Increased pressure from rising costs threatens the viability of about a score of liquefied natural gas (98721 bytes) export projects proposed around the world.
That is the main message that emerged from the LNG11 conference in Birmingham, U.K., early this month. However, two keynote speakers were optimistic, although to differing degrees.
Tan Sri Azizan, president and chief executive officer of Malaysia's state owned Petroliam Nasional Bhd., said he has seen cause for growing optimism in LNG's enormous potential.
Azizan cited an increase in the number of the world's gas development projects proposed during the past few years. Underpinning gas demand growth is a need to expand electrical power generation in developing countries, as well as a need to help achieve environmental goals in industrial nations.
Azizan said, "We are beginning to notice an increased number of LNG fueled electricity generation projects, which will lead to emergence of new LNG users."
Gas supplies are not an issue, Azizan said, because today's world gas reserves are about 5 quadrillion cu ft and have been growing at about 5%/year for the past 20 years.
Pipeline transportation costs determined the gas industry's growth as a regional trade.
"Plans to build pipelines to export gas to Asia are technically feasible," Azizan said, "but they are constrained by finance and politics. For the time being, the Asian gas import market will best be supplied using LNG."
Azizan said rising costs have made LNG projects, especially grass roots plants, unviable. However, expansion of existing export projects is still economically feasible.
ANOTHER OPTIMIST
John Jennings, chairman of Shell Transport & Trading Co. plc, declared himself to be cautiously optimistic about LNG prospects. The gas industry is fundamentally strong, with adequate reserves that are growing steadily.
Jennings said if present trends continue, world gas reserves will soon overtake oil reserves in terms of heating value.
But the energy market is becoming increasingly competitive, Jennings warned, with producers of some fuels fighting to survive, while others are seeking to consolidate market share.
"The LNG industry is not alone in seeking new technology to keep it ahead of the rest," Jennings said. "Long term supply agreements have been needed to allow LNG to compete with other fuels, but this Achilles heel of LNG is under pressure with growing competition and cost cutting."
A technical breakthrough that would enhance the competitive position of LNG is unlikely, but technical progress is being made all the time.
Nor would an LNG spot market offer a way in which LNG sales could grow substantially: "It would not lead to new plants in remote areas, but it could lead to capacity expansion projects."
Jennings said there is room for commercial innovations, particularly in agreeing on pricing of LNG.
"No one can predict gas prices ahead," Jennings said, "and with long term contracts producers could fail to recover their investments.
"Contracts should include an inflation related price escalator to protect project developers. Alternatively, freedom from oil linkage for gas prices could provide gas price stability Both of those approaches would cut the risks of greenfield LNG developments."
AN EYE ON COSTS
Sylvie Cornot-Gandolphe, general secretary of France's Cedigaz, told delegates the cost of LNG projects is constantly rising because reserves must be developed in more hostile or remote regions. Also, recent low oil prices have jeopardized the profit outlook of LNG projects.
Cornot-Gandolphe pegged world LNG trade (35145 bytes) in 1994 at 65 million metric tons, of which more than three fourths moved to the Far East.
Cornot-Gandolphe said, "Although the growth in LNG trade has been vigorous since 1980-around 8%/year on average-LNG accounts for only 4% of the world gas market.
"Growth prospects for LNG demand are very good in traditional markets in the Far East and in new markets. By 2000, LNG trade could reach 90-95 million metric tons/year, and 130-160 million metric tons in 2010, which is double 1994 demand."
TOP MARKETS
Of today's LNG markets, Cedigaz reckons Southeast Asia offers the best promise of growth.
By 2000, Japan could be imparting 54 million metric tons/year of LNG, compared with 42 million metric tons last year. By 2010, Japan's imports could reach 58-60 million metric tons/year, Cornot-Gandolphe predicted, "and the figure is likely to be revised upwards".
South Korea is expected to import 11.6 million metric tons/year in 2000, and Taiwan, which began importing LNG in 1990, will import 9 million metric tons/year after 2000.
"Expansions of existing projects will not suffice to supply the total demand after 2000," Cornot-Gandolphe said. "New projects will have to supply the Asian market and will allow diversification of supply sources."
Qatar holds new LNG sales contracts. And Indonesia's Natuna development, Oman's LNG project, Australia's Withnell Bay/Gorgon field project, Russia's Sakhalin development, and Alaska's Prudhoe Bay could supplement Asian supplies.
Prospects for increased LNG use in Northwest Europe and the U.S. are limited by competition from natural gas shipped by pipeline, Cornot-Gandolphe said. "Yet there have been a host of new gas consumer countries in Europe around the Mediterranean," he said, "namely Turkey, Greece, Spain, and Portugal.
"Their gas market holds a lot of promise for growth, and part of this growth should be covered by LNG imports. These countries are located on the edge of Europe's gas network, and this will favor LNG imports."
Cedigaz cited India, Thailand, China, and Israel as particularly promising markets for LNG.
India's energy is growing at 3%/year, Cornot-Gandolphe said, and gas demand is projected to grow at 15-18%/year through 2000.
Thailand's energy demand is rising 10%/year, and the country needs to boost production. Petroleum Authority of Thailand plans to build a receiving terminal southeast of Bangkok, through which it will import 2.540 million tons/year of LNG, mainly to fuel power plants.
China's southern Guangdong province plans LNG imports to fuel power generation.
Israel also was said to be planning gas fired power plant projects with potential imports of natural gas or LNG equal to a maximum 5 million metric tons/year.
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