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The biggest global LNG venues; where they are and how
much they cost
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Part I: Evolution, if Not Revolution (CNG), natural gas liquids (NGL), liquefied petroleum gas
(LPG) or gas to liquids (GTL), all of which are comprised of
What is LNG?
different components.
LNG is simply natural gas rendered in a liquid state. It is a
How is LNG Stored?
clear, colorless, non-toxic liquid that is formed when natural
gas is cooled to -162 Celsius or -260 Fahrenheit. Natural LNG is stored in large, refrigerated cylindrical tanks with
gas is typically at least 90% methane, but may also contain domed roofs kept at atmospheric pressure. Both pressure
propane, ethane and small quantities of other compounds, and temperature are kept constant in a process referred to
which are removed when natural gas is liquefied, rendering as auto refrigeration. The tank released steam (in the form
LNG a very clean product. The process of cooling the natu- of LNG boil-off vapor), is recaptured by LNG facilities and
ral gas reduces its volume 600 times, and is undertaken on either used as fuel or sent through pipelines.
what is called an LNG Train. An LNG train is a natural gas
LNG can also be stored underground in specially designed
plants liquefaction and purification facility. The typical LNG
tanks.
plant will have more than one train, with each one operating
independently of the others. The worlds largest trains are
owned by Qatar (Ras Laffan) and can liquefy around 1 billion
cubic feet of natural gas per day. In total, the Ras Laffan LNG
facility has two massive trains and four smaller trains.
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For international trade, LNG is transported in special tanks LNG Export Terminals: An LNG export terminal is pretty
aboard double-hulled ships to receiving terminals overseas. much the same as an import terminal with one big differ-
It then goes through a regasification process, which turns ence: While an import terminal will have a re-gasification
the LNG back into natural gas. At this point, the natural gas plant, an export terminal will have a liquefaction plant,
can then be transported through local pipeline systems for which, again, is called a train. While it may seem a
end-user distribution. Worldwide, there are approximately relatively easy job to repurpose an existing LNG import
170 LNG transport vessels in operation, with many more in terminal into an export terminal, keep in mind that lique-
the works. faction facilities are extremely expensive and the cooling
process itself requires a significant amount of energy.
LNG Import Terminals: These terminals are equipped with
berths, for mooring ships and offloading LNG, as well as When export is not the objective, there are smaller-scale op-
storage tanks and re-gasification facilities. The new trend erations that liquefy natural gas simply to store it more conve-
in the US is to repurpose some of the existing LNG import niently for later use, when supply and demand dynamics
terminals to handle exports to countries with which the US make more sense. Natural gas is sometimes taken from a
does not have Free Trade Agreements (FTAs), but well get pipeline, liquefied and stored for high-demand seasons, with
into this further down in this report. small-scale regasification plants in this case called peak
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shavers. Similarly, LNG satellite plants use tanker trucks to entirety, while some of the other projects are only partially
bring in LNG, store and re-gasify it when necessary. floating and not as comprehensive and all-contained.
While, as of 2015, there are no Floating LNG facilities (FLNG) This project, by Malaysias Petronas, was scheduled to be
in operation, the future of LNG is certainly in moving the completed in 2016 and would first be deployed to the
whole process offshore in a very big way. The unfolding offshore Kanowif field for five years, and then moved to
revolution in Floating LNG technology is not only important another field. The plan is to park the floating facility near
to a new global gas delivery system, but also to unlocking offshore gas fields to produce, liquefy, store and transfer
more remote natural gas resources, and basically killing two LNG at sea to bigger ships for export. This, according to
birds with one stone: natural gas extraction and floating Petronas, will save hundreds of millions of dollars in pipeline
infrastructure to get it straight to market. If it works the way construction and render production vastly less expensive.
its supposed toand its still too early to tellwe are The floating facility is designed to operate in shallow waters
looking at an idea that could potentially render gas produc- with the capacity to produce 1.2 million metric tons per year
tion both faster and cheaper at the end of the day. (mtpa) of LNG, with a 20-25-year lifespan. With oil prices at
$70 per barrel or higher, Petronas claims the project would
The main objective here is to get product to market faster
enjoy a double-digit internal rate of return, but avoids
and to bypass very long, very expensive and very geopoliti-
estimating rates of return for oil prices under $70/barrel.
cally complicated pipelines, which also require a massive
amount of maintenance, as well as avoiding the construction
of onshore plants, which carry a significant environmental
footprint.
First of all well start by noting that there are really only two The Petronas projects will be the first Floating LNG projects
true FLNG projects out therePetronas and Shells Prelude. to come online, and thus they will serve as a barometer for
By this we mean that the Prelude, for instance, is floating in how the idea holds up to various market conditions.
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Shells Prelude Australia likelihood of recoverable gas reserves increasing here from 6
trillion cubic feet to 12 trillion cubic feet. The project is being
Like the Petronas projects, Shells Prelude is a true open-wa-
developed by Inpex in partnership with Shell. The Abadi
ter LNG project in every respect, which means its much
project is situated in the Masela block near Indonesia's
more expensive and much more challenging. This is the
border with northern Australia. Production at the Abadi LNG
worlds largest floating platform, and aims to produce a
development is expected to begin in 2022, three years later
minimum of 3.6 million metric tons of LNG per year begin-
than planned.
ning in 2017. Shells shied away from putting a price tag on
this project, but most estimate it at around $13 billion. Woodside Petroleums Sunrise FLNG Project Timor-
Leste
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project partner, Belgium-based Exmar, at a Chinese ship- project on the same level as Shells Prelude.
yard. The projects costs $180 million and plans to provide Enis Coral FLNG Project Mozambique
LNG to customers in Central America and the Caribbean.
Italian oil and gas giant Eni is pursuing an FLNG project
ExxonMobil/BHPs Scarborough FLNG Project offshore Mozambique to develop the highly prized Rovuma
Basin (read more about this basin in our previous special
The Scarborough FLNG project is a joint venture between
report). But the final investment decision (FID) was still up in
BHP Billiton and ExxonMobil to use floating facilities to devel-
the air as of mid-2015. This project would include an FLNG
op the Western Australia offshore Scarborough natural gas
unit fed by subsea wells. Though the project is expensive, it
field, which has an expected producing life of 25-35 years.
would indeed make LNG production cheaper with no need
But low prices and increasing competition from the US
for the construction of prohibitively expensive subsea pipe-
prompted the partners to put the project on hold in 2015.
lines and onshore processing plants. And these facilities, as
The project has since been given a lower spending priority.
we have mentioned elsewhere, can be remobilized. Produc-
Excelerates Port Lavaca, Texas FLNG Project tion was initially expected to launch in late 2019.
This project was put on hold in late 2014 due to unfavorable Perenco/Golar Cameroon FLNG Project
market conditions, but was originally scheduled to start
This project is set to start production in April 2017 and, unlike
production in 2019. If it ever gets off the ground, this will be
many others, has stayed on track in terms of budget and
startup. This is a partnership between Perenco and Golar LNG
to develop Cameroons offshore Kribi gas fields and export
to global markets. Production is anticipated to be around 1.2
million tons per year of LNG for eight years, with additional
reserves that may be allocated in the field at a later date.
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(mmtpa), or 12.5 million cubic meters per day. Ophir has also LNG trains with a 15.6 MTPA liquefaction capacity and a
led the discoveries on Block R, and these discoveries were domestic natural gas plant. First production was initially
enough for Ophir to conclude that the resources could planned for the third quarter of 2015 but delays have been
support an FLNG train. Excelerate Energy will be the problematic.
midstream partner providing the floating liquefaction and
Lithuanias Independence FSRU
storage facilities. The plan is for a newbuild FLNG vessel with
a floating offshore LNG liquefaction terminal and an LNG This one does not really belong in our snapshots, because
storage capacity of 230,000 cubic meters and side-by-side its not a true FLNG project, rather just a Floating Storage
the coast of Western Australia got off the ground in 2011 and ongoing battle that saw Russia annex Ukraines Crimea,
will have two LNG trains with a total capacity of 8.9 million foster a bloody conflict in the countrys east and enter into a
metric tons per year of LNG along with a domestic gas plant. protracted war over gas, the idea of the FSRU has gained
First production is expected in 2016. At the same time, Chev- more urgency in Europe. It is only appropriate that Lithua-
rons Gorgon project is also being builtand is further nias new FSRU has been named Independence. Built at
alongon Barrow Island, about 60 kilometers off the north- the Hyundai Heavy Industries (HH) shipyard in Ulsan, South
west coast of Western Australia. The project includes three Korea for Hoegh LNG, the vessels was chartered to Lithua-
nias Klaipedos Nafta under a 10-year lease agreement
signed in March 2012, with an option to buy. Its claim to
famegeopolitics asideis that it is the first ever new-built
FSRU in the world, while others have been conversions of
existing vessels into FSRUs. It cost around $330 million to
build between September 2012 and February 2014, and it
became operational in October 2014, serving Klaipedos
Naftas LNG terminal.
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This was a gutsy move by Lithuania, and the rest of Europe entered the scene: Norway, Russia, Yemen, Peru, Angola
should be quite impressed. Lithuania pays more for Russian and Equatorial Guinea.
gas than anyone else in the European Union, and this FRSU
In addition to the tried and trusted are the emerging venues,
is its negotiating leverage, and its already worked.
which could change the LNG market forever with new supply
sources that include East Africa, the US Gulf Coast and
Western Canada.
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Take a look at some of the key LNG projects in Australia: dence on Russian gas, and while this is a clear possibility, it
will be quite some time before it can be realized both logisti-
cally and in terms of pricing. For now, Russian gas is about
all Europe can afford. The US real trump card here is that it
has many more LNG projects under way than Russia does,
so eventually it will have the capacity to win this game at
least in terms of volume.
US Gulf Coast
While the big sub-venue here is the Gulf Coast, the Alaskan
North Slope is also an emerging player, with ExxonMobil,
ConocoPhillips and BP at the early stages of considering an
LNG project here. Some LNG is produced in Alaska for
export to Japan because no options exist for transporting
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The US entered the LNG game late in the dayat a time This venue is emerging as a major LNG export giant
when projects were already quite far along in other global because it is home to deepwater basins that will be the
venues. scene of some of the worlds largest and most impressive
Floating LNG projects.
As of 2015, the US had five LNG export terminals under
construction, with one scheduled to be online in 2016. There are two venues that stand out here first and foremost:
Tanzania and Mozambique, both of which we covered in our
Western Canada
previous special report on global oil and gas investing.
Western Canada is an emerging venue likewise due to a
boom in shale gas production. But while things are moving
forward more quickly in the US, Western Canadas 15
proposed projects are proving more problematic. The Pacific
Northwest LNG project hit a road block because this
onshore giant would have to be built on aboriginal lands.
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Part III: The Markets Most eyes will be on Japan, which has a very strong interest
in seeing major FLNG projects get up and running.
The largest markets for LNG are Asian, and the biggest
Asian importers are Japan and South Korea. But they pay a After the 2011 Fukushima nuclear disaster which resulted in
high price for this LNGa situation that is doing a great deal the shut-down of Japans nuclear fleet, the countrys LNG
to forward massive new LNG projects, particularly of the imports increased by 25%. For Japan, though, its current
floating variety. LNG imports are uncertain because they go through the
Straits of Hormuz, which is a geopolitical disaster waiting to
China is partly remedying its need for more and cheaper gas
happen, as well as Malacca. The Japanese are also very
through a pipeline deal with Russia, which took 10 years to
concerned about a threat to global gas supplies from
get down on paper, but will see Russia pipe millions of tons
conflicts and crises, such as that in Ukraine. All of this makes
of cheap natural gas into China, reducing the attractiveness
FLNG very important to Japan.
of China as an LNG market.
Since 2006, we also have a fairly long list of first-time LNG
importers: China, Brazil, Chile, Dubai, Kuwait, the Nether-
lands, Canada and Mexico.
The first thing you need to know about risk in this market
segment is that it is led, first and foremost, by unpredictable
change. You can read all the prognoses you like from a multi-
tude of experts, but at the end of the day, it is impossible to
predict and you have to follow your own gut instinct. What
we have seen so far is a period of massive obsession focus-
ing on an LNG revolution, followed by a period of disap-
pointment as oil prices plummeted in mid-2014 and hugely
ambitious LNG projects abruptly cooled down.
This does not mean that LNG is deadfar from it. The inves-
tors mistake here is found in over-exuberance, which favors
Other: Algeria, Egypt, Norway, Equatorial Guinea, Source: EIA irrationality. LNG is the future, but it should be viewed as
Trinidad, Yemen, Peru, Angola re-exported amounts
evolutionary rather than revolutionary. Evolutions happen
For Europe, which is struggling to loosen the Russian gas over time and are logical progressions, while revolutions are
noose, LNG still remains too pricey to be a full-on alternative forced. The latter may be more exciting, but the wise investor
to piped natural gas, but the future is moving in this direc- recognizes the difference and can weather shifts in supply
tiongeopolitics willing. and demand and fluctuations in price. At the end of the day,
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LNG (like everything else) will be influenced by supply and For onshore LNG projects, with construction costs typically
demand, price, technological advances, and political and designed to be about 30% of the budget, times have been
geopolitical dynamics. tough. According to information compiled by KPMG in
2014the same year that the beginning of a sharp drop in oil
prices caused additional panic--Australian onshore LNG
project costs had risen to 50-60% of the total budget. Lique-
faction plant average capital costs rose from $300/ton per
year to $1,200/ton per year from 2000 to 2013. Chevrons
Gorgon project was originally supposed to cost AUS$37
billion, but that was inflated to AUS$54 billion.
The first rule of thumb is to fully grasp the fact that LNG oper-
ations are very capital intensive, with upfront costs a bit
overwhelming because they include massive and complex
construction projects from liquefaction and regasification
facilities to specially designed LNG ships, among many other
things. What interests us quite a lot is the cost-profit compar-
ison between onshore LNG projects and offshore, FLNG. With onshore cost over-runs in mind, investors are increas-
ingly looking to Floating LNG projects. Some estimate that
Massive onshore LNG projects are promising but costs to
between 2014 and 2020, $60 billion will be spent on FLNG
get them up and running have ballooned and there is a long
projectsjust for starters. Two-thirds of this will likely to go
wait to get product to market, which leads to major frustra-
liquefaction infrastructure, while the remaining will be for
tion. The costs also mount due to remote location infrastruc-
import and regasification facilities.
ture challenges, opposition to the projects themselves and a
complicated road to regulatory and environmental approval. The costs of liquefaction plants have, for some reason, more
In short, cost over-runs rule the day. than doubled between 2003 and 2013, and it would appear
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that these costs have increased at twice the rate of other When you consider a potential investment in FLNG, make
upstream oil and gas facilities during the same period. (This sure you are prepared to be in it for the long term, and that
Oxford Energy study offers a detailed look at these cost you can handle the ups and downs of getting these massive
increases.) projects off the ground.
Pricing Vulnerability
Some clever promoters will try to tell you that LNG is less
There are clear advantages to FLNG, but at the same time
vulnerable to price shocks than other commodities, but this
this type of investment will not be for the faint of heart. The
is certainly not the case.
risk over the short term is very high, but over the longer-
term, an investors FLNG foresight will likely pay off in a very To hit this point home, lets look at two key Asian markets,
big way. Japan and South Korea, both of which have huge appetites
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for LNG, but this appetite needs to be constantly measured metric tons per year of LNG for 20 years when the facilitys
and analyzed. To do this, you need to understand their second train becomes operational. This is what you need to
energy options. look for as an investor. What have they already lined up?
When South Korea put its nuclear plants offline for safety
reasons, the country started stockpiling LNG, sending
demand soaring. But when those plants went back online,
that demand fell.
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As an investor potentially interested in LNG, you need to selves for massive, long-term future rewards if they play
decide where your long-term investment desires lie. their cards right. This means paying attention to the venue,
Regardless of positive or negative predictions, LNG will be the facilities, the existing infrastructure, the politics of global
a future kingmaker, and investors who get in on the ground demand and, for projects already underway, whats already
floor and can wait out the slumps will likely position them- been contracted out.
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