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LNG FOR POWER IN SMALL EMERGING MARKETS

David L. Haug Shawn Cumberland

Arctas Capital Group ABSTRACT

LNG import or export facilities now sit on every continent, and allow power generated by gas from LNG to light millions of homes and businesses in places which would otherwise have to rely heavily on coal or oil due to having insufficient (or no) gas supplies or pipeline connections of their own. But virtually all of the LNG delivered, goes to relatively prosperous developed (OECD) countries, or very large developing world markets like China, India and Brazil. It has not penetrated many of the places where its presence would have the most impact — small developing countries with few indigenous fuels, and/ or poor economies whose credit rating won't support the seller requirements for committed long-term contracts let alone mega-million dollar investments in receiving facilities. This paper shows how the extraordinarily high cost of oil for oil-fired power plants--the typical dominant technology in gas-less markets — is driving new creative structures and solutions to open up many of these small markets to LNG, potentially adding several million tons per annum of LNG demand to the market, making them a major global LNG consumer when considered collectively. We will discuss the precedent markets, Puerto Rico and the Dominican Republic, what got LNG there and what has kept it from spreading, and then examine several new markets where non-traditional players are developing projects that overcome the barriers to LNG penetration in these challenging countries. We will discuss the curious case of Colombia, which is on the way to becoming the first country to simultaneously become a new LNG importer and new exporter. The paper will focus more on on actual examples in specific places than hypotheticals and theory, and will bring updates and insights that go beyond headlines in periodicals.

I. INTRODUCTION

Gas derived from LNG is delivered in pipes for home appliances, manufacturing, and industrial activity. LNG use to replace diesel fuel for trucks and heavy machinery is increasing rapidly. But the principal use of LNG worldwide, in the countries that import it, is for power generation. Gas can be burned in higher efficiency machines – gas turbines – than coal or oil. Maintenance costs are lower. And compared to other power plant fuels, gas has far fewer NOx, SOx, carbon dioxide, and particulate emissions.

So one would expect that LNG used for power would have increased dramatically as gas became better understood and environmental sensitivity hit more countries, and that is what has happened over the last two decades – at least in a handful of the world’s 150 countries, mostly large and/or more highly developed ones. From 2001 to 2011 the number of importers increased from 15 to 23.

LNG shipments have grown in multiples in the years from LNG 10 (1992) to LNG 17. This rise has been in response to a push for cleaner fuels, an increasing price of oil, and during much of the period, a large gap in prices for energy-equivalent units of gas compared to oil. These forces have led to increasing uses of gas for power generation, but mostly in countries fortunate enough to already have gas or LNG import capabilities or wealthy enough (Dubai, Brazil, Chile) to attract it.

In addition, most of the increased LNG usage went to countries or regions that were already using gas, whether from LNG or from domestic supplies, and mostly to countries with mature economies. Since the mid-2000s, China and India have become the key exceptions. Mexico, Argentina, Brazil, Chile, and Dubai have burned gas for power for many years, so LNG there is supplemental to domestic supply. New European terminals augment, or provide a market check to, Russian and North Sea supplies.

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The countries most in need of gas for power, due to the crushing impact of their high cost of power from other sources, are smaller countries with no domestic gas oil, gas or coal resources. Unlike large LNG importers Japan, Korea and Taiwan, which face the same no-resource dynamic, these smaller economies do not have the consumption requirements, or credit quality, to warrant the attention of the large LNG suppliers.

This paper examines why not; what the exceptions are; and consider how these markets can become LNG importers.

II. THE HISTORY AND DYNAMICS OF LNG FOR SMALL EMERGING MARKETS

The Puerto Rico Precedent. A territory of the US but not a state, Puerto Rico has to import all of its fuel. Its GDP and per capita income fall significantly below that of the other 50 states, resulting in, among other issues large scale immigration to the US. More Puerto Ricans live outside the island than on it.

As a result, many would say that the Puerto Rican economy has features more similar to small emerging countries than to the US. Most significant infrastructure, including power, ports, water, and shopping, were until recently, or still are, owned by government companies, a structure long before phased out in the US

About 20 years ago, Puerto Rico decided to allow private power plants to provide a significant part of its need for new generation.

Two large new plants were successfully developed as a result, one using coal and the other, gas from LNG. The latter is a 530MW co-located LNG terminal and power plant which uses waste heat to produce desalinated water, and can use diesel or propane as back-up fuels. This author led the project development of that facility.

It seems hard to imagine now, but as of the mid 1990’s, there had been no new LNG terminal developed in the US in the prior 20 years. In 2000, LNG cargoes began to arrive from Trinidad into Puerto Rico

Co-locating a power plant and an LNG receiving terminal creates significant efficiency advantages by using the cold air from regasification in the gas turbines, and waste heat to desalinate water. This plant (called EcoElectrica) was the first of its kind in the world to simultaneously finance and build LNG and power as a single facility. EcoElectrica has long term supply and power offtake contracts with matching escalations, and long term non-recourse financing matching the LNG and power contract terms. It remains, as far as we know, the only combined LNG/power facility to be successfully financed and completed in this manner and one of only a handful to be attempted to all.

A few years later, an LNG import terminal was built in the neighboring Dominican Republic next to a power plant. It was never able to receive the project financing its owners expected, in part because of the Dom Rep’s poor history of paying private generators for power, and in part because the LNG pricing and power sales do not have matching indexes or escalators. It has had to be carried on the balance sheet of its owner since it was completed, a caution to other developers who might attempt a similar project.

Why Few Countries Have Followed the Puerto Rico Precedent So Far. Other than these two, no other small resource-less emerging market country has managed to attract a similar facility, despite oil prices that result in wholesale electric prices easily high enough to support such a facility. (Chile, while small, is a long time gas user with investment grade credit.) Millions of dollars have been spent to try to develop similar projects in Honduras, El Salvador, Panama, Jamaica, Guatemala, The Bahamas, Hawaii, and the Philippines, to mention a few, with nothing yet to show for them. Estimates exceed $100 million being spent over 12 years for 3 separate proposed projects in the Bahamas and over $20 million for 2 in El Salvador that never broke ground.

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Why haven’t more small emerging markets become LNG importers?

No Large Established LNG Customers. Although the macroeconomics in each case seem to be compelling, it has proven difficult to add new markets, especially small developing countries, to the LNG trade. There are only a handful of major LNG suppliers globally. All of them are controlled or dominated by large multi-national oil companies or by state-owned entities partnered with them, and all have historically had a very similar outlook about how to sell LNG and who to sell it to. Target customers are those who can have very strong credit, aren’t too sensitive about price, and are willing to sign long-term contracts indexed to oil prices. Most have very large gas demand and purchase LNG from multiple suppliers. The key examples of course are Japan, South Korea, Taiwan and the Europeans. These customers aren’t principally driven by what the LNG costs; they pass on the cost to consumers as a fraction of the overall retail cost of gas or power. Their LNG use, while a significant part of the global LNG market, is not a majority of the energy these countries use, so it is not a major part of energy costs paid by their industries and voters.

Smaller countries, on the other hand, have much less efficient economies, and lower industrial and commercial activity, so are much more dramatically impacted by high imported oil prices. They typically have no domestic energy resources and must import all their fuel. They have few or none of the world’s cheaper energy sources -- nuclear plants, hydroelectric, and coal plants. Their retail energy costs are up to 4 times those of the US and 2 – 3 times those of larger industrialized countries. This is due primarily to high oil prices, but also to a higher cost of capital to replace old inefficient plants than developed countries have. The least fortunate countries may be unable to attract private capital for infrastructure investments at all.

To justify the cost of LNG import infrastructure and new gas-turbine power plants, developing countries need fuel at a discount to oil, not at oil parity. They already consume oil at oil parity; adding the capital cost of new plants that efficiently consume gas from LNG would actually increase power costs. They certainly do not have the luxury to absorb higher prices to simply achieve cleaner air.

No Receiving Facilities or Reliable Market. Even if offered LNG at a discount to oil, small developing countries seldom are seen as having the credit quality an LNG seller seeks. And even if they have some positive credit history, they have the classic “chicken and egg” problem—which comes first, LNG supply or facilities to consume it? They can’t finance an LNG/power facility without being able to show a committed LNG supply to lenders and investors. But LNG suppliers don’t even want to bother discussing a term sheet, let alone a contract for long-term supplies, without being able to clearly see that a terminal and offtake customers are there to take and use the LNG. The absence of both LNG supply and equipment to consume LNG precludes either from being introduced first. Puerto Rico and the Dominican Republic succeeded in attracting LNG because a single developer brought both at the same time.

To get both an LNG terminal and power plant financed by the global lending community, even by well-meaning development banks, a project has to show a predictable long-term revenue stream, without having to make optimistic but unhedged assumptions about uncorrelated fuel and power prices. That means the power must be sold to one of two types of customers. The one suppliers prefer is a large utility with large revenues from historically stable and predictable tariffs. The second is to a well-structured project where the project sells gas or power to a large end-user under a contract where there are fixed payments to match the amortization of the debt and equity invested, and variable payments for energy generated that are indexed to the cost of the LNG (or other fuel) to make that energy. The large user could be unknown in global markets as long as it is a regulated utility with a stable customer and load base, or perhaps a large world-scale industrial facility with

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hard currency earnings. In either case it can have a good reputation, or perhaps no reputation, but not a bad reputation for paying for power or fuel.

Convincing the LNG and financing markets that all these elements -- long-term LNG supply, a credit-worthy offtaker with actual facilities, and a long-term power offtake contract to provide the revenues to match the LNG costs -- has largely proven impossible in most emerging markets since the Puerto Rico facility was completed.

Excelerate has recently contracted to provide an FSRU to Puerto Rico. It will supply a large existing power plant which will convert its equipment to burn gas. This is far less expensive than a new facility and Puerto Rico has an investment grade credit rating; even so, it has taken nearly 15 years for Puerto Rico to expand the use of LNG beyond a single power plant. And the FSRU comes only after tens of millions of dollars were spent on unsuccessful efforts to build a pipeline to carry gas from the 1990s LNG plant to other parts of this very small (30x100 miles) island about the same size as the metropolitan Houston area.

III. HOW TO OVER COME THE CHALLENGES OF BRINGING LNG TO SMALL EMERGING MARKETS

The challenges above seem daunting for smaller countries whose people are paying electric prices up to 4 times those in the US and the developed world, but trying to compete for factories and trade. Is there hope for overcoming such challenges?

Yes, we think so.

Developers are now looking at combining a number of successful techniques from other projects, to solve the chicken-and-egg situation described above.

1. Duel Fuel Engines. The most common type of oil-fired power plants in emerging markets typically use diesel engines fired by #6 fuel oil, which is currently priced similar to spot LNG. But as Wartsila is now showing, these engines can be built to burn gas as well as fuel oil. Two plants totaling 460 MW of these duel-fuelled engines are being installed on land in the Dominican Republic, with LNG to be supplied either by the existing LNG terminal or a new FSRU. Gas turbines, which are the most efficient way to generate power from LNG, can also burn #2 diesel fuel or propane if LNG supplies are not available. Use of dual-fuelled engines allows LNG supplies to be purchased on a spot or interruptible basis and continue to operate during an LNG shortfall without a power outage.

2. Using Floating Infrastructure. The concept of ship-to-ship LNG transfers finally achieved widespread industry acceptance in the last 10 years. Providing such transfers feasible on Excelerate floating offshore terminals in the US paved the way for FSRUs in other countries by Golar and others.

FSRUs have made it easier for investors to risk capital on LNG in emerging markets, since if they are not paid, the vessel can in theory be redeployed in a more attractive market. This may make it feasible to have shorter LNG supply arrangements, which require much less of a commitment from a supplier and thus may be easier to customize.

Floating power plants are another part of the answer. In the 1990s, many small countries solved power shortages by attracting more efficient power plants built on barges docked in port on 15- year contracts. A business group led by this author pioneered the placement of these vessels using private owners and non-recourse project financing, initially in Central America. These proved very successful for the banks, the investors, and the countries. Many operate now

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beyond their original projected 15-year lives. There are now sources of power barges in use worldwide, contracted for both long and short term periods.

The major benefit of floating power plants is they can be removed if the offtaker consistently doesn’t pay, and redeployed elsewhere. They do not become stranded investments, a major investment concern with land-based plants in emerging markets. This feature has proved over time to significantly reduce non-payment risk, so the threat to leave has only occasionally had to be suggested, and never carried out.

Therefore, using floating power plants with dual-fuel engines creates a way for developers to protect themselves both against non-payment and against LNG supply problems, enabling them to potentially finance new LNG/power infrastructure with short or mid-term LNG contracts, and even to initially buy LNG from the spot market.

3. New LNG Suppliers and Pricing. Cheniere has, we think, revolutionized (and modernized) the LNG supply industry by pricing LNG transparently based on its two key components: (i) the capital invested in the liquefaction, storage and marine facilities, and (ii) the feed gas to be liquefied. In this model, either Cheniere or the customer can supply the feed gas, and deal with the resulting credit and fuel indexation risk. Other US suppliers appear to want to follow suit.

This pricing model may begin to move significant LNG volumes away from the oil-index pricing structure that the incumbent oil majors have demanded and defended for years, and toward a more transparent, rational and defensible pricing structure which makes both buyer costs and supplier revenues more predictable. A force in this direction appears too driven by some of the world’s largest buyers of LNG, particularly in Japan, who want a more diverse supply portfolio. The bifurcated pricing structure could make it easier for small countries to sign up for LNG volumes, and at the same time reduce the credit risk of a supplier relying on them.

4. Addressing Credit Issues. Because they prefer to sell LNG under long-term contracts, LNG suppliers typically require their long-term customers to have a clear and predictable demand, established offtake facilities, and a strong balance sheet. The demand test results in the chicken-and-egg problem described above for potential new importers. In addition, most small countries also fail the credit test, either because their economies are weak, or because they have a poor track record paying for power that private firms have generated, or both. (The Dominican Republic is a prime example).

But as more suppliers, especially in the US, Gulf/Caribbean Basin emerge, there may be more flexibility on both credit and term of years in LNG contracts. And, there are some signs buyers understand and are working to address the problem:

(i) Jamaica recently tried to solicit both LNG supply and an FSRU, at the same time. Although significantly flawed in many ways, this tender contemplated a $100 million secured and funded credit reserve to provide some level of comfort to LNG sellers that near-term cargoes could be paid for, or at least provide adequate warning of problems to give suppliers time for efficient diversions if needed.

(ii) In the Dom Rep, BP has a long-term supply contract, but sends cargoes only if the payment is secured by an L.C. in advance (caveat – it is not clear BP would sign a similar contract today).

(iii) The supplier to EcoElectrica in Puerto Rico relied on LNG and power contracts having perfectly aligned back- to- back LNG and power price indexes and years. The LNG is sold to a special purpose project company, that in turn sells the power to the state-owned utility.

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(iv) A recent power tender in Guatemala, discussed later below, allowed a winning LNG project to first sign the PPA, then approach the LNG market and sellers together with a government agency. Once LNG terms were set, the tender contemplated that the PPA terms could be modified transparently to match LNG supplier requirements, and then passed through to power customers via tariff.

5. Possible Advantages in Small Customers. There are several indicators that the tradition of LNG suppliers avoiding smaller emerging markets could soon change:

(i) In the last decade, LNG suppliers have dramatically expanded their views of who they can supply, and from where. The number of LNG trading routes (i.e., point-to-point LNG shipment combinations) have quadrupled from around 40 in 2001 to around 160 by 2011.

(ii) Despite all the new US export projects announced, only one currently has permission to sell to countries other than US Free Trade Agreement (FTA) partners. Just one FTA country, South Korea, is a developed country and large LNG importer. The others are mainly the prototype small countries this article discusses--and most are close enough the US to allow relatively small shipping costs. The exporters may be driven to find ways to help these FTA countries to buy LNG.

(iii) Other new suppliers besides the US terminals, as well as incumbent LNG producers, may see smaller countries as good customers, particularly if the supplier is itself small-scale, or is selling excess volumes in its portfolio. Two new export projects in Colombia may be natural suppliers to small countries in the Caribbean and Central America, as could West African projects. One UK-based developer, Gasfin, has announced it is attempting to develop a small scale export project in Trinidad targeted to supply small Caribbean islands. There is significant (though far from universal) sentiment in Trinidad that it should stretch to be the principal LNG supplier for the region. It is already the principal supplier to Puerto Rico and the Dom Rep

6. Other Key Issues for LNG Buyers. LNG suppliers must get comfortable with a number of key issues in each new LNG offtake project in a new country for supplies to flow. In addition to those listed above - -customer quality and credit; proper LNG pricing and predictable revenues, and confidence that facilities to offtake the LNG will be installed - - other key issues for a host country to become an LNG importer are:

• A transparent decision making process within the offtake project and host country

• Supplier and investor confidence it will have access to legal or arbitration proceedings that will resolve disputes in an internationally acceptable way.

• A clear and protected legal status for not only the offtake contracts but also for the entity or entities that buy and pay for the LNG (and power). This is necessary to provide confidence to the LNG supplier that the buyer will be around and viable for the full term of the LNG contract.

• A track record of completed energy projects in the importing country and by the lead developers, as opposed to a history of announced but uncompleted ones.

• An infrastructure investment climate where domestic and foreign energy investment is encouraged and already flourishes.

• A public and convincing commitment, across political parties and interest groups, that gas and imported LNG need to be a key part of the energy supply.

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IV. MOST LIKELY NEW COUNTRIES TO IMPORT LNG FOR POWER

The Excelerate FSRU project in Puerto Rico and the 460 MW of dual-fuel fired engines in the Dom Rep discussed above, will undoubtedly cause additional LNG supplies to flow to these small islands, but these are islands that have imported LNG for many years. Here are the most likely candidate countries to join the global LNG club in the next few years:

Colombia: There are at least two export projects being developed on Colombia’s Caribbean coast, and one has announced it has already begun construction on a floating small-scale liquefaction vessel. In addition, Colombian gas and power utilities are planning at least one and maybe two LNG import terminals, to provide gas when the El Nino weather phenomenon every 5 or 6 years dries up hydro supplies and requires more gas plants to operate than current gas supplies can accommodate. If the export projects stimulate new reserve development, the El Nino gas supply problem could be wholly or partly solved, but by then the import terminals will likely be built, or be co-located with the export terminals. In any case, Colombia is a near certainty to have joined the LNG community from one or both sides in the next 36 months.

Panama: For the last 15 years, successive governments have supported bringing gas to the country, initially in the form of a gas pipeline from Colombia, and more recently from LNG. The country has just initiated a fast track tender process for a large LNG-fired power plant. Panama has a lot of ingredients for a successful LNG import project -- a dollarized economy, huge foreign infrastructure investment including the recent Panama Canal expansion, and the highest spot power prices in Central America. It also has a number of incumbent generators who are benefitting quite handsomely from these high prices. One of the country's few logistically and economically rational potential LNG sites is close to an existing power complex with equipment that could be converted to use gas, though considerable new power facilities would be necessary as well. The short distance from Colombia means LNG could potentially be barged from there. Our prediction--Panama becomes the first Central American country to import LNG. Philippines: While not a small country, and not primarily driven by oil pricing, the Philippines’ developing economy, many small islands and absence of significant domestic oil and gas resources in have put it in the same category as small emerging markets in the eyes of many energy project developers. The pioneer and maverick power and LNG developer Energy World has announced it has broken ground on what would be the first LNG import terminal in the Philippines. The stated intention is to co-locate a 150 MW power plant, which could later be doubled or tripled in size. While the economics of a new terminal for only 150 MW would seem daunting, the Philippines has a 20-year success across multiple governments at attracting new private power plants. Population and power demand is high, and the Philippines sits directly on traditional LNG trade routes to Korea and Japan. It remains to be seen whether the announced project will get done, and if it does, whether it will be structured attractively enough for lenders and suppliers to be a template or an anomaly. However, multiple Philippine islands could support an LNG terminal (many burn only oil), and there is significant domestic and international capital eager or at least open for investments in the country. LNG in the Philippines is a matter of when and who, not if.

Virgin Islands: The Virgin Islands, a US territory, have recently initiated a tender for LNG supplies and facilities for one or two main islands. Like its neighbor Puerto Rico, the USVI benefits from US gas, legal, private power and permitting precedent. It has relatively good credit standing. Power prices are driven by oil-fired plants and are very high, but overall demand is low relative to the infrastructure costs for new LNG imports and power plants. Besides the small power demand, the biggest challenges will be getting all the political and social groups on board with a common solution, and getting a well-structured Puerto Rico-style baseload PPA, and accepting that an LNG solution here can be a win-win but still cost more than one in a larger market.

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Dominican Republic: New floating LNG terminals have been discussed to supply privately-owned mines and utilities, but recent openness by the privately owned but underutilized existing land-based LNG terminal to supply third parties may make additional terminals unnecessary. As described above, 460 MW of Wartsila engines that can run on dual fuel are already being installed, meaning creative interruptible LNG supplies might be viable here. The country’s high power prices could support a new terminal on the north coast and perhaps one in the southeast, or even in the southwest serving Haiti. However, the combination of excess power capacity, multiple players and a regulatory structure that took more than 3 years to get a wind plant sited and approved, would make a new terminal challenging. The repeated history of multi-hundred-million-dollar arrears to private power generators adds to the challenge. At minimum, more LNG will flow to the Dom Rep to serve the new Wartsila plants and likely the existing combined cycle plant near San Pedro de Macoris, which at one point announced a term sheet for LNG supply with Cheniere. More interesting perhaps than potential new terminals, will be the type of LNG supply arrangements created to supply this expanding LNG market.

El Salvador: A 6-year effort to develop a large LNG-fired power plant similar to Puerto Rico’s, was recently suspended. Another has gone silent as well. A few years ago, the country implemented regulations anticipating the arrival of natural gas and pipelines, stimulated by the first of these projects. A recent and long-awaited 350 MW power tender for new plants, expressly contemplates LNG being offered. However, the country’s energy incumbents and regulators have left the country one of the few in the world without a meaningful capacity payment in power contracts to make new power plants feasible, LNG or otherwise. El Salvador is the most logical place for a regional LNG hub, but unless it suddenly embraces the type of PPA structure needed to finance LNG (or large coal or hydro) power projects, El Salvador will likely be forced to let existing players add more small oil plants.

Guatemala: A recent well-structured power tender attracted lots of attention, submissions and awards. It expressly contemplated LNG power plants, set up special pricing structures and assumptions so LNG costs could be properly evaluated versus other fuels, and creatively allowed for winners to source LNG only after being awarded a project. Several potential LNG fired projects seemed likely to bid but in the final round, none did. Guatemala has unique seasonal demand logistics and is a relatively small market. The commercial structure in the bid made it difficult for LNG- projects outside the country to bid, although an LNG-fired power plant supplying multiple countries in northern Central America via the SIEPAC grid is the region's most likely successful scenario. Among small emerging markets in and outside the region, Guatemala has long and deep experience with foreign investors in private power plants, and a sophisticated set of domestic owners and regulators. It perhaps is not the best located country for a regional LNG plant, but it could structure a PPA that made a domestically-focused one viable. Jamaica: The country’s recent separate tenders for LNG supply and an LNG terminal floundered for a number of reasons: an important one was a separation between who would build the LNG infrastructure, who would supply the LNG, and who would build a new power plant to burn it. Neither Jamaica or any new LNG entrant is likely to succeed using a structure where separate private and government entities must trust that the others will all complete their multi-million dollar facilities on time, without one of them having overall control. One positive -- a large power user (Alcoa) needs long term power price predictability, which LNG would provide. But the benefits of LNG on lowering retail power prices were initially grossly exaggerated, and government leaders seem to be distancing themselves from it. In our view, LNG will come to Jamaica only if JPS, Alcoa, and the country's various political and social interests can get behind a structure where a single development group brings the LNG, the FSRU, and a new power plant in an open and transparent selection process.

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Guadalupe/Martinique: Last year, a small scale LNG import project involving small scale ships and FSRUs was announced for these two French islands. The effort would have created a precedent and a template for very small islands and smaller-than-industry-standard facilities. However, it appears the projects partially government-owned sponsors are either reconsidering the project, or are requiring lead developer Gasfin to source the LNG first. To do so, Gasfin has announced aspirations to build a small-scale liquefaction plant in Trinidad to serve a string of small Caribbean islands. If the French government decided to subsidize this effort, the logistics -- though expensive and novel -- appear to be feasible. Without that support, the number of moving parts of such a scheme make it laudable but aggressively optimistic. However, a small scale LNG liquefaction project in Trinidad committed to serve the region should be competitive with US liquefaction and could make many of the regional projects discussed above much more likely.

V. CONCLUSION LNG import facilities now operate on every populated continent that does not have indigenous gas. These facilities allow power generated by regasified LNG to light millions of homes and businesses in places which would otherwise have to rely heavily on coal or oil, places which have insufficient (or no) gas supplies or pipeline connections of their own. But virtually all of the LNG delivered, goes to relatively prosperous developed countries, or very large emerging markets like China, India and Brazil. LNG has not penetrated most of the places where its presence would have the most impact--small developing countries with few indigenous fuels, and/ or poor economies whose credit rating won't support the traditional LNG seller requirements for committed long-term contracts let alone mega-million dollar investments in receiving facilities. The extraordinarily high cost difference between energy units of gas versus oil for power plants, combined with the higher efficiency and cleanliness of gas, is driving new creative structures and solutions to open up many of these small markets to LNG. This could potentially add several million tons per annum of LNG demand to the market, making these overlooked countries potentially a major global LNG consumer when considered collectively. Numerous possibilities will be created by new suppliers in the Americas and by floating facilities, and by the tremendous economies to be captured. In our view these will result in an LNG 18 presentation about LNG shipments to several new small importers in Asia and the Americas, with more on the way - - David Haug and Shawn Cumberland.