New supply projects to push LNG into major markets

June 30, 2003
LNG's share of the world's trade in natural gas set records in 2002 even as gas production growth was flat.

LNG UPDATE—Conclusion

This article concludes Oil & Gas Journal's LNG Report that began last week.

LNG's share of the world's trade in natural gas set records in 2002 even as gas production growth was flat.

This conclusion of two articles on the world's LNG trade will continue a review of major trends in LNG export projects begun in the first article (OGJ, June 23, 2003, p. 72).

Table 1
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Table 1 shows LNG exports by country. Of the production, 49.2% is in Asia Pacific, 23.8% in Africa, 22.3% in the Middle East, and 4.7% in the Western Hemisphere. At yearend 2002, liquefaction plants were operating in 12 countries with 69 trains and a combined capacity of 135 million tonnes, equivalent to 84% of consumption.

The surplus continues to drive the spot and short-term market.

Table 2
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An additional 40 million tonnes/year (tpy) of capacity are under construction (Table 2). Four of the projects (in Nigeria, Australia, Qatar, and Malaysia) are expansions of existing facilities; those in Egypt and Norway are greenfield plants. Many other projects are under consideration, as discussed below.

Asia Pacific

Indonesia's Arun plant resumed normal operation in 2002, although production continues to decline as reserves are depleted. TotalFinaElf SA and Unocal Corp. have been promoting a ninth train,

Train I, at Bontang. The frontend engineering and design have been completed and engineering, procurement, and construction bids received for a 3.5-million-tpy train, but marketing is still ongoing.

Both projects are 100% owned by state-owned Pertamina.

The BP PLC-led project at Tangguh moved forward with the awarding of a $1.4 billion EPC contract to KBR, JGC Corp., and Indonesia's P.T. Pertafenikki. The two train 7-million-tpy project is scheduled to start up in 2007. Reserves of high-quality gas stand at 28 tcf, sufficient for four or five trains.

Works progresses in May 2003 on the tank farm for Statoil ASA's Snohvit project on the island of Melkoya in the Norwegian Sea. There will be four storage units: two for LNG, one for LPG, and one for condensate (light oil). The project, estimated at $6.3 billion, will start up 4.2 million tpy deliveries in 2006. (Photograph from Statoil)
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The project is owned BP (37.2%), Mitsubishi Corp. (16.3%), Nippon Oil Co. (12.2%), BG Group (10.7%), Kanematsu.Corp. (10%), Nissho Iwai Corp. (1.1%), and China National Offshore Oil Co. (CNOOC; 12.5%). CNOOC awarded a contract to the project for the sale of 2.6-million tpy for 25 years to China's second terminal at Fujian. Tangguh is seeking additional markets in the Philippines, Japan, Korea, and Taiwan.

Under the 2001 Energy Sector Reform law, Pertamina no longer has a guaranteed role in new grassroots projects. As a result, it is promoting its own 7-million-tpy project at Dongghi on Sulawesi, with the Phillipines and the US West Coast as possible markets.

In May 2003, the first train of Malaysia's third LNG complex, Malaysia LNG TIGA (Tiga means "three") began operations in Bintulu, Sarawak, next to the other two plants. Malaysia TIGA's three trains will ultimately produce up to 8.1 million tpy. It is owned by Petroliam Nasional Bhd. (Petronas; 60%), the Sarawak government (10%), Royal Dutch/Shell Group (15%), Nippon Oil (Netherlands; 10%), and Diamond Gas Netherlands (5%).

When completed, the complex will be the world's largest LNG production facility.

Table 3
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Construction of the first train began before sales contracts were signed, and even now the project has sold only two-thirds of its available capacity to Japanese and Korean utilities (Table 3).

Petronas has acquired a 35% interest in the Egyptian LNG project from Edison SPA, marking its first entry into an Atlantic Basin LNG project. On the expiration of the joint-venture agreement for Malaysia's first LNG project, Petronas bought back the shares of its partners Shell Gas BV and Mitsubishi Corp., each of which owned 15% in Malaysia LNG Sdn Bhd.

Petronas now has a 95% share, the other 5% belonging to the state of Sarawak.

Russia will join the club of LNG exporters in 2007 when it starts deliveries to Japan. In May 2003, the Sakhalin II consortium signed heads of agreement with Tokyo Gas Co. for the sale of 1.1 million tpy for 24 years at a price Tokyo Gas says is "highly competitive." The price will be 70% fixed and 30% indexed.

The project will start by lifting small quantities, which will reach the plateau only in 2014. The LNG will be delivered in Tokyo Gas's own ships.

Sakhalin II is also negotiating with Tokyo Electric Co. for the sale of 1.5 to 2 million tpy for 22 years and with Tohoku Electric, Kyushu Electric Co., and Toho Gas Co. for around 1.3 million tpy. Mitsubishi is proposing to build a receiving terminal in Long Beach, Calif., that could receive LNG from this project.

The consortium has awarded contracts to Chiyoda Corp., Toyo Engineering Corp., and their Russian partners for construction of the first of two 4.8-million-tpy trains (largest in the world).

This will be the first baseload facility to use Shell's Dual Mixed Refrigerant process.

The shareholders are Shell (55%), Mitsubishi (25%), and and Mitsui & Co. Ltd. (25%).

Talks are also reportedly being held between ConocoPhillips and state-owned OAO Rosneft on building an LNG plant using reserves from the Stokmanovskoe field in the Barents Sea.

In Australia, the Northwest Shelf project, a consortium of six partners, has long wanted to expand the three-train project commissioned in 1989, but the Asian economic crisis of 1997-98 made marketing difficult.

Table 4
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Eventually several contracts were signed for the output of a fourth train with a 4.2 million tpy nameplate capacity (Table 4).

Finalization of these sales allowed the Northwest Shelf partners to look for a buyer for a fifth train, and in 2002 it signed an agreement to sell 3.3 million tpy of LNG to CNOOC for 25 years starting in late 2005. The LNG will be delivered to China's first terminal at Shenzhen.

CNOOC also gained a 25% interest in a joint venture that has earmarked for it 5.6% of the NW Shelf gas and NGL reserves.

Since the mid-1990s, three other Australia grassroots projects have been proposed.

The 3-million-tpy Darwin LNG project, also called Bayu Undan, is based on reserves in the Timor Sea Joint Zone of Cooperation where ConocoPhillips is operator. Tokyo Electric Power Co. and Tokyo Gas signed heads of agreement to buy its entire production of 3 million tpy for 17 years and also to acquire a 10% interest in the field. The plant is already shipping condensate and LPG.

The North Australia Gas Venture, also in the ZOCA sector and in Australian waters, would involve a 5.3-million-tpy plant. Chevron Texaco with a 57% share is leading development of the Gorgon project based on significant reserves discovered off Northwest Australia.

Its partners are ExxonMobil Corp. and Shell. Shell wants the gas to feed the existing North West Shelf LNG project, while ChevronTexaco prefers a standalone venture that could go to the western US and Mexico.

In Brunei, a sixth train is under consideration, but no firm commitment has been made.

Africa

LNG industry pioneer Algeria is looking to boost its exports to the US and Europe by building its first new plant since 1980.

It would be built at Arzew and supplied by the Gassi Touil Integrated Gas Project.

Algerian officials indicated a willingness to invest in LNG terminals in the US and even further downstream if the opportunities arise.

In Egypt, two LNG projects are under construction and two others have been proposed. Egypt's gas reserves have risen steadily in recent years to more than 40 tcf. The country's location is ideal to supply Mediterranean markets, and buyers have played a major role in moving the two projects forward.

The government has helped by fast tracking project approvals. The Spanish-Egyptian Gas Co. (Segas), is building a 4.5 to 5 million tpy project at Damietta that will start operations at the end of 2004. Ownership, still under negotiation, will be headed by Union Fenosa, which is 50% ownedby Italy's ENI. Buyers have not yet been announced. A second train has been proposed.

The first 3.6-million-tpy train of the Egyptian LNG (ELNG) project at Idku 50 km east of Alexandria on the Mediterranean coast will start up in 2006 and deliver its entire output to Gaz de France for 20 years. Initial work has begun on a second 3.6-million-tpy train, which is marketing to Europe and the US. The complex can accommodate up to six trains.

Participants are Egyptian General Petroleum Corp., EGAS, the BG Group, Gaz de France and Petronas.

Construction is proceeding on Nigeria LNG's Trains 4 and 5, called "NLNG Plus."

Table 5
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The two 4-million-tpy trains will supply 10.3 bcm/year of gas starting in 2005, raising total nameplate capacity to 17 million tpy. Table 5 shows all the buyers for Nigerian LNG.

A final investment decision is expected later this year for Train 6, which would come on stream in mid-2006. Eliminating flaring is one of the motivations behind Nigerian LNG; by 2008, feedstock for the new trains will be totally associated.

All the capacity of Trains 4 and 5 has been committed, although a final SPA has to be signed for BG LNG Services, which will have all the capacity of the Lake Charles, La., terminal after 2005.

Partners in Nigerian LNG are Nigerian National Petroleum Corp. (49%), Shell Gas BVC (25.6%), Total LNG Nigeria Ltd. (15%), and Agip International (10.4%).

Three more Nigerian LNG projects have been considered:

  • The West Niger Delta project put forth by ExxonMobil Corp., ChevronTexaco, and ConocoPhillips.
  • Brass River LNG Project, proposed by ENI and ConocoPhillips.
  • A floating LNG project put forth by Statoil ASA, ChevronTexaco, and Total SA.

In other West African projects, ChevronTexaco in 1999 announced plans to build a single-train 4-million-tpy grassroots project in Angola based on associated gas discoveries in shallow water. Participants are ChevronTexaco (32%), state-owned Sonangol (20%), and BP, Total, ExxonMobil, and Norsk Hydro (12% each).

Firm customers have yet to be lined up, but ChevronTexaco's Port Pelican terminal is a likely market.

Marathon is looking at the feasibility of building a 3.5-million-tpy LNG plant or a GTL plant as an outlet for reserves in the Alba field in Equatorial Guinea, which it acquired from CMS Energy Corp.

In May 2003 Marathon signed a letter of understanding with BG for the sale of 3.4 million tpy of LNG for 17 years with total flexibility on the destination of the gas. Potential markets are the 160 MMcfd of capacity at El Paso's terminal Marathon acquired from Enron Corp. and BG's capacity at Lake Charles terminal.

Middle East

Qatargas is debottlenecking its three-train plant to raise its total capacity to 9.2 million tpy.

A fourth 4-million-tpy train is under study to sell LNG to Spain; Total has proposed building a fifth train to market in Europe and possibly the US. ExxonMobil and Qatar Petroleum General Corp. are discussing a new project, Qatargas II, consisting of two 7-million-tpy trains to supply a proposed new terminal in the UK.

Qatar's other LNG project, Ras Laffan LNG, is adding two 4.7-million-tpy trains set to go online in 2004 and 2005.

Agreements have been signed with India's Petronet LNG for the sale of 7.5 million tpy for 25 years (5 million tpy to the Dahej terminal, 2.5 million tpy to Cochin), 3.5 million tpy to Italy's Edison, and an additional 2.5 million tpy to Korea Gas. Three more trains with a total capacity of 15 million tpy are being considered.

Qatar's Energy Minister has said Qatar's aim is to reach 45 million tpy by 2010. Seven GTL projects are also in various stages of development.

Oman LNG has awarded the EPC contract for its third train to Foster Wheeler Ltd. Co. and Chiyoda Corp. It will be owned by a new company called Qalhat LNG owned by the Omani government (52%), Oman LNG (40%), and Union Fenosa (8%). The new train will have a capacity of 3.7 million tpy, bringing the total capacity to 10.3 million tpy, and is set to go on stream at the end of 2005.

Oman has signed a 2-year contract with Union Fenosa for the sale of 1.65 million tpy from the expansion. Oman has 1.6 million tpy of extra LNG, however, that was to have gone to the Dabhol project, which it is selling under short-term arrangements, including 600,000 tonnes to Tractebel LNG Trading over March 2003-04.

Atlantic Basin

In Norway, Linde AG has begun work on the Snohvit project on the island of Melkoya in the Norwegian Sea, which will cost an estimated $6.3 billion.

The project's initial 4.2-million-tpy (5.7 bcm) train will start deliveries in 2006. The project will also produce substantial amounts of condensates and LPG.

Operator Statoil has a 22.3% share, Total 18.4%, Gaz de France 12%, Norsk Hydro 10%, Amerada Hess 3.3%, RWE-DEA Norge 2.81%, Svenska Petroleum Exploration 1.24%, and the Norwegian state 30%. Spain's Iberdrola SA will buy 1.6 bcm.

Originally El Paso Global LNG agreed to buy 2.4 bcm/year, but Statoil has acquired its share as well as El Paso's one-third capacity at the Cove Point, Md., terminal. Gaz de France and Total will lift their own shares of the gas, a total of 1.7 bcm/year.

In Trinidad and Tobago, partners in Trains 2 and 3, which process about 1 bcfd produced by BP and BG, are BG, BG and Repsol. About 62% of the output is sold to Spain; the rest is slated for sale into the US market.

Trinidad was the leading supplier of LNG to the US last year and is likely to remain so. Trinidadian LNG has a heating value that meets US pipeline specifications, so that it can be delivered to any location on the US East or Gulf Coasts.

Since June 2002, the government has held public hearings and discussions on proposals for a fourth LNG train which would have a 5.2-million-tpy nameplate capacity and go on stream in 2006.

Final commitment is being delayed by negotiations over new tax and royalty provisions.

Most of the output would be delivered to markets in the US, the Caribbean and, possibly, new markets in Mexico, Brazil, Central America, and the Caribbean.

Atlantic LNG Trains 5 and 6 are already under consideration; each could add a further 5.2 million tpy by the end of the decade.

An LNG project has been discussed in Venezuela since the 1970s, but limited progress has been made. Shell and Mitsubishi have signed agreements with the government to develop a 9.4-million-tpy project called Marischal Sucre based on offshore reserves in eastern Venezuela. Target markets would be the Western Hemisphere.

Discussions have also been held with Trinidad jointly to develop the two countries' gas reserves, perhaps by shipping Venezuelan gas from the adjacent El Dorado field to the Atlantic LNG plant for processing, but no agreement has been reached. Norway's Statoil and ChevronTexaco are also exploring blocks on this field.

Other projects

Iran's National Iranian Oil Co. (NIOC) is seeking to develop its LNG industry in order to produce its share of reserves in the South Pars-North Field and is pursuing at least four projects (OGJ, June 23, 2003, p. 78):

  • NIOC LNG with BG and Enel.
  • Iran LNG partnership with BP and India's Reliance Petroleum Ltd.
  • Pars LNG with Total and Petronas.
  • Persian LNG with Repsol and Shell.

Each project would be 8-9 million tpy in size and develop its own markets in Europe, Asia, and India.

In Bolivia, Total, Repsol, BG, and Sempra are proposing a project to pipe natural gas from Bolivia's Margerita field to either Peru or Chile on the Pacific Coast where it would be liquefied and shipped to a terminal on the West Coast of North America.

In Peru, Hunt Oil Co. is studying the feasibility of building a single train 4.5-million-tpy plant to ship LNG from Peru's Camisea fields to the west coast of Mexico and the US starting in 2007.