lng industry december 2009

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- The

vention

A supplement to Hydrocarbon Engineering

Winter 2009


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03 Comment

05 LNG news

10 LNG in EuropeAndy Flower, Waterborne Energy, UK, explores industry developments in Europe

16 Australias energy futureNg Weng Hoong, LNG Industry Correspondent, discusses the potential of the

new Australian gas fields

21 Embracing e-tradingRoger Aitken, on behalf of Trayport Ltd, UK, and Dan Smith, Trayport, UK,

examine whether a more efficient and transparent method for price negotiation

of LNG could successfully evolve

28 Oil and gas development in AlgeriaLNG16 Executive Committee, Algeria, discusses the oil and gas potential of Africa, and

the upcoming LNG16 conference

31 LNG - the marine fuel of the futureHkan Werner and Kjetil Sjlie Strand, I.M. Skaugen, Norway, explore small scale

LNG supply chains and bunkering infrastructure

36 Delivering a new FSRUBlake Blackwell, Golar LNG Energy, UK, presents an insight into delivering the

worlds first FSRUs based on the conversion of an existing LNG carrier

44 LNG tandem offloadingLeen Poldevaart, Jean-Pierre Queau and Perry Adams, SBM Offshore, Monaco,

discuss the logistics of offshore LNG offloading

49 Standardising offshore transferLeiv Kallestad, TORP Technology AS, Norway, discusses a standardised approach

to offshore LNG transfer

53 Efficient operation at peak timesEric Frey, Brian Eisentrout and Jan Snyder, CB&I, USA, explain how solutions for

peak shaving facilities are required as gas composition continues to change

57 Going greenKamal Shah and Judy Wong, Aker Solutions US Inc., USA, and Bill Minton,

Advantage Fuels, USA, consider ambient air based technologies when building

LNG regasification terminals

65 A logistical challengeEmmanuelle Rauline, Franois Fvrier and Nicolas Bilbault,

GEA Batignolles Technologies Thermique, France, discuss logistical solutions for

remote LNG facilities

69 Its all in the design

Michael Cords, Ebara International Corp., USA, explores how NPSHR performancecan be affected by different inducer designs

The LNG Exhibition and Conference takes place everythree years with producer and consumer countriestaking turns to organise the event. In 2010, LNG16will be conducted in Oran, Algerias second largestcity. Oran has all the assets to host a world eventof this magnitude: strategic geographical location,modern services network, experience in organising

large events and its special hospitable character.For Reader Enquiries visit:www.lngindustry.com

ON THIS MONTHS COVER

- The

vention

A supplement to Hydrocarbon Engineering

Winter 2009

Winter 09 | LNGINDUSTRY.COM 1

Contents|WINTER 2009|

ISSN 1468-9340

CopyrightPalladian Publications Ltd 2009. All rightsreserved. No part of this publication may be reproduced,stored in a retrieval system, or transmitted in any formor by any means, electronic, mechanical, photocopying,recording or otherwise, without the prior permission ofthe copyright owner. All views expressed in this journal arethose of the respective contributors and are not necessarilythe opinions of the Publisher, neither does the Publisherendorse any of the claims made in the articles or theadvertisements. Printed in the UK.

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Comment

T

he world is now cautiously eyeing the

Arctic, anxiously noting incremental

degrees of thaws and freezes, and

deducing what this might mean for

future energy production in both

positive and negative terms. The shocking claimthat the Arctic sea will be completely ice-free

during the summer within 20 years illustrates

just how indeterminate the envi ronment that

we live in continues to be. On one hand, an

ice-free summer would spell easier oil and gas

exploration in the region. The Northwest Passage

could become a watery bridge for commercial

enterprises, potentially allowing us to tap into

vast swathes of previously inaccessible resources,

and turning back the clock on our inexorable

global fossil fuel decline. The downside to the loss

of the worlds most fragile region is a medley ofcatastrophic predictions that no one really wants to accept as possible.

And its not just the natural environment that holds uncertainty for us in the

near future. The global political climate can be just as ambiguous. With Asian LNG

traditionally linked to oil prices, and US LNG prices determined by the gas market,

global LNG pricing has been predicted to come closer in the future. The gap in

pricing will be bridged by countries like Qatar, which continues to be pivotal in

driving LNG exports around the world. Opportunities will continue to expand for

LNG strong in its advantage of being shippable to anywhere in the world, and a

comparatively carbon-friendly energy source.

Natural gas has been tipped as the bridge fuel to a more environmentally

stable future. In his speech at the World Gas Conference in Buenos Aires in

October, BPs Tony Hayward said, I dont think we can afford to wait. We need to

take carbon out of the energy mix today. [] I can see only one way of doing it

by increasing the use of natural gas. But as the Arctic polar bears finally steady

themselves on the thick ice in their ever-limited cold December days, the most

imminent bridge for us to cross this month towards a more stable future will be the

United Nations Climate Change Conference in Copenhagen.

Editorial/Advertisement Offices, Palladian Publications Ltd, 15 South Street,Farnham, Surrey GU9 7QU, ENGLAND, Tel: +44 (0) 1252 718 999Fax: +44 (0) 1252 718 992, Website: www.lngindustry.com

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Anna ScordosEditor


6/76

ChangingtheworldofLNGthroughinnovationwww.golarlng.com

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7/76

ExxonMobil has reached a preliminary deal to sell 2 million tpy

of LNG from its Papua New Guinea operation to Sinopec. This

is likely a precursor to a long term contract between the two

companies to supply Chinas long term energy needs, which are

set to triple in the next 10 years, potentially reaching

18 million ft3/d in 2020.

The imported LNG will feed the Quingdao terminal being

built in Shangdong province, which is scheduled to come online

in 2014. Sinopec is also planning a string of other terminals

along Chinas coastline, including one in the planning stages at

Huangmao island in Zhuhai, which will supply the neighbouring

market of Macao.

The deal represents an attempt by Sinopec to expand its

share of the domestic market, currently dominated by Petrochina

and China National Offshore Oil Corp., which previously had

been thwarted by a lack of LNG supplies. Although it still has

a way to go to catch its rivals, who already have two and three

LNG terminals respectively, in various stages of development.

As a result of slumping gas prices in the USA brought on

by the economic recession, Qatar is to start diverting LNG

supplies from the USA to China. In total it will amount to

10% of LNG shipments; approximately 5 million tpy. Qatar

plans to produce 77 million tpy of LNG by September 2010,

and is now looking to negotiate more long term supply

contracts with China.

Domestic gas prices in the USA are being pressured by

increased domestic supply, low demand and record high

inventories, which has deterred producers from shipping LNG to

America; gas prices there have dropped by more than 60%.

China on the other hand, is a very attractive market at the

moment, with economic growth this year of 8%, compared

with a US economy still struggling out of recession.

Indeed, China is likely to become one of the worlds largest

consumers of LNG in the future. This is likely to continue with

China National Offshore Oil Corp. negotiating a 25 year supply

deal with Qatargas.

Yemeni President Ali Abdullah Saleh and Yves Louis Darricarrere,

the Head of Exploration and Production at French oil company

Total SA, inaugurated the first shipment of LNG from Yemens

new US$ 4.5 billion LNG facility at the port of Balhaf, on

the Arabian sea. The project is part of plans by the Yemeni

government to expand oil and gas revenues in the impoverished

state.

The first processing train came online on 15 October and

a second train will come online once construction is finished.

When fully operational, the plant is expected to produce

approximately 6.7 million tpy of LNG, and will help Total

close the gap with larger European based LNG suppliers

Royal Dutch Shell plc, BP plc, and BG Group plc.

The Yemen LNG joint venture is owned by a group of

shareholders, with Total taking 40%. Other shareholders include

Korea Gas Corp., Dallas based Hunt Oil Co., Yemen Gas Co.,

South Koreas SK Corp., Hyundai Corp. and Yemens General

Authority for Social Security and Pensions.

PAPUA NEW GUINEA \\ Sinopec to buy LNG from ExxonMobil

CHINA \\ Qatar to divert LNG to China

YEMEN \\ First LNG exports leave country


LNG News


8/76

// DIARY DATES

BP Trinidad and Tobago (BPTT) has

announced the start of natural gas

production from the Savonette field,

offshore Trinidad. Savonette is located

in 290 ft (88 m) of water approximately

50 miles off Trinidads southeast coast.

BPTT holds a 100% interest in the field.

Production from the platform is

tied into BPTTs Mahogany B platform,

via a 26 in. diameter 5.3 mile subsea

pipeline, where the gas is processed

and then exported into BPTTs existing

infrastructure.

Gas from Savonette will supply

Atlantic LNGs liquefaction plant for

export as LNG to international markets,as well as the domestic market. With

Savonette, BPTT now has production

from 12 offshore platforms.

Production from Savonette is

expected to average 600 million ft3/d of

gas, plus associated condensate, from

four wells. Savonette production will

contribute to maintaining BPTTs

total production level at more than

450 000 bpd of oil.

The Savonette platform, installed in

February 2009, is the fourth in a series

of normally unmanned installations,designed and constructed locally in

Trinidad using a standardised clone

concept. The 1898 t jacket and the

871 t topsides were built at the

Trinidad Offshore Fabricators (TOFCO)

yard in La Brea, south Trinidad.

The Savonette platform has

high Trinidadian local content with

some 30% of its total engineering,

procurement and construction value

being spent in the country and with

T&T nationals being responsible for 55%

of the project management hours, and

98% of total fabrication hours.

TRINIDAD & TOBAGO \\Gas production starts atSavonette

GE Oil & Gas has been awarded a

competitive bid, worth over

US$ 400 million, to deploy advanced

LNG technology for the development

of Gorgon, one of the worlds largest

untapped natural gas fields, which

also features the worlds largest

ever CO2sequestration technology

project.

GE will supply Chevron with

equipment to fulfil Gorgons LNG

production and CO2sequestration.

This includes three main refrigerant

compression trains required for

Gorgons production of 15 million tpy

of LNG, and six compression trainsrequired to drive Gorgons pioneering

CO2sequestration project.

The demand for natural gas,

which plays a vital role in balancing

economic growth and environmental

responsibilities, is expected to grow

by more than 67% by 2030.

The Gorgon projects estimated

economic life is at least 40 years. In

addition to natural gas supply for

domestic Australian use, Gorgon is

critical to meeting Asias growing

need for cleaner energy.Globally, the net impact of

using Gorgon LNG will result

in approximately 45 million t

less greenhouse gas emissions,

when compared with coal. This is

equivalent to taking around

two-thirds of all Australian

vehicles off the road.

GEs main refrigerant

compression trains and compression

trains for CO2sequestration will be

manufactured and tested in Florence

and Massa, Italy, then shipped in

2011 and 2012.

ITALY \\ GE awardedGorgon contract

1 - 4 December 2009

10thAnnual World LNG Summit

Barcelona, Spain

www.cwclng.com/worldlng2009

t: +44 20 7978 0000

e: [email protected]

20 - 21 January 2010

Global Floating LNG Summit

London, UK

t: +44 20 7368 9300


26 - 27 January 2010

European Gas Conference

Vienna Marriott Hotel,

Vienna, Austriat: +44 207 067 1800


28 - 29 January 2010

Gas Transport and Storage Summit

Radisson BLU Scandinavia Hotel,

Dusseldorf, Germany

t: +44 20 7202 7511


17 - 19 February 2010

Meet The Buyer Oil and Gas

Marriott Courtyard,Dubai, UAE

t: +44 1276 682898


18 - 21 April 2010

16thInternational Conference & Exhibition

on LNG (LNG16)

Oran, Algeria

www.lng16.org

t: +44 20 7596 5000

f: +44 20 7596 5111


6 LNGINDUSTRY.COM | Winter 09

LNG News


9/76

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on the money too. Learn more at EmersonProcess.com/LNG


10/76

A joint venture between Linde North America and

Houston based Waste Management, is now producing clean

renewable vehicle fuel from its plant at the Altamont landfill

near Livermore in California.

The US$ 15.5 million plant purifies and liquefies gas that

Waste Management collects from decomposing organic

waste at the site, and is expected to be able to produce

13 000 gal./d of LNG when the plant reaches full capacity in two to

three months. This should enable the plant to provide fuel for 300

of the 485 waste hauling vehicles in 20 Californian communities.

The plant required a unique four step liquefaction process to

clean up the impurities in the liquefied gas, and remove all the

carbon, nitrogen, sulfur and alcohols. The environmental gains

are substantial though, and the project is expected to reduce CO 2

emissions by 30 000 tpy. The plant is also powered by electricity

generated by landfill gas, so the process is entirely renewable.

Better management of capacity could lead to a stabilisation

of the LPG shipping sector in 2010, however, dry bulk and

container shipping are still going to come under pressure

resulting from limited demand and oversupply.

This stabilisation in the LPG and LNG sector is expected

because fleet growth is decreasing in the sector for 2010 and

2011, and this decrease should help alleviate the oversupply

problem. The same cant be said for other shipping sectors, with

more ships being delivered and even more on the order books

at shipyards. This will not help an industry where approximately

10% of the global container fleet is idle and spot rates across

most shipping sectors are at a five year low.

The financial repercussions will be more long term; the

overhang of shipping assets requiring funding is valued at

approximately US$ 350 billion. A lot of the new vessels that

have been ordered and are being built have not been financed,

and the banking sector will have some difficulty financing all the

vessels coming onstream.

Chevron Corp. announced that it signed an agreement with

Apache Julimar Pty Ltd, a subsidiary of the Apache Corp.,

and KUFPEC Australia (Julimar) Pty Ltd, a subsidiary of the

Kuwait Foreign Petroleum Exploration Company k.s.c., to bring

them into Chevrons Wheatstone LNG project as natural gas

suppliers and 25% equity partners in the project facilities.

Under the agreement, Apache and KUFPEC will provide

natural gas from their Julimar and Brunello fields, located

in northwestern Australia, to supply 25% of the inlet gas

to Trains 1 and 2 of the Wheatstone project. Apache will

assume a 16.25% equity interest and KUFPEC an 8.75%

equity interest in the project. Chevron will remain the project

operator.

John Gass, President, Chevron Global Gas, added, Creating

the Wheatstone project as an LNG hub will continue to help

unlock natural gas resources in the Carnarvon Basin and

establish a new source of LNG from Australia for customers in

the Asia-Pacific market.

USA \\ Landfill waste LNG to power Waste Management haulage fleet

SINGAPORE \\ LPG shipping sector likely to stabilise in 2010

AUSTRALIA \\ Wheatstone project takes on two new partners

LNG News



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January 2009 marked the 50thanniversary of the first

LNG cargo transported by ship. The Methane Pioneer, a

bulk carrier built during the Second World War, which

had been converted to carry LNG by installing specially

designed tanks, transported approximately 5000 m3of LNG from

a small liquefaction plant at Lake Charles in Louisiana, USA, to

Canvey Island in the UK. Five years later, in October 1964, the

first regular commercial shipment of LNG commenced, with the

arrival of the purpose built Methane Princessat the Canvey Islandterminal, with a cargo from Arzew in Algeria.

Europe can therefore be said to be the birthplace of LNG

imports, but Asia became the focus for growth, following the

start of LNG imports from Kenai, Alaska, into Japan in 1969. As a

country with very limited natural gas reserves, and where pipeline

imports have not been technically or economically feasible, Japan

needed LNG imports to diversify from its dependence on oil, and

to provide a cleaner burning fuel. Downstream gas demand grew

rapidly and by the early 1980s Japan was importing over 75%

of global LNG production. The growth in Asian LNG imports was

boosted by the start of imports into Korea in 1986, and Taiwan in

1990, and more recently by the opening of receiving terminals in

India and China. Asia accounted for 68% of global LNG importsin 2008.

Growth of LNG importsIn contrast, the growth of LNG imports into Europe has been

more gradual because LNG has had to compete with pipeline gas

in most countries. The discovery of natural gas in large quantities

in the UK and Norwegian sectors of the North Sea from the

mid-1960s, together with the build-up of pipeline imports from

Russia, has meant that LNG has had to play a supplemental

role to pipeline gas in the eight countries that currently import

LNG (the UK, France, Spain, Italy, Belgium, Turkey, Greece and

Portugal). Only in Spain and Portugal does LNG account for more

than 50% of the total gas supply.

As Figure 1 shows, LNG accounted for 10.4% of Europes1

natural gas supply in 2008. Domestic production, mainly in

Norway, the UK and The Netherlands, but including more limited

contributions from other countries such as Germany and Italy,

provided just over half of Europes supply. Imports by pipeline

from North Africa, Algeria and Libya into Spain and Italy met

8.5% of Europes gas supply, but the main source of imports was

the former Soviet Union with a total share of 30.1%. Most of this

gas comes from Russia, but Turkmenistan, Azerbaijan and other

central Asian Republics are also sources of supply.

The role of LNG in Europes natural gas supply looks set

to increase in the future. Governments and buyers are

increasingly concerned about security of supply, as domestic

production declines and the dependence on imports

increases. In January 2009, the supply of gas from Russia was

interrupted by the dispute between Russia and the Ukraine

over the prices the latter pays for its natural gasimports. Approximately

80% of the gas that flows from

Russia to Europe passes through

the Ukraine, and while the dispute

did not involve Russias customers

in the rest of Europe, they saw

their supplies reduced in the

middle of one of the coldest

winters for many years. It is

the third time since 2005

that relations between Russia

and the Ukraine have led to

interruptions to supply, althoughin the past the disruption has

been for a much shorter

time and has had a lesser

impact.

A renewed interest in LNGimportsGas buyers and governments see LNG as providing access

to international sources of gas supply, potentially reducing

the dependence on Russian gas and thereby increasing the

security of supply. In some of the countries that now import

LNG, receiving terminal capacity is being increased, while several

countries are planning to become importers.

A second factor behind the renewed interest in LNG

imports has been the growth in the spot and short term

trading of LNG over the last decade. Companies involved in

this activity want access to the flexible gas markets in northwest

Europe, especially the UK, but also northern France, Belgium and

The Netherlands, since it positions them to take advantage of

price differences with the USA and other global markets, and add

value to their LNG portfolios.

LNG in

ANDY FLOWER, WATERBORNE ENERGY, UK,

EXPLORES INDUSTRY DEVELOPMENTS IN EUROPE.



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SpainFigure 2 shows the build-up of LNG imports into Europe over

the 44 years between the arrival of the first cargo into the UK

in 1964 and in 2008 when imports reached 43.3 million t,

equivalent to 58.5 billion m3of natural gas. Spain is Europes

largest and the worlds third largest importer of LNG, after Japan

and Korea. In 2008, its imports of 22.1 million t (29.8 billion m 3)

represented just over 50% of the European total. LNG met

73% of Spanish natural gas demand, making it the European

country most dependent on LNG. The reason for Spainsdependence on LNG lies in the geography of the country, with

the Pyrenees Mountains having been a barrier to the construction

of pipeline connections with the French and the wider European

gas grid. There are only two small pipelines at the western end

of the Pyrenees linking France and Spain, one of which is used to

carry gas contracted by the Spanish gas company, Gas Natural,

from Norway.

The lack of pipeline connections to the north means that

Spain has only two options to access natural gas imports, which

it needs, given its limited domestic reserves and production. It can

import gas from Algeria through the Pedro Duran Farrell

pipeline, which passes through Morocco and across the

Straits of Gibraltar, or it can import LNG. This pipeline was

commissioned in 1996, with an initial capacity of 8.5 billion m3

/y(equivalent to 6.3 million tpy of LNG), and was expanded to

11.5 billion m3/y (8.5 million tpy of LNG) in 2004. Approximately

2 billion m3/y of the pipelines capacity is used to supply gas to

Portugal. Spain was forced to turn to LNG to meet the rapid

growth of gas demand between 2000 and 2008, largely as a

result of its use for power generation, which increased at an

average rate of 44% per annum.

As the largest importer of LNG it is not surprising that Spain

has more LNG terminals than any other country in Europe.

Six facilities are currently in operation and a seventh, the

El Musel terminal near Gijon in the north of the country, is under

construction.

FranceFrance is Europes second largest market for LNG, with imports

of 9.5 million t (12.8 billion m3) in 2008. It is well connected to

the European gas grid, and has the option of increasing pipeline

imports into the north of the country and diverting LNG to

alternative, higher priced markets. This has resulted in the level of

LNG imports fluctuating over the last few years. France now has

two terminals in operation, Montoir at the mouth of the

River Loire on the Atlantic coast and Fos Tonkin near Marseille in

the Mediterranean. The latter facility can only receive ships of up

to 75 000 m3capacity, and is used mainly for the import of LNG

from Algeria. A second facility, Fos Cavaou, has been built close

by and will have the capacity to unload larger ships. It was due

to receive its first cargo in July but the local authority removed

its operating permit at the last minute after a court upheld an

appeal by a pressure group. Startup is now expected around the

end of 2009 or early 2010.

UK and ItalyThe UK and Italy were both early LNG importers and in both

countries LNG imports were interrupted for extended periods of

time. In the UK, the discovery of natural gas in the North Sea

less than a year after LNG imports commenced, resulted in the

country becoming self-sufficient in natural gas. LNG imports

stopped when the original contract with Algeria expired in theearly 1980s, and the terminal at Canvey Island was converted

to an LPG facility. However, the rapid decline in North Sea gas

production has resulted in the country turning once again to LNG

imports. It now has four LNG receiving terminals in operation,

two of which were commissioned at Milford Haven in

southwest Wales in 2009.

In Italy, the arrival of pipeline gas from Algeria through the

Enrico Mattei pipeline, which transits Tunisia and Sicily, meant that

LNG was no longer required and the single terminal at Panagalia

in the northwest of the country was largely unused from

1981 - 1996. Public opposition to LNG receiving terminals has

resulted in Panagalia remaining the countrys only import facility,

until August 2009, when the Adriatic LNG facility, a gravity basedstructure, located approximately 15 km (10 miles) off the Veneto

coastline in northeast Italy, received its first cargo from Qatar.Figure 3. Sources of European LNG imports 1980 - 2008.

Figure 2. European LNG imports 1964 - 2008.

Figure 1. European natural gas supply in 2008.



15/76

Specialist servicesfor theLNG industry

PNS (UK) LtdUnit A2 Foxbridge WayNormanton, WakefieldUnited KingdonWF6 1TNTel: +44 (0)845 604 0281Email: [email protected]

PNS BVPhileas Foggstraat 65Emmen, DrentheThe Netherlands7825 ALTel: +31 591 668155

www.pns-services.com

Nitrogen Services

Pneumatic/Hydrostatic Testing

Bolt Tensioning

Critical Joint Management

LNG Tank - Testing/Commissioning

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Process System Drying

Nitrogen Purging

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Subsidiary offices in: Germany, France, Italy, Spain, Libya, Croatia, Middle East and China


16/76

A second offshore terminal, this time using a ship as a floating

storage and regas unit (FSRU), is being developed off Livorno in

the northeast of the country. Construction of an onshore terminal

at Porto Empledocle in Sicily is scheduled to start in 2010. Overall,

Italy appears to be set for a significant increase in LNG imports,

some 40 years after its first cargo arrived.

BelgiumThe Zeebrugge terminal in Belgium was built to receive LNG

under the long term contract that the countrys main gas

company, Distrigas, had with Algeria. The contract was not

renewed when it expired in 2006 and the terminal has been used

since 2007 mainly to import LNG from Qatar under a long term

contract between Distrigas and RasGas, and a more flexible and

shorter term contract that RasGas has with French company

EdF Trading. The terminal has also received spot cargos from

Egypt, Nigeria, Norway, Trinidad and Tobago, and Malaysia in the

last three years. It now acts as a re-export facility with LNG being

reloaded onto ships. Cargos were delivered to Korea, India and

Spain in 2008.

TurkeyTurkey turned to LNG imports in 1994 to reduce its

dependence on pipeline imports, which come from Russia,

Iran and Azerbaijan. It has two terminals in operation, the

Marmara Eregelisi terminal, 95 km south of the capital Istanbul,

which is owned and operated by the countrys main gas company

Botas, and the Aliaga terminal near Izmir, which was built by

an entrepreneur and was idle for several years after completion,

before a growing need for imports led to its activation in

December 2006. Initially it was used to import cargos for Botas,

but in 2009 the terminals owner and operator, Egegaz, imported

two cargos directly from Qatar.

Portugal and GreecePortugal and Greece each have one LNG terminal, which was

built to diversify natural gas supply from dependence on pipeline

gas from Algeria and Russia respectively. Portugals main source of

LNG supply is Nigeria, while Greece receives most of its LNG from

Algeria.

Sources of supplyThe increase in Europes LNG imports in the last decade has

brought with it a diversification of the sources of supply as is

shown in Figure 3. From 1964 - 1998, Algeria supplied

over 90% of Europes LNG imports. Libyas Marsa-el-Brega

liquefaction plant, which has been operating at well below its

design capacity, was the only other significant source of supply.

A few cargos were imported on a spot basis from the Middle East

and Australia in the mid-1990s, when Algerias LNG output was

reduced as it revamped its liquefaction facilities.

As can be seen in Figure 4, Algerias share of Europes LNG

supply fell to just over a third in 2008. Nigeria is the second

largest supplier with a 28% share, while Qatar, which accounted

for 13.7% of the supply, is now the third largest followed by

Egypt and Trinidad. Oman, Libya and Norway were the other

suppliers in 2008.

European LNG terminalsEurope now has a well developed infrastructure of LNG import

facilities. In September 2009, 19 terminals were in operation

(see Table 1), including three that have started up in 2009:

South Hook and Dragon LNG in the UK, and Adriatic LNG in Italy.

The total capacity of the facilities now in operation is estimated

at 107 million tpy (144 billion m3/y), close to two and a half times

the actual level of imports in 2008.2Terminals were, on average,

operating at a load factor of just over 50%.

Terminals in the UK, Spain, Portugal and Greece are being

expanded, while four new terminals are under construction in

Spain (El Musel), France (Fos Cavaou), Italy (offshore Livorno) and

The Netherlands (the Gate terminal in Rotterdam). They will addan estimated 48.4 million tpy (75.3 billion m3/y) to Europes LNG

import capacity taking the total to approximately 155 million tpy

Figure 4. Europes LNG imports by source in 2008.

Table 1. LNG imports and terminal capacity in Europe

Country LNG

imports in

2008 in

million t

Number of

terminals

in

operation

LNG

import in

operation

Capacity

in million

tpy under

construction

Spain 22.1 6* 41.8 12.4

France 9.5 2 10.7 16.8

Portugal 2.0 1* 3.3 1.9

Turkey 4.1 2 8.3 -

Greece 0.7 1* 3.3 -

Italy 2.1 2 8.6 3.4

Belgium 2.1 1 6.7 -

UK 0.8 4* 35.0 5.0

The

Netherlands

- - - 8.9

Total 43.3 19 107.0 48.4

Note: *Capacity at operating terminals is being expanded.

Table 2. Estimated LNG imports into Europe from January toSeptember 2008 and 2009

Country Jan - Sept

2008 in

million tpy

Jan - Sept

2009 in

million tpy

Increase in

million tpy

% change

Spain 16.4 15.0 -1.4 -8.6%

France 6.9 7.1 0.2 3.1%

Portugal 1.5 1.7 0.2 13.8%

Turkey 3.2 3.0 -0.1 -4.4%

Greece 0.5 0.5 0.0 6.8%

Italy 1.6 1.4 -0.2 -10.4%

Belgium 1.4 3.9 2.5 175.8%

UK 0.3 4.4 4.1 1595.0%

Total 31.7 37.1 5.3 16.8%



17/76

(209 billion m3/y) by 2012, when the construction work is

scheduled to be completed. The opening of the Gate terminal in

The Netherlands will bring the number of European LNG

importing countries to nine.

The expansion of Europes LNG receiving terminal

infrastructure is unlikely to stop there. A large number of new

facilities are at various stages of the planning process. There

are plans for Italy, France and the UK to add new terminals,

while countries seeking to start importing LNG include Poland,

Croatia, Albania, Cyprus, Germany, Bulgaria, Romania, Lithuania,Estonia, Sweden and Eire. In the unlikely event that all the

planned terminals are developed, they would add at least another

100 million tpy (135 billion m3/y) to capacity.

Trading patternsThe spare LNG import capacity in Europe, especially in the flexible

LNG markets of the UK and Belgium, proved to be an important

factor in balancing global LNG supply and demand in 2009, when

the economic crisis resulted in a large reduction in demand

in major markets, including Japan, Korea, Taiwan and Spain.

Waterborne Energys European LNG edition, which is published

every two weeks, tracks the movement of cargos into Europe.

Together with its sister publications covering Asia and the USAand the Americas, Waterborne LNG Europe has shown how

trading patterns have changed in the first nine months of 2009;

with Europe and the Americas increasing their imports while Asian

demand is falling.

In the first nine months of 2009, European LNG imports are

estimated by Waterborne to have increased by 5.3 million t, at a

time when Asian imports have fallen by over 7 million. As Table 2

shows, the main increases in imports have been in the UK, where

they have grown by 4.1 million t to over 15 times their level in

the same period of 2008, and in Belgium, where the increase

is 2.5 million t, or nearly three times the level in 2008. In both

Belgium and the UK, the main source of the additional imports

was Qatar but cargos were also received from other sources as

producers sought outlets for LNG cargos no longer required by

Asian buyers.

Elsewhere in Europe, the changes in the level of imports have

been much less dramatic. Spain reduced its imports by 1.4 million t(8.6%), as its economy entered recession. Imports were also down

marginally in Turkey and Italy. France increased its imports by

0.2 million t (3.1%) and Portugal by 0.2 million t (13.8%).

The futureThe trends that are being witnessed in Europe in 2009 look set

to continue over the medium term, as some 95 million tpy

(128 billion m3) of new liquefaction capacity comes onstream

between the beginning of 2009 - 2013. Beyond 2013, the

outlook is much less certain, with the progress of liquefaction

projects at the planning stage in the Atlantic Basin stalled by a

combination of low prices, high costs and some governments

prioritising domestic gas consumption over LNG exports.

NotesFor the purposes of this article Europe is defined as the 27 membercountries of the European Union plus Norway, Switzerland and Turkey.

Figures for the capacity of an LNG receiving terminal can varydepending on whether they are based on baseload or peak capacityand the source of the estimate. The data in Table 1 is the authorsestimates using information from a number of sources.

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19/76

NG WENG HOONG, LNG INDUSTRYCORRESPONDENT, DISCUSSES THEPOTENTIAL OF THE NEW AUSTRALIAN GAS FIELDS.

and Queensland. Some of these could start drawing in investment

funding worth tens of billions of dollars, over the next 18 months.

The Australian Petroleum Production and Exploration Association

has released its own forecast, for AU$ 220 billion worth of

new investments, that will create 50 000 jobs, and deliver

AU$ 10 billion/y in tax and government revenue. Merrill Lynch

agrees, putting the tab at more than AU$ 200 billion over the next

decade. In response to demand from Asia, Australia is in a strong

position to raise LNG production capacity from 20 - 50 million tpy by

2015, and possibly to 140 million t a decade from now.

Australia could capture 55% of the regions LNG demand of

164 million t by 2015, up from 13% last year, said Tony Regan, a

consultant at Singapore based Tri-Zen International. ConocoPhillips

Australia President, Joseph Marushack, said Australia could rise from

its current sixth position to displace Qatar as the worlds leading LNG

exporter by 2020.

PetroChina and Indias Petronet sign 20 yearsupply deals

In August, the local affiliate of ExxonMobil secured two recordbreaking 20 year deals to supply LNG to PetroChina and Indias

Petronet. The LNG supplies, worth a total of AU$ 60 billion, will be

sourced from ExxonMobils share of the Gorgon project. PetroChina

will import 2.25 million tpy of LNG, valued at approximately

AU$ 50 billion, making it the single largest trade agreement

between Australia and China.

ExxonMobils AU$ 10 billion agreement to supply Petronet,

represents Australias first LNG contract with India. The US major will

supply 1.5 million tpy of LNG to a new terminal under construction

at Kochi in southern India.

Describing it as an historic agreement, Luke Musgrave,

ExxonMobils Vice President for Australia LNG, said his company

regards Petronet LNG as a foundation customer for the Gorgon LNGproject. Petronet LNG Managing Director, Prosad Dasgupta, said the

deal will be supported by more than US$ 2 billion of related energy

infrastructure investment, in India. Energy consumers in Kerala state

will now have access to a clean burning base load fuel, which will

enhance the economic development of the region, and maintain the

pristine ecology of Kerala, he said.

ExxonMobils affiliate holds a 25% stake in the Gorgon

project, which include three 5 million tpy LNG processing trains.

Last November, Shell announced it had signed a 20 year agreement

to supply up to 2 million t of LNG to PetroChina, from its 25% share

of Gorgon.

Chevron to supply Japanese and KoreancompaniesNot to be outdone, Chevron Corp. says its Australian subsidiaries

have secured long term supply agreements with Japanese

and Korean customers, for its 50% share of LNG from the

Gorgon project. The agreements are for a total supply of nearly

4.5 million tpy of LNG to Japans Osaka Gas and Tokyo Gas, and

South Koreas GS Caltex and Korea Gas. Chevron said it will be

supplying Osaka Gas with 1.375 million tpy of LNG for 25 years, and

1.1 million tpy to Tokyo Gas for the same period, both starting in late2014. As part of the deal, Osaka Gas will acquire a 1.25% equity

stake in the project, while Tokyo Gas will purchase a 1% stake.

Separately, Chevron Australia Pty Ltd and Chevron International

Gas Inc., have signed agreements to supply 500 000 tpy to

GS Caltex Corp. for up to 20 years. The LNG will be supplied from

Gorgon and other fields within Chevrons global portfolio. Chevron

said the agreements with GS Caltex, a 50% owned subsidiary, have

paved the way for its entry into the South Korean LNG market. It will

also facilitate GS Caltexs expansion from refining, petrochemicals

and power, into the LNG business.

The Chevron subsidiaries later landed another agreement, to

deliver 1.5 million tpy to Korea Gas Corp. (Kogas) for 15 years

from the Gorgon project, with an option to extend the deal foranother five years. The parties are also discussing LNG sales, and

an equity purchase from Chevrons Wheatstone project, to be



20/76

located in the western Pilbara region, approximately 200 km south

of the Wheatstone natural gas field. Chevron Australia Managing

Director, Roy Krzywosinski said, This agreement represents the

largest, long term LNG sale between Australia and Korea, and the

first long term sale between Kogas and an Australian supplier.

Korea is the worlds second largest importer of LNG, and is a

desirable market for LNG.

The sale of Gorgon LNG to Korea reflects Australias growing

reputation as an LNG supplier. We expect to build on this

relationship with Kogas, as we move forward with our AustralianLNG projects. Describing the Japanese and Korean companies as

Gorgons foundation partners, Chevron Global Gas President, John

Gass, said, securing sales agreements with major customers in

Japan and Korea is a significant milestone in Chevrons efforts to

commercialise our equity natural gas, and grow our LNG business.

Jim Blackwell, President of Chevron Asia Pacific Exploration

and Production Co., added that the participation of Osaka Gas

and Tokyo Gas as equity participants in Gorgon, will help ensure

the projects long term success.

Chevrons Wheatstone natural gas projectedges closer to commercialisationApart from Gorgon, Chevron Corp. is also developing its fullyowned Wheatstone natural gas project in northwest Australia. In

July, Chevron awarded a major front end engineering and design

(FEED) contract to Bechtel Oil, Gas & Chemicals Inc., to develop

the projects first phase, comprising two LNG trains each with

a capacity of approximately 4.3 million tpy, and a domestic gas

plant. The facility will be supplied initially from Wheatstone, and

the companys operated Iago field.

Chevron expects to make a final investment decision on the

Wheatstone project in 2011. Discovered in 2004, Wheatstone

is located in the WA-253-P and WA-17-R permit areas in water

depths of approximately 200 m, while the adjacent Iago field was

discovered in 2000 and spans two retention permits, WA-17-R

and WA-16-R. Together, these fields hold enough natural gas to

supply a two train LNG development, said Chevron.

Origin Energy and ConocoPhillipsannounce Australia Pacific LNG siteAustralia Pacific LNG said it has secured the Laird Point site on

Curtis Island, in the Port of Gladstone, from the Queensland state

government, as the site for its proposed LNG plant. The company,

an equal joint venture between Australias Origin Energy and

US ConocoPhillips, to convert coal seam gas (CSG) to LNG, also

released results from a study by KPMG Econtech, which highlights

the economic benefits and jobs the project would create.

Origin Managing Director Grant King said, Australia PacificLNG reported a 52% increase in reserves at a proved and

probable (2P) level, from 4.6 trillion ft3in 2008 to 6.9 trillion ft3in

2009. This reserves increase demonstrates the size and quality of

the CSG resource available to Australia Pacific LNG.

With the largest CSG reserves in the country, the

announcement of the site for the Australia Pacific LNG plant at

Laird Point is another significant milestone in the development

of the project, as we move towards the final investment decision

proposed for the end of 2010, and the first production train,

which is planned to be completed by the end of 2014.

Malaysia to import 2 million tpy of LNG

from AustraliaIn June, Malaysian state energy company Petronas signed

a contract with the Australian consortium GLNG, to import

2 million t of LNG for 20 years, starting in 2014. Petronas, which

owns a 40% stake In the GLNG consortium, has the option to

purchase an additional 1 million tpy, on the condition that a final

investment decision on the proposed GLNG project is reached,

sometime in the first half of next year.

The LNG will be consumed in gas rich Malaysia, reflecting

the countrys growing energy demand, and a likely shortfall in

its future energy balance. Led by the 60% owner, Santos of

Australia, the multibillion dollar GLNG project is expected to

become the worlds project to develop LNG from coal seam gas(CSG) or coalbed methane (CBM).

The consortium will extract gas from the Surat and

Bowen Basins, in the southwestern part of Queensland state, pipe

it 435 km to Gladstone where it will be chilled to -161 C, and

liquefied for transport by ship to overseas markets. In 2008,

Malaysia earned RM 40.7 billion from its record LNG export of

22.87 million t, according to Bank Negara Malaysia. Domestic gas

discoveries off Peninsular Malaysia, which supply more than 75%

of the countrys gas market, are dwindling.

David Knox, CEO of Santos, said the marketing agreement

confirms Petronas, a net gas exporter, as a foundation customer

of GLNG. He said, The development of the GLNG project will

bring long term benefits to the communities (in Queensland) inwhich we are working, from our coal seam gas fields around

Roma, to the site of the LNG plant in Gladstone. Up to 6000 jobs

would be created in the development of the three train LNG plant

outlined in the environmental impact statement recently

submitted to the Queensland state government.

Concern over rising costs and pooreconomicsThe implementation of these mega projects has not all been

smooth sailing though. The partners in the Browse LNG project

are squabbling over the initial, estimated AU$ 50 billion cost,

that would make it just as costly as the much larger Gorgon LNG

project. Gorgon, the countrys largest gas project, has almost

three times the amount of gas reserves as Browse, which includes

the Torosa, Brecknock and Calliance fields, with total reserves of

approximately 14 trillion ft3of gas.

However, Woodside Petroleum, the operator and 50%

owner of Browse, has disputed this estimate, leaked to the local

media, possibly by one or more of its partners, which include

Chevron, Shell, BHP Billiton and BP. The partners are also said to

be in disagreement with Woodside over the projects execution.

Woodside wanted to build a costly plant for Browse gas in

Kimberly, while its partners are seeking a lower cost option, which

would involve processing Browse gas at an existing Woodside

operated plant at Karratha. That facility currently processes gasfrom Australias Northwest shelf.

Poor economics may force developers to merge other coal

seam based LNG projects, amid weak energy prices and rising

costs. The alternative would be for some of the projects to be

cancelled. There are four major and three smaller LNG projects

in the northeastern state of Queensland. In the states Gladstone

region alone, there are four projects.

Analysts believe the developers will realise it is not viable for

them to undertake their projects separately, as they face high

construction costs and uncertain market conditions. One possible

option could be to merge the projects of Santos-Petronas with

either ConocoPhillips or Origin.

ReferencesUS$ 1 = AU$ 1.13.1.



21/76

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23/76

With the

spotlight

of the

LNG

markets attention

turning to the Australian

federal governments

decision to grant

environmental approval

for the AU$ 50 billion

(approximately

US$ 42 billion) Gorgon

project, one of the worlds

biggest LNG developments,

some experts are nowasking whether greater

pricing transparency can

come to a commodity that

has traded on a bilateral

basis and largely in secret.

The Gorgon

development, which should

have global significance

given that it is estimated to

have a resource base of over

40 000 billion ft3of gas and

an estimated economic life

of at least 40 years from thetime of startup, would be

a shot in the arm for LNG

supplies, particularly when

supplies had until recently

been limited.

When completed,

the project would be

an additional source of

LNG supply, especially

to Asia-Pacific buyers,

says Obindah Wagbara,

an expert in petroleum

economics at the University

of Dundees Centre for

Energy, Petroleum and

Mineral Law & Policy.

However, he adds that itsimpact on transparent LNG

pricing would depend on

the pricing regime used in

the export contracts.

Global LNGsupplyThe significance of the

Australian move should

also be in the context of

global LNG supply, which

according to estimates for

2008 (see Table 1) showedthat exports from the top

15 LNG exporting countries

EMBRACINGE-TRADINGROGER AITKEN, ON BEHALF OF TRAYPORT LTD, UK, AND DAN SMITH,

TRAYPORT, UK, EXAMINE WHETHER A MORE EFFICIENT AND TRANSPARENT

METHOD FOR PRICE NEGOTIATION OF LNG COULD SUCCESSFULLY EVOLVE.



24/76

stood at 226.51 billion m3. It should also help Australia in terms

of its contribution to global LNG exports (top five in 2008).

Today, Japan and South Korea are the two leading importers

of LNG, and in 2008, they collectively sucked in approximately

40% of supply. Topping the export table was Qatar, by some

10 billion m3(approximately 17% of global supply) from

the next largest producers; Malaysia at 29.40 billion m3, and

Indonesia with 26.85 billion m3.

Some of the geographic hotspots today in terms of where

LNG is traded can be found in the Pacific Basin, Atlantic Basin

markets (US East Coast, Spain and the UK), as well as China

and India. Headed by China, Asian countries have positionedthemselves to be major customers of Gorgon LNG. For example,

PetroChina, Chinas largest energy company, has reached a

deal to purchase US$ 41 billion worth of Gorgon LNG over

a 20 year period from ExxonMobil, which along with

Royal Dutch Shell, controls the rest of Gorgon.

A more efficient solution requiredWagbara, who has written a number of papers on the

structure of the LNG market and in particular what determines

investments in LNG liquefaction infrastructure1, noted at the

13thAnnual Middle East Gas Summit (Megas) in 2008, that

an effective and robust mechanism for determining prices was

necessary to attract players and achieve l iquidity.In short, LNG pricing was faulty. And, certainly it might

not be regarded as efficient in terms of how it is traded by

counterparties, as compared with other energy products where

electronic trading - either voice or hybrid (electronic/voice) - has

taken hold.

Today, electronic trading of LNG has failed to materialise,

despite some recent exchange initiatives in the Middle East.

However, competitive exchange based LNG trade could

generate efficient prices. Wagbara noted in one of his LNG

papers that although competitive exchange based LNG trade

could generate efficient prices, it is not sufficient to attract

investments in liquefaction infrastructure.However, enhanced investment in LNG infrastructures and

capacity could result if the spot e-trade generated price of LNG

via an electronic platform was considered reliable enough to be

the basis for contract price indexation (long term).

Typically, when energy markets have gone fully electronic

on exchanges, huge volume increases have tended to follow.

For example, take trading on the New York Mercantile

Exchange (Nymex), where since the advent of electronic

trading in 2006, between 75 - 80% of Nymex trades

(including crude oil products) were handled electronically just

two years later.

Elsewhere, after Atlanta based InterContinental Exchange

(ICE) Futures went fully electronic, its benchmarkIPE Brent Crude futures and IPE Gas Oil futures contracts, saw

explosive growth. Each of the top five months in exchange wide

volumes in ICE Futures history happened since the transition

to fully electronic trading. Traders, who arbitraged electronic

Brent on ICE Futures and the Nymex light, sweet crude contract

(WTI), got used to faster execution speeds and remarked on the

inefficiencies of the open outcry system.

The current state of playSo, what is the state of current play in the LNG trading market?

With the global economic recession, demand for LNG (energy)

has declined and there is an interim supply glut. A few experts

foresee the re-emergence of a buyers market, but Wagbara

cautions, saying he expects a tight LNG supply situation in

2010. And, that situation could remain so in the foreseeable

future.

Many energy economists agree that the evolution of LNG

trade has created the need for more transparent pricing. But

while some have argued that the secretive nature of LNG

trade is hampering liquidity, there is yet a generally accepted

replacement for existing price regimes. Spot trading of LNG, on

an electronic platform, could also help enhance investments in

liquefication infrastructure, since capacity is the weakest link in

the LNG supply chain.

In terms of the nature of LNG contracts and how it tradestoday, it is either traded through long term contracts

(five to 15 years) or spot contracts (once or over a year).

Long term contracts are negotiated and reviewed periodically,

depending on the price and volume terms, and a few master

spot contracts are used.

Clive Furness, founder of Contango Markets, who is

recognised as one of Europes leading commodity special ists,

says, As a market it [LNG] has got enough global reach, and

as a tradable market I think its perfect to go electronic, since

you are talking about something that is a known quantity. Its a

certain number of cubic metres of LNG.

He adds, The value of it is known at the end point. So,

therefore one could either price it from the shipment point, orthe delivery point. As such it has got all the opportunities of

trading it electronically.

Figure 1. Expected LNG export capacity by region.

Table 1. Trade movement - LNG (exporting countries, 2008)

Country Billion m3

Qatar 39.68

Malaysia 29.40

Indonesia 26.85

Algeria 21.87

Nigeria 20.54

Australia 20.24Trinidad & Tobago 17.36

Egypt 14.06

Oman 10.90

Brunei 9.20

Source: BP/Cedigaz (provisional).

Note: total global exports from 15 LNG exporting countriesequated to 226.51 billion m3. Asia-Pacific accounted forapproximately 154 billion m3of total imports, with Japansimports representing 92.13 billion m3and South Korea36.55 billion m3.

1.

2.



25/76


26/76

A slow startRecent efforts to establish electronic trading platforms for

the commodity, e.g. listing LNG spot and futures contracts

on exchanges, have fallen short of expectations due to

insufficient transaction volumes and liquidity. But several

initiatives have been tried.

Back in March 2007, the International Mercantile Exchange

(IMEX), a new exchange in Qatar, designed a platform for

regular LNG cargo auctions to go live before the end of that

year. Specifically, it was designed for the contracts to be tradedin a similar manner to those of Brent crude oil contracts.

The planned flagship contract for IMEX was to be an

innovative LNG contract, touted as the first of its kind in the

energy exchange world. Jon ONeill, Vice President of

Hess Energy Trading UK (HETCO), an energy trading

company, used by IMEX as its main consultant on the project,

said at the time that, The nascent spot LNG arbitrage market

is anticipated to grow quickly in the coming years.

However, a defined LNG pipeline gas price relationship

that links Atlantic hubs and Asia-Pacific markets with a

potential Middle East hub, was viewed as essential. Indeed,

with the State of Qatar being the leading LNG producer

globally, it should be well positioned. Furthermore, Qatarwas recently estimated to have 15.2 billion bbls in petroleum

reserves and the worlds third largest reserves of natural gas

at approximately 14.9%. Collectively, the Middle East boasts

of some 40% of the worlds natural gas reserves.

The fact that to date LNG trading via electronic channels

has met with next to no takeup, can be attributed to the

historical evolution of the market, with secretive bilateral

agreements. Furthermore, the market has been changing

over time from a buyers market to a sellers market and back

again. At each point of the transition, either the sellers or the

buyers would have a negotiating leverage in respect of the

pricing mechanism.

Wagbara says, Besides this, with the emergence and

peculiarities of competitive gas markets in the Atlantic Basin

(Henry Hub, NBP and Zeebrugge), it has made the emergence

of a global LNG price marker difficult.

Challenges to overcomeA number of impediments remain to be overcome in respect

of e-trading takeup in the commodity and deployment of

screens in the space. According to Wagbara these include:

Few spot transactions (relative to long term transactions).

The varied basis of indexation used in spot transactions.

Exporters discomfort about price volatility in the

importing markets.

He also points out, There is no direct relationship

between long term and spot LNG contract prices. So, even if

e-trading starts, it may not be sustainable.

In addition, there are issues with other inherent

commercial interests relating to price mechanism and internal

dynamics in the importing markets, and fears that shale gas

production could constrain LNG demand in the USA.

That said, the Dundee based academic believes there

could be staged solutions in bringing more electronic/screen

based trading for the LNG market, but exporters would

have to be committed. Perhaps integrating/formulating

a relationship between crude oil price and e-trading LNGprice could help to stimulate exporters interest, Wagbara

contends.

l

l

l

He also thinks it could be a good idea to create a

scheme which in real time captures cross product spreads,

especially LNG price against benchmark crude and LNG

against gas. On that, he believes the key issue would be

how the changing dynamics in various LNG importing

markets are captured. Perhaps an easy solution would be to

start with a few markets, suggests Wagbara.

Contangos Furness thinks that trading of LNG

electronically would probably lend itself to being more an

arbitrage product than anything else. It might have onevalue going east and another value going west, he says. If

you have spot, you can then take advantage of the [price]

spikes, particularly in the North Atlantic winter. Youve got

opportunities for price spikes in some of the North Atlantic

gas markets.

Wagbara says, To some extent it could help with

arbitrage opportunities, if the process is perceived as

transparent and not susceptible to manipulation. Perhaps

one could try to determine the likely long term effects on

exporters (relative to the current situation).

Hybrid brokingTrayport, which is a supplier of trading systems to over thecounter (OTC) brokers and trading companies, and exchanges

trading energy commodities, has been closely following

developments in the LNG market with a view to potentially

rolling out its services.

Dan Smith, Head of Broker Services, Trayport, says, We

believe the adoption of Trayport hybrid broking technology

for OTC LNG trading will allow for greater transparency and

encourage more liquid markets.

Hybrid broking, a blend of voice and electronic trading,

is ideally suited to brokered OTC markets. And, with over

130 large energy companies and banks involved in LNG

trading already using the companys Trading Gateway product

for trading power, gas, emissions, coal and freight, adding

LNG products could well prove to be a natural extension

according to Smith.

He adds, Traders using the product will be able to trade

other related commodities such as gas and oil, and allow

them to calculate key cross product spreads, such as LNG

against benchmark crude and LNG against gas, in real time,

to uncover hidden trading opportunities.

Hybrid broking should also help to improve on the

current voice traded markets by allowing brokers to market

prices to a larger number of traders, allowing them to focus

on providing colour and perspective on the market, and voice

broking more complex products while more commoditisedproducts trade on screen.

If the primary LNG traders are comfortable trading in

voice and having those relationships, then using hybrid

technology will be the way the market will go, says Furness.

But it could just as easily go full electronic with a properly

constituted market, provided traders are equally comfortable

with that option.

ReferencesWhat are the Potential Implications of Exchange-based LNGAuctions for Investment in Liquefication Capacity, O. Wagbara(University of Dundee).

NoteRoger Aitken is a specialist writer on electronic trading platforms andalgorithmic trading across asset classes.

1.



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for the energy industry

Welcome to

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LNG16 Executive

Committee, Algeria,

discusses the oil and gas

potential of Africa, and

the upcoming LNG16

conference.



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Aregion rich in natural resources, the LNG

production capacity of the North African

countries Algeria, Egypt and Libya, will

reach 60 billion m3in 2014, compared to

42 million m3in 2008.

North Africas existing liquefaction

capacity is centred around Arzew (Algeria), Marsa El Brega

(Libya), and the Egyptian plants of Damiette and Idku. African gasproduction is concentrated in the north, with exports from leading

producer Algeria accounting for approximately half of overall

production. Nigeria has large gas reserves and exports most of

what it produces, whilst Angola, which until now reinjected gas

into its oilfields, and Equatorial Guinea, another producer of crude

oil, have established LNG projects. Gas discoveries have been made

in Mozambique and Tanzania, neither of which are oil producing

countries.

Market developmentThe Algerian company Sonatrach, the second largest gas supplier to

Europe after Russia and the largest gas producer on the continent, is

keen to consolidate its position and move forward in expanding anddeveloping its role within the LNG market by broadening its reach

overseas. The group currently conducts business in the countries

of Mauritania, Niger, Mali, Libya, Tunisia and Egypt with additional

operations in Peru. Notwithstanding, Algeria wishes to raise its gas

exports to 85 billion m3in 2014 compared to its current 62 billion.

Europes natural gas market development goes through the

expansion of the pipeline network. Its assets have an undeniable

weight on the geostrategic chessboard of the international oil

market. For all these considerations, many structural projects have

been initiated to supply oil directly to Europe, a market traditionallygranted to Algeria, and even beyond.

Included in this are the Transsaharien Gas Pipeline (TSGP), a

US$ 10 billion project; the Algeria-Sardinia (Galsi) and the Medgaz.

The TSGP is intended to transport natural gas from fields operating in

Nigeria to Europe, through Niger and Algeria. It is an intercontinental

project potentially spanning 4128 km or 2310 km across Algeria

to the Mediterranean coast at either Beni Saf or El Kala, through a

pipeline that will carry between 20 - 30 billion m3/y of gas to cover the

needs of the European market.

The Galsi, for its part, will open up a new gas outlet to Europe.

All these projects are part of the new dynamic of global demand for

gas; especially that of Europe, including 25 countries that consume

471 million m3/y, representing 17% of the global market. Europeimports more than half of its consumed gas, which is increasing by

3% per year; its traditional suppliers are Norway, Russia and Algeria.



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Currently, over 95% of Algerian gas exports are destined for

Europe and more particularly, to Italy, taking 40% of exports. A

quarter of Europes gas consumption comes from Russia. However,

since the crisis between Russia and the Ukraine, the EU seems

obsessed with its energy security and has made the diversity of

its sources of supply a priority, and a question of survival. It has

particularly expressed, on many occasions, its interest in establishing

a stronger energy partnership with Algeria. Thus, Algeria will

eventually become the second largest supplier of gas to the EU

after Russia.Libya, the third largest oil producer in Africa (after Nigeria and

Angola), currently produces 3.5 billion m3/d of natural gas and plans

to double its gas production by 2012 or 2013.

Fresh discoveriesIn Angola, the authorities expect strong growth of the gas field

with the implementation of Angolan LNG projects, and with the

construction of new refineries that will foster the creation of a

petrochemical industry. In Mozambique, the gas is exported by the

South African company SASOL, mainly for petrochemicals.

For its part, the Tanzanian government has announced several

discoveries of gas fields in the country without disclosing their reserve

potential. All these fields have been discovered along the coast of theIndian Ocean, between Dar-Es-Salaam and Mtwara. Algeria and Libya

are major European suppliers, unlike Egypt, which consumes the bulk

of its production. Over two thirds of oil exports from northern Africa

are destined for Europe.

Algeria as host of LNG16It is clear why Algeria is holding the 16 thEdition of the International

Conference and Exhibition of LNG. Indeed, Algeria is the first LNG

producer to reach 1 billion m3of cumulative LNG production in

mid-September 2008, since the entry into production of its first LNG

plant, GL4/Z (ex Camel) at Arzew, in 1964. In fact this was the first

LNG production plant in the world.

To export its LNG to Europe and to the USA, Algeria significantly

developed this industry in the 1980s. The plant currently has

four LNG liquefaction complexes of a combined capacity of

44 million m3/y, and three plants located in the industrial centre of

Arzew on the western side of the country. These are GL1Z, with

a production capacity of 17.563 million m3/y of LNG, GL2Z with

a production capacity of 17.820 million m3/y, and GL4Z with a

production capacity of 2 million m3/y. Finally, there is another plant

in the industrial centre of Skikda on the eastern side of the country;

GL1K has an LNG production capacity of 6.942 million m3/y.

This production capacity will increase significantly with the start

of production of a fifth plant, GL3/Z, currently under construction at

the industrial centre of Arzew. As a guide, the combined domesticproduction of all LNG plants has risen from 194.309 million m3in

1964 to approximately 1 billion m3in 2008. But this production,

exceptional as it may be, remains within the capabilities of national

reserves and leaves underground natural gas still untapped.

The 16thinternational conference on LNG, held in Algeria, will

provide an opportunity for visitors not only to discover a pioneer

in the gas industry and LNG, but also to discover an attractive and

welcoming country with a diverse history.

The Oran Convention Center (CCO) has been designed especially

to host the event. The venue will consist of the congress building,

which includes an auditorium with a capacity of 3000 seats, two

meeting rooms with 500 seats each, 20 meeting rooms with

50 - 100 eats each, a VIP space (a circular meeting room witha capacity of 50 seats), and a banquet hall with a capacity of

2000 places.

Figure 3. Cathedral in Oran, Algeria.

Figue 1. LNG train.

Figure 2. Part of LNG train.

Figure 4. Map of Algeria.



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LNG

- THE MARINEFUEL OF THE FUTURE


The global focus on climate change and

emissions is increasing, and the maritime

industrys contribution to the problem claims

attention. Shipping is very efficient in terms of

fuel consumption per tonne x mile, compared

to other transport alternatives. Still, the shipping industry uses

approximately 330 million tpy of fuel, or approximately 3.3% of

the worlds fossil fuel oil consumption.

Shipping was not addressed at the Kyoto Climate

Conference. This, however, only bought the industry sometime, which is now running out. The IMO has already dictated

significant emissions reductions, and the upcoming

Climate Conference in Copenhagen is likely to point towards

shipping as a sector where dramatic improvements are needed.

HKAN WERNER AND

KJETIL SJLIE STRAND,

I.M. SKAUGEN, NORWAY,

EXPLORE SMALL SCALE

LNG SUPPLY CHAINS AND

BUNKERING INFRASTRUCTURE.


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IMO has established so called SECA zones (Sulfur Emission

Control Areas) in the Baltic Sea and the North Sea. More areas,

including US coastal waters, the Mediterranean and Japans

coastal areas are also expected to be established as such zones in

the near future. The Tier II limits for NOxemissions as per MARPOL

Annex VI, are valid for all new ships after 2011, and IMO Tier III

will come into force from the beginning of 2016 in designated

ECA zones. This means that SECAs will become ECAs (Emission

Control Areas) from 2016, with 0.1% sulfur limits and IMO Tier III

limits for NOx, which will imply approximately an 80% reductionfrom todays allowable NOxemissions.

In addition, Norway and Sweden have both already

implemented costly NOxand SOxtaxes and fairway dues in their

domestic waters, and more countries are expected to follow.

Furthermore, it is expected that the EU will implement a 0.1%

sulfur limit in all EU ports as soon as 2010.

The long term future of heavy fuel oil as bunkers is therefore

questioned, both in terms of dependency on oil, and not least

with regards to emissions. Natural gas in contrast gives a far more

environmentally friendly combustion, and in addition there appear

to be greater reserves available than for oil. Thus, LNG as marine

bunkers has the potential to be the solution for the shipping

industry to cope with its emission challenges in the years to come.

Propulsion plants and onboard fuel systems for LNG are

already available in the market, and development and expansions

of the product portfolios are ongoing. However, availability of

LNG as fuel in ports is currently not developed. Except for some

pioneering small LNG terminals and projects along the Norwegiancoast, marine LNG fuelling stations do not exist. Many large LNG

import terminals exist in Europe and elsewhere, but these will not

be suited for bunkering of LNG. They are in the wrong places and

not at all built for transferring smaller quantities of LNG. Thus,

the LNG has to be transported in smaller parcels to strategically

located hubs, close to where LNG fuelled vessels need to bunker.

To do this, new small scale LNG supply chains, making use of

smaller LNG carriers and storage facilities, need to be established.

Small scale LNGThe small scale LNG concept is an effective solution for making

natural gas available to energy users, currently not connected to

pipeline networks. The concept increases the market for naturalgas, by distributing LNG from either an LNG plant, LNG import

terminal, or directly from an LNG carrier using a combination

of both sea and land based transport, directly to the end user.

The concept is based on I.M. Skaugens Multigas LNG carriers of

10 000 m3or 12 000 m3, where the first vessel in a series of

six will be delivered in late 2009.

The small scale LNG concept shares much of the technology

with traditional large scale LNG, but that is where the similarities

end. Large scale is about intercontinental transport of millions

of tonnes of LNG, from a LNG production unit to an import

terminal, where the commodity product is fed into a national

pipeline grid system. Small scale LNG on the other hand is

more of a regional business, moving hundreds of thousands of

tonnes from the LNG source, using various modes of transport

ranging from ships to semi-trailers and ISO containers, directly to

end users - thus providing an attractive energy supply solution

previously not available. The objective is to make LNG, and

subsequently the gas, as easy to access and use as any other

liquid fossil fuels currently used.

Using smaller ships supplying a market with smaller demand,

the receiving terminals are small as well. A terminal the size of

20 - 30 000 m3will be more than enough to ensure efficient ships

logistics, allowing for full drops while at the same time maintaining

a sufficient stock level. Comparing this with the normal terminal

sizes of 150 - 300 000 m3

, not only will a smaller terminal tie up alot less capital, but it will also be faster to build and probably easier

to get through the local approval process.

Marine LNGLNG is by far the cleanest and most efficient fuel available for

vessels today. The overall economic picture may actually be

even brighter, as burning LNG can reduce the need for engine

maintenance. Therefore, the marine bunkers market is a large

market opportunity for LNG supplied in smaller parcels.

As already mentioned, legislation for emissions from ships will

become tighter and tighter, initially SOxand NOx, but later surely

also for CO2and particulate matters (PM). Natural gas is the only

fuel that can address these issues from the source, and avoidextra clean up equipment such as scrubbers and SCRs. If used as

a marine fuel, natural gas can reduce NOxemissions by 80 - 90%,Figure 3. Overview of new regulations as per MARPOL Annex VI(DNV).

Figure 2. SOxlimits: world, ECA and EU ports (Wrtsil).

Figure 1. NOxlimits as per Annex VI (DNV).



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SOxand particulates to effectively zero, and also reduce CO2by

20 - 25%.

This market is still embryonic and mainly developed in Norway,

but with NOxTier III and 0.1% sulfur limits coming into effect as

of 2016, there are an increasing number of ferries, RORO and

ROPAX ships destined for ECA zones being designed with gas or

dual fuel engines. Norway already has a number of coastal ferries

as well as offshore supply vessels, gas carriers and coast guard

vessels in operation on LNG, and as such the technology is well

proven. The first ferry was put into operation as early as 2000.

Both pure lean burn gas engines and dual fuel engines

are available in the market, and both concepts are proven in

operation. LNG bunker tanks and onboard fuel supply systems

are also available, and this is an area where development work is

ongoing for more cost-effective solutions that can also utilise the

hull spaces better.

The main challenge at this stage is to supply the fuel in the

form of LNG to the ships bunker flange in new areas and major

ports. Pipeline gas is not suitable for this need, as the volume

needed to store sufficient amounts of natural gas in gas phase

onboard would not be practicable. LNG and small scale LNG

infrastructure and supply chains are the solution.

AlternativesThe alternatives to comply with upcoming emissions limits would

be to use scrubbers for reduction of sulfur emissions and SCR for

cleaning of the NOxin the exhaust gases.

Modern scrubber systems work in closed loop with fresh

water and the exhaust gas system, to which caustic soda is added

for the neutralisation of SOx. Up to 97% cleaning efficiency can

be achieved. The drawbacks, however, include consumption and

price of caustic soda, which can be quite costly, space required forthe system onboard and the need for disposal of wastewater in

ports. In addition, the system takes some o

lng industry december 2009

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