ASIA-PACIFIC FOCUS OF COMING LNG TRADE BOOM

Nov. 16, 1992
The Asia-Pacific region remains the centerpiece of a booming world trade in liquefied natural gas. Biggest growth in LNG demand is expected from some of the region's strongest economies such as Japan, South Korea, and Taiwan. Key LNG exporters such as Brunei, Malaysia, and Indonesia are scrambling to implement projects to meet that expected demand growth.

The Asia-Pacific region remains the centerpiece of a booming world trade in liquefied natural gas.

Biggest growth in LNG demand is expected from some of the region's strongest economies such as Japan, South Korea, and Taiwan. Key LNG exporters such as Brunei, Malaysia, and Indonesia are scrambling to implement projects to meet that expected demand growth.

Uncertainties cloud the outlook for Far East LNG trade. Australia, for one, is more cautious in pressing expansion of its LNG export capacity as more competing LNG expansions spring up around the world, notably in the Middle East and Africa.

Potential LNG exporters such as Papua New Guinea and the Russian Far East loom on the horizon.

Complicating the picture are widely varying industry estimates of LNG market growth. Environmental concerns have led many analysts to jump sharply their estimates of projected LNG demand growth from levels predicted just a few years ago.

CEDIGAZ PROJECTIONS

France's Cedigaz contends world LNG trade could leap to 120-130 billion cu m/year in 2000 and more than 200 billion cu m/year in 2010, following an average 20%/year increase in demand for LNG since the first liquefaction plant started up in 1964.

"If this potential is to be realized," wrote Sylvie Cornot-Gondolphe, general secretary of Cedigaz, in the fall issue of Energies, Total's in-house magazine, "eight new liquefaction plants will be needed between now and 2010, requiring an investment of at least $40 billion."

Cedigaz cites the Far East as the linchpin in projections of spectacular growth in LNG supply and demand, noting Japanese LNG demand alone could soar to 79-88 billion cu m/year in 2010 from 51 billion cu m in 1991.

Currently, installed LNG capacity is equal to about 25% of world gas trade. Consumption of LNG to generate electrical power has jumped the past 5 years by 40% in Europe and by 60% in East Asia. By 2000, world consumption of LNG for power generation is expected to double as Germany, Portugal, Greece, and Turkey join the ranks of LNG importers.

The spurt in LNG demand is spawning a surge in construction of specially designed vessels to transport the liquefied gas. Shipping industry analysts predict world demand for LNG carriers will lead to orders for about 80 more vessels by 2001.

ASIA-PACIFIC BOOM

The world LNG market could double or even triple in the next two decades largely as a result of increasing environmental concerns spurring fuel switching from oil, coal, and nuclear energy sources.

And the Asia-Pacific region will remain the core of this growth in demand and supply, said industry officials at the LNG 10 Conference in Kuala Lumpur earlier this year.

Officials at the conference estimated LNG demand in the Asia-Pacific region will exceed supply before the end of the decade.

Involved in the booming LNG trade are grassroots projects as well as expansions that will call for investment of tens of billions of dollars. Sources of capital needed for those projects are tightening because of competing investments in the former Communist eastern Europe and U.S.S.R.

Adding to the uncertainty for Asian LNG trade are unresolved political and economic problems among the industrializing nations of the region.

However, it is certain that the most intensive development of LNG export capacity will occur in Indonesia and Malaysia, the biggest and third biggest LNG exporters, respectively. Algeria holds the No. 2 spot.

MALAYSIA PROJECTS

Malaysia expects to double its LNG export capacity to almost 16 million metric tons/year by 1997, which would net it projected earnings of $4.5 billion/year. By 1995, Malaysian revenues from LNG exports are expected to outstrip those from oil exports, 7.3 billion ringgit ($2.92 billion) vs. 6.9 billion ringgit ($2.76 billion).

Malaysian state oil company Petroliam Nasional Sdn. Bhd. (Petronas) plans to retain a major interest in a new LNG plant at Bintulu on the Sarawak coast if it proceeds with the project.

Plans call for construction of another three trains at Bintulu that would boost capacity to 15.8 million tons/year by 1996 from the current 7 million tons/year. Cost estimates vary, but if the plant could share infrastructure with the existing Bintulu plant, it could be built at a cost of $1.6 billion, Petronas said.

Petronas is seeking customers, financing, and equity partners in the project. It probably will have to turn to European sources for financing.

Among partners under consideration is the group led by Occidental Petroleum Corp. that discovered an apparent giant gas field in the central Luconia basin off Sarawak earlier this year.

Oxy's 1 Jintan flowed 32.9 MMcfd of gas and 832 b/d of 47.2 gravity condensate in April. Oxy's 2 Jintan appraisal last month flowed 64.4 MMcfd of gas and 620 b/d of 51.2 gravity condensate (OGJ, Nov. 9, p. 40).

Further appraisal drilling is needed, but Petronas' initial estimate of reserves are 2.8-4.2 tcf. Oxy pegs reserves at about 4 tcf and 75 million bbl of condensate.

Malaysia LNG Sdn. Bhd. (MLNG) recently let contract to Coprimo (Malaysia) for construction of a second LNG tanker loading berth at Bintulu.

MLNG let contract to a group of contractors for design and construction work on the project earlier this year (OGJ, May 4, p. 48). It involves engineering, procurement, construction, and commissioning of the berth, which, like the first, will be capable of accommodating carriers of 130,000 cu m capacity.

MLNG is owned by Petronas 60%, Royal Dutch/Shell Group and Mitsubishi Group 17.5% each, and the Sarawak government 5%. The partners in May set up a separate joint venture, Malaysia LNG Dua Sdn. Bhd. (MLNG-2), to oversee the project. MLNG-2 was capitalized at about $400 million.

Petronas let contract in 1991 to French shipbuilder Chantiers de L'Atlantique for five LNG carriers, each with capacity of 62,500 tons of LNG, to handle deliveries to Japan. Pre-building began in January and keel laying in September. Plans call for delivery of the first vessel in July 1994 and the fifth in July 1997.

Petronas will finance 80% of the carrier purchase with a 5.6 billion franc French export credity facility dedicated to the first three vessels. The remaining 20% will be financed through a fixed rate loan from a group of local and foreign banks.

INDONESIA LNG

Indonesia produced 61 billion cu m of natural gas in 1991, of which 57% went to feed LNG exports totaling 22.8 million tons.

LNG exported from Indonesia's Arun and Bontang complexes cover half of Japan's consumption and all of South Korea's and Taiwan's. According to Total Indonesia, the country in 1991 exported 18.5 million tons to Japan, 2.8 million tons to South Korea, and 1.5 million tons to Taiwan.

Total Indonesia has a production sharing agreement with Pertamina and Japan's Inpex for the Mahakam permit on Kalimantan covering production of natural gas that will help support exports of LNG to Taiwan under a long term contract.

Indonesia's current export capacity is 24 million tons, divided 50-50 between Arun's six trains and Bontang's five trains. Of Indonesia's proved and probable gas reserves of more than 100 tcf, about 25% are in East Kalimantan, about 20% in northern Sumatra, almost 50% in the Natuna Island area of the South China Sea, and the rest mostly in or near Java.

Most of the East Kalimantan gas is under long term contract with buyers in Japan, South Korea, and Taiwan via the Bontang plant and with domestic users.

Most Sumatran gas is covered by long term contract with Japanese and South Korean buyers via the Arun plant and in sales to domestic chemical operations.

Because of the extent of Natuna reserves, the government is promoting a third liquefaction complex at Natuna despite the technical difficulty in producing Natuna gas with a carbon dioxide content of as much as 70%. Operator Exxon Corp. claims to have solved the technical problems, but uncertainty persists as to the economic viability of the project, Total said.

A sixth train is under construction at Bontang to provide supplies covered under a recent contract signed with Japanese buyers, with first deliveries planned for January 1994.

Meantime, Indonesia's state oil company Pertamina in September secured two long term sales contracts to supply LNG to Osaka Gas, Hiroshima Gas, and Nippon Gas.

The contracts call for delivery of 200,000 tons/year of LNG during 1996-2000, doubling thereafter until expiration in 2015.

BRUNEI ACTIVITY

Brunei Cold Gas, a joint venture of Brunei's government, Royal Dutch/Shell Group, and Mitsubishi Corp., early this year agreed to extend a contract to ship LNG to Tokyo Electric, Tokyo Gas, and Osaka Gas for another 20 years.

The venture has supplied 5.14 million tons/year of LNG to the Japanese utilities since 1972 under a contract that would have expired in March 1993. The new contract, expected to be signed this fall, allows imports to be increased 10%.

Last year, the three Japanese utilities took delivery of 158 cargoes of LNG, six more than the volume contracted.

The joint venture also earmarked $62.5 million for added compression in Ampa-9 gas field to boost production for the expected increase in LNG deliveries.

Brunei LNG Sdn. Bhd. Shell recently let a 108 million guilder ($59 million) turnkey contract to Hollandsche Beton Group (HBG) for a new LNG loading facility to expand capacity at the existing LNG loading berth at Lumut, Brunei.

The contract covers design, engineering, procurement, and construction.

The project is expected to be complete in late 1993 or early 1994. It involves installation of a 426 m trestle, loading platform, and associated mooring and breasting dolphins, all with detailed design by Delta Marine Consultants, as well as infrastructure work and installation of three LNG loading arms.

The new facilities will accommodate LNG carriers of 75,000-135,000 cu m capacity.

AUSTRALIA LNG

A group led by Woodside Petroleum Ltd. recently marked progress on the big Northwest Shelf project, source of Australia's LNG exports, with installation of the Goodwyn platform off Western Australia (see story, p. 33).

Although intended to initially produce condensate, Goodwyn gas will help service existing Japanese gas supply contracts in the second half of the 1990s.

The Northwest Shelf group earlier this year signed agreements to supply an additional 1 million tons/year of LNG to its Japanese buyers beginning in 1995. The increase will boost deliveries to almost 7 million tons/year.

The new agreement led to contracts between Northwest Shelf shippers and Mitsubishi Heavy Industries Ltd. covering construction of an eighth LNG carrier to service the Northwest Shelf project.

Identical to the five Moss Rosenberg design vessels currently plying the Australia-Japan run, the new vessel will have capacity of 125,000 cu m of LNG. It is scheduled to be delivered in December 1994. The sixth and seventh vessels in the fleet, under constriction in Japan, are to be delivered this month and in February 1993.

Northwest Shelf LNG buyers are Tokyo Electric, Chubu Electric, Kansai Electric, Chugoku Electric, Kyushu Electric, Tokyo Gas, Osaka Gas, and Toho Gas. Meantime, construction of the third LNG train on Western Australia's Burrup peninsula is ahead of schedule for a Dec. 1 start-up.

JAPAN-MALAYSIA DEALS

In all, Malaysia has agreements to supply Japan, South Korea, and Taiwan a combined 7.5 million tons/year of LNG. Japan's Tohoku Electric Power Co. recently agreed to purchase 500,000 tons/year of LNG from MLNG for 20 years beginning in 1996.

Price will be indexed to the average cif Japanese crude import price. Tohoku is the fifth Japanese utility to sign up for LNG supplies from the Bintulu expansion. Tohoku's current LNG needs of 2.9 million tons/year are supplied by Indonesia.

In October 1991, MLNG signed 20 year contracts to supply LNG to Tokyo Gas, Kansai Electric Power, Osaka Gas, and Toho Gas under the expansion. It also signed agreements to supply LNG to South Korea and Taiwan.

Under existing contracts, Japanese companies are committed to buy 6 million tons/year of Malaysian LNG for 20 years. The first delivery occurred in January 1983. Malaysia supplies 2 million tons/year to Tokyo Gas and 4 million tons/year to Tokyo Electric Power Co.

The Japan Gas Association (JGA) predicts imports of Malaysian LNG will jump by another 2 million tons/year by 2000. JGA estimates Japanese demand for LNG will increase to 43 million tons/year by 2000 and 54 million tons/year by 2010.

The world's biggest LNG importer, Japan in 1991 imported 36.46 million tons of LNG from six countries, accounting for about 70% of world LNG trade. Its major supplier is Indonesia, which accounts for 15.45 million tons/year under three contracts.

TAIWAN LNG DEMAND

Taiwan plans a huge increase in its consumption of LNG, especially to fuel electrical power plants.

State owned Taiwan Power Co. expects installed capacity for power generated by LNG to increase to 8.59 million kw by 2001 from 751,000 kw in 1991. LNG's share of Taiwan's power market in that period is expected to jump to 22.9% from the current 4.1%. At the same time, nuclear's share of the Taiwanese power market will fall to 19% from the current 30%, Taiwan's Economic Ministry predicts.

Late last month Taiwan's state oil company Chinese Petroleum Corp. (CPC) decided to import natural gas from Malaysia and took steps to sign a memorandum of understanding with an undisclosed Malaysian supplier. CPC hopes to begin importing 2.25 million tons/year from Malaysia in 1995. That would make Malaysia the biggest supplier of LNG to Taiwan, surpassing Indonesia with its current level of 1.6 million tons/year.

CPC officials say the company wants to further diversify its sources of natural gas supplies, citing concerns that principal LNG supplier Indonesia might not be able to meet Taiwan's gas needs in a few years.

CPC is negotiating with potential suppliers in the U.S. and Canada. In addition, CPC late last month agreed to cooperate with Russian firms in developing Sakhalin Island natural gas reserves estimated at more than 3.5 tcf. The agreement came out of talks between Russian officials and a Taiwanese delegation led by CPC Vice Pres. C.Y. Huang.

Copyright 1992 Oil & Gas Journal. All Rights Reserved.