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Lloyds List: Many new producers preparing ground to get in on the act

Lloyds List: Many new producers preparing ground to get in on the act

31 May 2005

 

WITH so much excitement surrounding the LNG industry, it is easy to overlook the fact that the two nations with the world’s largest gas reserves, Russia and Iran, have yet to export a cargo by ship between them.

 

Indeed, during the next 10 to 15 years, experts expect 10 or 11 new exporting countries to join the dozen that are already in the industry.

 

In addition, many of the countries that are already exporting LNG are planning to expand their production dramatically.

 

Theo Oerlemans, senior adviser at Poten ‘ Partners, recently observed that the regional supply sources seemed out of balance with the markets.

 

The Atlantic basin was short of new LNG sources, while the Asia-Pacific area appeared over-supplied.

 

‘However, the Middle East region promises to act as a balancing source,’ he said.

 

‘In particular, new supplies from Qatar are predominantly going west, driven by very large markets with rapid build-up capacity in the US and Britain and by attractive prices.’

 

Of Russia and Iran, the former is in a more advanced position in terms of the LNG market.

 

In a recent article Vasily Zubkov, RIA Novosti’s economic commentator, notes that Russia at present has 17 relatively small LNG plants with an aggregate capacity of about 7m tons.

 

But domestic petrochemical companies consume about half of this output while the remainder is exported or used for housing or for transport.

 

Exports have been running at 1m tons but to neighbouring countries in the former Soviet Union and Baltic region.

 

Leading the way in turning Russia into a force in the international LNG business, is the Shell-led Sakhalin II project, which will have a total capacity of 9.6m tonnes based on two trains of 4.8m tonnes each.

 

Construction is expected to be completed by the end of 2007 and LNG supplies should begin at the same time. More than two-thirds of the project’s planned production has now been sold.

 

Sakhalin II, the largest foreign investment in Russia, also has sufficient reserves to supply a third train and this option is being considered by the partners.

 

Buyers in nearby Japan and South Korea are taking the majority of the LNG. Interestingly, however, Sakhalin II has won a contract that will see Russian natural gas make its debut in North American markets.

 

Singapore company Shell Eastern Trading is taking 37m tonnes of LNG over a 20-year period to supply the Energia Costa Azul plant which will be constructed in Baja California, Mexico.

 

Shell is taking 50% of the regasification terminal’s capacity.

 

The Sakhalin Energy agreement calls for significantly higher volumes of LNG deliveries during the first three years with a plateau supply of 1.6m tonnes a year (about 200m cu ft a day).

 

First deliveries are ex- pected in early 2008, with Sakhalin Energy responsible for providing the LNG carriers.

 

A host of other leading oil companies are also keen to participate in developing the giant Shtokman field in the Barents Sea for a large-scale LNG project.

 

Shtokman has reserves of 3.2trn cu m which Russian monopoly Gazprom would like to form the platform for exporting LNG to the US.

 

Gazprom’s experts have performed a pre-investment feasibility study for the Shtokman development, eva-luating the technical viability of the project and expenses on gas extraction, liquefaction and supply to the US.

 

The company says these calculations have shown that gas can be delivered to the US at internationally competitive prices

 

Statoil of Norway has blazed a trail in these waters with the Snohvit development in the Norwegian sector of the Barents Sea.

 

The Shtokman and Snohvit deposits are said to have similar conditions.

 

Both are on a polar shelf and will be linked by subsea pipelines to onshore liquefaction plants.

 

Gazprom plans to pick Western partners this year to develop Shtokman with a view to start supplying the US with LNG from the field by 2010-11.

 

The project’s $10bn first stage foresees Shtokman output of 30bn cu m, of which 22bn-24bn cu m will be converted to 15m tonnes of LNG. Shtokman’s annual production is eventually set to hit 100bn cu m.

 

Gazprom is also in the early stages of a potential $1.3bn project with Petro-Canada which could see Russian LNG shipped to North America by 2009.

 

The Russian and Canadian energy giants have conducted a feasibility study on building an LNG plant with capacity of 500m cu ft a day in the St Petersburg region.

 

The LNG would be shipped to a regasification plant at Cacouna in Quebec which Petro-Canada is developing in partnership with Trans- Canada.

 

Gazprom is expected to make a decision on this project any day now.

 

For its part, Iran has formed three international consortia Pars LNG, Iran LNG and Persian LNG as well as a 100% owned project, NIOC LNG. These are all based on gas from the South Pars field, an extension of Qatar’s North Field.

 

If all the projects come to fruition Iran could be exporting more than 40m tonnes a year.

 

But it would be a brave person who placed a time frame on this.

 

Iran has negotiated some substantial export deals with India and China on its own behalf but none of the international projects have yet to receive a final investment decision.

 

They have been the subject of long and complicated negotiations between Iran and its foreign partners.

 

An indication of the rocky road Iran is taking towards becoming an LNG exporter emerged earlier this month when Malaysian company Petronas was reported to have withdrawn its 20% stake in the $2bn Pars LNG project.

 

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