Guest Post: LNG - The Holy Grail Of Gas Investments

Tyler Durden's picture




 

Submitted by James Stafford of OilPrice.com,

Liquefied natural gas (LNG) technology—from LNG seaborne tankers and LNG trains to floating LNG facilities have quickly gone from concept to commercialization, opening up new possibilities in new frontiers and rendering the remote—well, much less remote.

Analysts say FLNG terminals will become a major growth market within the next couple of years, as they offer more flexibility than stationary terminals.
 
Liquefaction of natural gas is the process of super-cooling natural gas to minus 260 degrees Fahrenheit (minus 162 degrees Celsius) at which point it becomes much safer and easier to transport. After its been shipped to its destination, regasification plants at importing or receiving terminals return the fuel to a gaseous state.

A lot of money is being dumped into LNG technology right now. It’s a major bet on the LNG market, but here’s why it’s solid:

•    LNG demand is set to double over the next decade to 408 million tons a year
•    Major markets for LNG are opening up and some of them can’t be reached by overland pipelines
•    The Asian market is particularly hot for LNG and they are paying top dollar
•    Prices and rising global demand make it worth shipping LNG by seaborne tankers
•    The US may become a major LNG exporter, and customers are already lining up
•    Russia is now in the global LNG market and it’s determined to become a major player in this field
•    Britain's natural gas imports from outside the North Sea will surpass domestic production by 2015 and add more than $11 billion to import costs as domestic supplies dwindle and Norway struggles to fill the gap (Qatar is only sending it leftovers right now—the bulk goes to higher paying Asian customers)


As natural gas gains favor over oil and coal because it’s cheaper and cleaner, non-OECD countries are expected to account for 80% of natural gas demand growth by 2035. The largest share of global gas demand comes from the power sector.

China is set to double its LNG imports to 25-30 MTPA by 2015 as Beijing views gas as the foundation of its energy future over the next decade. Australia and Qatar will be the biggest suppliers on the current scene.

India is also set to double its regasification capacity by the end of 2015, as gas supplants liquid fuel demand. By 2015, LNG imports to India are expected to reach 17-20 MT (up from 9 MT in 2011).

Global Liquefaction capacity is set to increase by 4.4% by 2015 and another 7.5% by 2020, when it is expected to reach 470 MTPA. Australia will be the biggest contributor to this number, adding 80 MTPA of LNG supply by 2020. The US could have the capacity to add 70 MTPA to supplies.

The real game-changer will be if the US moves to export its LNG with its 70 MTPA capacity. In the meantime, companies in Canada are winning permits to export LNG. A Shell-led consortium in February became the latest permit holder for an LNG export facility in British Columbia. Shell joins the permit-holding ranks that already include Apache Corp., which has an interest in Kitimat along with Chevron, where the first LNG shipment is scheduled for 2015. The third license went to privately-owned BC LNG Export Cooperative.


The Future is Floating

Floating LNG production, storage and offloading concepts are revolutionary because they have the ability to station a vessel directly over distant fields, removing the need for offshore pipelines and adding the advantage of mobility—these floating facilities can be moved to a new location once existing fields are depleted.  

Floating liquefaction technology can bring additional LNG supply by accessing stranded gas reserves that were previously thought to be too remote, small or otherwise challenging for conventional land-based LNG development. More specifically, the advantages include:

•    fast-track regasification for new LNG importers
•    lower upfront capital investment compared to onshore facilities
•    rising expense of onshore projects improves the cost differential in favor of FLNG
•    mobility/relocation to new fields
•    overcoming restrictions due to limited land availability

There are 10 existing Floating Storage and Regasification projects, and an additional 8 under construction, and at least 30 other potential projects on the drawing board.

There are both small- and large-scale floating LNG projects. Small-scale floating LNG projects target 1-3 trillion cubic feet stranded gas reserves, while large-scale floating LNG projects are primarily focused on avoiding long distance submerged pipelines to shore and enhancing the prospects of fields for which traditional LNG development would be difficult.

Shell, Mobil and Statoil are all developing large-scale FLNG projects in Australia, Nigeria and Namibia.

Shell’s most prized LNG project is its Prelude Floating Liquefied Natural Gas (FLNG) Project in Australia, which is moored some 200 kilometers out to sea and will produce gas from offshore fields and liquefy it onboard. The LNG, LPG and condensate produced will be stored in tanks in the hull of the facility. LNG and LPG carriers will moor alongside to offload the products. This vessel will be six times bigger than the biggest aircraft carrier and will cost between $10.8 and $12.6 billion to build—but it also means that Shell won’t have to pay rising prices in Australia’s onshore LNG plants. The facility will produce about 3.6 million metric tons of LNG and 1.3 million tons of gas condensate a year.

The Ichthy’s Floating Production Storage and Offloading Facility (FPSO) venture in Australia, led by Inpex Corp. (1605), will cost an estimated $34 billion and have a capacity of 8.4 million tons annually—of both liquefied petroleum gas and condensate.

Petronas has its own plans to build its first FLNG project, which is set to start in 2015 in Malaysia. The facility will have a 1.2 million ton per annum capacity and will operate at the Kanowit gas field, 180 kilometers offshore Bintulu.

ConocoPhillips (COP) also plans to build an FLNG facility off Australia, and smaller companies like GDF Suez (GSZ) and PTT Exploration & Production Pcl (PTTEP) also plan floating LNG projects.

BHP and Exxon Mobil Corp. (XOM) are also considering FLNG for their offshore Western Australia Scarborough field because it would eliminate the costs of building pipelines and jetties.

Russia’s Gazprom also plans to build an FLNG vessel to store and export LNG from Israel’s Tamar gas field, about 90 kilometers off the Israeli coast on the eastern Mediterranean. Tamar has estimated reserves of 9.7 trillion cubic feet of natural gas. According to a deal still being worked out with Israel, Gazprom would export roughly one-third of Tamar’s reserves over a 20-year period, starting in 2017.

Onshore LNG Plants: Second Thoughts?

While there is already some hesitancy about building new onshore LNG plants in Australia and some indications of second thoughts due to the advantages of floating facilities, Italy’s Eni and Anadarko (Texas) are planning an onshore LNG plant in Mozambique, in the Cabo Delgado province. The plant would have an eventual capacity of about 50 million tons a year. The plant would be the second largest in the world outside of Qatar. So far, though, Mozambique seems to have a limited capacity for the plant which is hindering plans for exports to begin in 2018.

Increasingly, though floating LNG is being bandied about as a better answer to tapping into Mozambique’s massive offshore natural gas potential. In 2012, a total of 100 trillion cubic feet of natural gas was discovered in the country’s north. New LNG technology, like FLNG facilities, combined with Mozambique’s proximity to gas-hungry Asia, could propel the country into the major leagues.

Indeed, there are rumors afoot that BP might be having second thoughts about building its own $40 billion Browse gas project onshore in Western Australia. The project is a joint venture with Woodside Petroleum as well as BHP Billiton Ltd, Shell, Mitsubishi and Mitsui. This summer should see a decision on this.

LNG Transport: Seaborne Full Speed Ahead

Demand for seaborne LNG is expected to increase this year by 5.6%, as some 15 million metric tons a year of liquefaction capacity is set to come on line by 2014—enough to fill 20 average vessels, or 80% of the vessels ordered for 2013. Demand growth for oil-product tankers will exceed fleet growth between 2013 and 2015 (expanding 4.8%), with supply growth expanding 1.8%.

Then there’s this: the cost to book an LNG tanker more than doubled from 2010 to 2011.
As of today, we count a total of 373 LNG vessels in operation, with orders for over 60 having been placed. Contracts are also being placed by new market entrants like Awilco, Dynagas, Thenamaris, Cardiff Marine and Alpha Tankers.

Shell is the clear leader in the global LNG market because it has its own fleet of vessels so doesn’t incur the same processing and shipping costs, and when its FLNG project in Australia goes on line we expect much better things. Shell is also gearing up for LNG exports from its North American terminal in Kitimat (British Columbia). Shell is also toying with an LNG terminal in India (the country’s first ever), which would handle LNG imports coming from Australia.

But here’s a smaller company that is looking strong: Golar LNG (GNLG). The company had a stellar year in 2011, up 188% year-on-year. The company is one of the largest independent owners and operators of LNG carriers and has 8 LNG-specific vessels. Its focus in 2011 on LNG instead of crude was a winning bet.

Golar’s 4th quarter 2012 results were also impressive, with an increase in net income of $22.83 million compared to $17.18 million in 2011. Comprehensive net income was $32.89 million, up from $26.80 million in the previous year. Revenue for the quarter was $111.84 million--up from $80.62 million in 2011. Last year also saw Golar complete a third follow-on equity offering with a net proceed of $130 million.

Also … Keep an Eye on LNG Technology Companies

Floating LNG has required the development of some very specific technological components that are key to its performance. Specifically, more stringent environmental concerns require specific tandem offloading systems and dedicated LNG tankers. There are also ongoing technological developments that deal with onboard LNG storage to avoid sloshing.

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Fri, 03/08/2013 - 15:47 | 3313037 francis_sawyer
francis_sawyer's picture

Watch out for Trojan Rabbits along the way...

Fri, 03/08/2013 - 16:09 | 3313064 kaiserhoff
kaiserhoff's picture

$17 world price versus $3-4 in North America.  Hell yes.  Arbitrage we be, but be careful.

The real advantage of FLNG is keeping it away from regular ports and population centers.

When, not if, one of these suckers blows, it will make an oil spill look like a walk in the park.

Swiss Reinsurance anyone?  How about AIG?  Who is stupid enough to underwrite this?

Fri, 03/08/2013 - 16:14 | 3313102 I think I need ...
I think I need to buy a gun's picture

well someone on CNN told me in 2008 that WE HAD to bail out AIG because they insured the the oil platforms and airplanes

Fri, 03/08/2013 - 16:31 | 3313150 NotApplicable
NotApplicable's picture

"Shell is also toying with an LNG terminal in India (the country’s first ever), which would handle LNG imports coming from Australia."

So... Enron was merely ahead of its time?

Fri, 03/08/2013 - 16:55 | 3313225 DoChenRollingBearing
DoChenRollingBearing's picture

I wonder if any of these large cap LNG projects would be suitable for energy MLP-type corporate structures?  It would seem so...

 http://tinyurl.com/a2lumw6

Fri, 03/08/2013 - 21:34 | 3313944 constantine
constantine's picture

Golar has an LNG tanker MLP with ticker GMLP. I think the assets are 4 tankers or something with the possibility of buying 2 more from the parent, which has ticker GLNG. Also the Cheniere Energy MLP, CQP, I think is largely Sabine Pass assets. Massively in the red now though as it builds out the Louisiana liquifaction terminal but there's enough big money backing it (blackrock) that my guess is it will be viable... In the meantime a subordinated distribution structure gives it a current yield of 7 percent the last time that I check... So yeah, it looks as though there may be some sweet MLPs in the future if others are like minded. Of course there's always the possibility of another market meltdown to destroy these and everything else in its path.

Fri, 03/08/2013 - 16:44 | 3313188 Quantum Nucleonics
Quantum Nucleonics's picture

World prices are more like $13 - 14, and with the amort. infrastructure costs, costs to convert gas to liquid to back again, plus transport costs, the profit margin isn't as great as it seems.

Fri, 03/08/2013 - 19:56 | 3313747 kaiserhoff
kaiserhoff's picture

Everything happens at the margin.  Japan was paying 17 recently.

Desperation.  It's the new normal.

Fri, 03/08/2013 - 16:48 | 3313202 Kayman
Kayman's picture

Who is stupid enough to underwrite this?  I hope that is a rhetorical question. Who is underwriting the economy ? Same answer.

Fri, 03/08/2013 - 17:42 | 3313336 Taint Boil
Taint Boil's picture

 

 

What if you parked a liquid oxygen tanker next to LNG tanker and blew that sucker up … don’t know how to do the math on that one but it’s got to be a big boom. 

I’ll be damn I found it – Google is good. 

Link 

1 LNG gallon = 82,644 Btu

42 gal in a barrel [oil] = 3,471,048 Btu = 0.00087595015577438 Kilo ton TNT 

A million barrels = 875 Kilo Ton TNT ???? Is that a big explosion?

The Ivy King was 500 kiloton nuclear bomb..... math must be off.

 

 

I checked with Freddie to go over the math and all he said was "Hope And Change". Anyone else want to check it out.

Fri, 03/08/2013 - 19:38 | 3313708 kaiserhoff
kaiserhoff's picture

Taint, in spite of what your friends say about you, you do good work.

Could be a really bad day.  I actually like the concept, but handling this stuff in all weather, under extreme pressure and temperature conditions... I'd like to know what the oil guys say.  It looks to me like pushing the envelope.  The closest analogy I can come up with is the space shuttle, and those suckers didn't always make it back.

Sat, 03/09/2013 - 02:51 | 3314352 dunce
dunce's picture

I have worked in industrial plants with large tanks of liquid oxygen and other liquified gases and can tell you that it is inherently super dangerous and there is often no putting the fire out, just picking up the bodies and pieces, and these places were tiny compared to these floating super bombs. I am not saying they should not be built, just not close to population centers. You have to plan on them eventually going boom.

Sat, 03/09/2013 - 03:15 | 3314364 Cast Iron Skillet
Cast Iron Skillet's picture

yep, super bombs. Can hardly wait for the first news report of an LNG tanker accident. I just hope it isn't anywhere near where I live.

What's the plan if one of them sinks or something? Does the LNG just sort of stay liquified down there under the ocean forever?

Sat, 03/09/2013 - 05:55 | 3314454 Go Tribe
Go Tribe's picture

Easy fishing afterwards, though.

Sat, 03/09/2013 - 16:08 | 3315439 Mr. Magniloquent
Mr. Magniloquent's picture

Should one sink, it's unlikely that any of the pressurized vessels would remain intact. Shouldy any filled and intact vessels survive the sinking, it would not remain intact for long as they are primarily designed to resist internal pressure. Between reaching crush depth and the lack of sufficient cooling to maintain liquid state, the vessel would probably rupture and the LNG would decompose into various chains and disperse. I doubt that dispersion would even be visible with the human eye.

Fri, 03/08/2013 - 20:52 | 3313856 Stuck on Zero
Stuck on Zero's picture

Hey Kaiserhoff, if one of these things spill, unlike oil, there's no mess to clean up. 

 

Sat, 03/09/2013 - 08:57 | 3314293 Taint Boil
Taint Boil's picture

 

 

 

I guess I wasn’t that far off - wow

The catastrophic threat of LNG lies in the combination of the staggering energy content of the unit quantities transported and the extremely treacherous way in which LNG acts upon spillage. Physicist Amory Lovins and other scientists compute that the described supertanker contains the energy equivalent of a one megaton H-bomb (that’s a big one). 

Link

 

Fri, 03/08/2013 - 16:32 | 3313153 PersonalRespons...
PersonalResponsibility's picture

I think they are more concerned about how to "avoid sloshing".

I bet I could solve that in seconds... Here goes; shove some non-corrosive, to LNG, metal mesh in the tanks... gold maybe, okay stainless steel or aluminum.  Where's my $1,000,000 reward?!?

Sat, 03/09/2013 - 00:29 | 3314234 Unique Snowflake
Unique Snowflake's picture

Methane biatches. Big bada boom. Not enough local atmospheric oxygen to ignite all the gas. Greenhouse gas bitchez. Sorry...we need to tax you more since the terorists struck the big floaty gas ship. LNG tax anyone? Dept of GasLand Security? Moar jobs? Greenish Swamp Gaseous shoots? Obammy........you've done it again!!

Fri, 03/08/2013 - 15:48 | 3313038 hugovanderbubble
hugovanderbubble's picture

I prefer investing in THRESHOLD PHARMACEUTICALS

Fri, 03/08/2013 - 15:51 | 3313045 Dr. No
Dr. No's picture

"Floating LNG production, storage and offloading concepts are revolutionary because"

they do not fall under the jurisdiction of a Country...

Fri, 03/08/2013 - 15:59 | 3313061 debtor of last ...
debtor of last resort's picture

Yet.

Fri, 03/08/2013 - 16:25 | 3313129 zuuma
zuuma's picture

And no expensive Enviro-Nazis to deal with!!

Fri, 03/08/2013 - 16:38 | 3313167 PersonalRespons...
PersonalResponsibility's picture

Yet.

Fri, 03/08/2013 - 17:42 | 3313370 Ident 7777 economy
Ident 7777 economy's picture

Yes dear. Just don't shriek at me .. again ...

"What difference does it make"

Fri, 03/08/2013 - 18:07 | 3313472 PersonalRespons...
PersonalResponsibility's picture

Hopefully, just a little.

Sat, 03/09/2013 - 16:12 | 3315446 Mr. Magniloquent
Mr. Magniloquent's picture

They routinely sabotage and harrass whaling ships on open seas. However, I doubt these mobile factories will be unarmed or unwilling to use them.

Fri, 03/08/2013 - 16:26 | 3313133 NotApplicable
NotApplicable's picture

The UN approves.

Fri, 03/08/2013 - 15:53 | 3313047 Falconsixone
Falconsixone's picture

That ship looks alot more dangerous than a guy with 30 rounds.

Fri, 03/08/2013 - 16:07 | 3313076 kaiserhoff
kaiserhoff's picture

It would only take one round, or as Francis suggests, an unscheduled package, mine, damn near anything.

Sat, 03/09/2013 - 12:10 | 3314847 Lost Word
Lost Word's picture

Terrorist with fire-starter?

Anti-tank weapon?

50 calibur armor piercing round?

Slow leak?

Fri, 03/08/2013 - 15:54 | 3313048 Yen Cross
Yen Cross's picture

  This slipped through some cracks. Japanese Tepco Turns to U.S. Cameron For LNG Purchase - WSJ.com

   if article link gated just Google it.

Fri, 03/08/2013 - 16:53 | 3313209 besnook
besnook's picture

of course they wouldn't think of a pipeline from pusan to japan that originated in russia and/or china. it would be much easier and cheaper

 

this map from google should draw some chuckles for people familiar with the area. expand it to include japan. there are a coupla errors.

http://maps.google.com/maps?oe=utf-8&rls=org.mozilla:en-US:official&clie...

Fri, 03/08/2013 - 16:55 | 3313227 Yen Cross
Yen Cross's picture

 That was an excellent post besnook. Thank You. +1

Fri, 03/08/2013 - 17:07 | 3313267 besnook
besnook's picture

 

(Reuters) - Tokyo Gas Co (9531.T), Japan Petroleum Exploration Co (1662.T) and Nippon Steel & Sumikin Engineering Co are considering a plan to build a natural gas pipeline from Russia's Sakhalin island, to meet Japan's increasing need for the fuel after the Fukushima nuclear disaster, the Asahi newspaper reported.

 

The firms completed a feasibility study for a 1,400-km (840-mile) pipeline from the island north of Japan, which is estimated to cost between 300 billion ($3.73 billion) and 400 billion yen, the Asahi said, citing unidentified sources. Construction would take five to seven years if approved, the paper said.

 

Japanese power companies drove up prices of liquefied natural gas this year as they scoured the world for fuel to run power stations, with all but two of the country's nuclear reactors shut down after the Fukushima disaster last March.


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"We consider it important to diversify feedstock procurement sources, and, as part of looking at possible supplies, we, along with Japan Petroleum Exploration and Nippon Steel & Sumikin Engineering, held a study session," a Tokyo Gas spokesman said, adding that no formal decision had been made.

He declined to give details of the studies, including the price tag, other than to say the companies had compared the costs of importing natural gas by pipeline with bringing it in by tanker in the form of LNG.

The Japanese government is placing priority on getting LNG from a terminal being planned in the Russian port of Vladivostok, which lies to the west of Japan, the Asahi said.

 

----------------------------------------------------------------------------------------------

found this. the next to last sentence says this article is bs. why would gas be shipped if it is cheaper to pipe.

Fri, 03/08/2013 - 19:36 | 3313703 Yen Cross
Yen Cross's picture

 Thanks again. :-)

Fri, 03/08/2013 - 20:08 | 3313766 kaiserhoff
kaiserhoff's picture

Good input, and a nice idea, except that they are dealing with fucking Russia.  Might want to ask Ukraine about that.

Sat, 03/09/2013 - 12:16 | 3314860 Lost Word
Lost Word's picture

Russia may be unreliable due to politics. Russia has already tried to blackmail Europe over natural gas supplies.

Fri, 03/08/2013 - 15:54 | 3313049 Sophist Economicus
Sophist Economicus's picture

ABIOTIC LNG.   There, I said it....

Fri, 03/08/2013 - 17:26 | 3313327 PersonalRespons...
PersonalResponsibility's picture

Better yet, abiotic oil.

Fri, 03/08/2013 - 15:58 | 3313057 lolmao500
lolmao500's picture

Don't worry, the feds are gonna kill it with regulations.

Fri, 03/08/2013 - 15:58 | 3313059 squidward
squidward's picture

This is bullshit.  A race to liquidate American resources and ship them abroad.  As long as we still import middle eastern oil we should be exploiting American resources for America.  But no, we subsidize unproven "green" technology like the Volt. When converting to nat gas is proven and takes advantage of Americas abundant resources.

Fri, 03/08/2013 - 16:08 | 3313078 Mercury
Mercury's picture

Hey, one step at a time - they just finished building an LNG import facility a couple miles offshore from where I am on the East Coast.  Oops.

But yes, Obama has been trying his best to misplay this very fortunate hand.

Fri, 03/08/2013 - 18:01 | 3313447 Flakmeister
Flakmeister's picture

You do realize that the US is still net importer of NG? Do you?

Sat, 03/09/2013 - 12:19 | 3314866 Lost Word
Lost Word's picture

Because we currently export so very little?

Sat, 03/09/2013 - 16:22 | 3315481 Flakmeister
Flakmeister's picture

Do you understand what Net means?

Fri, 03/08/2013 - 16:38 | 3313169 NotApplicable
NotApplicable's picture

It's ALL bullshit. Which part of "government is merely the most organized form of crime" is eluding you?

Fri, 03/08/2013 - 18:35 | 3313549 DCFusor
DCFusor's picture

I can only half agree, being the owner of a Volt (all solar charged off my panels) for over a year, I'd call it proved.

Nat gas sucks for vehicles.  It has a critical temperature below which it will not liquefy under any pressure.  If you want a car with less range than my Volt - get a natgas conversion.  You'll have to run on *compressed* natgas, and maybe you'll get 20 miles for driving a firebomb around.

Or you'd have to have unproven cryo-tech to keep enough liquid natgas (methane) for a decent range. 

Sorry, facts are here, calling bullshit.

 

 

Fri, 03/08/2013 - 21:01 | 3313880 Evil Bugeyes
Evil Bugeyes's picture

A CNG Honda Civic has a range of around 200 miles, not 20 as you claim. And with a Volt, you would be driving around next to a lithium-ion battery. And we know those things never catch fire, right? (At least that is what an engineer from Boeing told me.)

Not that I am advocating CNG cars. For one thing, there aren't many CNG filling stations around. And (in my area at least) the retail price of CNG isn't low enough to make a CNG car worth the trouble.

 

Fri, 03/08/2013 - 20:15 | 3313776 Marco
Marco's picture

CNG on small vehicles has some of the same issues as electric cars, small range ... less of a problem for trucks and busses, which can easily afford extra volume for fuel.

What would be really nice is an efficient method of converting methane to something more useful (propane for instance).

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