Issue number: 94  

March 2013

 

POTENTIAL ENERGY
a short report on new sources of LNG.

Potential LNG Producers

Introduction

LNG demand is continuing to increase, mainly driven by energy-hungry Asia as its economies rapidly expand. [1]  With global LNG capacity not set to increase significantly in the short term, there are a number of potential projects seeking to meet this increasing thirst for natural gas.  The countries proposing to export LNG vary as much in their political and economic status as they do in the progression of their plans.  Due to the nature of the LNG business it is unlikely that all the potential export terminals they plan will come to fruition, as they will undoubtedly be competing with each other for the same customers.  This month’s MZINE article provides information on the potential new entrants into the LNG supply market and sheds some light on the likelihood of various projects happening. 

North America

The ‘shale gas boom’ in the US and its potential effects have undoubtedly had consequences on the US natural gas market, as has been discussed in previous MZINE articles.  Currently, these effects are yet to be manifest on a global scale.  But this is likely to change, with Canada seeking to diversify its gas market as the US both reduces imports from its neighbour and sets out to export some of its natural gas.

Figure  SEQ Figure \* ARABIC 1 - Proposed/Potential Import/Export Terminals [2]

The following map shows proposed and potential new import and export terminals in Canada and the USA 

FERC, the Federal Energy Regulatory Commission, is an independent agency that regulates the interstate transmission of natural gas, oil, and electricity. FERC also regulates natural gas and hydropower projects. 

MARAD/USCG - Maritime Administration and United States Coast Guard 

Canada

Until now, all of Canada’s natural gas exports have gone to the US via pipeline.  Before the ‘shale gas boom’ this was a trading relationship that was hugely beneficial to Canada and one that was set to become even more important as US reserves declined.  The situation has now changed with Canada appearing exposed to loss as the US reduces imports and becomes more sufficient in its own resources.  But Canada has increased its exploration of its own shale prospects similar to the US, with a number of applications lodged to build export terminals in British Columbia.  These terminals are primarily targeting the Asian market as Canada attempts to diversify its portfolio. 

It appears that there are as many as seven terminals being planned.  Of the seven proposed, the following four are notable, either for their project advancement or the experience of companies in the joint venture at developing LNG:- 

  • LNG Canada, a project part-owned by Shell, PetroChina, Mitsubishi and KOGAS which intends to export up to 24 mtpa of LNG from 4 trains

  • Kitimat LNG, part owned by Apache and Chevron, which intends to export up to 10 mtpa

  • Pacific Northwest LNG, part owned by Petronas and Progress Energy, which intends to export 12 mtpa

  • Douglas Channel, a smaller scale facility which will produce approximately 0.7 mtpa. To be developed by Douglas Channel Energy Partners, a privately-owned partnership formed in British Columbia.

LNG Canada, Kitimat LNG and Douglas Channel have already obtained federal approval.  But with the exception of Douglas Channel, all of the proposed projects in Canada have yet to reach a final investment decision. 

USA

The introduction of shale gas changed the USA’s status from likely net importer to potential exporter and meant that not only were existing import terminals rendered useless, but the downward effect shale gas production has had on prices has prompted many companies to seek permission to export LNG, at more profitable prices.  In fact, the Department of Energy has received 25 applications to export, with the quantity totalling just under 30 bcf/d or 217mtpa. [3] Presently, upon application, any facility that complies with basic requirements must immediately and without modification be granted authorisation to export LNG to FTA-nations [4]. However, the Department of Energy and FERC have more power to decline authorisation to trade with non-FTA nations and it may be on these decisions that the fate of many terminals rests.  The big markets are located in the nations where the US does not have FTAs and include Japan, China and all of Europe.  So far only Cheniere Energy has secured authorisation for export to non-FTA nations. With contracts totalling about 16mtpa, mostly with Asian buyers, it has already made a positive final investment decision.  The new terminal at Sabine Pass is currently under construction and will be the first export terminal in the contiguous US. 

East Africa

Although Mozambique has been producing gas from the onshore Pande and Temain fields for a number of years, recent discoveries have been made of untapped oil and gas off the Mozambique and Tanzania coasts. These have dramatically increased estimates of recoverable reserves of gas to around 150 tcf or just under 4.5tcm, with the possibility of more gas discoverable.  

In fact, so significant are the discoveries off Mozambique that they account for four of the five largest oil and gas discoveries in 2012.  The proximity of these fields to both the European and Asian markets, via the Gulf of Aden and Suez Canal, make these discoveries even more important, indicating the production and shipping of LNG.  These discoveries could even see as yet unsanctioned projects in Australia fail to get off the ground. Investors may well seek rather to take advantage of projects in Mozambique or Tanzania, as they are likely to prove less expensive to develop.

Mozambique

Anadarko and ENI are currently working together to build a liquefaction plant.  It has been suggested that the project will initially consist of 4 trains, each of 5 mtpa capacity, with the potential for expansion to as many as 10 trains.  The project is still at an early stage with plans for the facility being drawn up.  Since announcing that they were going to work together, both Anadarko and ENI have sold off some of their fields to help finance the projects and have been in discussions with potential customers around the world, with a focus said to be on Japan. 

There are issues surrounding infrastructure - for instance 80% of Mozambique’s population does not have access to any power.  The country will also have to build deep water ports to cope with large LNG tankers.  There are also concerns surrounding the potential of the Mozambique workforce.  At present it is almost completely unskilled, which is a problem considering a workforce of around 7,000 is needed to construct the LNG plants.  Whilst the companies involved could ship in their own workforce, this may damage the currently positive relationship between the companies involved and the national Government which has allowed drilling in their waters.  But it has been reported that the contracts do not have any clauses specifying the use of local content, so domestic players could be relegated to bit part players.  Also, if overseas investing companies chose to utilise their own workforce to ensure quicker progression, this may mean fewer long term benefits for the country.

Figure  SEQ Figure \* ARABIC 2 - Mozambique LNG Project Conceptual Design [5]

Tanzania

Tanzania is in a similar position to Mozambique having found significant reserves of natural gas off its coast.  Statoil and partner ExxonMobil have estimated recoverable natural gas volumes of around 10-13 tcf, a figure which could increase, and are confident of a future decision on a potential LNG project.  Meanwhile, BG Group, with its partner Ophir Energy has found about 10 tcf which it also thinks is enough to warrant development of an LNG terminal.  Plans for both sets of joint ventures are currently at an early stage, with a possibility of Statoil and BG Group working together. BG Group CEO Chris Finlayson has noted that there are serious challenges relating to the country’s ‘undeveloped infrastructure and very undeveloped civic capacity to absorb major investments’. [6]  There is some concern that should Tanzania and the companies in control of its resources take too long to get the gas to market it will have missed out on the opportunity due to the number of proposed LNG terminals around the world.

Other

Mozambique and Tanzania are so far the only countries in East Africa to have found significant gas discoveries.  However, given the success of exploration in these two countries there has also been interest in Kenya, Uganda and Madagascar, Although there are yet to be significant natural gas finds, in these countries, drilling is on-going and so it is quite possible that there will be large and commercially viable natural gas finds. 

South America

Brazil

At present Brazil is a net gas importer, with fairly low production levels, and gas accounting for around 9% of total energy consumption.  However, in an attempt to meet rising demand and to decrease reliance on imports (and hydroelectric power), Petrobras is planning to bring a number of natural gas projects online. (Petrobras plays a dominant role in Brazil’s entire natural gas supply chain.)  As part of this, plans had been proposed by a consortium of Petrobras, BG Group, Galp Energia and Repsol to build a 2.7 mtpa Floating LNG plant to exploit the reserves of the pre-salt Santos Basin. Whilst it seems these plans have been shelved, LNG regasification terminals still being built in the short term. The option of exporting gas via pipeline, as well as the possible use of gas in chemical production, is seen as the preferable choice in the longer term, especially with the recent demand shift to Asia. This far distant market certainly adds geographical impediments. Whilst the option of Floating LNG may have been shelved, there is still a possibility that as FLNG technology becomes more competitive it will be revisited. 

Asia-Pacific

Papua New Guinea (PNG)

BP has estimated Papua New Guinea’s proven reserves at 441 bcm and so PNG LNG are seeking to exploit these reserves, specifically in the Hides, Angore and Juha fields.  Given the possibility of further LNG plants, as discussed below, this figure could well increase in the future.  PNG LNG – a consortium led by ExxonMobil, which will operate the terminal – started the project to exploit these named fields in 2007. The plan to exploit these fields includes a land-based liquefaction terminal located near the capital Port Moresby, with construction starting in 2011.  The PNG plant will look to process around 250 bcm of gas over the life cycle of the project, with two trains producing 6.9 million tonnes per year of LNG scheduled to begin in 2014.   

The project is geographically well placed as it is easily able to transport its gas to the lucrative Asia market, and has in fact concluded long term contracts to supply four major LNG customers in the Asia region.  These contracts total 6.5 mtpa, which is just below the plant’s intended nameplate capacity and therefore means that the terminal will not have to sell much, if any, of its LNG on the short term market. 

In addition to the PNG LNG project, the government has also recently given the approval to the Liquid Niguini LNG project, taking a 50% stake.  The project will target an initial capacity of 3.8 mtpa with the possibility of growth to around 8 mtpa and potentially 12.  Although InterOil has secured Heads of Agreement for the facility, it is yet to turn these into binding Sales and Purchase Agreements. 

There have also recently been suggestions that Horizon Oil, in conjunction with Talisman Oil, will also pursue a mid-scale LNG project following its discoveries of an increased gas volume (around 1.2tcf) in the Elevale and Ketu gas and condensate fields. 

In conclusion

many parts of the world are poised to go all out for LNG production, but whether or not backers go ahead and produce LNG will depend on the emerging prices anticipated in the diverse markets in different parts of the globe.

 


[1]
http://uk.reuters.com/article/2013/01/18/us-lng-market-price-hike-idUKBRE90H07T20130118

[2]
http://ferc.gov/industries/gas/indus-act/lng/LNG-proposed-potential.pdf – Note – Numbers 1-4 are potential or proposed import terminals, the rest are export.

[3]
http://www.fossil.energy.gov/programs/gasregulation/reports/summary_lng_applications.pdf

[4]
FTA Nations - the United States has free trade agreements in force with 20 countries including Australia, and countries in the Middle East and South America.

[5]
http://www.mzlng.com/docs/MozLNGFactsheet.pdf

[6]
http://www.businessweek.com/news/2013-02-05/bg-group-to-slow-tanzania-lng-plans-on-lack-of-infrastructure

 

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