Everything you needed to know about LNG but were afraid to ask. - - PowerPoint PPT Presentation

Everything you needed to know about LNG … but were afraid to ask. – Part I

James Ashworth Lead Consultant TRI-ZEN International Pte Ltd, Singapore Glasgow Technology and Innovation Centre (TIC). , 14-17 September 2015

Glasgow 2015 2

Glasgow – Global Capital of Irreverence

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LAND OF SMILES AND OPPORTUNITIES

Thailand

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Thailand

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A land where everybody is an expert in Stress Mechanics

Thailand

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A land where you can be run over by a shop.

A world leader in space technology

Thailand

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Early Gas Carriers

 ss “Methane Princess”  ss “Geomitra”

Brunei, Lumut LNG Liquefaction Plant loading arm

LNG Fuelled Shipping Outlook

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Headlines  LNG will become the dominant marine fuel globally by 2030  This will double LNG demand from ~300m mt to ~600m mt  Only 20% of shipping can be converted to LNG  80% of shipping (1 bn dwt) needs to be scrapped and replaced

• Market drivers will prevail
• This will fill global shipyard capacity, create jobs and stimulate economic development

 Exhaust Gas Treatment solutions make sense in some cases, but are not a sustainable solution  The global LNG Supply Chain needs to diversify Globally  The USA is set to become the world’s biggest energy exporter by 2020  Saudi Arabia is set to become a net energy importer by 2030

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Global Outlook Global Outlook  Economic  Oil Market  Gas Market  Gas as LNG Current Issues

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 Uneven global recovery continues, and the growth forecast for the world economy has slowed to 3.3% for

• 2014. The global growth projection for 2015 is 3.8% pa (per annum)

 Downside risks are increasing. Short term risks include a worsening of geopolitical tensions and increased volatility compression in financial markets. Medium-term risks include stagnation, low potential growth in advanced economies and a decline in potential growth in emerging markets. While the US is flourishing, Europe remains stagnant, and China’s growth could struggle to maintain 5% pa in coming years  In many economies, an increase in public infrastructure investment could provide support to demand in the short term and help boost potential output in the medium term  In emerging markets, the scope for macroeconomic policies to support growth varies across countries and regions  In advanced economies as well as emerging market and developing economies, there is a general, urgent need for structural reforms to strengthen growth potential or make growth more sustainable

Source: IMF

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Economic Outlook

Global Outlook

Global Outlook

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GDP Growth Outlook

 China’s growth is steadily slowing, reflecting in part the softening demand for its exports to Europe and other OECD countries. The US is growing strongly, helped by its lower energy costs from unconventional oil and gas production  Global infrastructure spending will rise from US$4 trillion in 2012 to US$9 trillion in 2025, representing a year-on-year growth of 6.4% or about double the world’s GDP growth  60% of the spending will be in Asia Pacific, driven mainly by Asian emerging markets China, India and Indonesia establishing vital power, water and transportation infrastructure

Source: World Bank, Singapore Statistics

0,00% 1,00% 2,00% 3,00% 4,00% 5,00% 6,00% 7,00% 8,00% 9,00% 10,00% 2010-2013 2014 2015

Global GDP

China Singapore World

The Oil Price has never been stable

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Global Outlook

 The price of oil is determined partly by supply and demand and partly by expectation. Demand for energy/oil is closely related to economic activity. Supply can be impacted by geopolitical upsets and by weather etc.  The oil price has fallen by more than 50% since June 2014, when it was US$115 a barrel. It is now around US$50 after five years of relative stability, as the supply surplus grew. The OPEC meeting on November 27th failed to reach agreement on production curbs and the oil price collapsed. OPEC controls nearly 40% of the world supply. Hardest hit are oil-exporting countries such as Russia, where the rouble has also collapsed, Iran and Venezuela – countries where oil export income is a large contributor to GDP and ‘balance of payments’  OPEC’s moves shape expectations and, if it curbs supply sharply, it can send prices spiking. Saudi Arabia produces nearly 10m barrels a day—a third of the OPEC total  If producers believe the price is staying high, they invest which, after a time lag, boosts supply. Similarly, low oil prices lead to less investment and a tightening of supply. Investment is already being cut back, which will inevitably contribute to a tightening of future supply

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Oil Market Outlook – Pricing

Global Outlook  Demand growth is currently suppressed because of weak economic activity, increased efficiencies in energy use, and a growing switch away from oil to other fuels, particularly gas  Turmoil in Iraq and Libya—two big oil producers with nearly 4 million barrels a day combined—has not affected their output. The market is less concerned about geopolitical risk threatening supply  The US has become the world’s largest oil producer. Though it does not export crude oil, it now imports less, creating more spare supply – due to ‘shale oil’ production  Saudi and other Gulf countries have chosen to maintain their own market share. Production could be cut, but benefits would be needed most by Iran and Russia, two countries most impacted. Saudi Arabia has $900 billion in reserves and its oil costs little to produce  Asia continues to drive global demand growth but also continues to be dependent on imports, with about 33% of the global oil demand and yet producing only about 10% of the global crude

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Oil Market Outlook – Supply & Demand

Global Outlook

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Global Oil Demand Growth

 Global oil demand is expected to reach 100 mbd by 2025, and 110 mbd by 2035, reflecting year-on-year growth of 0.8%  US consumption is expected to stay relatively constant at 19 mbd  China consumption is expected to increase dramatically from 11 mbd in 2014 to 19 mbd in 2035, reflecting a year-on-year growth of about 2.5% from 2014 to 2035  Note that EIA (US) projects 2035 oil demand to be 110+ mbd, while IEA (Int’l/Paris) projects more modest growth closer to 100 mbd in

• 2035. The largest influencing factor on demand

being the price of oil

Source: EIA

20 40 60 80 100 120 2014 2025 2035 mbd

Oil Demand - Projection

US China Rest of World

Oil & Gas Reserves

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Global Outlook

20 40 60 80 100 120 140 160 gen-00

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lug-01 apr-02 gen-03

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lug-04 apr-05 gen-06

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lug-07 apr-08 gen-09

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lug-10 apr-11 gen-12

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lug-13 apr-14 USD / bbl

Oil Price - Historic

WTI Brent

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Oil Price Outlook & Impact The main impact is on the riskiest and most vulnerable parts of the oil industry. These include:

 US shale producers which have borrowed heavily on the expectation of continuing high prices  International oil companies with high-cost projects involving drilling in deep water or in the Arctic, or dealing with maturing and increasingly expensive fields such as the North Sea.  Countries which depend on a high oil price – eg: Russia (which is already hit by Western sanctions following its intervention in Ukraine) and Iran (which is funding the Assad govt in Syria).  Lower cost oil will spur global growth and hence oil consumption  The cycle will continue, the oil price will recover but will unlikely break highs of $150 per bbl, as this high price has been tested and shown to destabilise

• economies. Tolerance for such a price is not there…..yet

Global Outlook

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Oil Production Costs Averages

Source: IEA

Global Outlook

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Oil Price Needed to be Fiscally Break-even (USD/bbl)

Libya 184.1 Algeria 130.5 Source: IMF / Deutsche Bank Iran 130.7 Nigeria 122.7 Venezuela 117.5 Saudi Arabia 106.0 Iraq 100.6 Russia 98.0 UAE 77.3 Qatar 60.0 Kuwait 54.0

Global Outlook

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The Future is Gas

Sufficient gas resources exist for long- term sustainable economic development, boosted by the potential of unconventional gas. A growing proportion of the newly-proven resources take the form of “unconventional” gas or accumulations of gas which cannot be extracted by “conventional” technologies. Based on current demand and reported estimates of global gas resources.

Source: IEA and ExxonMobil Energy Outlook - 2013

1000 2000 3000 4000 5000 6000 2015 2025 2035 bcm

Global Gas Demand - Projection

US China Rest of World

Global Outlook

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Global Gas Demand Growth

 Gas demand is expected to grow year-

• n-year at 1.9%, more than double the

rate of oil demand growth  The rise in the consumption of natural gas will be most marked in China and India  US consumption is expected to stay fairly constant at around 800 bcm, as a mature economy constantly improving energy efficiencies  China consumption is expected to increase to from 160 bcm in 2015 to more than 600 bcm in 2035, as its developing economy continues to grow and it takes steps to increase the consumption of cleaner burning gas to replace coal and address environmental concerns

Source: EIA / T-Z Database

Global Outlook

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Gas Market Pricing

 Gas prices track oil prices, due in part to related heating values (though gas always costs less) and in part to long term contracts which have the oil price embedded in the formulae  Of the main gas markers shown, US Henry Hub and UK NBP (National balancing Point) are driven by market supply & demand. Similarly Japan Spot LNG is driven by the market and trades at a premium to Contract LNG price (DES delivered ex-Ship) when the market is tight and at a discount when the market is in surplus  Japan LNG contract prices are linked tp a basket of crudes. Elsewhere, commercial contract prices can be linked to oil prices. Singapore pipeline gas is linked to the fuel

• il price

 The Japan Customs-cleared Crude (JCC) is simply the monthly average price

• f customs-cleared crude imports

into Japan as reported in customs statistics; nicknamed the "Japanese Crude Cocktail".

5 10 15 20 25

gen-05 giu-05 nov-05 apr-06 set-06 feb-07 lug-07 dic-07 mag-08

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mar-09 ago-09 gen-10 giu-10 nov-10 apr-11 set-11 feb-12 lug-12 dic-12 mag-13

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mar-14 ago-14 USD / mmBTU

Europe - Crude v natural gas

Brent NBP

5 10 15 20 25

gen-08 mag-08 set-08 gen-09 mag-09 set-09 gen-10 mag-10 set-10 gen-11 mag-11 set-11 gen-12 mag-12 set-12 gen-13 mag-13 set-13 gen-14 mag-14 set-14 USD / mmBTU

Gas & LNG Prices

US Henry Hub gas UK NBP gas Japan LNG DES Japan spot

Source: T-Z Database

Global Outlook

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LNG Pricing in Asia  Asia’s markets have evolved based on long-term supply contracts, where LNG provides a base load fuel supply for power generation. LNG pricing in these markets is linked to oil, which in Japan and Korea used to provide the main fuel for power before LNG became available, initially 50 years ago  The LNG Contract pricing formula links to the Japan Customs-cleared Crude or Japan Crude Cocktail, JCC, and this model had long-term contracts and financing arrangements that facilitated multi-billion dollar investments in the LNG chain of production/liquefaction/shipping/regasification/offtake. Thus the majority of LNG moved today is priced linked to JCC, ‘Tokyo Bay’ landed cargoes  The price formula in contracts for delivery into NE Asia currently is as shown below, however actual prices have fallen sharply due to the fall in crude prices at the end of 2014

LNG DES (US$/MMBtu) = 14.00% x JCC (US$/bbl) + US$0.60/MMBtu

 The JCC is simply the monthly average price of customs-cleared crude imports into Japan as reported in customs statistics  There is no general formula for contracts delivered elsewhere in Asia  There is a close correlation between JCC and Brent pricing  There is usually a 2-3 month lag in contracts pricing  An increasing volume of LNG is traded/re-sold at spot prices

Typical term LNG Contract prices Brent @ US$/MMBtu US$110/Bbl 16.0 US$100/Bbl 14.6 US$90/Bbl 13.2 US$80/Bbl 11.8 US$70/Bbl 10.4 US$60/Bbl 9.0

Global Outlook

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Global LNG Supply & Demand

Japan; 88,1 South Korea; 40,1 China; 18,1 India; 13,2 Taiwan; 12,8 Spain; 11,1 Others; 57,5

LNG Demand - 2013

(mtpa)

Qatar; 78,16 Malaysia; 25,01 Australia; 22,36 Indonesia; 16,58 Nigeria; 16,55 Trinidad & Tobago; 14,62 Algeria; 11,05 Russian Federation; 10,54 Others; 45,87

LNG Supply - 2013

(mtpa) Source: BP Stats

Global Outlook

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Global LNG Demand and Supply Capacity 2016

North Asia has the highest LNG demand, while production is centered on the ME, S E Asia and Australia

Source: T-Z database

Global Outlook

100 200 300 400 500 600 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 mtpa

LNG Supply/Demand Forecast

Middle East Asia Europe

• S. America
• C. Amer/Caribb
• N. America

Supply

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Gas Market - LNG Global Growth

Asia is dependent on LNG for gas, both as a supplier (Malaysia, Indonesia, Australia, PNG) and as a market (Japan, Korea, China, Taiwan). LNG is crucial to Asia’s energy mix. China’s demand now drives Asia’s LNG growth

Source: T-Z database

THE DE-CARBONISTION OF ENERGY

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The Decarbonisation of Energy

Wood

• 750,000 y

Coal

• 400 y

Oil

• 250 y

Gas Current Hydrogen + 20 y Nuclear Fission/Fusion +50 y? 10 C 1 C 0.5 C 0.25 C 0 C

Present Day

Renewables

Prehistoric Earth was not habitable

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The last big change (coal to oil) was 100 years ago  Winston Churchill, then First Lord of the Admiralty, called for the ships of Royal Navy to be converted from coal to oil.  Though more expensive, advantages were:

• longer at sea
• could be refuelled at sea
• reduced manning
• reduced visibility
• reduced fuel space

Today we see two big drivers for change

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1. Cost

• In spite of current phenomena, Oil

is on an upward long-term price trajectory

• Gas is now structurally 50% cheaper
• 250 years’ gas availability
• Cheaper to operate
• Reduced Maintenance

2. Environment

• Progressive tightening of emissions

controls mitigate away from oil- based fuels

• LNG ticks all the current boxes to

2050

Future ECAs

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China Seaports 2020 River Ports 2025

Driving Forces - Emissions

LNG meets all current and planned emissions standards

…but you need more to go the same distance vs. diesel and HFO

0,1 0,2 0,3 0,4 0,5 0,6 0,7 0,8 0,9 1 Diesel LNG CNG

Energy Density (MJ/kg)

IMO/IGC Tank Types

Membrane Independent Type A Oil Type B Type C Pressurised Tanks

Spherical (Moss) Prismatic Cylindrical Bi-lobe

The Future “A Load of Slush” – Super-cooled LNG

Future Technology

Slush Gun

Slush Advantages  Lower temperatures reduce boil-off gas  Densification advantage ~13.4% (CH4)

• More fuel carried – go further

 Regas possibility for superconducting electric propulsion and other chilled utilities  Commercial opportunity for “premium” (low temperature) bunkers?

LNG Supply Chain

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Conventional LNG Supply Chain  Large scale LNG project ~ $12–15bn  Gestation period ~ 10 years  Take or pay contract over 20 years (in advance)  Shipping will double today’s global LNG demand (300 mmt)

Then and now

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 Once, computers were so large, their buildings were constructed around them  Today, our smart phones have more computing capacity than that which accompanied the first men to the moon.

LNG in a Box

Port Infrastructure Options

Current Issues

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Challenges

Scope for infrastructure and systems improvement Loading arm challenge

Challenges

Regulatory Issues Custody Transfer

Commercial Issues

 What guarantees are there for investors?  What size should a LNG bunker barge be?  How will LNG bunkers be traded? Mass, Volume or Energy content?  Who will be responsible for the Custody Transfer? Seller or Buyer?  Who will pay for the BOG and BOG management?  Who will monitor gas quality? Existing bunker surveyors?  Will we develop standards for delivered temperature and pressure?  Does colder gas have a higher commercial value than warmer?  If excess BOG generation is reduced by lowering pumping rate, who pays for the extra bunkering time?  Which infrastructure investment model works best?

Technical Issues

 All LNG design problems were solved in the 1960s  Gas grade/class/quality/measurement  Ship design optimisation (cradle to grave philosophy)  Total Energy Management  Risk Management

• HAZID
• HAZOP

 BOG Management  Filling Operations - the last metre  Manpower Competency

Tomorrow

IMarEST Alternative Fuels SIG

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10 Collyer Quay, Ocean Financial Centre 40-00, Singapore 049315 Tel: 65 6734 5550 mgmt@tri-zen.com Strategy Asset optimisation Sector studies Market studies Forecasting Commercial/technical studies Commercial representation New market entry Detailed business cases Project finance/management Mergers & Acquisitions Organisational development Based in Singapore with consultants in: Bangkok Beijing Calgary Hong Kong Jakarta London Melbourne Perth

James Ashworth T: +66 (0)9 5491 6888 E: james.ashworth@tri-zen.com jamesashworth55