Added Value for Energy Projects

LNG Market and Shipping Fundamentals

The LNG market is one of the fastest growing markets in the world. The LNG value chain links production fields to markets over vast distances to deliver cleaner-burning natural gas around the globe. The LNG industry is complex and capital intensive. It is a specialized field which demands a good understanding of its unique challenges and opportunities. There are some dark clouds on the horizon which may act to reduce the expected growth rates. Our expert understanding of these influences and an improved arbitrage strategy provides added value for our clients.

The commercial development of LNG is a style called value chain, which means LNG suppliers first confirm sales to the downstream buyers and then sign 20-25 year contracts with strict terms and structures for gas pricing. Only when the customers are confirmed and the development of a greenfield project deemed economically feasible could the sponsors of an LNG project invest in their development and operation. Thus, the LNG liquefaction business has been regarded as a game of the rich, where only players with strong financial and political resources could get involved. Due to energy shortage concerns, many new LNG terminals are being contemplated in the United States.

In 1964, the UK and France made the first LNG trade, buying gas from Algeria, starting a new era of energy. As most LNG plants are located in areas not served by pipelines. The costs of LNG treatment and transportation are huge, development was slow during the second half of the last century. The construction of an LNG plant costs at least USD 1.5 billion per 1 mmtpa capacity, a receiving terminal costs USD 1 billion per 1 bcf/day throughput capacity, and LNG vessels cost USD 0.2-0.3 billion. Compared with the crude oil market, the natural gas market is about 60% of the crude oil market (measured on a heat equivalent basis), of which LNG forms a small but rapidly growing part.

Much of this growth is driven by the need for clean fuel and some substitution effect due to the high price of oil (primarily in the heating and electricity generation sectors). LNG is principally used for transporting natural gas to markets, where it is regasified and distributed as pipeline natural gas. LNG offers an energy density comparable to gasoline and diesel fuels and produces less pollution. LNG has relatively high cost of production and the need to store it in expensive cryogenic tanks have prevented its widespread use in commercial applications.

Transportation and supply is an important aspect of the gas business, since LNG reserves are normally quite distant from consumer markets. LNG has far more volume than oil to transport, and most gas is transported by pipelines. There is a pipeline network in the former Soviet Union, Europe and North America. LNG, when in its gaseous state is rather bulky. Gas travels much faster than oil though a high-pressure pipeline, but can transmit only about a fifth of the amount of energy per day.

As well as pipelines, LNG is transported using LNG tanker, truck, railway. LNG will be sometimes taken to cryogenic temperatures to increase the tanker capacity. LNG is loaded onto ships and delivered to a regasification terminal, where the LNG is reheated and turned into gas. Regasification terminals are usually connected to a storage and pipeline distribution network to distribute natural gas to local distribution companies (LDCs) or independent power plants (IPPs).

The most important infrastructure needed for LNG production and transportation is an LNG plant consisting of one or more LNG trains, each of which is an independent unit for gas liquefaction. The largest LNG train now in operation is in Qatar. Until recently it was the Train 4 of Atlantic LNG in Trinidad and Tobago with a production capacity of 5.2 million metric ton per annum (mmtpa), followed by the SEGAS LNG plant in Egypt with a capacity of 5 mmtpa. The Qatargas II plant has a production capacity of 7.8 mmtpa for each of its two trains.