The LNG industry would have “no problem” in building liquefaction, transport, and regasification capacity for 120 million tonnes of additional LNG by 2012, but many financial and human resource problems must be overcome “if more is demanded,” said J.P. Chevriere, president of Transmar Consult Inc., Houston.
That means the LNG industry could “meet the requirements of the more modest projections and forecasts” for new facilities, but not the “very optimistic forecasts” of some major integrated companies, said Cheviere at the 8th Annual Rice Global Engineering & Construction Forum at Rice University in Houston.
‘Less optimistic’
Chevriere said his company is “less optimistic than conventional wisdom” about midterm LNG construction following a multiclient, 6-month global study of available technical resources. “Many of our study sponsors would have preferred that our conclusions were different and more supportive of their in-house viewpoints,” he acknowledged.
That study began after Transmar was approached in 2004 by “senior managements of two super-majors relatively new to the LNG industry” who were concerned about the industry’s capacity to complete all the liquefaction plants, regasification terminals, and LNG carriers that might be required.
Transmar quickly discovered “a very broad range of opinions on this subject,” he said. Some operators and outside experts expected demand to increase by as much as 200 million tonnes in the medium term with a consequent increase in capacity, while others saw demand increasing by less than 100 million tonnes. “Senior executives in the same oil company sometimes held beliefs 180o apart,” Cheviere said.
Construction outlook
Chevriere sees “demand only growing by 85 million metric tons and [liquefaction] capacity by 110 million metric tons,” based on “common sense, logical reasoning, and not wishful thinking.” The liquefaction plant is “the most valuable piece” in the LNG chain, he said.
Transmar found “four proven process LNG contractors acceptable to both the financial community putting up the project money and the owners themselves”-Bechtel Corp., Chiyoda Corp. of Japan, JGC Corp., and KBR, a unit of Halliburton Co.”
Those contractors constitute what Chevriere called “the LNG Club” with a total of five “A teams” capable of handling a major LNG liquefaction project worth $5 million or more. “Some observers would include Linde [AG, Germany], but judgment is reserved until they complete the Snohvit [LNG] project [in Norway], a project hampered with more than its fair share of troubles,” said Chevriere.
In 1995-2000, those A teams “easily engineered and constructed 10 trains, including 5 grassroots installations and numerous technical studies and proposals without undue strain,” Chevriere said. “Therefore, undertaking two new trains per year plus a host of peripheral studies is no problem for the available technical resources.” Even in 2004, “a moderately busy year, the workload was properly handled, and delays were rare,” he reported.
But in “very busy” 2003, with more than 40 million tonnes of capacity under construction, Chevriere said, “Delays and more delays occurred as the money spigot closed and experienced personnel were strained to the breaking point.”
Transmar expects 39 new regasification terminals representing 150 million tonnes of new capacity to be built in the medium term. “This is far greater than our projected new LNG demand or LNG capacity additions,” Chevriere acknowledged. “However, new terminals in new geographic areas will be required. This said, the number of new terminals in the US, India, and China will be fewer than commonly anticipated.”
He projects that LNG tanker capacity will double in the coming decade. “This growth will far outstrip LNG demand and capacity additions but will help facilitate the growth of the global spot market,” he said. “The shipping industry can build 25-30 world class LNG carriers annually. Furthermore, shipyard capacity capable of building these vessels is growing.”
Negative factors
As with other forms of energy, LNG growth depends chiefly on the US, Indian, and Chinese markets. “These key geographic markets are all very cost-conscious. They are not obliged to use LNG if the cost is too high,” Chevriere noted.
“There is a strong rebirth for nuclear power emerging in the US and a rethinking of nuclear power by a Europe too dependent on Russia-Gazprom-for its natural gas supplies,” he said. “We anticipate commitments for one to three new US nuclear power plants in the not too distant future.” Chinese leaders plan to build “at least 32 nuclear plants in the decades to come,” he said. “If the price of piped natural gas or LNG is too high, they have made it clear that their nuclear program will be accelerated.”
Fear of terrorism and the vulnerability of LNG facilities to attack might limit the industry’s growth. “There is also the NIMBY [not in my back yard] factor and growing concerns at the [European Economic Commission] about overdependence on Russian gas,” Chevriere said.
“Another negative factor shaping our thinking about the prospects for LNG growth are the increasing demands for more of the value added by producer countries,” he said. “Some are even demanding a piece of the action downstream. This trend makes LNG investment less attractive to ‘Big Oil.’”
Possible expansion of natural gas pipelines could impact the LNG industry. “If we start importing pipeline gas from Prudhoe Bay or the Mackenzie delta, the need for LNG lessens,” said Chevriere. “This is true also at a global level.”
Chevriere sees other reasons for a modest growth in LNG demand and liquefaction capacity, including “the historical fact that the industry is plagued with project delays,” plus “very real technical supply constraints.” And most experienced LNG engineers, operators, and managers are now 60-70 years old, he said. “Finally, there are financial constraints imposed by the global financial community that provides the money, the risk capital, for LNG projects. They are only willing to expose a finite amount of risk capital to LNG,” he said.
Moreover, more than 80% of the industry representatives interviewed in the study expressed serious concerns about the availability and costs of critical materials, including steel, compressors, heat exchangers, and specialized valves.✦
