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The Economics of
Monetizing North American
Natural Gas
Tom Jones Chemicals Technology Manager
Lee Schmoe Bechtel Fellow
David Ladd Senior Process Engineer
Tara Fatima Study Manager
CIVIL
GOVERNMENT SERVICES
MINING & METALS
OIL, GAS & CHEMICALS
POWER
EFI Gas-to-Market & Energy Conversion Forum
October 21-23, 2014
Omni William Penn Hotel
Pittsburgh, Pennsylvania, USA
Outline
© 2014 Bechtel Hydrocarbon Technology Solutions | 2 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
North American Construction Environment
Economics
Agriculture: Ammonia
Energy: LNG, GTL
Chemicals: Methanol, Ethylene, Propylene
Photo Cheniere Energy’s Sabine
Pass LNG terminal will be the first
LNG Export terminal in the US
since the last one was constructed
at Kenai, AK in 1969.
North American
Construction
Environment
© 2014 Bechtel Hydrocarbon Technology Solutions | 3 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Recent Bechtel Gas Monetization Projects
© 2014 Bechtel Hydrocarbon Technology Solutions | 4 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
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USGC Construction Outlook Challenging Environment
© 2014 Bechtel Hydrocarbon Technology Solutions | 5 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Project Intelligence provided by Industrial Info Resources
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Capital Cost Indices Expectations vs. Reality
© 2014 Bechtel Hydrocarbon Technology Solutions | 6 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Source Chemical Engineering Magazine
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Process driven economics ─ Developing realistic capital cost
expectations
─ Clear operating cost definition
Proper project scope definition ─ Feasibility studies
─ Process Optimization
─ Conceptual plot plan development
─ Constructability & logistics reviews
Modularization ─ Reduces site congestion and
average construction manpower
─ Reduced site construction
infrastructure
─ Site specific
Strategies for success in challenged cost conditions
© 2014 Bechtel Hydrocarbon Technology Solutions | 7 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Photo Module movement from Roll on Roll Off area to
permanent location on the APLNG Project Queensland, Australia
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Economics Agriculture
Energy
Chemicals
© 2014 Bechtel Hydrocarbon Technology Solutions | 8 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Terminology
© 2014 Bechtel Hydrocarbon Technology Solutions | 9 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
EC
ON
OM
ICS
TE
RM
INO
LO
GY
Net Natural Gas Imports United States (1973-2040)
© 2014 Bechtel Hydrocarbon Technology Solutions | 10 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Source EIA
NA
TU
RA
L G
AS
EC
ON
OM
ICS
Natural Gas Price Forecasts 2014-2020
© 2014 Bechtel Hydrocarbon Technology Solutions | 11 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Sources EIA, IMF
NA
TU
RA
L G
AS
EC
ON
OM
ICS
Agriculture Ammonia
© 2014 Bechtel Hydrocarbon Technology Solutions | 12 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Trade Balance Ammonia
© 2014 Bechtel Hydrocarbon Technology Solutions | 13 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Data Source IFA
AM
MO
NIA
/ U
RE
A
Ammonia Economics Becoming price competitive with Russia
© 2014 Bechtel Hydrocarbon Technology Solutions | 14 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Pricing Sources Yara, ICIS
Economics Source BHTS
AM
MO
NIA
Energy Liquefied Natural Gas (LNG)
Gas to Liquids (GTL)
© 2014 Bechtel Hydrocarbon Technology Solutions | 15 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
World LNG Trade Market dominated by Qatari export, Japanese imports
© 2014 Bechtel Hydrocarbon Technology Solutions | 16 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Data Source GIINGL
EN
ER
GY
LN
G
LNG Capacity New players emerging to challenge Qatar
© 2014 Bechtel Hydrocarbon Technology Solutions | 17 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Source Various Sources, Bechtel Internal Project Intelligence
LN
G
Economics North American LNG second lowest cash cost in the world
© 2014 Bechtel Hydrocarbon Technology Solutions | 18 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Pricing Source IHS, Bechtel Internal Project Intelligence
Economics Source BHTS
EN
ER
GY
LN
G
Capital Investment Gas to Liquids
© 2014 Bechtel Hydrocarbon Technology Solutions | 19 MONETIZING US NATURAL GAS Source BHTS Project Intelligence
EN
ER
GY
GT
L
Gas to Liquids Economics Significant capital outlay limits viability
© 2014 Bechtel Hydrocarbon Technology Solutions | 20 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS Source BHTS
EN
ER
GY
GT
L
Gas to Liquids High refining margins = long term low gas price hedge
© 2014 Bechtel Hydrocarbon Technology Solutions | 21 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Source BP, ExxonMobil, Total, BHTS
EN
ER
GY
GT
L
Chemicals Methanol
Ethylene
Propylene
© 2014 Bechtel Hydrocarbon Technology Solutions | 22 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Value Chain Methanol
© 2014 Bechtel Hydrocarbon Technology Solutions | 23 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
CH
EM
ICA
LS
ME
TH
AN
OL
Source Various Sources
Economics Methanol
© 2014 Bechtel Hydrocarbon Technology Solutions | 24 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
CH
EM
ICA
LS
ME
TH
AN
OL
Pricing Source Methanex
Economics Source BHTS Internal Economic Model
Value Chain Propylene
© 2014 Bechtel Hydrocarbon Technology Solutions | 25 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Source The Dow Chemical Company, BASF
CH
EM
ICA
LS
PR
OP
YLE
NE
Propylene Pricing Low propylene yields from conversion to ethane cracking → market shortage
© 2014 Bechtel Hydrocarbon Technology Solutions | 26 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
CH
EM
ICA
LS
PR
OP
YLE
NE
Pricing Source ICIS, EIA
Propylene Economics Gas based conversion to olefins emerging as viable option to conventional approaches
© 2014 Bechtel Hydrocarbon Technology Solutions | 27 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
CH
EM
ICA
LS
PR
OP
YLE
NE
Source BHTS Internal Economic Model
Value Chain Ethylene
© 2014 Bechtel Hydrocarbon Technology Solutions | 28 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Source The Dow Chemical Company, BASF
CH
EM
ICA
LS
ET
HY
LE
NE
Ethylene Production Economics Two Strategic Shifts
© 2014 Bechtel Hydrocarbon Technology Solutions | 29 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
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A structural shift in natural gas supply will lead to increased investment in gas
monetization projects in a wave not seen in 30 years.
North America’s net import position on Ammonia / Urea presents strategic
opportunities for new investment in Ammonia / Urea facilities. Russia and
Middle Eastern facilities will still enjoy a FOB price cost advantage.
New LNG business models will shift global pricing from JCC to Henry Hub
basis as increased North American gas provides competition for Middle
Eastern and Russian sources.
Large scale gas to liquids economics will remain challenged due to high capital
investment hurdles. Only well capitalized companies will invest or those with
stranded gas plays.
Olefins economics favor investment in ethane cracking. Methanol to Propylene
technologies could replace lost propylene production capacity from feedstock
switching to ethane and disconnect pricing from historical oil dependence.
Process driven economics, proper project scope definition and strategic use of
modularization will ensure project financial success in a challenging cost
environment.
Summary
© 2014 Bechtel Hydrocarbon Technology Solutions | 30 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
SU
MM
AR
Y
Important Notice
© 2014 Bechtel Hydrocarbon Technology Solutions | 31 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
This presentation is the exclusive property of Bechtel Hydrocarbon
Technology Solutions (BHTS). The conclusions and recommendations
presented herein are preliminary in nature and shall not be used as a
basis for final financial and management decisions or as a basis of any
financial transaction. Any use of or reliance on this presentation or any
information contained within is at the using party’s sole risk and
responsibility. BHTS, to the maximum extent permitted by law, disclaim all
liability (including for losses or damages of whatsoever nature) to any third
party, howsoever arising with respect to or in connection with the use of
this presentation or any information contained within, including any liability
caused by negligent acts or omissions.
© 2014 Bechtel Hydrocarbon Technology Solutions | 32 THE ECONOMICS OF MONETIZING NORTH AMERICAN NATURAL GAS
Lead Analyst / Economics
David Ladd, P.Eng Senior Process Engineer dladd@bechtel.com
Technical Consultants
Tom Jones, PE Chemicals Technology Manager tmjones@bechtel.com
Lee Schmoe, PE Bechtel Fellow, Manager of Front End Studies lschmoe@bechtel.com
Tara Fatima Study Manager tafatima@bechtel.com
Dale Dowden Study Manager, Utilities & Offsites mddowden@bechtel.com
Construction
David Marl Construction Manager – Proposals drmarl@bechtel.com
Estimating
Joginder Kundra, PE Lead Estimator jpkundra@bechtel.com
Plant Design
Jorge Gonzalez Plant Design Engineering Group Supervisor jgonzale@bechtel.com
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