Paula Dittrick
Senior Staff Writer
HOUSTON, Feb. 12 -- The LNG market is set to become even more global with both suppliers and consumers contemplating an emerging trend toward greater contract flexibility, industry speakers told the Cambridge Energy Research Associates' annual CERAWeek conference in Houston.
Global gas demand is expected to grow by 2.8%/year to 2025, based largely upon strong markets in North America, Europe, and North Asia, Petronas Pres. and CEO Tan Sri Mohd Hassan Marican said in a keynote address Wednesday.
"LNG today is what oil was 50 years ago," Hassan said. LNG has enabled monetization of formerly stranded gas reserves. Meanwhile, technology has helped decrease development costs while increasing liquefaction and transportation capacities.
Buyers, sellers
China and India are the newest LNG customers while the Middle East appears to be the fastest growing LNG supplier, Hassan said.
"There will be demand in China, no doubt. Demand will come from the power sector. China also has domestic gas so LNG will have to compete [with that gas]," Hassan said.
Petronas' first LNG shipment was delivered to India in January. "It is still grappling to find an acceptable price level," Hassan said. Some in India had suggested parity with coal prices, but Hassan said that was "not acceptable."
Existing LNG buyers are requesting more flexibility when it comes to contracts, which is increasing the competition between LNG producers, he said.
"The cost to bring LNG to market is huge," he said, adding that some governments might have other priorities that seem more urgent to them than raising funds to support LNG infrastructure. He called upon governments and companies to cooperate with one another.
"In the US, there is still a lack of awareness of the safe nature of LNG. There is a need for education. . .. It's an issue of awareness."
Regarding the 'not in my backyard' attitude about the construction of new LNG facilities, Hassan said that Japanese LNG terminals have been built in urban areas for 20 years without incident.
Mona Al-Maadeed, Qatar Petroleum senior business planner, said Qatar expects to have LNG export capacity of 70 million tonnes/year by 2011.
North field has more than 900 tcf of proven gas reserves, she said. Field expansion will provide gas to be used for Qatari local markets, pipeline exports through the Dolphin Project, LNG, and gas-to-liquids schemes.
Qatar eventually plans "to be the GTL capital of the world," she said. Within 10 years, Qatar gas revenues could exceed the nation's crude oil revenues. In 2001, Qatar supplied 10% of the LNG imported into the US, but that is expected to grow to 50% within this decade, she said.
Permitting, financing
Sempra Energy LNG Corp. Pres. Darcel Hulse said the emerging LNG market in North America faces the challenge of whether import terminals can be permitted fast enough to meet envisioned LNG demand in the coming years.
"We certainly have enough terminal projects announced—more than enough," Hulse said. But he anticipates "congestion" in the permitting process.
Currently, the US imports about 2 bcfd of LNG capacity. Estimates vary regarding how many LNG receiving terminals are needed in North America, but some call for as many as 12 terminals, Hulse said.
In addressing questions from the audience, Hulse said he does not anticipate the creation of surplus supplies of LNG to the US. "I don't think anybody is going to build terminals on a merchant basis," he said.
Regarding LNG supplies, Hulse said Sempra Energy believes that the Middle East will be the biggest producer, with most LNG coming from Qatar and Iran. "It's our belief that North America is going to be the largest LNG market in the world," Hulse said.
Cost estimates for LNG infrastructure vary. Sempra Energy estimates $60-120 billion needs to be invested for LNG infrastructure by 2010. Hulse said he believes that industry has the capacity to afford this, noting that the five biggest major oil and gas companies collectively spend $50-60 billion/year.
Robin Baker, managing director, oil and gas project finance, for Société Générale, said some LNG infrastructure cost estimates call for investments of $200 billion by 2020.
The financing of the first LNG facilities in the 1980s was underwritten by long-term contracts. But current gas and financial markets face more complex arrangements, he said, adding that deregulated gas markets are leaning toward the emergence of spot LNG markets. He also noted that it is becoming easier to switch LNG cargoes among international markets rather than suppliers having to stay with certain designated buyers.
"If projects go ahead as fast as we have heard, it will test the resources of the financing community," he said. Project financing will be involved, he said, adding that there are fewer lenders willing to participate in project finance for energy transactions because of the debacle of US power merchants during the last 2 years.
But, he noted that, the gas market is "very different" from the merchant electric power business, which has struggled with liquidity problems.
"The lending approach is to view LNG from a reserves-based approach rather than from a power contract approach," he said. "There is a basis for credit lending. We've been doing it for 70 years in oil, so we can do it in gas," Baker said.
Contact Paula Dittrick at [email protected].
