February 2018

Bonus Report: LNG Developments

The future of LNG—Part 2

Over the past several years, new gas processing/LNG capacity has surged in nearly every region. Growth on both the supply and demand sides has resulted in the announcement of billions of dollars of capital investment around the world. Millions of tons of new LNG import and export capacity have begun operations, with hundreds of millions of tons still under development.

Nichols, Lee, Hydrocarbon Processing Staff

Over the past several years, new gas processing/LNG capacity has surged in nearly every region. Growth on both the supply and demand sides has resulted in the announcement of billions of dollars of capital investment around the world. Millions of tons of new LNG import and export capacity have begun operations, with hundreds of millions of tons still under development.

Part 1 of this series—featured in the January issue of Hydrocarbon Processing—focused on the growth in global LNG trade, supply and demand; investments being made in LNG export and import infrastructure; and major LNG trends in the Asia-Pacific region, Canada and Latin America. Major LNG trends and investments in Africa, Europe, the Middle East and the US will be detailed here.

Africa

The need for gas and coal will continue to grow in Africa as the continent seeks to mitigate widespread electricity shortages. The region has plans to expand import and export LNG capacity. A growing trend in many African nations is the use of natural gas for power generation. Multiple African countries are initiating gas-to-power projects that will boost natural gas imports.

Egypt has been a bright spot for LNG exporters seeking outlets for their product. The country is in desperate need of additional gas supplies to feed its growing demand for power generation, alleviate rolling blackouts and mitigate an escalating energy crisis. The country imports LNG via two floating storage regasification units (FSRUs) moored in Ain Sokhna. Egypt was seeking to lease a third FSRU vessel, but those plans were suspended due to Eni’s discovery of the massive Zohr natural gas field offshore Egypt. With the discovery of the Zohr field, the country is aiming for self-sufficiency in natural gas supplies by 2019, and to possibly begin LNG exports by the early 2020s.

Mozambique and Tanzania are developing massive offshore natural gas reserves in the Rovuma Basin. Both countries have announced ambitious plans to fully develop their domestic LNG export industry. However, the only real LNG export progress resides in Eni’s Coral LNG project, which will utilize a floating liquefied natural gas (FLNG) vessel. The 3.4-MMtpy vessel will be attached to six subsea wells, with all of the LNG supplies being sent to BP. Both Eni and Anadarko plan to develop onshore LNG terminals in the Cabo Delgado province, as well. However, these projects are progressing slowly and will not begin operations until the early- to mid-2020s.

Major offshore natural gas discoveries in Tanzania have spurred capital-intensive exploration and production (E&P) activities, along with a $30-B, 10-MMtpy LNG export terminal. The two-train facility will be in the southern Lindi region. However, the project has been delayed due to land acquisition issues. The project is still in the early stages, and a final investment decision (FID) is unlikely until the early 2020s. If the project is greenlighted, operations would not begin until the late 2020s.

Nigeria has ambitious plans to increase its LNG capacity at Bonny Island. In late 2017, Nigeria LNG (NLNG) announced that it plans to reach an FID on its Train 7 Plus project this year; the project has been delayed for nearly a decade. If greenlighted, the project would boost the terminal’s liquefaction capacity from 22 MMtpy to 30 MMtpy. However, the project is at risk of being canceled due to a possible amendment to the 1989 NLNG Gas Act. If the law is repealed, it is highly unlikely that the additional capacity will be built.

Other African nations are investing in importing natural gas to fuel power generation projects. In an effort to reduce the use of coal in power generation, South Africa is pursuing its $3.7-B Gas-to-Power program. The plan, which is part of the country’s Renewable Energy Independent Power Producer Procurement Program (REIPPPP), envisions adding more than 3,100 MW of gas-fired power generation between 2019 and 2025.

To diversify natural gas imports from sole provider Algeria, Morocco has initiated its $4.6-B LNG power project in Jorf Lasfar. Multiple Western African nations have announced plans to increase LNG import capacity, as well. These projects include the $2-B Fortuna LNG project in Equatorial Guinea, possible new African gas hubs in Senegal and Mauritania, and the region’s first use of FLNG technology in Cameroon, among other projects.

Europe

The region has a significant LNG import infrastructure and regasification capacity. At present, Europe has 25 large-scale LNG import terminals—22 are land-based facilities and three are FSRUs. The total regasification capacity of these terminals exceeds 216 Bm3, which covers approximately 40% of the region’s gas demand. In 2018, two import terminals will begin operations in Spain, boosting Europe’s regasification capacity to nearly 220 Bm3y.

However, less than half of this capacity is being utilized at present. The region has an incentive to diversify its gas import sources away from Russia, and also to import more gas in general to replace its declining production from the North Sea. LNG imports offer the opportunity to fill both needs. However, Europe’s rise in gas consumption in 2016 came mostly from pipeline gas from Russia and Algeria. The region’s largest LNG importers are the UK, Spain, France and Italy.

The most capital-intensive investments are being made in Russia. The country is investing heavily to boost its global LNG export market share. Russia has proposed more than 80 MMtpy of new LNG export capacity at a cost of nearly $80 B. However, due to Western sanctions and natural gas pipeline deals to China, Russia’s LNG export sector is progressing slowly. More than 30% of the announced LNG export capacity—representing approximately $20 B in CAPEX—is on an indefinite hold, and nearly all of the country’s LNG projects are either behind schedule or delayed. It is likely that only the Yamal LNG terminal will begin operations before the end of the decade; the facility’s first liquefaction train began operations in early December 2017. All three liquefaction trains of the $27-B project are expected to be operational by the early 2020s.

Middle East

The region’s gas demand has increased considerably in recent years due to infrastructure investments, economic growth and price subsidies in several countries. Gas is the fastest-growing fossil fuel in the Middle East in terms of both production and demand. Although the region is a major natural gas production center, Middle Eastern nations cannot keep up with increasing demand. Due to rising gas consumption, mainly for the power generation sector, these nations have announced billions of dollars in new natural gas processing and LNG import capacity, as well as investments in additional E&P activities. These investments are imperative to help mitigate the region’s supply/demand gap.

Bahrain is investing more than $740 MM to develop the Bahrain LNG project. The terminal will have an initial capacity of 400 MMcfd, which could be increased to 800 MMcfd, if needed. The project is under construction and is scheduled to begin operations in early 2019.

Many industry reports conclude that Iran may need as much as $100 B to fully monetize its natural gas industry. At present, nearly all of the country’s natural gas production is consumed domestically. With an increase in domestic natural gas production from foreign investments, Iran would be able to fully develop additional export infrastructure. This plan would include restarting construction work at Iran’s LNG export terminal. Half of the 10.8-MMtpy facility was completed before Western sanctions derailed the project. Restarting construction to complete the two-train facility could cost as much as $10 B. If greenlighted, the terminal would not begin operations until after 2020.

Kuwait’s downstream investments focus primarily on the production of clean fuels. However, the country is investing in its LNG sector, as well. Since 2009, Kuwait has had difficulty in satisfying increasing domestic demand for natural gas. According to BP, Kuwait’s natural gas demand has skyrocketed from 11.1 MMtpy in 2009 to nearly 20 MMtpy in 2016. Within that same timeframe, Kuwait’s domestic natural gas production has increased from 10.3 MMtpy to 15.4 MMtpy. With the widening gap between supply and demand, the country is forced to seek natural gas imports.

To increase natural gas imports, Kuwait National Petroleum Co. (KNPC) is building an LNG import terminal in Al-Zour. The $3-B Al-Zour Import Terminal project will provide natural gas feedstock to power plants to be used during peak demand. The import terminal, which is expected to begin operations in 2021, will consist of a regasification facility, eight LNG storage tanks, marine jetties and berthing facilities.

Saudi Arabia is having difficulty keeping up with its increasing demand for natural gas. The country is making sizable investments in new pipelines and gas processing capacity to satisfy demand. At the time of publication, the country had no plans to install additional LNG import terminals. These investments in its natural gas industry are geared toward utilizing natural gas for power generation in lieu of burning crude oil. In an interview with Petroleum Economist, Saudi Aramco’s chief executive, Amin Nasser, said that the Kingdom’s plans for the coming decade were to increase the share of domestically produced natural gas in the energy mix from 50% to 70%. However, these volumes would be supplemented with imports.

The country’s natural gas investments are a major theme of its Vision 2030 plan, which centers on the development of three large-scale gas processing plants—Fadhili, Wasit and Midyan—and additional capital-intensive natural gas processing projects, such as Jazan Gas Project Co.’s Jazan gas complex and Saudi Aramco’s Uthmaniyah gas plant.

To adhere to a major portion of its National Vision 2030 plan, Qatar is planning to boost its LNG export capacity. In April 2017, Qatar Petroleum (QP) announced an end to the moratorium on drilling activities in the country’s North Field. Additional E&P activities could add up to 2 Bcfd of domestic natural gas supplies. This program would provide enough feedstock for QP to expand its domestic LNG export capacity from 77 MMtpy to 100 MMtpy. Feasibility studies are being conducted to debottleneck the country’s existing LNG trains. If the study is positive, the project will move into FEED in 1Q 2018. However, to boost LNG export capacity by 23 MMtpy, QP will need to build additional LNG trains, which will require billions of dollars of investments.

Pakistan began operations on its second LNG import terminal in late 2017. The country is in desperate need of additional natural gas supplies to mitigate energy shortages. In a November 2017 Reuter’s report, Pakistan’s Prime Minister, Shahid Khaqan Abassi, said that he expects Pakistan’s LNG demand to increase to 30 MMtpy by 2021. To prepare for additional LNG imports, Prime Minister Abassi said that up to five import terminals are in the works. The country is in negotiations with several countries to secure long-term LNG supplies.

US

The US shale gas boom has created an infrastructure building boost in both domestic natural gas processing capacity and the construction of LNG export terminals. The US has announced more than 36 LNG export terminal projects, which represents more than 330 MMtpy of LNG export capacity at an investment of more than $200 B by 2030 (FIG. 5). Nearly 80% of the nation’s LNG export capacity projects are located along the US Gulf Coast.

FIG. 5. US LNG export projects. Source: <i>Hydrocarbon Processing’s</i> Construction Boxscore Database and the US Department of Energy.
FIG. 5. US LNG export projects. Source: Hydrocarbon Processing’s Construction Boxscore Database and the US Department of Energy.

Due to the global oversupply of LNG, it is highly unlikely that the majority of these projects will be completed. Regardless, the US is expected to become one of the largest LNG exporting nations by 2020. By the early 2020s, the US will challenge Australia and Qatar as the largest LNG exporting nation in the world. The US is scheduled to start operations on more than 71 MMtpy of LNG export capacity by 2020 (TABLE 1). These projects—Sabine Pass LNG, Cameron LNG, Freeport LNG, Cove Point LNG, Corpus Christi LNG and Southern LNG (Elba Island)—constitute a total CAPEX of approximately $50 B.

A second wave of US LNG export capacity could add 25 MMtpy–30 MMtpy. These projects include additional trains in Louisiana at Sabine Pass and Cameron, and in Texas at Corpus Christi and Freeport. HP

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