developments in the atlantic lng - ihs markit · thank you! andrew ellis director of european gas...

Developments in the Atlantic LNG

Andrew EllisGlobal Insight

Copyright © 2006 Global Insight, Inc. 2

Changing Economics of LNG – Impact of Higher Costs

Changing Economics of LNG

Atlantic Basin Trade

Atlantic Arbitration Issue


Changes in the LNG equation

• Fundamentals shifted in favour of LNGInvestment costs fell over 1990sLNG competitive over shorter distances

• Gas prices have risen on higher oil pricesNetback margins have increased significantlyRecent cost escalation not reversed earlier fall

• Incremental supplies coming from further afield

90% of gas resources available to Europe are more than 3000 km away (60% are more than 4000 km away)


0

50

100

150

200

250

300

350

400

1992 2002 2005 2010 20250

500

1,000

1,500

2,000

2,500Million $ per tanker (Left)Tanker Size - 1000 m3 (Left) $ per Nm3 (Right)

Falling LNG Costs


Steel and Component Costs have Increased

0

50

100

150

200

250

300

350

400

450

500

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Inde

x (1

999=

100)

Spot Price Cold RolledCarbon Sheet MidwestNickel LME Spot AM Close

Aluminum LME Spot AMClose

GI forecastGI forecast


Economics (LNG vs. Pipeline)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

100 500 900 1,300 1,700 2,100 2,500 2,900 3,300 3,700 4,100 4,500 4,900Distance (km)

$/m

mB

tu

Pipeline costs (2002) Pipeline costs (2006)LNG (mid-90s) LNG (2002)LNG (2006) LNG (2010)LNG (2025)


0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

1990s 2004 2006

$/m

mB

tu

Netback marginRegasShippingLiquefactionProduction

Netback Margin of Middle East LNG to Europe

LNG Netback Margins have risen sharply:

(1) lower LNG costs(2) higher gas prices

LNG Netback Margins have risen sharply:

(1) lower LNG costs(2) higher gas prices


Atlantic Basin Trade – Burgeoning Growth





Global Liquefaction & Regasification Capacity

0

50

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

mill

ion

tonn

es L

NG

EuropeNorth AmericaSouth AmericaMiddle EastFar EastWest AfricaNorth Africa

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

mill

ion

tonn

es L

NG

South AmericaNorth AmericaEuropeChina & IndiaAsia Pacific

Key growth areas:• Africa (N & W)• Middle East• Australia

Key growth areas:• Africa (N & W)• Middle East• Australia

Key growth areas:• Europe• N. America

Key growth areas:• Europe• N. America

LiquefactionLiquefaction RegasifactionRegasifaction


Global Liquefaction & Regasification Capacity

0

50

100

150

200

250

300

350

400

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

mill

ion

tonn

es L

NG

EuropeNorth AmericaSouth AmericaMiddle EastFar EastWest AfricaNorth Africa

0

100

200

300

400

500

600

700

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

mill

ion

tonn

es L

NG

South AmericaNorth AmericaEuropeChina & IndiaAsia Pacific

LiquefactionLiquefaction RegasifactionRegasifaction

Delays:• Australia – Gorgon – 10 mtpa• Bolivia – 7 mtpa• Nigeria – Brass River, OK, Ni T7 –

19.6 mtpa• Russia – Shtokman – 15 mtpa• Trinidad – Train X – 10.4 mtpa

Delays:• Australia – Gorgon – 10 mtpa• Bolivia – 7 mtpa• Nigeria – Brass River, OK, Ni T7 –

19.6 mtpa• Russia – Shtokman – 15 mtpa• Trinidad – Train X – 10.4 mtpa

Delays:• UK – Canvey Island• US – 2nd & 3rd stage expansion,

Cameron Parish, Mobile (Alabama)

Delays:• UK – Canvey Island• US – 2nd & 3rd stage expansion,

Cameron Parish, Mobile (Alabama)


Expanding Global LNG TradeFigures in BCM for 2010

Expanding markets• Europe & N. AmericaNew markets• China and India

Expanding markets• Europe & N. AmericaNew markets• China and India


N. American LNG Demand

0

20

40

60

80

100

120

140

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

bcm

LNG Supply CommitmentsHigh LNGLow LNG


European LNG Imports

0

50

100

150

200

250

1990 1995 2000 2005 2010 2015 2020 2025 2030

bcm

Norway

Non specified

Trinidad & Tobago

UAE

Oman

Qatar

Nigeria

Libya

Egypt

Algeria


Atlantic Arbitration – Resource Competition, Pricing & Netbacks





Atlantic Basin LNG Trade

0

1000

2000

3000

4000

5000

6000

Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06

mill

ion

m3

EuropeUS


U.S. vs. European Prices

Henry Hub versus Spanish Oil-indexed LNG

Henry Hub versus Spanish Oil-indexed LNG Henry Hub versus NBPHenry Hub versus NBP

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

$/m

mB

tu

US minus NBPHenry HubNBP

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06

$/m

mB

tu

US minus Spanish LNGHenry HubSpanish LNG


LRMC LNG Supply Curve for the U.S. Gulf Coast

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

Trinidad

& Tobago

Venez

uela

Nigeria

Egypt

Algeria

Libya

Angola

Bolivia

Alaska

(Othrer

)Qata

r

Yemen

Abu Dhabi

Alaska

(North

Slope)

Oman

Russia (S

akhali

n)

Malays

ia

Indonesia

Australi

a (Other)

Russia

(Stokomanovs

koye

)

Australia

(NWS)

Norway

(Bare

nts Sea

)

Russia (B

arents

Sea)

Norway

(Snohvit

)

$ pe

r mm

Btu

0

100

200

300

400

500

600

700

800

BC

M p

er y

ear

Cumulative suppliesLNGLRMC (left scale)

Gulf Coast


LRMC LNG Supply Curve for the U.S. East Coast

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

Canada (

exist

ing)

Trinidad

& Tobago

Venez

uela

Canad

a (Mac

kenzie

Delta)

Algeria

Nigeria

Egypt

Alaska

(Othrer

)Libya

Angola

Alaska

(North

Slope)

Abu Dhabi

Qatar

Yemen

Bolivia

Oman

Russia (S

tokomanovs

koye

)

Norway

(Bare

nts Sea

)

Malays

ia

Indonesia

Australia

(Other)

Russia (B

arents

Sea)

Russia (S

akhali

n)

$ pe

r mm

Btu

0

100

200

300

400

500

600

700

800

BC

M p

er y

ear

Cumulative suppliesLNGLRMC (left scale)

East Coast


LRMC Gas Supply Curve for Europe

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

Algeria (

Trias B

asin)

Algeria (

Illizi

Basin)

Norway

(Exis

ting fie

lds)

Norway

(Tro

ll)

Norway

(Sata

llite N

orth Sea

)

Kazak

hstan (N

orth C

aspain

)

Algeria (

Grand Erg

)

Russia

(Exis

ting fie

lds)

Russia

(Kam

ennomys

skoye

(NPT))

Egypt (R

ed Sea

)

Libya (P

elagian

Bas

in)

Tunisia (

Pelagian

Bas

in)

Egypt (N

ile D

elta)

Libya (S

irte B

asin)

Trinidad

& Tobag

o (Port

of Spain

)

Libya (T

rias B

asin)

Nigeria (

Lagos)

Qatar (

Great G

hawa u

plift)

Norway

(Norw

egian

Sea)

Venez

uela (C

hristobal

Colon)

Iran (Z

agro

s bas

in)

Russia

(Khara

save

ysko

ye (Y

amal)

)

Russia

(Zapolya

rnoye

(NPT))

Abu Dhab

i (Fah

ud salt b

asin)

Turkmen

istan

(Amu-D

arya)

Oman (G

haba s

alt bas

in)

Russia

(Bova

nensk

oye (Y

amal)

)

Libya (Il

lizi B

asin)

Russia

(Leningrad

skoye

(Kara

Sea))

Russia

(Sem

akovs

koye

(NPT))

Russia

(Other

(Yam

al))

Russia

(Other

(Kara

Sea))

Russia

(Stoko

manovs

koye

(Bare

nts Sea

))

Malays

ia (S

arawak

)

Turkmen

istan

(South C

aspian

)

Russia

(Rusa

novsko

ye (K

ara Sea

))

Russia

(Other

(Bare

nts Sea

))

Russia

(Eas

t Siberi

a (Nep

a))

Norway

(Bare

nts Sea

)

Russia

(Far Eas

t)

Russia

(Eas

t Siberi

a (Bay

krit))

Uzbeis

tan (N

orth U

styurt)

$/m

mB

tu

0

200

400

600

800

1000

1200

1400

1600

1800

bcm

Cumulative supplies (right scale)LNGLRMC (left scale)

2025

Import range


Comparative LRMC of Supply (Europe vs. U.S.)

0.00

0.50

1.00

1.50

2.00

2.50

3.00

Spain UK East Coast Gulf Coast

$/m

mB

tu

Middle EastNorth AfricaWest AfricaTrinidad


Netback Price Difference for Qatari Gas

-8.00

-6.00

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

1998 1999 2000 2001 2002 2003 2004 2005 2006

$/m

mB

tu

Spain - USUK - US


Average Netback Difference (U.S. vs. EU)

-2.00

-1.50

-1.00

-0.50

0.00

0.50

Middle East North Africa West Africa Trinidad

$/m

mB

tu

1998-20032004-present


-2.00

0.00

2.00

4.00

6.00

8.00

10.00

2002 2003 2004 2005 2006 2007 2008 2009 2010

$/m

mB

tu

Henry Hub - NBPHenry Hub - Spainish borderHenry HubNBPSpanish border

Price & Netback Difference Outlook (Europe vs. U.S.)GI forecastGI forecast

Price differentials favour U.S. in the medium-termPrice differentials favour U.S. in the medium-term


Price & Netback Difference Outlook (Europe vs. U.S.)

-2.00

-1.80

-1.60

-1.40

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.00Middle East North Africa West Africa Trinidad

$/m

mB

tu

2010

U.S. favoured destination for all sources, but especially West African & Trinidad

U.S. favoured destination for all sources, but especially West African & Trinidad


Conclusions

• Recent cost inflation not undermined economics of LNGLNG competitive with pipe around 2,000-2,500 km

• Resource constraints delayed FIDMaterials, equipment, peopleLead times stretched: 45-48 month from 36

• Atlantic Basin a major source of LNG demand by 2010Large volumes provide flexibility optionsCosts dictate primary relationship

• Europe losing out to U.S. in resource competitionWest African gas favours the U.S.Europe takes more Middle East LNG

Thank you!

Andrew EllisDirector of European Gas

[email protected]

developments in the atlantic lng - ihs markit · thank you! andrew ellis director of european gas...

Documents