Bureau of Economic Geology, The University of Texas at Austin
Global/US LNG Update
SABIT LNG Delegation, August 25, 2006
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
LNG Value Chain Cost
Structure and US Outlooks
©CEE, BEG-UT Austin, 2
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
LNG Value Chain
EXPLORATION & LIQUEFACTION SHIPPING REGASIFICATION
PRODUCTION & STORAGE
$0.5-$1.0/MMBtu $0.8- $0.4- $0.3-$0.5/MMBtu
$1.20/MMBtu $1.0/MMBtu
TOTAL = $2.00 - $3.70
Greatest variability is in upstream feedstock for liquefaction and shipping
distance.
Sources: Industry (estimates exclude ©CEE, BEG-UT Austin, 3
some O&M and tax costs)
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Mixed, Changing Views on US Gas Supply
35 Comparison of US Natural Gas Supply Forecasts, 2015 (Tcf)
2003
30 Actual
25
20
15Tcf
222222222222222222222222222222000000000000000000000000000000000000000000000000000000000000655444664656554546654654565464
10
5
LNG
0
2003 NPC NPC EIA Ref GII EVA PIRA DB EEA SEER ALTOS
Reactive Balanced
Note: NPC is National Petroleum Council; EIA is US Energy Information Administration (Reference Case); GII is
Global Insight, Inc.; EVA is Energy Ventures Analysis, Inc.; PIRA is PIRA Energy Group; DB is Deutsche Bank; EEA
is Energy & Environmental Analysis, Inc.; SEER is Strategic Energy and Economic Research, Inc.; Altos is Altos
Partners North American Regional Gas Model.
©CEE, BEG-UT Austin, 4
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Mixed, Changing Views on LNG Share
25%
Comparison of US Natural Gas Supply Forecasts, 2015 (%LNG)
20%
2003
15% Actual
10%
5%
0%
2003 NPC$/MMBtu 222222222222222222222222222222000000000000000000000000000000000000000000000000000000000000546546546564564564654564564564NPC EIA RefGIIEVAPIRADBEEA SEER ALTOS
Reactive Balanced
©CEE, BEG-UT Austin, 5
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Henry Hub Falling Below Short
Term Outlooks for 2006
11
10
9
8
7
6
Forecast of 2006 Average Spot Natural Gas Price (Henry Hub)
5 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06
Jan-06
Revision Date
Bank of America R.W Beck
EIA NGW Quarterly Price Forecast Scoreboard
Jefferies and Company Prudential Equity Group
Stephen Smith Energy Associates Credit Suisse
Raymond James Actual Henry Hub Spot Price
©CEE, BEG-UT Austin, 6
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Uncertainty and Downside Built into
2007 Short Term Price Outlooks
11
10
9
$/MMBtu 8
7
6
Forecast of 2007 Average Spot Natural Gas Price
5
Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06
Forecast Revision Date
Bank of America R.W Beck
EIA NGW Quarterly Price Forecast Scoreboard
Jefferies and Company Prudential Equity Group
Stephen Smith Energy Associates Raymond James
©CEE, BEG-UT Austin, 7
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Outlooks for Long Term Prices Will
Follow Changing Fundamentals
$/MMBtu
$6.50
Average US Natural Gas Wellhead Price ($2004) Forecast Revisions, 2015
$6.00
$5.50
$5.00
$4.50
$4.00
$3.50
$3.00
$2.50
2004 2005 2006
Revision Date
EIA Reference GII EVA PIRA DB EEA SEER ALTOS
©CEE, BEG-UT Austin, 8
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Long Run, Oil:Gas Prices
$14
$12
$10
$8
$6
$4
$2
Henry Hub Spot Monthly Average Gas Price ($/MMBTU)
Oil Converted to MMBtu (5.8:1)
$0
Feb-89
Feb-90
Feb-91
Feb-92
Feb-93
Feb-94
Feb-95
Feb-96
Feb-97
Feb-98
Feb-99
Feb-00
Feb-01
Feb-02
Feb-03
Feb-04
Feb-05
Feb-06
Source: NYMEX ©CEE, BEG-UT Austin, 9
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
3-5 Year Outlook
Probability Scenario
Low Oil at $90, gas at $15: oil price
pulls other costs, inflation, gas
demand fundamentals
Medium (coin flip) Oil at $48, gas at $8.28:
approaching equilibrium and
parity?
Higher? Oil $45-60, gas at $3-5: diverging
fundamentals
©CEE, BEG-UT Austin, 10
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
We Have Long Relied on Imports
$8.00 Wellhead Price 25,000 Production, Consumption, Bc
$7.00 Marketed Production 20,000
$6.00 Total Consumption 15,000
$5.00 10,000
Nominal Price, $/mc $4.00 5,000
$3.00 0
$2.00
$1.00
$0.00
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
Source: U.S. EIA ©CEE, BEG-UT Austin, 11
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
U.S. Gas Resource “Just in Time”
Development: Reality is Perception
BCF 1,800 1,600 Gas Rigs
1,700 1,400
1,600 Monthly Dry Gas Production 1,200
1,500 12 Month MA, Production 1,000
1,400 Monthly Gas Rigs 800
1,300 600
1,200 400
200
0
Jul-87
Jul-88
Jul-89
Jul-90
Jul-91
Jul-92
Jul-93
Jul-94
Jul-95
Jul-96
Jul-97
Jul-98
Jul-99
Jul-00
Jul-01
Jul-02
Jul-03
Jul-04
Jul-05
Source: U.S. EIA, Baker Hughes ©CEE, BEG-UT Austin, 12
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Source: NPC Sec. 1818 Update, 2005 ©CEE, BEG-UT Austin, 13
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Access for Resources and
Infrastructure is a Real Issue
Private lands issues:
•Turnover of large
holdings
•Urbanization
•Removal of land from
options
•Landowner
preferences
•Industry performance
•“Low tech” land
acquisition
Source: NPC, IPAA ©CEE, BEG-UT Austin, 14
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
How Do We Use Natural Gas?
25,000 LNG is about 3% of total US supply
20,000 Source: USEIA, 2004
15,000
10,000 Electric Power Net LNG Imports
Net Pipeline Imports
5,000
0 Transportation
Industrial US Production
Commercial
Residential
Demand Supply
©CEE, BEG-UT Austin, 15
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Gas for Power Gen Benefits from
Gas Discount Relative to Oil
900,000
800,000 Industrial Nat Gas Consumption (MMcf)
Electric Power Consumption (MMcf)
700,000
Consumption, MMcf 600,000
500,000
400,000
300,000
200,000
111117474111417471174400000//////////////////////11111111111111111111115555555555555555555555//////////////////////00000000000000000000005242435265152431311463
Source: USEIA ©CEE, BEG-UT Austin, 16
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Global Gas Market Evolution
and Arbitrage Key considerations:
•Economic regulation
Orange arrows are generally LNG cargo flows to of terminals
U.S. Green arrows are generally price information •Pipeline takeaway
flows with other markets. capacity
•LNG cargo
interchangeability vs.
terminal design and
pipeline standards
•Evolution of short
term LNG contracting
mechanisms
•Oil vs. gas Btu
pricing
©CEE, BEG-UT Austin, 17
$/MMBtuDr. Michelle Michot Foss, CEE, BEG-UT Austin
Recent Winter Pricing…
35
Gas Prices for Major US and European Hubs,
30 Winter 2005-06
25
20
15
10
5
0
122212221221321112165981072311844787104735148--------------------------FFFJJJJJFDNNNDDDNNAAAAMMMMeaeeaaaaeeoooooeeepppapaaabnbbnnrnrrbnrrrrrvvvccccvv
Henry Hub AECO NBP Zeebrugge Dutch TTF
©CEE, BEG-UT Austin, 18
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
…Coupled With Warm Weather in US
Resulted in Cargo Diversions to Europe
• Europe markets paid premiums over Henry Hub
• More rigorous winter conditions in US would set stiff
Atlantic Basin competition
70,000 US LNG Cargo Receipts
60,000
MMcf 50,000
40,000
30,000
20,000
10,000
0
Oct-05
Nov-05
Dec-05
Jan-06
Feb-06
Mar-06
Apr-06
©CEE, BEG-UT Austin, 19
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Views on Supply
©CEE, BEG-UT Austin, 20
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
World Natural Gas Reserves
Proved, Year End 2004, 6,337 Tcf
S. Arabia UAE USA Alg. Canada Kuw a it Libya
4% 3% 3% 2% 1% 1% Neth. 1%
1%
Qatar Nig. Ven.
14% 3% 2%
Iran Egypt Azer. T&T
15% 1% 0%
Uzbek. 1%
1%
China
1% Other
8%
Other Nor.
26% 1%
Aus.
1%
Malay. Kaz. Iraq
1% Turkmen. 2% 2%
Indo. 2%
1%
Russia
27%
Source: Industry and government data ©CEE, BEG-UT Austin, 21
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Liquefaction
Global Liquefaction Plant Capacity (mtpa) as of June,2005
Region Operating Under Planned Total
Construction 167.4
Pacific 130.0
Basin 70.8 20.8 75.8 179.6
Middle
East 33.6 28.7 67.7
Atlantic
Basin 46.3 32.3 101.0
TOTAL 150.7 81.8 244.5 477.0
Actual production 2004: 132mt
©CEE, BEG-UT Austin, 22
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Shipping
Summary of Global LNG Ships in Operation & on Order (as of June’ 05)
Ship capacity (m3) Ships in Ships on Total
18,000 to 50,000 Operation Order
16 1 17
51,000 to 120,000 15 3 18
>120,000 144 99 243
209,000 to 216 - 88
Total 175 111 286
©CEE, BEG-UT Austin, 23
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Views on Receiving and
Re-gasification
©CEE, BEG-UT Austin, 24
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
LNG Re-gasification Terminals
Global Regasification Terminals by Regions (as of April 2005)
Region Terminals in Terminals under Planned Total
Operation Construction Terminals
Asia-Pacific 31 6 20 57
USA/NA 7 4 41+ 52+
Europe 12 7 13 32
Total 50 17 74+ 131+
©CEE, BEG-UT Austin, 25
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Minimum Regional LNG Costs
(US locations, 2001$/MMBtu)
$5 Existing New
$4
$3 Regasification
Shipping
$2 Liquefaction
Production
$1
$0
NLCek.EoEwlvvCbeehraaeIPttr.ts.
MidEnAtlg..
GulFflToSCr.Xi/odaALtaslA*t.
WA/OR
CA
* Re-gasification includes pipeline cost from Bahamas
Source: EIA ©CEE, BEG-UT Austin, 26
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Is LNG A Safe Fuel?
• Over 40 years, roughly 40,000 ship Major Incidents at LNG Facilities
voyages covering approx. 60 million
miles. 1944 Cleveland, Ohio: LNG
peakshaving plant. 128 people
• About 110 million metric tons of LNG died in adjoining residential area.
handled each year. This accident involved a type of
storage tank no longer in use.
• During 2000, 1 LNG ship entered
Tokyo Harbor every 20 hours. 1973 Staten Island NY: LNG
peakshaving plant. 40
• A comprehensive review of data and maintenance workers die. This
information reveals that: accident did not involve LNG.
• The industry is not without incidents 1979 Cove Point MD: LNG receiving
but it has maintained an enviable terminal. 1 operator died.
safety record, especially over the last
40 years. 2003 Skikda, Algeria: Boiler and
associated equipment at LNG
• The industry has continued to liquefaction plant. 27 people
develop advanced technology and died.
control systems to ensure safety and
reliability. Safety reviews determined that all
incidents were industrial
• The experience of the LNG industry accidents – none involved the
demonstrates that normal operating LNG fuel.
hazards are manageable.
©CEE, BEG-UT Austin, 27
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
We Have 114 Active LNG Facilities
Source: EIA
Exelerate Energy Bridge
©CEE, BEG-UT Austin, 28
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
LNG Properties
Flammable Range for Methane (LNG)
100% Over-Rich Density –
3.9ppg (vs.
LNG is a cold, cryogenic, Flammable water, 8.3ppg);
nontoxic substance LNG floats on
composed primarily of Too Lean water
methane. LNG vapors
(mainly methane) are Auto-ignition
flammable only under only at 1,004°F
strict conditions. or higher
Upper Flammability Limit (UFL) 15%
Lower Flammability Limit (LFL) 5%
©CEE, BEG-UT Austin, 29
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Comparative Fuel Properties
Flammability (fuel to air mixture, percent)
100% Auto-ignition:
LNG (methane) = 1,004°F
90% Too Rich LPG = 850-950°F
80% Flammable Range Aviation Fuel = 480°F
70% Too Lean
60% In summary:
Fuel properties are
50% different but all fuels can
be managed safely
40%
30%
20%
10%
0%
LNG (Methane; LPG (2.1-9.5%) Aviation Fuel
5-15%) (0.7-5%)
©CEE, BEG-UT Austin, 30
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Critical Safety Conditions
Primary Containment
• First and most important is to contain LNG, employing suitable
materials for storage tanks and other equipment.
Secondary Containment
• If leaks or spills occur, the LNG can be contained and isolated.
Safeguard Systems.
• Third layer of protection, the goal is to minimize the release of
LNG and mitigate the effects of a release.
Separation Distance
• LNG facilities are sited at a safe distance from adjacent
industrial, communities and other public areas.
Industry Standards/Regulatory Compliance
• Appropriate operating and maintenance procedures in place and
adhered to; training of relevant personnel
©CEE, BEG-UT Austin, 31
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Multiple Layers of Protection Along the
LNG Value Chain
Primary Containment Secondary Containment Safeguard Systems
Separation Distance
©CEE, BEG-UT Austin, 32
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
U.S. LNG Regulations
Regulations are • 49CFR Part 193 Liquefied
designed to prevent Natural Gas Facilities: Federal
incidents from Safety Standards
occurring and, if
incidents do occur, to • 33CFR Part 127 Waterfront
protect the public from Facilities Handling Liquefied
any impact. Natural Gas and Liquefied
Hazardous Gas
• NFPA 59A Standard for the
Production, Storage, and
Handling of Liquefied Natural
Gas (LNG)
• NFPA57 Standard for Liquefied
Natural Gas (LNG) Vehicular
Fuel Systems
• International Regulations
BS7777 and EN1473 (risk
based)
©CEE, BEG-UT Austin, 33
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
US LNG Regulators
DOE regulates natural gas imports/exports Others include:
and helps to coordinate across federal
agencies that have regulatory and Fish and Wildlife Service
policy authority for LNG
Army Corps of Engineers for
FERC is responsible for permitting new coastal facilities and wetlands
onshore LNG regasification terminals
and ensuring safety at these facilities MMS for offshore activities
DOT regulates offshore terminals and LNG National Oceanic and
tanker operations Atmospheric Administration
Coast Guard is responsible for assuring State, county and local
the safety of all marine operations at (municipal) agencies play
all LNG terminals and on tankers in roles to ensure safe and
U.S. coastal waters environmentally sound
construction and operation of
EPA and state environmental agencies LNG industry facilities. Local
establish air and water standards with police and fire departments.
which the LNG industry must comply
LNG facilities are subject to U.S. Homeland Security
©CEE, BEG-UT Austin, 34
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Scope of Permitting and Regulatory
Issues
• Estimated 60 to 140 Permits Required
• Permits Required from Varied Federal, State and
Local Entities
• Permits Cover Environmental, Land-Use, Safety,
Competitive and other Considerations
• Regulations Affect such things as Siting of
Facilities, Off-Loading Supplies, Access to
Markets and (previously) Rates and Terms of
Service
• Permitting is a multi-year process
©CEE, BEG-UT Austin, 35
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Key Permits and Regulatory Regimes
• Different Regimes for On-Shore and Off-Shore
Terminals
• On-Shore Terminals
– FERC: Site, Construct and Operate Terminal under NGA §3
and NEPA Review
• Not Inconsistent with Public Interest Standard
• No Longer Open Access Requirements
• Market-Based Rates
• No Eminent Domain
– Pipelines Certificated under NGA §7
– Other Federal Permits Include: DOE Import License, DOT and
Coast Guard, EPA, Fish and Wildlife, Corp. of Engineers,
OSHA
– Other State Permits Include: Land-Use (CZMA), Air Permits?
CPCN?
©CEE, BEG-UT Austin, 36
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Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Key Permits and Regulatory Regimes
• Offshore Terminals (Deepwater Ports)
–DOT – Coast Guard and MARAD is One-Stop Shop
under Maritime Transportation Security Act of 2002
and NEPA Review
• Other Agencies Contribute Input
• Permit Intended to be Issued within a Year
–Pipelines Certificated by FERC under NGA §7
–Other Federal Permits Mimic Onshore Terminal
Requirements
–Other State Permits Include: Governor of Affected
States Approval
©CEE, BEG-UT Austin, 37
Dr. Michelle Michot Foss, CEE, BEG-UT Austin
Revaporization
Open rack vaporization (O
RV) – uses seawater; simple
construction and maintenance,
high reliability; no air emissions
Submerged combustion
vaporization (SCV) – uses warmed
water and heat exchanger; low
cost, quick start up, wide
performance band
©CEE, BEG-UT Austin, 38
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