (Samsung,
Korea Gas,
Mitsui)
Puerto Rico Penuelas, 1 160,000 2 3.75 2.7 O 2000 Gas Natural and
Puerto Rico International
Power-Mitsui
448
Argentina Bahia Blanca 6 3 3 O 2008 Repsol, YPF
(GasPort)
Escobar 3.8 O 2011 Enarsa, YPF
(GasPort)
Cuatreros, 3 O 2012 Enarsa, YPF
Bahia Blanca
(GasPort)
Buenos Aires- 2.74.5 C 2013 Enarsa, ANCAP,
Montevideo UTE
(FLNG)
San Antonio 5 A 2014 Enarsa
Oeste, Rio
Negro (FLNG)
Brazil Pecem (FRSU) 1 129,000 2 2.5 1.5 O 2009 Petrobras
Guanabara 1 138,000 2 5 3.5 O 2009 Petrobras
Bay (FRSU)
Bay of All 3.7 A 2013 Petrobras
Saints, Bahia
(FRSU)
Chile Quintero 3 344,000 3 3.65 2.5 O 2009 GNL Quintero
S.A.
Mejillones (FSU) 1 154,500 3 2 1.5 O 2010 GNLM
Dubai Jebel Ali 1 125,850 3 3.72 O 2010 Dubai Supply
(FSRU) Authority
(charter from
Golar LNG)
449
Kuwait Mina Al Ahmadi 1 150,000 7.07 0.01 O 2009 Kuwait national
(GasPort) Petroleum Co.
(KNPC)
China Dapend, 3 480,000 7 4.9 6.7 O 2006 Dapeng LNG:
Shenzhen CNOOC, BP
Fujian 2 320,000 3.7 2.6 O 2008 Fujain LNG
(CNOOC 60%,
Fujian NV &
Dev. Corp.
40%)
Shanghai, 3 120,000 0.2 O 2008 Shanghai Gas
Mengtougou Group
Shanghai, 3 495,000 4.1 3.0 O 2009 Shanghai LNG
Yangshan (CNOOC 45%,
Location/site/ No. of Total No. of Nominal Capacity, Status Start- Principal owner
project storage storage vaporizers send-out million up year
tanks capacity (excluding capacity tpy*
in cm back-up in NG
(liq) capacity) bcm/y
(Ximentang Shenenergy
Isle) Group 55%)
Shanghai 3.0 A* TBD
expansion
Dalian 3.5 O 2011 Kunlun
Energy (75%),
Dalian Port
(20%), Dalian
450
Investment
(5%)
Zhejiang 3.5 C 2012 CNOOC,
Ningbo Zhejiang
Energy Group,
Ningbo Power
Development
Jiangsu 3.5 O 2011 Kunlun Energy
Rudong (55%), Pacific
Oil and Gas
(35%), Jiangsu
Guoxin
Investment
Group (10%)
Shandong 3.0 C 2013 Sinopec, China
Quindao Huaneng
Group
Zhuhai 3.5 C 2013 CNOOC Gas &
Jinwan LNG, Power Group
Guangdong
Zhuhai 3.5 A* 2015
Jinwan LNG
expansion
Tianjin 2.2 A 2013 CNOOC Gas &
(FSRU) Power Group
Tianjin 6.0 A 2015 CNOOC Gas &
Power Group
Yuedong 2.0 C 2013 CNOOC
451
LNG, Jieyang,
Guangdong
Shenzhen city, 2.5 A* 2014 PetroChina
Guangdong
Heiyangang, 2.0 A* 201516 CNOOC
Hainan Hainan Natural
Yangpu Gas (CNOOC
Economic Dev. 65%; Hainan
Zn. Development
Holdings 35%)
*Approved by
NDRC
India Dahej 4 592,000 19 12.5 11.65 O 2004, Petronet LNG
2009
Location/site/ No. of Total No. of Nominal Capacity, Status Start- Principal owner
project storage storage vaporizers send-out million up year
tanks capacity (excluding capacity tpy*
in cm back-up in NG
(liq) capacity) bcm/y
Hazira 2 320,000 5 3.4 3.60 O 2005 Hazira LNG
Private Ltd
(Shel 74%,
Tota 26%)l
Hazira Expansion 1.40 A 2013
Dabhol 5.50 O 2011 Ratnagiri LNG
(NTPC, GAIL,
452
Maharashtra
State Electricity
Board)
Kochi, Kerala 2.50 C 2012 Petronet LNG
Kochi, Kerala, 2.50 A 201213
expansion
Japan Nigishi 14 1,180,000 14 15 12.10 O 1969 Tokyo Gas
Senboku I, 4 180,000 5 2.94 2.50 O 1972 Osaka Gas
Osaka
Senboku II, 18 1,585,000 15 15.7 12.90 O 1977 Osaka Gas
Osaka
Sodegaura, 35 2,660,000 36 41.6 29.30 O 1973 Tokyo Gas
Chiba
Chita Kyoda 4 300,000 14 9.89 7.6 O 1978 Toho Gas, Chubu
Joint Terminal, Electric
Aichi
Tobata, 8 480,000 9 10.28 6.8 O 1977 Kita Kyushu
Kitakyushu LNG
City
Himeji LNG 7 520,000 8 11 8.5 O 1979 Kansai Electric,
Osaka Gas
Chita LNG 7 640,000 11 15.7 11.5 O 1983 Chubu Electric,
Toho Gas
Higashi 9 540,000 9 18 15.5 O 1984 Tokyo Electric
Ohgishima,
Kawasaki City
453
Niigata, 8 720,000 14 11.6 9.0 O 1984 Nihonkai LNG
Higata Higashi Co. Ltd.,
Port (Nihonkai Tohoku
LNG) Electric
Himeji 8 740,000 6 6.4 5.0 O 1984 Osaka Gas,
Kansai Electric
Futtsu, Chiba 10 1,110,000 13 26 20.1 O 1985 TEPCO
Yokkaichi 4 320,000 8 9.2 7.1 O 1988 Chubu Electric
LNG Centre
Yanai 6 480,000 5 3.1 2.4 O 1990 Chugoku Electric
Oita, Oita City 5 460,000 6 6.27 4.9 O 1990 Oita LNG
Yokkaichi 2 160,000 4 2 0.7 O 1991 Toho Gas, Chubu
Works, Mie Electric
Fukuoka 2 70,000 7 1.1 0.9 O 1993 Saibu Gas
Location/site/ No. of Total No. of Nominal Capacity, Status Start- Principal owner
project storage storage vaporizers send-out million up year
tanks capacity (excluding capacity tpy*
in cm back-up in NG
(liq) capacity) bcm/y
Omuta satellite, 0.5 O 2011 Saibu Gas
Fukuoka
Pref.*
Hatsukaichi, 2 170,000 4 1.15 0.6 O 1996 Hiroshima Gas
Hiroshima
Kagoshima, 2 86,000 3 0.3 0.2 O 1996 Nippon Gas
Southern
454
Kyushu
Kawagoe, Mie 4 480,000 4 7.1 5.5 O 1997 Chubu Electric
Sodeshi, 3 337,200 8 3.9 0.9 O 1996 Shimizu LNG
Shizuoka
Ohgishima, 3 600,000 10 12.4 6.0 (1998) O 1998, Tokyo Gas
Yokohama 2009
Shin-Minato, 1 80,000 3 0.38 0.3 O 1997 Sendai Gas
Sendai City
Chita 2 400,000 7 9.2 5.4 O 2001 Toho Gas, Chubu
Midorihama, Electric
Aichi
Nagasaki 1 35,000 3 0.2 0.1 O 2003 Saibu Gas
Mizushima, 1 160,000 3 1.3 0.6 O 2006 Mzushima LNG
Okayama
Sakai, Osaka 3 420,000 6 8.7 2.1 O 2006 Kansai Electric
Sakaide, 1 180,000 3 1.64 1.3 O 2010 Shikoku Elec.
Shikoku Power; Cosmo
Oil; Shikoku
Gas
Okinawa 0.3 O 2012 Okinawa Electric
Ishikari, TBA C 201213 Hokkaido Gas
Hokkaido Co., Ltd
Naoetsu, 1.0 C 2014 Inpex Holdings
Joetsu City,
455
Nigata
Hachinohe, TBA C 2015 JX Nippon Oil &
Hokkaido Energy
Hitachi, TBA A 2015 Tokyo Gas
Ibaraki
Kita Kyushu TBA A 2014 Hibiki (Saibu
City, Fukuoka Gas; Kyushu
Pref. Electric)
Shin-Sendai TBA A 2016 Tohoku
Toyama TBA A 2018 Hokuriku Electric
Shinko, 2019 Power
Toyama
Location/site/ No. of Total No. of Nominal Capacity, Status Start- Principal owner
project storage storage vaporizers send-out million up year
tanks capacity (excluding capacity tpy*
in cm back-up in NG
(liq) capacity) bcm/y
Joetsu TBA A TBD Chubu Electric,
Tohoku Electric
S. Korea Pyeong-Taek 14 1,560,000 31 40.28 31.20 O 1986 Korea Gas Corp.
Inchon 20 2,680,000 33 40.99 32.80 O 1996 Korea Gas Corp.
Tong-Yeong 12 1,680,000 12 20.72 15.00 O 2002 Korea Gas Corp.
Gwangyang 3 365,000 2 2.3 1.80 O 2005 Posco
Samcheok 18.35 C 2013 Korea Gas Corp.
456
Taiwan Yung-An 6 690,000 16 23 17.9 O 1990 CPC Corp.
Taichung 3 480,000 6 9 3.0 O 2009 CPC Corp.
Thailand* Map Ta Phut, 5.0 O 2011 PTT LNG
Rayong Prov. Co. Ltd.,
Egco Group,
Electricity
Generating
Auth.
Singapore* Jurong Island, 3.50 C 2013 Singapore LNG
Singapore (Energy
Market
Authority)
Indonesia* Jakarta Bay, 3.80 C 2012 Nusantara Regas
West Java (Pertamina,
FRSU 60%;
Perusahaan
Gas Negara
40%)
Malaysia* Mukim Sungai 3.80 C 2012 Petronas
457
Udang, Melaka
(jetty regas)
Pakistan* Karachi 3.5 A 2013 Sui Southern Gas
(offshore) Co.
Sources: GIIGNL, The LNG Industry 2010; Oil&Gas Journal 2012 LNG World Trade Map*
Appendix DCompanies with Major Holdings in LNG and Other
Notable Projects by Company
Company Lead role in LNG export and Participation in LNG export and LNG regasification
other major export projects other major projects
Shell Brunei, Malaysia, Nigeria LNG, North West Shelf, Australia; Altamira, Costa Azul, Mexico;
Oman LNG, Sakhalin II, Russia, Qatargas 4 (Train 7); Gorgon, Hazira, India; Broadwater, Cove
Shell Australia LNG Prelude, Australia; Greater Sunrise OK Point, Elba Island, US; Fos
Australia Pearl GTL, Qatar LNG, Nigeria Faster, France; Ionio LNG, Italy
Total Yemen LNG; Shtokman Bontang, Indonesia Brunei, Abu Fos Cavaou, Dunkirk France;
458
(Technical), Russia; Pars LNG, Dhabi; Oman; Snohvit, Norway; Altamira, Mexico; Hazira, India;
Iran (suspended) Nigeria LNG; Angola LNG; Brass Sabine Pass, US; South Hook,
LNG, Nigeria; Barnett Shale UK; Krk Island, Croatia
(Chesapeake)
BP Tangguh, Indonesia Abu Dhabi; North West Shelf; Cove Point, US; Isle of Grain,
Bontang, Indonesia UK; Guangdong Dapeng, China
ExxonMobil Arun, Indonesia; PNG LNG, Qatargas 1&2, RasGas, Gorgon, South Hook, UK; Golden Pass,
Papua New Guinea Australia XTO (shale) US; Rovigo, Italy
Chevron Angola LNG; Gorgon, North West Shelf, Australia; OK Sabine Pass, US
Wheatstone, Australia LNG, Nigeria
ENI Libya (?) Segas, Egypt Qalhat, Oman Darwin Panigaglia, Italy; Spain via Union
LNG, Australia Brass LNG, Nigeria Fenosa Gas; Cameron, US
ConocoPhillips Kenai, Alaska; Darwin, Qatargas 3 (T6) Brass LNG, Nigeria Freeport, Golden Pass, US
Australia; Australia Pacific LNG Greater Sunrise
Marathon Equatorial Guinea LNG Kenai, Alaska Elba Island, Georgia (US)
BG Group Egyptian LNG; Queensland Atlantic LNG, Trinidad; Equatorial Lake Charles, US; Dragon,
Curtis LNG, Australia Guinea LNG; OK LNG, Nigeria; Wales; Brindisi, Italy
Sabine Pass, US
Repsol Peru LNG Atlantic LNG, Trinidad Canaport, Canada
GDF Suez Bonaparte LNG, Australia Egyptian LNG T1; Snohvit, France; UK; Belgium; India; US;
Norway; Trinidad T1 Chile; Canada; Italy; Pakistan
459
Woodside North West Shelf, Pluto, Browse
LNG, Australia; Greater Sunrise
StatoilHydro Snohvit, Norway Egyptian LNG; Gladstone LNG, Dragon LNG, UK; Port Dickson,
Australia Malaysia
Inpex Ichthys, Australia; Masela, Bontang, Indonesia Naoetsu
Indonesia
Cheniere Sabine Pass LNG, US (proposed) Sabine Pass LNG, US (proposed) Sabine Pass LNG, US
460
Source: US DOE/FERC, http://www.ferc.gov/industries/gas/indus-act/lng/LNG-proposed-potential.pdf
Appendix FApplications Received by DOE/FE to Export Domestically
Produced LNG from the Lower-48 States (as of July 16,
2012)
461
0.01 Bcf/d: non FTA(f) (11-141-LNG)
Dominion Cove Point LNG, LP 1.0 Bcf/d(d) Approved (11-115-LNG) Under DOE Review
(11-128-LNG)
Jordan Cove Energy Project, L.P. 1.2 Bcf/d: FTA Approved (11-127-LNG) Under DOE Review
0.8 Bcf/d: non-FTA(g) (12-32-LNG)
Cameron LNG, LLC 1.7 Bcf/d(d) Approved (11-145-LNG) Under DOE Review
(11-162-LNG)
Freeport LNG Expansion, L.P. and 1.4 Bcf/d(d) Approved (12-06-LNG) Under DOE Review
FLNG Liquefaction, LLC(h) (11-161-LNG)
Gulf Coast LNG Export, LLC(i) 2.8 Bcf/d Under DOE Review (12-05-LNG)
Cambridge Energy, LLC 0.27 Bcf/d(j) Pending Approval (12-18-LNG) n/a
Gulf LNG Liquefaction Company, LLC 1.5 Bcf/d Approved (12-47-LNG) n/a
LNG Development Company, LLC 1.25 Bcf/d: FTA Approved (12-48-LNG) Under DOE Review
(d/b/a Oregon LNG) 1.3 Bcf/d: non-FTA (12-77-LNG)
SB Power Solutions Inc. 0.07 Bcf/d Approved (12-50-LNG) n/a
Company Quantity(a) FTA applications(b) Non-FTA applications(c)
(Docket number) (Docket number)
Southern LNG Company, L.L.C. 0.5 Bcf/d Approved (12-54-LNG) n/a
Excelerate Liquefaction Solution I, LLC 1.38 Bcf/d Pending Approval (12-61-LNG) n/a
Total of all applications received 18.70 Bcf/d 14.61 Bcf/d
Notes:
(a) Actual applications were in the equivalent annual quantities.
(b) FTA Applications to export to free trade agreement (FTA) countries. The Natural Gas Act, as amended, has deemed FTA exports to be in
the public interest and applications shall be authorized without modification or delay.
(c) Non-FTA applications require DOE to post a notice of application in the Federal Register for comments, protests and motions to intervene,
and to evaluate the application to make a public interest consistency determination.
(d) Requested approval of this quantity in both the FTA and non-FTA export applications. Total facility is limited to this quantity (i.e. FTA and
non-FTA volumes are not additive at a facility).
(e) Lake Charles Exports, LLC submitted one application seeking separate authorizations to export LNG to FTA countries and another
462
authorization to export to non-FTA countries. The proposed facility has a capacity of 2.0 Bcf/d, which is the volume requested in both the
FTA and non-FTA authorizations. [From the October 12, 2012 update, available at http://fossil.energy.gov/programs/gasregulation/reports/
Long-Term-LNG-Export-10-16-12.pdf.]
(f) Carib Energy (USA) LLC requested authority to export the equivalent of 11.53 Bcf per year of natural gas to FTA countries and 3.44 Bcf per
year to non-FTA countries.
(g) Jordan Cove Energy Project, L.P. requested authority to export the equivalent of 1.2 Bcf/d of natural gas to FTA countries and 0.8 Bcf/d to
non-FTA countries.
(h) DOE/FE received a new application (11-161-LNG) by FLEX to export an additional 1.4 Bcf/d of LNG from new trains to be located at
the Freeport LNG Terminal, to non-FTA countries, and a separate application (12-06-LNG) to export this same 1.4 Bcf/d of LNG to FTA
countries (received January 12, 2012). This 1.4 Bcf/d is in addition to the 1.4 Bcf/d FLEX requested in dockets (10-160-LNG and 10-161-LNG).
(i) An application was submitted by Gulf Coast on January 10, 2012, seeking one authorization to export LNG to any country not prohibited by
US law or policy.
(j) Cambridge Energy, LLC requested authority to export up to 2 million metric tons of LNG annually, equivalent to an average of 0.27 Bcf/d of
natural gas to FTA countries in Central and South America, the Caribbean, and the Asia/Pacific region.
Source: Office of Oil and Gas Global Security and Supply, Office of Fossil Energy, US Department of Energy, http://fossil.energy.gov/programs/
gasregulation/Long_Term_LNG_Export_Concise_07-16-12.2.pdf
Glossary
Annual contract quantity (ACQ): The quantity delivered in each contract
year, as specified in a gas or LNG sales contract.
Annual delivery program (ADP): The annual program for the delivery and
receipt of LNG cargoes. The ADP is usually agreed on between sellers
and buyers before the beginning of each contract year.
Associated natural gas: Gas found mixed with oil in underground reser-
voirs. Associated natural gas comes out of solution as a by-product of
oil production.
Baseload: The volume of gas designed to be delivered by a system that does
not fluctuate significantly.
Boil-off or Boil-off gas: The gas produced when LNG in a storage vessel
evaporates as heat leaks into the liquid. This vaporized gas can be recov-
ered and used as energy. The evaporation process keeps the liquid cool
and is called auto-refrigeration.
Burner tip: The ultimate point of consumption for natural gas.
Cargo containment system: The method of storing LNG in a ship.
Charterparty: A contractual agreement between a shipowner and a cargo
owner, whereby a ship is chartered (hired) for a single voyage or over a
period of time.
CIF (cost, insurance, and freight) contract: An LNG sales and purchase
agreement in which the buyer of the LNG takes ownership either when
the LNG is loaded onto the vessel or during the voyage to the receiv-
ing terminal. Payment is made at the time of the transfer of ownership:
however, the seller remains responsible for the transportation and the
transportation cost.
Combined-cycle gas turbine (CCGT): The combination of gas turbines
with a waste heat recovery steam generator and a steam turbine in an
electric power generation plant.
Compressed natural gas (CNG): Natural gas compressed under high pres-
sures, usually between 3,000 and 3,600 psi. CNG may be used as a
vehicle fuel.
Condensates: Hydrocarbon liquids, existing as vapor in a natural gas reser-
voir that condense to liquids as their temperature and pressure decrease
during production. Natural gas condensates consist mainly of pentanes
463
464 Energy for the 21st century
(C5H12) and heavier components. They are usually blended with crude
oil for refining.
Daily average sendout: The total volume of natural gas delivered over a
defined period of time divided by the total number of days in the period.
Debottlenecking: The process of increasing the capacity of a plant by
making relatively minor modifications to individual systems.
Deliverability: The amount of natural gas that a well, field, pipeline, or
distribution system can supply in a given period (typically 24 hours).
Delivery at Place (DAP): Term used when the seller is providing the LNG
shipping to the buyers facility.
Delivery at Terminal (DAT): Term used when the seller is providing the
LNG shipping to the buyers facility.
Delivery Ex-ship (DES) contract: An LNG sales and purchase agreement
in which title to the LNG is transferred to the buyer when the LNG is
unloaded at the receiving terminal and payment is made. The term DES
has been replaced by DAP as per Incoterms 2010.
Deregulation: The process of decreasing or eliminating government regu-
latory control over industries and allowing competitive forces to drive
the market.
Downstream: Oil or gas operations that are closer to the end user (see
upstream).
Draft: The vertical distance from the waterline to the lowest point of the
ship, or stated another way, the least depth of water needed for the ship
to float.
Dry gas: Natural gas that doesnt contain liquid hydrocarbons.
Engineering, procurement, and construction (EPC) contract: The EPC con-
tract defines the terms under which the detailed design, procurement,
construction, and commissioning of an LNG export or import facility
will be conducted.
Exclusion zone: An area surrounding an LNG plant in which an opera-
tor legally controls all activities. The exclusion zone creates a buffer in
the event of an LNG incident. It provides thermal-radiation protection
from fires and flammable vapor-dispersion protection from un-ignited
vapor clouds.
Feedstock gas (feedgas): Dry natural gas used as raw material for LNG,
petrochemical, and gas-to-liquids plants.
FERC: The Federal Energy Regulatory Commission (United States).
FERC regulates interstate transmission of gas and electricity as well as
aspects of LNG terminal siting.
Flaring: Burning off unwanted natural gas under controlled conditions.
Force majeure: French for greater force. Force majeure is a common
clause in contracts that essentially releases one or both parties from
Glossary 465
469
470 Energy for the 21st century