INTERNATIONAL GAS SHIPMENTS TO MAINTAIN UPWARD TREND

July 1, 1991
International gas trade is on the rise. Gas sold across international borders accounted for about 14% of the world's marketed gas production last year. One of the major players in the business, Royal Dutch/Shell Group, predicts international trade will account for 21% of world gas sales by 2010. Achieving that massive upturn in business will require major new investments. Shell forecasts that during the next 20 years $600-800 billion will be required, including $60 billion for the

International gas trade is on the rise.

Gas sold across international borders accounted for about 14% of the world's marketed gas production last year.

One of the major players in the business, Royal Dutch/Shell Group, predicts international trade will account for 21% of world gas sales by 2010.

Achieving that massive upturn in business will require major new investments. Shell forecasts that during the next 20 years $600-800 billion will be required, including $60 billion for the liquefied natural gas element.

British Petroleum Co. plc reports international gas trade advanced to 233.5 billion cu m in 1990 from 221.8 billion cu m in 1989. Meantime, international LNG trade climbed to 72.3 billion cu m from 64.5 billion cu m in 1989.

SUPPLY AND MARKETS

Much of the world's new supply of gas will come from developing countries where financing is more difficult and planning and construction slower than in other parts of the world. As a result, says Shell, most of the outlays required to keep up with gas demand growth during the next 20 years must be triggered in this decade-much of it in the next 5 years.

Western Europe remains the center of international gas trade, but there also is significant business for gas exporters in Japan and the U. S.

The Soviet Union, which moves all its gas exports by pipeline into Europe, dominates the market and ships more than 35% of total Volumes of natural gas in international trade. The U.S.S.R. has no LNG trade.

Europe has two large exporters: Netherlands with 11% of world trade and Norway with 9%.

Eastern Europe's desire to diversify supply sources has even lead to first thoughts of LNG supplies from Algeria, Poland, Czechoslovakia, and Hungary have started to investigate the feasibility of an LNG import terminal at Gdansk, Poland, to provide North African gas to all three countries.

Europe's other outside gas supplier is Algeria, which has 10.6% of the European market through a pipeline link across the Mediterranean Sea to Italy and LNG exports to southern France and Northwest Europe. It has also restored its LNG shipments to the U.S. and will develop a new LNG market closer to home in Turkey and Greece.

European gas companies are taking a more favorable view of Algerian supplies now that the government's more pragmatic view of pricing has proved to be an enduring policy. Prolonged civil unrest may undo much of the work by Sonatrach's salesmen to rebuild European confidence in North African supplies.

Sonatrach's marketing strategy is placing more emphasis on pipelines to Europe. Plans are taking shape to expand the capacity of the trans-Mediterranean line to Italy, and priority is being given to a second Mediterranean crossing with a line through Morocco to serve the rapidly growing Spanish market. The line also opens the prospect of exports to Portugal, where a distribution network is planned to give natural gas access to one of the few countries of Europe where there is no significant gas use.

From Spain, Algerian gas can be fed into the main European transmission system. Prospects for expanding the system into the heartland of European gas consumption were improved by Ruhrgas's recent interest in the project.

Libya also is attempting to improve its image with gas companies in Europe, where it has 0.6% of the market through a small LNG export scheme. Libya is considering its own pipeline connection across the Mediterranean to Italy with onward links into the Balkan countries.

Nigeria plans to become Africa's third LNG supplier. A 5.5 million ton, two train export project aimed at the European and U.S. markets is in the advanced planning stage with deliveries tentatively set for 1995-96.

But tieing up financing and customers is taking longer than expected, and until this is complete further physical work on the project cannot proceed. It is designed for expansion to a five train operation to meet expected demand in the next century.

Outside Europe, Canada, with its major supply contracts with the U.S., is the world's No. 2 exporter with 13% of the business.

In the Far East, Japan relies entirely on LNG imports to meet its gas demand. Its major suppliers are Indonesia with 10% of world trade, Malaysia with 3%, and Brunei, also 3%.

MIDDLE EAST SUPPLY

Middle East producers always have had an eye on the European gas market, but in the short term most of their gas exports will continue to be destined for the Pacific Rim.

Before the revolution, Iran, which sits on the largest gas reserves in the Middle East, was in the process of pioneering a complex exchange with the U.S.S.R. that would have made equal volumes of Iranian gas available in Europe.

A revised plan will bypass the Soviet Union. Now, gas is to move through Turkey into the Balkans, then possibly to France, Italy, Austria, Yugoslavia, Romania, and Czechoslovakia. Talks with potential buyers are in the very preliminary stage.

Abu Dhabi, the longest established gas exporter in the Middle East, is expanding its export contract with Tokyo Electric Co. by adding a third train that will double the Das Island liquefaction plant capacity to 4.6 million tons/year of LNG.

Qatar is moving into gas exports to market huge reserves in the offshore North field, which is about to start serving domestic users.

The Qatargas group has signed a letter of intent to sell 4 millions tons/year of LNG to Chubu Electric Co. of Japan from North field's 150 tcf of reserves. In addition, Ste. Nationale Elf Aquitaine recently signed a deal with the Qatar government that gives Elf the right to establish a second LNG export operation based on North Field gas.

Qatar has not given up hope of becoming a major supplier to other countries in the Middle East. Dubai needs more gas for its industrial operations and is negotiating with Qatar, although Iran is said to be making a concerted effort to win this business. There are even plans to sell gas to Pakistan.

There also could be opportunities in Kuwait which was importing gas from Iraq before the Persian Gulf war. Longer term, Kuwait will need to restore gas imports and unlikely to return to the nearest source of supply.

PACIFIC RIM

International gas trade in the Pacific Rim relies almost exclusively on LNG, although there are still tentative plans for onshore and offshore projects that would send Indonesian and Malaysian gas to other high growth economies such as Thailand, Singapore, and Philippines,

But in the short term, any growth in international gas trade in the region will come from LNG through the use of spare capacity in some existing LNG projects and addition of new liquefaction chains.

Longer term, Papua New Guinea and Myanmar may enter the picture to provide marginal supplies, while Pacific Rim consumers will have to look more to exporters outside the region-notably in the Middle East-for more bulk supplies.

Japan was the pioneer of LNG imports in the Far East.

Last year, LNG imports of 35.6 million tons met about 9.2% of total Japanese energy requirements.

LNG was first imported into Japan as fuel for power generation. Last year, 26.5 million tons of LNG went to power stations. Industrial users took 8.2 million tons, and the rest was consumed by residential customers.

Indonesia is Japan's main LNG supplier, followed by Malaysia, Brunei, and Abu Dhabi, with Australia's Northwest Shelf project as the latest entrant into the LNG market.

South Korea is increasing its imports of LNG. Indonesian supplies, currently 2 million tons/year, will rise to 4.3 million tons by 1994.

Later this year, Korea Gas Corp. will receive its first cargoes of LNG from Malaysia. It expects to import about 728,000 tons of LNG from Malaysia in 1992-94 as a buildup to the start of a 20 year contract beginning in 1996 that will involve 2 million tons/year.

Taiwan is the latest Pacific Rim country to move into LNG imports. The first cargo was imported from Indonesia last year under a 1.5 million ton/year contract.

Indonesia remains the powerhouse of LNG exports in the region. LNG exports in 1990 were 20.7 million tons, of which 16.7 million tons went to Japan.

Last year, contracts were signed for an additional 2 million tons/year of exports to Japan, which will help raise total Indonesian exports to 24 million tons/year by 1994.

Indonesian LNG salesman are active throughout the Pacific Rim and in addition to looking for more longer term business with Japan, have been seeking sales in Korea, Taiwan, Singapore, Hong Kong, and China.

NORTHWEST SHELF

Australia's Northwest Shelf LNG project will reach an important milestone this week when its 100th LNG cargo is loaded onto the Woodside Petroleum Pty. Ltd.'s Northwest Snipe LNG tanker.

Progress has accelerated on the project since the first cargo was shipped in August 1989. Northwest Shearwater, fifth of the initially planned seven vessels, is to join the fleet in October. The sixth and seventh carriers will be delivered in 1992 and 1993, respectively.

Currently, there is consideration of an eighth vessel being ordered as joint venture partners mull possible expansion of project capacity to 7 million tons/year by 1994-95.

Northwest Shelf LNG production has climbed to about 3 million metric tons/year and is expected to reach its original contract target of 6 million tons/year by 1994.

The eight Japanese buyers of Northwest Shelf LNG have agreed to a new program calling for purchase of at least 70 cargoes the next 12 months, an increase of 13% from the previous comparable period. Based on current prices, those cargoes will be worth about $840 million (Australian) in export revenues,

Meantime, construction of the No. 3 train at the LNG complex on the Burrup Peninsula is making rapid progress, with the central pipe rack almost complete.

Mechanical completion began in October 1990, The heaviest piece of equipment, a 368 metric ton sulfinol absorber column, was lifted into place in March. The cryogenic heat exchanger was lifted into place in May.

In addition, construction of the No. 3 train blastproof field auxiliary room, two power substations, and an analyzer house, have been completed.

Work on shore facilities related to Goodwyn field involving development of the Northwest Shelf project's second offshore gas field (OGJ, Apr. 23, 1990, p. 40) also is well under way. It includes building two condensate storage tanks, condensate stabilizers, and a sixth power generation unit for the shore power plant.

Construction of the Goodwyn A production platform jacket in Indonesia is on schedule. Although some of the Australian built topsides are slightly behind schedule, they are expected to catch up in time for offshore hookup next year.

All the Northwest Shelf area fields are owned one sixth each by operator Woodside, British Petroleum Co. plc, BHP Petroleum Pty. Ltd., Chevron Corp., Japan Australia (a combine of Mitsui Co. and Mitsubishi Corp.), and Royal Dutch/Shell.

THAI PROJECT DELAYED

Thailand's ambitious LNG project faces yet another delay. The Thai-Japanese group sponsoring it has postponed a feasibility study 2 more years.

Thai LNG International Co. (TLI) cited low oil prices and concerns about adequate supplies to support the project.

It is the fourth postponement of the project, with the most recent extension expiring in first quarter 1992. Commissioning the feasibility study would flash a green light to the project.

TLI stands by its previous analysis that the project is feasible with oil prices at $31 34/bbl.

TLI partners agreed to further study of new gas supply sources in the Gulf of Thailand and possible sites for the proposed liquefaction plant and export terminal.

Another possible supply source is the gas prone, 7,300 sq km joint development area covered under a development agreement between Thailand and Malaysia. The area is thought to contain 3.6 tcf of gas reserves potential, enough to support a 600 MMcfd project with export capacity of 3 million tons/year.

Noting continued strong growth in demand for LNG this century, notably in Japan, South Korea, and Taiwan, TLI is looking at a possible expansion of the proposed project to 10 million tons/year if additional Thai supplies can be proved.

TLI contends project economics won't suffer from repeated delays since the joint venture accord was struck in June 1985. TLI is owned 60% by Thailand's Thai LNG and 40% by four Japanese companies, including Mitsui and Mitsubishi.

VENEZUELA PLANS EXPORTS

Among South American countries, Venezuela currently has no gas exports. But that situation could change dramatically during the 1990S.

State owned Petroleos de Venezuela SA is proceeding with the biggest gas project in the country's history-and the first upstream joint venture with foreign oil companies since nationalization in 1976-in the $3 billion Cristobal Colon LNG export project.

Final approval of the project to export about 4.4 million tons/year to the U.S. beginning in 1997 or 1998 is expected soon from Venezuela's congress. The proposal went to congress last month after obtaining approval by the government's executive branch (OGJ, June 17, Newsletter).

Plans call for developing gas fields in the Gulf of Paria off Venezuela's east coast. That involves installation of eight production platforms, drilling about 55 development wells, laying about 50 km of pipeline to the mainland, and construction of a liquefaction plant and export terminal on the coast.

Partners with Pdvsa unit Lagoven SA 33% are Royal Dutch/Shell 30%, Exxon Corp. 29%, and Mitsubishi 8%.

The project is expected to generate $20 billion in revenues.

Venezuela could be exporting gas much sooner, however. The governments of Venezuela and Colombia have set 1993 as the target for completing the first natural gas pipeline linking the two countries.

The line, to cost about $500 million, will extend 50 km along one of two routes: from Zulia state in western Venezuela to the department of La Guajira in Colombia or from Casigua in the Venezuelan state of Tachira to the department of North Santander. Detailed studies of both routes are under way.

Feasibility studies are to be complete later this year, and construction is expected to begin in first quarter 1992. The two governments are seeking financing from the Inter-American Development Bank, Andean Development Corp., and other sources.

Currently, all Venezuelan gas production is reinjected, sold to generate electric power directly, for process and power needs in refineries, or as petrochemical feedstock.

Venezuelan gas production in 1990 averaged 3.9 bcfd, of which almost all was associated gas. Of that total, 1.27 bcfd was reinjected, 2.3 bcfd sold to industrial and residential users, and the rest absorbed in upstream oil industry operations.

Venezuela's proven gas reserves at yearend 1990 were 121 tcf, up from 106 tcf in 1989.

OTHER LATIN AMERICA

There is no other significant natural gas trade among Latin American countries, although a sizable potential for exports exists in some countries.

Argentina has promoted a pipeline and gas exports to southern Brazil for several years. Brazil's state owned Petroleos Brasileiro SA has resisted Argentine efforts to build a 390 mile, $290 million, 88.3 MMcfd capacity line linking the Rio Grande do Sul cities of Uruguaiana on the Argentine border and Porto Alegre on the coast. Petrobras cited lack of funds and insufficient immediate demand of 70 MMcfd required to make the project economic (OGJ, Aug. 21, 1989, p. 34).

Argentina also wants to pursue exports of Tierra del Fuego LNG to the U.S. East Coast. A unit of Total Cie. Francaise des Petroles recently started production through onshore facilities from a field off Tierra del Fuego and plans to install a platform in the field after 1995 (OGJ, Jan. 7, p. 24). Competing with the LNG scheme is a proposed $250 million petrochemical complex sponsored by an Argentine group.

Argentina currently exports small volumes of gas to Bolivia and Uruguay, and recently expanded gas throughput capacity to Bolivia (OGJ, June 3, p. 44).

Peru could be a gas exporter if it ever developed the giant Camisea gas/condensate complex in the central south jungle. Cost is pegged at $1.2-1.8 billion.

Development of the Camisea fields, discovered by Royal Dutch/Shell in 198288, remains stymied by lack of international financing and the collapse of a preliminary agreement between state owned Petroleos del Peru and Shell in 1988.

Peru's only other gas production is along its north coast and is fed to a fertilizer/petrochemical complex at Talara. That complex includes a 510 ton/day fertilizer plant, a 15,000 ton/year carbon black plant, and a solvents plant capable of producing 10,000 ton/year of isopropyl alcohol and 5,000 ton/year of acetone.

Petroperu shut down the fertilizer plant last month after fertilizer imports began selling at half the price of domestic supplies with cuts in import tariffs.

Elsewhere, Ecuador does not produce or import natural gas. Amistad gas field, discovered in the Gulf of Guayaquil more than 25 years ago, remains undeveloped. Reserves, yet to be fully assessed, probably could not support an LNG export project. There has been consideration of developing Amistad gas to feed a domestic fertilizer plant, however.

U.S. LNG OPERATIONS

The U.S. currently relies solely on Canada for its natural gas imports. And volumes flowing south are scheduled to increase (OGJ, May 20, p. 1 9).

In the meantime, LNG imports are scheduled to rise, too.

Panhandle Eastern Corp., Houston, in December 1989 resumed importing LNG from Algeria under an agreement with Sonatrading, an affiliate of Algerian state oil company Sonatrach (OGJ, Jan. 1, 1990, p. 19). In addition, Distrigas of Massachusetts Corp. (Domac) asked the Federal Energy Regulatory Commission to approve an $8 million expansion of regasification capacity at its 285 MMcfd Everett, Mass., LNG terminal.

Panhandle began importing Algerian LNG in September 1982, then halted the program in December 1983 because of the high cost of LNG compared with U.S. natural gas.

Terms of the resumption contract call for Panhandle to import 3.3 tcf of Algerian gas during 20 years, with takes based on Panhandle's sales volumes.

When renewed LNG imports began, four sales contracts were in place, all negotiated with undisclosed customers during second half 1989.

LNG enters the U.S. through a regasification terminal at Lake Charles, La., operated by Trunkline LNG Co., a Panhandle unit.

With a regasification capacity of 700 MMcfd, the Lake Charles facility is the largest active LNG plant in the U.S. It receives LNG in tanker shipments of 125,000 cu m, the equivalent of 2.7 bcf of gas.

In 1990, the facility received 12 shipments of LNG. Fifteen shipments are expected this year.

The Trunkline LNG terminal includes three 600,000 bbl cryogenic LNG storage tanks, an unloading dock, and a 1,600 ft diameter turning basin.

Panhandle said low prices for competing spot market natural gas in 1990 impaired performance of its LNG project.

Also, gas sales from the facility were slowed while Pan National Gas Sales Inc., Houston, a Panhandle unit, waited for FERC to certify Florida Gas Transmission Co. as an open access transporter. FERC certification of FGTC in September enabled Pan National to begin gas deliveries to Citrus Trading Corp. under a long term contract calling for volumes of as much as 110 MMcfd.

FGTC is jointly owned by Enron Corp., Houston, and Sonat Inc., Birmingham, Ala.

In December 1990, Panhandle began selling LNG to Houston's Metropolitan Transit Authority for a field test of LNG as a fuel for Houston city buses.

Overall, gas sales from the Lake Charles regasification terminal in 1990 averaged 76 MMcfd. During the first 5 months of 1991, sales averaged about 100 MMcfd.

Domac plans to install a 75 MMcfd vaporization train that will deliver gas through the terminal's existing medium pressure send-out system.

The company said the LNG supply line for the project will tie into the existing 12 in. diameter storage tank manifold.

Domac proposes to install a crossover line with a pressure reduction station from the new high pressure system to the existing medium pressure system. That will allow the proposed facility to serve as a backup to the existing vaporizer facilities and as a source of additional gas supply.

The metering, odorization, and higher heating valve stabilization system of the existing medium pressure sendout system will be used for the proposed new facility,

The company told FERC the expansion is needed to meet demand for increased vaporization capacity in the fall of 1993. It asked FERC to consider its application within 6 months so it will have time for engineering and construction before late 1993.

It said the proposed project will have no effect on rates charged for its sales service. Domac will assume 100% of the cost recovery risk.

A combine of Phillips Petroleum Co. and Marathon Oil Co. exports LNG from Alaska's Cook Inlet to Japan.

Copyright 1991 Oil & Gas Journal. All Rights Reserved.