LNG moves to mass-market fuel in Asia
Friday, January 23 2004 - 08:07 AM WIB
China and North American sales promise to accelerate development of the project on the northwest coast of Australia, now in its pre-construction stage. While development of earlier- generation LNG plants in the Middle East Gulf, Indonesia, Brunei, Malaysia and Australia (the North West Shelf facility) were driven by Japanese and, later, Korean demand. Gorgon, as with other large new projects, cannot rely only on these traditional markets.
Drawing on 40 trillion cu ft of proven and probable gas reserves offshore - 50 billion cu ft of gas produces about one million tonnes of LNG - Gorgon is one of an array of planned or under-construction plants and expansions of existing facilities competing for Asia-Pacific markets. Not only are these in presently-producing countries. In the Middle East, Iran and Yemen want to become producers; in the Russian Far East, Shell is developing a large plant on Sakhalin Island, north of Japan; and on the South American Pacific coast, Peru and Chile (using gas piped from Bolivia) want to supply the US.
Producers are being wooed by heady demand projections for natural gas. Given that many demand centres are far from major gas reserves, supplying gas by long distance pipeline becomes too costly, if not technologically impossible. LNG, shipped in large carriers, becomes a good option, especially as its price is falling due to advances in the technology of gas production, liquefaction, and transport, and also regassification at the buyers end.
Asian demand alone is forecast by the Energy Project at the East-West Center in Hawaii in a study for the US Department of Energy to rise from 87 million tonnes per year in 2005 to 116 million tonnes per year by 2010 and 138 million tonnes per year by 2015. This does not include the US West Coast. Asia LNG trade now accounts for about 70 per cent of global LNG trade.
But over the short-to-medium- term, there are too many projects chasing customers, energy consultants say. And if Gorgon was relying on demand only from the established Northeast Asian buyers, it is unlikely that it could contemplate production until sometime in the next decade.
If all the proposed plants and expansions are realised, capacity for Asian markets, but not including the North American west coast, could outstrip demand by 50 million tonnes per year in 2010, the US study says.
But not all projects are likely to come to fruition, at least as scheduled. Also, plants in the Middle East Gulf, such as in Qatar, which has grown quickly as an LNG producer, can swing some supply to Europe and east coast US through the Suez canal if there is insufficient Asian demand. Western hemisphere producers cannot ship LNG through the Panama Canal to the Pacific because the canal is too narrow.
China's preliminary agreement for the Gorgon purchase over 25 years, worth about US$25 billion, was signed during the visit of the President of China, Hu Jintao, to Australia in late October. Construction for the US$8 billion project can start once there is a final sales agreement, assuming also final environmental approval is gained. Chinas State-owned CNOOC, the buyer, will also take a mooted 12.5 per cent equity stake upstream, joining existing partners, Shell and ExxonMobil.
China's Gorgon agreement follows its first LNG supply contracts signed in 2002 with Australias North West Shelf facility and Indonesias Tangguh project in Papua for a total of 6-7 million tonnes per year, initially to begin in 2005. Chinas entry into the market fol-lows concern in Beijing at over-reliance on coal and the damage to the envi-ronment in heavily-populat-ed areas. Coal fuels 56 per cent of Chinas primary energy consumption. Gas represents less than three per cent.
Limited domestic gas reserves means China must look to import via pipeline from Russian Siberia and LNG shipment. To reduce concern at reliance on foreign gas sup-ply on top of already-growing oil imports, the Chinese State petroleum companies are expand-ing upstream interests overseas. In the case of the NorthWest Shelf and Tangguh LNG deals, CNOOC, the buyer, also became a partner upstream.
Key also to Gorgons future is the embryon-ic market in California. LNG is yet to be export-ed to the US west coast. But with that State fac-ing an increasing shortfall in piped gas supply from elsewhere in the US and Canada, LNG import terminals are being planned by leading energy companies to meet what, by 2015, could be demand of the order of 15 million tonnes per year.
ChevronTexaco wants to import LNG from Gorgon by the end of 2007 through a five million tonnes-per-year terminal in Mexico, south of California. Gas would then be piped north and/or supplied to local power stations which would export electricity to California.
New markets and producers are transforming the LNG business in the Asia Pacific region. Conditions are becoming much more competitive. From an expensive fuel for niche markets produced by only a small number of plants in a handful of countries, LNG is poised to become a much larger-scale, lower-cost energy supply. It may become more like the trade in coal and oil, with a higher proportion of spot and flexible short-term sales to the rigid long-term contracts which have historically dominated the trade.(*)