Le 05 Liquefied Natural Gas (LNG) Business

Liquefied Natural Gas (LNG)
Business
Utilization of Natural GasUtilization of Natural Gas
Resources TrainingResources Training
MoEMoE
Morogoro-TanzaniaMorogoro-Tanzania
By: Nsulangi, P.T
Contacts: +255 686 195 449
nsulangi@gmail.com
Masanja,A.M
Contacts: +255 745 086 978
abel.masanja@yahoo.com2020thth
-21-21stst
, December 2018, December 2018

Lecture Contents
 Introduction to Liquefied Natural Gas
 Liquefied Natural Gas (LNGLNG) value chain
 Structures of Liquefied Natural Gas (LNGLNG)
project
 Factors to consider on the capacity and number
of Liquefied Natural Gas (LNGLNG) processing
facilities
 Current and projected situations on Liquefied
Natural Gas (LNGLNG) business
 Summary and Conclusion
Natural Gas _L-05_Tanzania2

Chapter Objectives
 To describes Liquefied Natural Gas (LNG) value
chain.
 To describes the structures of Liquefied Natural
Gas (LNG) projects.
 To point out factors to consider on capacity,
number of LNG facilities.

Introduction to Liquefied Natural
Gas (LNG)
 Liquefied natural gas (LNG)
– is natural gas that has been cooled until it
becomes a liquid.
 LNG is made by cooling natural gas to -260
degrees Fahrenheit (-162o
C).
 At this temperature, Natural Gas (NG) changes
state into a liquid, and its volume is reduced 600
times.
LNG, like natural gas, is odourless, colourless,LNG, like natural gas, is odourless, colourless,
non-corrosive, and nontoxic.non-corrosive, and nontoxic.

Introduction to Liquefied Natural
Gas (LNG) cont…
Natural gas (NG)Natural gas (NG)
600cubic unit600cubic unit
1 cubic unit1 cubic unit
LNGLNG
RatioRatio
1m1m33
of LNG = 600mof LNG = 600m33
of NGof NG

Liquefied Natural Gas (LNG) Value
Chain
 Liquefied Natural Gas (LNG) value chain is a set of
activities that operating in a Natural Gas industry in
order to deliver a valuable LNG to the market.
 These activities involves;
– Natural gas searching (exploration),
– Production,
– Treatment,
– Liquefaction
- Transportation of LNG
- Regasification and
- Distribution of Natural Gas

Liquefied Natural Gas (LNG) Value
Chain cont..
 The LNG value chain activities can be categories
into three main groups, which are;
– Upstream
– Midstream
– Downstream

Upstream Activities
 Begins with the exploration and production of
Natural Gas (NG) from subsurface gas reservoirs.
 Negotiation to the price of feed Natural Gas to the
Liquefied Natural Gas plant.
 These activities:
– Provides direction and guidance to enable the
creation of investment.
– Plans essential to putting in place the resources
(including finance) to manage the assets consistent
with achieving desired outcomes.

Natural Gas Exploration and
Production
Sources: Nsulangi, P.TSources: Nsulangi, P.T

Midstream Activities
 It involves conversion of Natural Gas into Liquefied
Natural Gas (LNG) at temperature approximately
−265°F (−162°C).
 Natural Gas is converted into LNG, its volume
shrinks by a factor of approximately 600, (i.e. 1
CBM of LNG ~ 600 CBM of Natural Gas).
 This reduction in volume enables the gas to be
transported economically over long distances
about more than 2500 mile (~ >4023km).

Midstream Activities
Sources: Nsulangi, P.TSources: Nsulangi, P.T

Liquefied natural Gas (LNG)
Downstream Activities
 Downstream activities in Liquefied Natural Gas
(LNG) projects involves:
– Shipping
Transportation of LNG from Processing plant to the
regasification facility.
– Storage and Regasification
Conversion of LNG to its original gaseous form by
increasing its temperature.
– Distribution and Transport to Final Market
Transportation of the converted LNG into Natural
Gas to the end users.Natural Gas _L-05_Tanzania12

Structure of LNG Project
 Structure of LNG project
– Is a fundamental decision that a project
participants must make when developing a
liquefied natural gas (LNG) infrastructure
project.
 There are three (3) basic forms of commercial
structures have emerged for LNG export projects,
includes:
• Integrated
• Merchant and
• Tolling

Structure of LNG Project cont….
i) Integrated
– Participant own natural gas supply and LNG plant
through production sharing contract (PSC), and
market own LNG.
– Benefits
 Promotes finance ability by reducing cross-default risk
 Alignment of tax through value chain
 Each gas supply can control own market
– Risks
 Requires identical ownership of upstream and downstream
assets. Example: Alaska Gasline

Integrated LNG Project Model

Structure of LNG Project
ii) Merchant Structure
– Project company that owns liquefaction facility
purchases natural gas from 3rd
part and sell LNG to
the market.
 Benefits
– Allows project Companies to generates potential high
returns based on value of LNG/gas price spread.
– Allows project companies sponsor greater control sourcing
gas and marketing LNG.

Structure of LNG Project cont…
 Risks
– Project companies assumes risks and
counterparty default risks to both upstream and
downstream.
– Requires companies to obtain finance for LNGLNG
plant installation.

Merchant Structure

Structure of LNG Project cont..
iii) Tolling Structure
– LNG facility owner does not take title either into upstream
(natural gas production) or downstream (selling of LNG),
but provides liquefaction and processing services.
Benefits
– Avoid commodity price and marketing risks
– Allows flexibility in ownership
Risks
– Sponsors do not profit from LNG sales
– If the gas supplier is an affiliate of sponsor, security and
cross-default issues can affecting financing.

Tolling Structure

 General there is no “standard” LNG projects structure.
Selecting a project structure depends on the driving
factors which facilities participants’ involvement in the
particular project, which may includes:
 Type of Resource base
– Size of initial reserves, expansion resources, new
field.
• Partners
The partners risk appetite and desire to commit
capital

 Expansion prospect
– Expansion prospects and competitive landscape

Business
 World LNG Exporters
– Liquefied natural gas has been used near 50 years
as a fuel which is secure, clean, and
environmentally friendly.
– Currently, more than 38 countries are active in
international trade of LNG.
– These producers have exported more than 330.8
BCM (Billion Cubic Meter) of Natural Gas in LNG
form in 2012 to the global energy market.

World LNG Exporters
TanzaniaTanzania
When to start exporting LNG?
Why?
Where?

Business cont…
 World LNG importers
– LNG Trade market History
Primarily due to the high cost of natural gas
transportation, two distinct LNG trade regions
were developed:
• Asia-Pacific regionAsia-Pacific region: China, Japan, Twain,
South Korea; and
• Atlantic Basin regionAtlantic Basin region: North America, South
America and most of European Countries.

Business cont…
 Current LNG Trade Market
– Currently , there are more than 21 countries
divided into three (3) main global LNG markets:
• Asia-Pacific regionAsia-Pacific region : Japan. Taiwan, South
Korea, China, India
• European regionEuropean region: UK, France, Spain,
Italy, Belgium, Turkey.

Business cont…
• North American/Atlantic Basin regionNorth American/Atlantic Basin region: North
America, South America, and Latin America.

World LNG Importers
India
China
S. Korea
Japan
US
Puerto
Mexico
Brazil
Argentina
Chile
France
Spain
TanzaniaTanzania
Where is our target market?
Why?
North AmericanNorth American
Atlantic Basin regionAtlantic Basin region
European regionEuropean region
Asia-Pacific regionAsia-Pacific region

Demands
 History
– LNG production has doubled during the last decade
and reached to 297.63 BCM in 2010, which is
9.39% of the global consumption of natural gas
(3,169 BCM).
– In 2016, global LNG demand reached 265 million
tonnes (MT).
Future LNG Demand
• LNG global demand is expected to increase 4 - 5
%/year between 2015-2030 which leads to growth
in LNG prices.

Demands cont…
 Reasons for increases of LNG demand
– South Korea, Japan and China LNG buyers joined
forces for better deals of LNG exporters.
– Japan Utilities Raised Gas and Electricity Prices,
which lead to rises to the price of imported LNG.
– Australia is poised to become the world's top
exporter of LNG, it faces a domestic supply
shortage this will give the opportunity of LNG to the
world market.

Expected LNG Demand (2016-2030)
1 MT LNG = 1,380 m3
NG
= 48,735 ft3
NG
1MTPA LNG= 133.5 MMSCFD NG

LNG World Price
 History
– As opposed to crude oil, LNG does not feature
a harmonized global price. In contracts, the
price of LNG is segmented into regional
markets, the main ones being:
Asian marketAsian market: Japan Customs cleared Crude
price index
European marketEuropean market: National Balancing Point price
index
North American marketNorth American market: Henry Hub price index

LNG World Price cont..
 Future LNG Price
– Global LNG world market price is expected to
increase to the average of 2.36%/year.
 Reasons
– Many importers continue still use LNG as
source of power for their industries operation:
such as China, Japan, India, S. Korea.
– China will demand more 20% in total global
LNG demands in 2030yr for its industrial
activities.

Expected LNG Price due to Asian
Market

Chapter Summary
 African countries will experiencing a period of
intense growth in its LNG export capabilities,
estimated combined capacity will be 32 million
tons annually (MTA).
 Therefore, there is a need for Tanzanian
government either to Establish clearly and
transparent Gas Policy and Regulatory FrameworkGas Policy and Regulatory Framework
or to put into action the existing ones in order to be
ready for involvement in LNG export so that to
benefit this opportunity.

Chapter Summary cont..
 Reasons
– Now the region that once supplied many of the
LNG imports into North America is developing
new export projects in parallel with its former
customer.
– Australian production costs are on the rise and
may ultimately prevent LNG exports from down
under keeping pace with North American
competition.

References
 LNG Supply Outlook 2016 to 2030, Andy Flower (2016)
 Economics the Future of Long-Term LNG Contracts, Peter R Hartley (2015)
 IGU 2017 World LNG Report , IGU (2017)
 World LNG Market and Canada’s Potential for Exports of LNG, CAPP (2015)
 A Global Perspective on LNG , Gurcan Gulen (2011)
 BP Energy Outlook ,2017 Edition
 Feasibility Study of Liquefied Natural Gas Project for the "South-Pars" Gas
Field of Iran , Mansour Khalili Araghi (2013)
 Global LNG Market, Aleksander Ziwasker (2017)
 IGU_World_LNG_Report_2016 , IGU (2016)
 LNG Economics and Markets, MJM Energy (2014)
 Sustainable LNG regasification terminals, Sebastiaan Quirijns (2015)
 LNG Technology for the Commercially Minded , David Coyle (2013)
 LNG Technology, Linder Group (2016)Natural Gas _L-05_Tanzania39

References cont…
 Strategy for LNG Market Development, Ministry of Economy, Trade and Industry
Government of Japan (2016)
 Understand Natural Gas and LNG option, 2016
 Zhong, Y., & Rogers, R. E. (2000). Surfactant effects on gas hydrate
formation. Chemical Engineering Science, 55(19), 4175-4187.
 Linga, P., Kumar, R., & Englezos, P. (2007). Gas hydrate formation from
hydrogen/carbon dioxide and nitrogen/carbon dioxide gas mixtures. Chemical
engineering science, 62(16), 4268-4276.
 Englezos, P., & Bishnoi, P. R. (1988). Prediction of gas hydrate formation
conditions in aqueous electrolyte solutions. AIChE Journal, 34(10), 1718-1721.
 Nasrifar, K., & Moshfeghian, M. (2001). A model for prediction of gas hydrate
formation conditions in aqueous solutions containing electrolytes and/or
alcohol. The Journal of Chemical Thermodynamics, 33(9), 999-1014.
 Elgibaly, A. A., & Elkamel, A. M. (1998). A new correlation for predicting hydrate
formation conditions for various gas mixtures and inhibitors. Fluid Phase
Equilibria, 152(1), 23-42.

Any Questions, Suggestions,Any Questions, Suggestions,
Comments, etc.Comments, etc.
THANK YOUTHANK YOU

Le 05 Liquefied Natural Gas (LNG) Business

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