argus global lng april 07

Japan: JCC vs LNG $/mn Btu

Oct 05 Jan 06 Apr Jul Oct Jan 075

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Japan Crude Cocktail

LNG

Key price points $/mn BtuJJaann 0077 FFeebb 0077

Zeebrugge gas month-ahead 6.12 3.84

US Nymex month 1, Henry Hub 7.67 7.53

US LNG import price 6.14 7.13

Japanese Crude Cocktail 10.98 11.11

Japanese LNG import price 7.05 6.91

— Markets and data pp22-32

Japanese LNG vs crude $/mn Btu

Producers flex muscles 3

GdF, Gazprom in Canadian deal 4

Shtokman compromise emerges 7

Japan’s utilities set for boom 8

US majors ramp up LNG pace 9

Endesa mulls LNG investment 10

Iran defies sanctions threat 11

Market markers

US LNG vs Henry Hub $/mn Btu


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LNG

US LNG vs Henry Hub $/mn Btu

Spain: LNG vs electricity $/mn Btu


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Month ahead electricity

LNG

Spanish LNG vs electricity $/mn Btu

‘Gas prices should at least equal oil — that is to say $60/bl oil equals at least$10/mn Btu gas’ — Algerian minister Chakib Khelil at ‘gas Opec’ meeting (p3)

Soaring costs are threatening profitability at Algeria’s Gassi

Touil integrated LNG project, amid much acrimony

Problems in Algeria’s troubled energysector are escalating, with a number offlagship projects facing cancellation orsevere delays.

Tensions in the stand-off betweenSpain’s Repsol-YPF and Algeria over theSpanish firm’s 4mn t/yr Gassi Touil inte-grated LNG project are growing. Repsol-YPF and Spanish utility Gas Natural wonthe project in late 2004 with a bid thatshocked the industry. “Completely unreal-istic,” sources from other companies bid-ding for the project and Algeria said.

Since then, engineering costs havespiralled upwards, killing any prospect ofmaking a profit from the project. But oilminister Chakib Khelil is standing firm.Repsol-YPF “has to realise the projectaccording to the terms of the contract itsigned or find the means to compensateboth the state and [state-owned]Sonatrach”, he says.

Gassi Touil is running two yearsbehind its contractual November 2009start-up, says Khelil. Others involved inthe project predict worse delays.

Skikda delayConstruction at Sonatrach’s 4.5mn t/yrLNG project at Skikda is also running twoyears behind schedule, Khelil says.

The confidence of potential investorsin Algeria may have been rattled by theescalation of fighting between govern-ment forces and Islamic insurgents,which culminated with the 11 April bomb-ing of prime minister Abd al-AzizBelkhadem’s office, claiming the lives ofover 30 people.

As well as LNG, changes to Algeria’shydrocarbon law have deterred foreign

investors from involvement in a new300,000 b/d refinery at Tiaret, delaying theproject. Sonatrach will now build the refin-ery itself. “We have made the final invest-ment decision. It is just awaiting the engi-neering, procurement and constructioncontract,” Khelil says.

GTL doubtsThere have been mounting doubts overthe viability of the 36,000 b/d Tinhert gas-to-liquids (GTL) project, but officiallyAlgeria has been upbeat about the pro-ject. That line has now changed entirely.“It is too expensive. We may drop it — lotsof energy projects worldwide will bescrapped or delayed,” Khelil said at theGas Exporting Countries Forum in Doha,Qatar, held on 8-9 April.

One of the three prequalified investorshas dropped out, and a third is “not veryinterested”, says Khelil. The three areShell; a joint-venture consortium betweenChevron and South African refiner Sasol;and a consortium of South Africa’s state-owned PetroSA, Norway’s Statoil andAnglo-Australian BHP Billiton.

The nascent GTL industry has been hithard by rising project costs. In February,ExxonMobil abandoned its 154,000 b/dPalm GTL project in Qatar amid escalatingcosts (AGL, March, p18).

The major cancelled what would havebeen the world’s largest GTL plant afterthe promise of cheap gas feedstock andeconomies of scale evaporated, and thebudget for the development soared fromthe original $7bn in 2004 to around$14bn-21bn. Shell’s Pearl GTL plant inQatar has seen costs hit $18bn from itsoriginal budget of $5bn.

Algerian problems mount

M O N T H L Y LNG MARKETS, PROJECTS AND INFRASTRUCTURE VOLUME III, ISSUE 4, APRIL 2007

GGlloobbaall LLNNGG

© Argus Media Ltd www.argusmediagroup.com

April 2007

© 2007 Argus Media Ltd www.argusmediagroup.com

Argus GGlobal LLNG —— Contents

AArrgguuss GGlloobbaall LLNNGGiiss ppuubblliisshheedd bbyyAArrgguuss MMeeddiiaa LLttdd

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CChhaaiirrmmaann:: JA NasmythPPuubblliisshheerr:: Adrian BinksBBuussiinneessss ddeevveellooppmmeenntt:: Peter Caddy, Jim Nicholson (Europe,Middle East, Asia-Pacific), Daniel Massey, Miles Weigel (Americas)

CCoommmmeerrcciiaall mmaannaaggeerr:: Barbara KaluEEddiittoorr iinn cchhiieeff:: Ian BourneEExxeeccuuttiivvee eeddiittoorr: Euan CraikMMaannaaggiinngg eeddiittoorr: Cindy GalvinEEddiittoorr Argus Global LNG:: Neil Campbell

EEddiittoorriiaallLLoonnddoonn:: Reg Ajuonuma, Denise Albrighton, Christine Ancker,John Aspden, Alejandro Barbajosa, Nick Black, Charlotte Blum,David Buchan, Helena de Chair, Richard Child, Karen Chur, TomCousins, Sean Cronin, Marco Denes, Emma Farge, JohnGawthrop, Siobhan Gilmartin, James Gooder, Colin Halling, RobHamilton, Daniel Hayes, Hilda Hjertenes, Owain Johnson, ChrisJudge, Katie Kouchakji, Rafiq Latta, David Maitland, SabiaMayassi, Matthew Monteverde, Stuart Penson, Linda Pogson,Adam Porter, Tom Reed, Fiona Riches, Matthew Stone, RohanUnni, Guatavo Vasquez, Emma Wenban-Smith, Catherine WilsonHHoouussttoonn:: Keefe Borden, Robert Brelsford, Nisha Giri, JenaGoebel, Huma Khan, Jeff Kralowetz, Emily Lewis, David Love,Philip MacFarlane, Tim Mingee, Karl Palsgaard, AmandaSmith, Daphne Tan, Matthew Wood, Michelle WoodsWWaasshhiinnggttoonn:: Ross Allen (bureau chief), Mike Ball, AbbyCaplan, Ed Feege, Peter Gardett, Caroline Gentry, ConwayIrwin, Kim Krieger, Brian Megali, Christopher Newman, AnneO’Neil, Claire Pickard-Cambridge, Amery Pore, ElizabethRosenberg, Funda Saygin, Carrie Sisto, Andrew Sutton, JamieWebsterSSiinnggaappoorree:: Jason Feer (bureau chief), Azlin Nur Ahmad, PearlBantillo, Richard Davies, Jens Harder, Ronnie Hau, Esther Phua,Seah Siew Hua, Sunita Sharma, Sophie Tan, Melanie Wee, KittyXie, Freddie Yap, Yeow Pei Lin, Carol ZuMMoossccooww:: Alexander Yershov (bureau chief), Natalia Bortsova,Artyom Chernykh, Tatyana Demidova, Yekaterina Gaidanskaya,Peter Geltischev, Anastasia Goreva, Mikhail Gulyaev, RaufGuseinov, Andrei Karabyants, Oleg Kirsanov, Dmitri

Kleshchevnikov, Galina Kuznetsova, Alexei Morshchagin, SvetlanaNovolodskaya, Viktor Parno, Kirill Portnov, Pavel Scheglov, AnnaTkachenko, Oksana YablokovaBBeeiijjiinngg:: James Cockayne, Gao Hua, William Wang BBeerrlliinn:: ChloeJardine DDuubbaaii:: Nick Wilson JJoohhaannnneessbbuurrgg:: Steven Swindells LLoossAAnnggeelleess:: Andrea Nylund NNeeww YYoorrkk:: Nasreen Tasker OOsslloo:: PeterRamsay PPaarriiss:: Helen Avati SSaannttiiaaggoo:: Patricia Garip-Bertuol TTookkyyoo::Motoko Higashida, Yuko Komiya, Masaki Mita, Rieko Suda

CChhiieeff ssuubb-eeddiittoorr:: Mark LunnSSuubb-eeddiittoorrss:: William Brett, James Claro, David Townsend,Courtney Wilson, Penny WoodsPPrroodduuccttiioonn mmaannaaggeerr:: Chris RockettPPrroodduuccttiioonn:: Julian Giddings, Ravin Khurtoo, JC Lanoë, CliveRoberts

SSaalleess aanndd mmaarrkkeettiinnggRichard Cretollier, Jane Faulkner, Jacob Henriksson, SeanaLanigan, Wilfried Nkolo, Ilja Paskevic, Maria Scappaticci, AnastasiaVengerova, Antje Veregge (London), Chris Bozell, Peter Brown, TomDeMartino, Karen Johnson, Umer Qureshi, Susan Teves, SekaniWilliams, Howard Walper (US), Dewati Kurniawan,Zulkhanian Noor, Feisal Sham, Sally Tan, ZhillinYuan (Singapore), Pavel Chekanikhin,Olga Dombrovskaya, TatyanaPastushenko, Yelena Timofeeva (Moscow)RReepprroodduuccttiioonn,, ssccaannnniinngg iinnttoo aanneelleeccttrroonniicc rreettrriieevvaall ssyysstteemm,, oorr ccooppyyiinngg ttooaa ddaattaabbaassee iiss ssttrriiccttllyy pprroohhiibbiitteedd wwiitthhoouutt tthheewwrriitttteenn ppeerrmmiissssiioonn ooff tthhee ppuubblliisshheerr..((PPrriinntt)) IISSSSNN 11774466-44001133((EE-mmaaiill)) IISSSSNN 11774466-44000055Published monthlyCCooppyyrriigghhtt ©© 22000077 AArrgguuss MMeeddiiaa LLttdd

ContentsGlobal

Gas producers bid for market power 3

Europe/AfricaUK mulls data release rule change 4GdF offers Gazprom access to Canada 4Italian firms mull Calabria terminal 5BG’s Brindisi on the brink 5Gazprom sets sights on US 6Shtokman scenario changes again 7GdF gives way on LNG strike 7Endesa outlines gas targets 10UK gas grid firm declares force majeure 10Technip frontrunner in Nigeria 13

Mideast GulfGas producers seek greater power 3Iran nurses LNG ambitions 11Qatar not worried by UK surplus 19

AmericasUS majors set for LNG boom 9Chevron ditches Mexican plan 13Chilean LNG plan in the balance 14Trinidad’s train X on track 15Chile mining titans weigh floating LNG 15Petrobras speeds up Gazprom deal 17Kogas nets Gulf coast terminal 20

Asia-PacificJapan’s utilities plan big LNG growth 8Thai project mulls import sharing 11Itochu joins Namibia project 18Japan, China boost co-operation 18Majors boost Australian acreage 19Marubeni signs Qatar deal 19

In briefLibya targets Ras Lanuf hub 18Qatar tops majors’ investment plans 18LionGas terminal to fuel CCGT 18LNG key to Europe’s supply balance 19Snohvit on schedule 19Qatargas not worried by UK surplus 19Okinawa utilities mull UK imports 19Saibu Gas renews LNG contract 19Tohoku boosts LNG volumes from NWS 19MapleLNG gets green light 20Oil link in gas contracts set to persist 20Kogas nets US Gulf LNG terminal 20

Company newsBG’s Brindisi on the brink 5Gazprom sets sights on US 6GdF gives way on LNG strike 7US majors set for LNG boom 9Technip frontrunner in Nigeria 13

MarketsMarket overview 22European pipeline markets 24US pipeline markets 25Competing fuels markets 26LNG fleet news 28Shipping netbacks 29Spark spreads 30Global LNG import volumes 31LNG movements 32

Data and pricesGlobal LNG import prices 23European pipeline prices 24Pipeline spot markets 25Oil, product, coal and power prices 26Shipping order book 28LNG netbacks 29International spark spreads 30

CCoommppaannyy pprrooffiillee::US kkey tto GGazprom ggrowth 6

Cheniere uupbeat oon pprospects 16

CCoouunnttrryy pprrooffiillee::Japan’s uutilities mmull LLNG power 8

Iran nnurses LLNG aambitions 11


April 2007Argus GGlobal LLNG —— Gas Opec

The Russia-led Gas Exporting Countries Forum (GECF) aims toradically boost producer power in international gas markets,with leading LNG countries among them.

Energy ministers of the world’s 14 top gas producers —including Russia, Iran, Qatar and Algeria — met in Qatar on 9April and decided to establish a high-level committee taskedwith studying infrastructure, producer-consumer relations, and— most critically — pricing.

The market has a long-term contract structure, so talk of cre-ating “a gas cartel” soon is premature, and ministers concededas such. “The nature of global gas markets makes it impossiblefor exporters to make an impact on prices over the next 15 to 20years,” Russian energy minister Viktor Khristenko said ahead ofthe meeting. But the committee, which could hold its first meet-ing as early as next month, has been charged with developingconcrete proposals to deliver to the next GECF meeting next yearin Moscow. “We have agreed to launch a joint study” on gasprices, Khristenko said. “Russia is prepared to spearhead thiskind of study.”

The change from talking shop to effective organisation willbe a big challenge. Ministers denied that the GECF would actagainst consumer interests. “We are strong believers that theforum should create dialogue between producers and con-sumers,” said Qatari oil minister Abdullah al-Attiyah. “It is notagainst customers.” But most in principle supported an Opec-type organisation that could affect price through control of sup-ply. “We also think that if we move in that direction, it willstrengthen the forum,” said Iran’s Kazem Vaziri.

GECF members hold a greater proportion of global gasreserves than Opec members do with oil. They agreed on theneed for an exponential growth in liquidity through LNG spottrade, and that this is a long way off. But in the shorter term,there is a groundswell of support for a tougher producer bar-gaining position. Gas prices “should be at least the heat equiv-alent of oil. That is to say $60/bl of oil equals at least $10/mnBtu,” said Algerian oil minister Chakib Khelil. “Since the gas is

cleaner, it is more flexible, it is better for the environment, itshould get more than oil,” he added.

A change from indexing from oil will be studied. “The worldhas changed,” said Khelil. “Now the world has a lot of thingsthat people did not talk about five years ago — solar, windpower, bioethanol, nuclear energy.”

Consultancy Cedigaz predicts that demand for LNG willswell from 190bn m³ in 2006 to 390bn m³ by 2015. Only a tinyproportion of this is spot at present, but this will change, accord-ing to Khelil. He is pushing for more of Algeria’s LNG trade tobecome spot. The amortisation of capital investment will allowothers to do likewise, he said.

Achilles substituteMoscow’s transformation from lukewarm member to active leaderof the GECF is noteworthy. At the last forum meeting in Trinidadand Tobago in April 2005, Russia declined to send a single rep-resentative from the energy ministry. In Doha, Khristenko wasaccompanied by Russian gas monopoly Gazprom chief AlexeiMiller, a team of aides and a large media contingent. Moscow’sU-turn has probably just as much to do with growing tensions withthe EU over gas supply security after cutting off gas to its neigh-bours as it does to long-term changes in the gas market.

Even if Moscow’s strategy change is less to become the gasmarket’s Saudi Arabia and more to send a short-term messageto consumers and prepare for inevitable long-term changes inthe global gas market, the path the GECF has taken at Dohacould backfire on producers.

Khelil might be right on the virtues of gas, but he omits men-tion of its Achilles heel — its substitutability. Unlike oil, gas canbe replaced by other forms of energy, and an overly aggressiveproducer stance could drive consumers into the arms of alter-native forms of power generation. Khelil downplayed the attrac-tions of fuel oil and coal on environmental grounds, but thesehave a spot market that could be used as an alternative indexand both are cheaper than crude.

Gas producers bid for market power

A gas producers association is“inevitable”, according to CambridgeEnergy Research Associates (Cera) ana-lyst Daniel Yergin.

Yergin was responding to questionson the potential for an Opec-style gascartel during the US Federal TradeCommission’s 10 April conference oncompetition in power markets. The con-ference coincided with high-level meet-ings between energy ministers from keygas-producing countries in Qatar.

Still, the formation of an effectiveassociation of gas exporters is likely totake many years. The “very capital inten-

sive” nature of LNG projects — such asthe construction of liquefaction facilities,regasification terminals and LNG tankers— creates a somewhat different set ofdynamics than those governing theglobal oil market, Yergin says.

Substantial capital requirements forLNG infrastructure inhibit the liquidityrequired to give the natural gas market atruly global character. And LNG mustcompete against pipeline gas in coun-tries with domestic production.

As the global gas market coalesces,gas producers “will all be paying atten-tion to what their competitors are offer-

ing”, Yergin says. But this activity fallswell short of the co-ordinated crude oilproduction levels that Opec is capableof engineering.

Nevertheless, officials from naturalgas consuming nations will be carefullyobserving the emergence of any co-operation among gas exporters.

At the same conference, US energysecretary Samuel Bodman expressedserious misgivings concerning such col-lusion. “In my lifetime, we have experi-enced the negative consequences ofmeddling in the competitive marketplacewhen it comes to energy,” he said.

Gas producers association ‘inevitable’ — Cera

April 2007


The current practice of the UK’s sole LNG import terminal oper-ator National Grid announcing the arrival of each individual shipmay not continue as the country builds more terminals, says UKregulator Ofgem’s director of markets, Steve Smith.

“The third-party access exemption terms demand effectiveuse-it-or-lose-it (UIOLI) provisions. When there is more than oneterminal, it may or may not be necessary to give that level ofinformation,” says Smith. “It is up to the terminal operators towork out what these UIOLI provisions will be, and if there arecomplaints from would-be users, then Ofgem will look at thosearrangements,” he says.

UK utility Centrica, which will hold capacity in the expansionof the Isle of Grain terminal near London and is promoting aredevelopment of the nearby Canvey Island terminal, says ithas no problem with data on individual ship arrivals being madeavailable. Centrica argues that those wanting the informationcan find other ways to obtain it.

At present, National Grid announces when a ship hasdocked at the Isle of Grain either on the day of arrival or the nextworking day. Joint shippers BP and Algeria’s Sonatrach are alsoobliged to notify the market of any available slots, a commitmentother terminal operators will have to fulfil. Smith predicts thatnew terminals will stimulate operators to try harder to attractthird parties, arguing that, if two terminals lie idle, they will com-pete to attract additional business to meet their capacity costs.

No shipper has complained to Ofgem about the size ofrecent slots being made available at the Isle of Grain, says

Smith. Recent third-party offerings would have allowed the deliv-ery of only a partial cargo and attracted no takers. “The Grainshippers are under obligations, but we are not aware of any con-cerns from shippers,” Smith says.

Canvey appealThe UK’s Canvey Island LNG terminal project has launched itsanticipated appeal against a decision by the local governmentto reject the proposed renovation of Calor’s existing LPG termi-nal for LNG receipt.

The partners in the Canvey project have appealed to CastlePoint Borough Council, which unanimously rejected the 5.4bnm³/yr LNG proposal in September last year. The council foundat the time that the proposal “represents a significant potentialthreat, the fear of which would be likely to have a significantadverse impact on the wellbeing and amenity of Canvey resi-dents”, and said the project’s proponents had failed to demon-strate that it was “in the national interest” (AGL, October, p10).

Centrica, a partner in the project, says the appeal will involvea discussion of the legal standing of the September rejection withthe council and a planning inspector appointed by the centralgovernment. Particularly at issue is the council’s decision that theproject failed to demonstrate that it is in the national interest.Centrica, Japan’s Osaka Gas, LNG Japan — a 50:50 joint venturebetween Japanese traders Sojitz and Sumitomo — and Calor,owned by Dutch LPG giant SHV, are partners in the project, whichwill come on line in 2010 if approvals can be obtained.

UK mmulls ddata rrelease rrule cchange

Argus GGlobal LLNG —— News

French state-run firm Gaz de France(GdF), Canada’s GazMetro and US firmEnbridge have offered Gazprom accessto the proposed 5bn m³/yr (3.5mn t/yr)Rabaska LNG terminal in Canada.

The terminal, which would be built inLevis near Quebec — 45km from thepipeline transportation system —includes a deepwater jetty on the StLawrence river able to receive 216,000m³LNG carriers. It has already passed pub-lic hearings and is due to receive finalapproval this summer. The companiesinvolved hope to commission the termi-nal in 2010-11, and are in talks withGazprom to secure gas volumes.

The Russian state-controlled firm hasyet to make a decision on would-be part-ners in its Baltic LNG project and its giantShtokman project — both projectscould supply LNG to Canada. GdF isready to invest in the Baltic LNG project,which envisages construction of a 3.5mnt/yr export terminal on the Gulf of Finland,

but chief operating officer Jean-MarieDauger rules out participation inShtokman as it is too big a project.

The French firm’s proposal may be ablow for Canada’s PetroCanada, whichhopes to secure LNG from the Balticproject for its planned 3.9mn t/yr LNGregasification facility in Gros-Cacouna,Quebec. Rabaska and Gros-Cacounaare targeting the Quebec, Ontario andnortheast US markets.

GdF says Gros-Cacouna is not asgood a location as Rabaska because ofshallow water and harsh climate condi-tions. And it is unclear whenPetroCanada will receive the permitsneeded to start construction of the termi-nal, GdF adds. But a Gazprom sourcesays he doubts that there will be enoughgas after 2010 for the Baltic LNG terminaland the planned Nord Stream pipeline.Gas for both projects will be deliveredfrom the as-yet undeveloped 4.4 trillionm³ Bovanenkovo field on the Yamal

peninsula, due to produce 7bn m³/yr by2011, the source says. The field couldpotentially produce 115bn-140bn m³/yr.

Next year, Gazprom plans to beginbuilding the 1,100km Bovanenkovo-Ukhta pipeline to link to Gazprom’s exist-ing network. It has already started build-ing a 917km Gryazovets-Vyborg pipeline,which will have capacity to transport gasfor the Baltic LNG and Nord Stream pro-jects, the source says.

But he warns that Russia’s potentialgas production shortfall could jeopardiseplans for LNG exports. “We should havestarted developing Bovanenkovo a longtime ago to avoid a decline in output,”the source says.

GdF is aware of possible gas short-ages in Russia after 2010. The firm hassigned two long-term export contractswith Gazprom, but is not confident thatthe gas giant will be able to fulfil them.“Gazprom is not investing enough in itsupstream,” Dauger says.

GdF offers Gazprom access to Canada


April 2007Argus GGlobal LLNG —— Italy

Italian companies Iride and Sorgenia have agreed to set up ajoint venture to buy a 51pc stake in the 12bn m³/yr LNG termi-nal planned in the port of Gioia Tauro in Calabria, on Italy’s“toe”. The agreement, subject to securing all of the necessaryauthorisations, will give the two companies access to regasifi-cation capacity of around 8bn m³/yr.

Iride and Sorgenia will pay around €2.2mn ($2.97mn) forthe stake in the Medgas terminal, which will be located 1.5kmeast of Gioia Tauro port. Iride is a multi-utility recently created bythe merger of Turin and Genoa local utilities AEM Torino andAmga. Sorgenia is the energy division of holding group CIR.

Medgas moveThe terminal is owned by the Medgas group and oil productsfirm Italpetroli. Italpetroli will leave the project while Medgas willretain the remaining 49pc stake. Medgas is controlled by theCrossNet group of Italian business owned by the Belleli family,which owns a 29pc stake in the OLT offshore LNG terminalbeing developed near Livorno (see map).

The Gioia Tauro facility is the biggest of the dozen or so LNGterminals planned for development in Italy. The plant couldrequire investments of over €800mn, because of its size. But itis still premature to say how much the two companies will invest

in the terminal, says an Iride spokesman.“The permitting process has begun and we expect to have

approval by 2008, after which construction should take anotherthree or four years,” he says. “The terminal is one of thoseenergy infrastructure projects that the government has put onits priority list.”

Italy’s so-called “control room” of ministers at a meeting lastAugust said it would fast-track the permitting process for seventerminals with authorisation requests pending, including GioiaTauro (AGL, September, p9).

Environment minister Alfonso Pecoraro Scanio said recentlythat the terminal is one of only four facilities that he believes areneeded to satisfy Italy’s growing demand for gas, which isexpected to exceed 90bn m³ by 2008 — compared with 80bnm³ now (AGL, February, p8).

The Gioia Tauro terminal is strategically situated to receiveLNG from the Mediterranean and Atlantic basin, as well as fromthe Mideast Gulf and north Africa. Iride and Sorgenia do not asyet have contracts in place for sourcing the gas. A Sorgeniaspokesman says north Africa is a likely source of supplies forthe terminal.

Fast trackIride has a 25.5pc stake in the smaller 4bn m³ OLT terminal atLivorno, along with its Spanish utility partner Endesa — whichholds a 25.5pc stake in the project. Iride will have access to1.875bn m³ of capacity at the plant, which has already beenauthorised and is expected to become operational before theend of 2009. The Belleli family has 29pc, and the fourth stake-holder in the terminal — which is expected to cost around€500mn — is Golar, the Norwegian owner and operator of LNGcarriers, with a 20pc stake.

Italian utilities invest in Calabria terminal

Sardinia

Sicily

Rome

Eni:Panigaglia

3.5

Edison, BP:Rosignano

8

Sonatrach, Edison,Enel: new Galsipipeline fromAlgeria

8-10

Eni: pipelinefrom Algeria

24.5

+7

25 6 Eni: pipelinefrom Russia

Eni: pipelinefrom Libya

8

Crossgas,Italpetroli:Gioia Tauro

12

— AceaElectrabel

OLT Endesa,Amga Genova:Livorno

4

Existing

Very probable

Announced

1

1

1

Imports (bn m³/yr)Endesa:Monfalcone

IGI: pipelinefrom Caspian

8

Nuove Energie:Porto Empedocle

8

Erg, Shell:Priolo

8

8

QP, ExxonMobil,Edison: Rovigo

8

8 Gas Natural:Trieste

8 Gas Natural:Taranto

Eni: pipeline fromNetherlands/Norway

16

BG: Brindisi8

Natural gas and import infrastructure

Brindisi on the brinkThe Italian government is set to suspend work on the 8bnm³/yr LNG terminal being developed by UK gas major BG atBrindisi. It will convene a new meeting of the parties involvedin the permitting process either to annul the permits that BGsecured in 2003 or order a new environmental impact report(VIA), the Puglia regional authorities say.

The environment ministry has already said that theauthorisations BG has are illegitimate since the VIA is miss-ing. The ministry for economic development, which mustsign the decree to convene the new and decisive meeting,has as yet made no comment.

Regional and local administrations, which are calling forthe annulment of BG’s permits, claim that BG failed toinvolve local institutions in the permitting process as laiddown by the Italian “Seveso” law, which stipulates certainrequirements in EU member states for storage of relativelylarge quantities of substances classified as dangerous,including LNG.

Recently Italian police arrested three top managers ofBG Italia, an Italian businessman and the former mayor ofBrindisi, Giovanni Antonino, on charges of corruption.

BG has always claimed that it has the permits to con-struct the terminal and has begun preliminary work on thefacility. The UK firm says it has already spent about €150mn($202mn) of the overall €450-500mn investments planned.The Brindisi terminal is part of BG’s Atlantic basin strategy,deemed important since it could be a key outlet for gasreserves that the group is developing in Egypt.

April 2007


Argus GGlobal LLNG —— Corporate

Russia’s state-controlled Gazprom sees North America as a keyprospective market for LNG. The gas giant wants to diversify itsprice exposure and tap a growing market, said president andLNG director for Gazprom Marketing and Trading USA, JohnHattenberger, at the CWC LNG conference in San Antonio,Texas, last month.

In addition to growing its traditional pipeline natural gasmarkets in Russia and Europe, Gazprom is moving into LNG tostimulate further growth by accessing new gas markets andcapitalising on the global supply shortage. “We are now in theLNG business,” says Hattenberger.

Gazprom’s strategy is to partner major LNG players andbuild expertise in the near term. The company wants to partici-pate in all elements of the value chain and capitalise onreserves, market skills, and pipeline supplies to become a majorparticipant in the North American natural gas market and aleader in the world LNG industry.

Problem portfolioLNG is a key way for Gazprom to monetise its extensivereserves. Gazprom, with 1,000 trillion ft³ (28 trillion m³) of provennatural gas reserves, holds 16pc of global natural gas reserves— while Russia 27pc. Gazprom as a company has more natu-ral gas than any other country in the world, says Hattenberger.

Expansion in the 65bn ft³/d (670bn m³/yr) US market is keyto improving the gas giant’s unique position, in which Gazpromhas access to a large amount of reserves but more than 50pc ofits portfolio is not profitable. In 2005, Gazprom sold 315bn m³ ofnatural gas in Russia, 156bn m³ in Europe, and 77bn m³ in theformer Soviet Union excluding Russia. But prices to Ukraine andBelarus are fixed and are renegotiated yearly with increases forinflation. Prices rise in a stair-step manner while European priceshave risen substantially, says Hattenberger. Gazprom has kept

gas prices low for Russia and Ukraine, which account for themajority of its portfolio, Hattenberger says. “We do not makeany money on gas sold in Russia,” Hattenberger says, or insales to Ukraine and Belarus.

Gazprom makes money only on sales to western Europe,Hattenberger says. Gazprom has sold gas to Europe for morethan 30 years and supplies more than 25pc of western Europe’sgas. “We have excellent relationships with all of our customersin western Europe,” Hattenberger says. But market share isabove a level that people are comfortable with, he says.

Gazprom plans to increase revenue in the 40bn ft³/dRussian market. “We have a plan in place to increase naturalgas prices in Russia over time,” says Hattenberger. A price thatis too low distorts the rest of the industry, he says. Companiesthen waste money building plants. Hattenberger says there willbe increased pressure over the next 10 to 15 years for Gazpromto raise prices in Russia, and this will cause political tension.

The US is the world’s largest gas market, followed by Russiawith 400bn m³/yr, and the UK with 100bn m³/yr. By 2015, Russiawill be about half of Gazprom’s market, down from 60pc now.

Gazprom has a unique perspective, Hattenberger says, asit has access to large gas reserves and influence from govern-ment shareholders. It is driven by commercial interests as wellas political ones. Gazprom is treated like a national treasure,says Hattenberger.

Gazprom’s ggrowth sstrategy ffocuses oon UUS

Russia’s Gazprom wants a guarantee thatit will not be held responsible for pastenvironmental violations at Sakhalin 2before finalising its takeover of the project.

The Gazprom entry deal could becompleted by the end of April if this canbe agreed, Gazprom transportationhead Bogdan Budzulyak said on thesidelines of this month’s Moscow EnergyForum. Gazprom was originally due tojoin Sakhalin 2 at the end March.

Shell — the majority shareholder inSakhalin 2 operator Sakhalin Energy —is downplaying the significance of thedelay. “Negotiations are continuing. It isnot easy to agree on all the details whena new shareholder gets a controllingstake in a $20bn budget project,” says a

Shell spokesman. Shell says only thatthe deal will be finalised “this year”.

Budzulyak points out that Russia’senvironmental watchdog Rosprirod-nadzor inspected only part of theSakhalin 2 onshore pipeline route andthat more violations could be found oncethe whole route has been inspected.Gazprom’s entry was agreed last yearafter environmental violations wereuncovered in the pipelines, forcing sus-pension of construction work in what wasseen as a campaign to secure majoritycontrol for Gazprom (AGL, January, p5).

Sakhalin Energy stresses that workon the pipelines is now proceedingaccording to schedule. The operator hasreceived long-delayed permission from

Rosprirodnadzor to start drilling at theLunskoye gas field.

Sakhalin Energy submitted its pro-posal for rectifying the violations toRosprirodnadzor last year and wasexpected to tackle the issue togetherwith Gazprom. Industry sources say nei-ther Rosprirodnadzor nor the gas giantknows how to deal with the problems.

Gas exports from Sakhalin 2 are dueto start next year, but the all-importantbudget for the second phase of the pro-ject — a major issue of contentionbetween Sakhalin Energy and theRussian authorities — has not yet beenapproved. The Sakhalin 2 supervisoryboard was due to approve the budget on23 March, but the meeting was cancelled.

Gazprom seeks Sakhalin 2 immunity

Russian LNG to markets

Location Volume bn mm³/yr Year

Sakhalin 2 14 2008

Baltic LNG 7-10 2011

Shtokman 30-45 2013-2020Total 51-669


April 2007Argus GGlobal LLNG —— News

Russia’s state-controlled Gazprom has changed its tune on giv-ing foreign companies direct stakes in the giant Shtokman gasproject in the Barents Sea. But Gazprom has not yet said whenthe field will come on stream.

The Russian gas giant is now ready to offer would-be part-ners stakes in an operating firm to develop the field rather thanjust roles as contractors, head of Gazprom’s analytical depart-ment, Igor Mescherin, tells Argus. But Gazprom will hold theShtokman licence itself and all exports will go through the com-pany’s export arm Gazpromexport.

Mescherin says Gazprom is no longer interested in an assetswap scheme with foreign partners, as it was before last year’sshock announcement that it did not want equity partners. It nowwants prospective partners to show how they will help the fieldcome on stream, on time and on budget.

“A stake in an operating company would allow foreign firmsto book Shtokman reserves,” says a source from one westernfirm taking part in recently revived talks on Shtokman. In return,foreign companies are ready to share “financial, technical, envi-ronmental and marketing risks”, the source adds.

New proposalsTotal and Norwegian oil and gas company Statoil have alreadysubmitted new Shtokman participation proposals to Gazprom,and ConocoPhillips will do so shortly. All three companies,along with Chevron and Norway’s Norsk Hydro, were earliershortlisted as potential partners to share a 49pc stake in theShtokman project. Statoil and Norsk Hydro will join forces, asthey are due to merge by the end of this year. Chevron has ruleditself out of the competition.

And foreign companies still hope that Gazprom will allowthem to market Shtokman gas independently. “Everythingcould change — Gazprom has to decide first when to developthe field and find a suitable scheme to co-operate with foreigncompanies,” says the source from a western company. Initially,the gas giant planned to begin Shtokman development this

year, selling the first LNG cargo to the US in 2011.The gas giant will decide when Shtokman can be put on

stream once an investment plan has been approved, due bymid-2008. The new plan will be based on revised Shtokmanreserves and is expected to combine LNG and pipeline gasmarketing schemes. In October, Gazprom suggested thatpipeline shipments to Europe would be preferred to LNGexports (AGL, October, p1) .

Exceeding expectationsThe seventh appraisal well drilled at Shtokman “exceeded ourexpectations”, head of the geological division at Gazprom’s VNI-IGAZ research centre, Alexander Timonin, tells Argus. The resultsare confidential, but Gazprom hoped to increase Shtokmanreserves by 700bn m³ from the current 3.7 trillion m³. Gazpromlast year booked some reserves discovered after the seventh wellwas drilled and is due to book more this year, Timonin adds.Gazprom booked 582bn m³ of probable reserves last year.

Gas giant offers Shtokman compromise

FINLAND

NORWAY

Barents Sea

Arkhangelsk

Vitino

Murmansk

RUSSIASt PetersburgUst-Luga

Shtokman

Snohvit

ProposedLNG plantPipelineProposedpipelineGas/oil field

Goliat

Terminal

Shtokman and related gas infrastructure

An 18-day strike at the port of Marseille,which blocked 60 tankers while refinerieswith dwindling stocks threatened toclose, ended on 31 March after theFrench government obliged state-controlled gas company Gaz de France(GdF) to give in to the dominant CGTunion’s demands for a role at GdF’s newLNG terminal at Fos Cavaou.

This show of union force could lessenthe interest of investors in new LNG ter-minals in France, where four projects arebeing studied in Le Verdon, Dunkirk, LeHavre and St Nazaire. It may set a prece-dent for similar demands at the two other

French LNG terminals, Fos Tonkin andMontoir de Bretagne, or for seeking moreinfluence at other French ports.

The settlement came with GdF’spromise to reserve the equivalent of fivefull-time jobs for Marseille port employ-ees at Fos Cavaou when the terminalgoes into service at the end of this year.What the port employees will do has tobe worked out between the union andGdF in coming weeks. Because of secu-rity problems, it could be only subsidiarytasks or a simple presence on the sitewhile GdF personnel carry out the work.

The strike affected the Fos and

Lavera oil terminals, but did not touchGdF’s Fos Tonkin LNG terminal. It startedafter the CGT union demanded the rightfor port workers to handle the connectionand offloading of LNG carriers when thenew 8.25bn m³/yr terminal begins tooperate. CGT was concerned about theloss of jobs at the port as government-controlled services are increasinglybeing privatised — and it sees LNG as apromising source of new activity.

This was unacceptable to GdF, whichinsisted that its own specially trainedemployees must perform these tasks forsecurity reasons.

France forces GdF to climb down on LNG

April 2007


Argus GGlobal LLNG —— Japan

Japanese power utilities plan sizeable LNG-fuelled powerexpansion in the next few years, backed by the approach of theKyoto protocol’s first commitment period from 2008-12.

The utilities’ business plans for the fiscal year 2007-08 —which runs from April to March — show that they plan to add11,000MW of LNG-fired thermal power capacity in the nextdecade. This is almost equal to the 12,260MW of additionalnuclear capacity that the government is promoting as a cleanenergy source. LNG and nuclear together make up 80pc of thetotal 28,580MW of new power generation capacity planned forthe next 10 years to 2016-17.

The bulk of new LNG-fired development focuses on the nextfew years as Japan and the power industry — the major carbondioxide emitter — struggle to achieve the pledged 6pc cut in thecountry’s total greenhouse gas emissions from 1990 levels. Inparticular, Tokyo Electric Power (Tepco) and Chubu ElectricPower — the two largest LNG users in the power sector — planto boost their LNG power capacity from the current 26,975MWand 10,260MW respectively (see table above).

In addition to its 3,000MW increase in LNG-fired generationby 2011, Tepco plans to double Kawasaki’s LNG-fired capacityto 3,000MW after 2017, boosting the company’s total LNGcapacity by almost 20pc by then. After doubling Shin-Nagoya’scapacity by 2009, Chubu is planning to build a new 2,380MW,LNG-fired combined-cycle power plant in Niigata prefecture’sJoetsu by 2017, upping its total LNG capacity by nearly 40pc.

Environmentally friendly and cost-effective LNG has alsoattracted the Shikoku and Okinawa power utilities. The firmsdepended heavily on oil-fired power generation, but have begundiversifying to cleaner LNG in recent years (see p19).

Shikoku Electric Power has just begun construction of anew LNG terminal at Sakaide on the north coast of Shikokuisland. The Sakaide terminal — a joint venture with refinerCosmo Oil and gas retailer Shikoku Gas, due to be commis-sioned in March 2010 — will have a 180,000m³ storage tankand a regasification facility. Shikoku is converting a former oil-fired Sakaide power unit to a 296MW, LNG-fired, combined-cycle power plant by August 2010.

As well as the start-up of Tepco’s Kawasaki plant, the powerindustry’s LNG consumption may see another boost this yearbecause of a scandal that is hindering nuclear power operations.The utilities recently admitted to nearly 100 cases of data tam-pering and cover-ups at their nuclear power plants, includingpotentially fatal nuclear chain reactions that went unreported byHokuriku Electric Power and Tepco, as well as serious mishan-dling at reactors operated by Chubu and Tohoku Electric Power.

This has renewed public concern over Japan’s nuclear

industry, leaving nuclear power producers searching for alter-natives. Chubu has managed to restore operations afterrestarting the Hamaoka reactor in March this year. But Hokurikucontinues to suffer from the closure of the sole nuclear powerplant at Shika, which was supplying power to Kansai ElectricPower and Chubu.

The 20pc jump in LNG consumption by the utilities to 6.5mnt in January and February came as the reactor closure forcedKansai and Chubu to boost LNG burning by 43pc and 18pcrespectively during the two-month period. The power sectorremains the largest LNG-user industry in Japan, consuming60pc of the record 62mn t imported in 2006.

Increased demandMeanwhile, the top three gas utilities — Tokyo, Osaka and Toho— forecast that their LNG demand will increase by 10pc to22.4mn t by 2011-12, supported by the continued industrial fuelshift to LNG (see table below). All three firms, accounting for75pc of Japan’s gas sales, expect more than a 3pc rise in theirtotal gas sales this fiscal year.

The steady demand growth has prompted Tokyo Gas,Japan’s largest utility, to take measures to accommodateincreasing LNG imports (see p21). It has decided to add a 15th255 t/hour regasification unit at the Sodegaura terminal in 2008-09 before adding a sixth 72 t/h unit at Ohgishima the followingyear. The company is adding its fifth 150 t/h unit at Ohgishima,allowing Tokyo Gas to boost LNG handling at one of its threeTokyo bay terminals (AGL, January, p10).

On the back of the forecast rapid increase in LNG use,Nagoya-based Toho Gas has decided to further expand itsChita LNG terminal, co-used with Chubu Electric Power. It isawaiting the 2013 completion of sub-sea pipeline networks con-necting Toho’s and Chubu’s LNG infrastructure in Ise bay (AGL,January, p6). Osaka Gas also expects a jump in LNG demandahead of the start-up of its Senboku LNG-fired power project in2009 (AGL, May, p5).

Utilities mmull LLNG ppower eexpansionLNG-burning power capacity increases 2007-11

CCoommppaannyy CCoonnssuummppttiioonn PPllaanntt LLNNGG-ffiirreedd YYeeaarr22000055 mn t ccaappaacciittyy MW

Tokyo Electric Power 16 Kawasaki 1-1 500 2007Kawasaki 1-2 500 2008Futtsu 4-1 500 2008Kawasaki 1-3 500 2009 Futtsu 4-2 500 2009Futtsu 4-3 500 2010

Tohoku Electric Power 3 Sendai 4 446 2010 Chubu Electric Power 8 Shin-Nagoya 8 1,458 2008Kansai Electric Power 4 Sakai-ko 1-3 1,200* 2009

Sakai-ko 4-5 800* 2010Shikoku Electric Power nil Sakaide 1 296 2010Chugoku Electric Power 1 Mizushima 1 285 2009Kyushu Electric Power 2 Okinawa Electric Power nil Yoshinoura 1 251 2010

Yoshinoura 2 251 2011TToottaall 3355 77,,998877Note: Hokkaido and Hokuriku neither have LNG-fired power output norplans *Kansai’s Sakai-ko units will be converted from gas turbine units tocombined-cycle units

LNG demand forecast for top three utilities ’000t

FY07 ±FY06 %% FY11Tokyo Gas 10,306 0.3 11,177Osaka Gas 7,474 3.2 7,889Toho Gas 3,066 3.1 3,771Total 20,846 11.7 22,837


April 2007Argus GGlobal LLNG —— Companies

The US majors are poised for sharp growth in LNG output, aresponse to growing demand from key Atlantic basin marketswhich are turning into net gas importers.

The global market for LNG is expected to increase fourfoldby 2030, says ExxonMobil, with LNG imports helping meetdemand growth in North America, Europe and Asia-Pacific. Themajor says existing gas production is declining in Europe andNorth America, and the growing requirement for gas imports toboth continents will promote inter-regional LNG trade and createa dynamic gas market.

ExxonMobil — which has produced around 7.7mn t/yr, or200,000 b/d of oil equivalent (boe/d), in net LNG terms since thestart of 2006 — expects to more than double production to19.3mn t/yr or 500,000 boe/d of LNG by 2011. “Qatar and theGorgon and Jansz projects will be the most significant suppliersthat we have included in this outlook,” says chief executive RexTillerson. ExxonMobil is a partner in the Gorgon LNG project off-shore northwest Australia, operated by Chevron, which mayhave a capacity of around 10mn t/yr. Gas from the Jansz fieldwill also feed the development.

Qatar is already a cornerstone for ExxonMobil, which hashad a presence in the country since 1935. Qatar’s giant NorthField will feed four more LNG trains in which ExxonMobil has astake, due to start up by 2011. ExxonMobil at the end of lastmonth completed the offshore facilities supplying natural gas toits 4.7mn t/yr Rasgas train 5 LNG joint venture, where produc-tion started last year with state-owned partner QP. Rasgas trains6 and 7 are already under construction and will be the largesttrains ever built at 7.8mn t/yr each — they are due on stream in2008 and 2009. “Repeating a proven design is a part ofExxonMobil’s overall investment strategy that has paid off incost and schedule savings in many recent projects,”ExxonMobil senior vice-president Stuart McGill said last month.

Terminal developmentMuch of the LNG from the North Field will feed supply importterminals that the company is developing in Europe and the USGulf coast. Chevron and ConocoPhillips are also developing orproposing regasification facilities in Europe and the US to han-dle the envisaged rise in gas imports.

ConocoPhillips has current production of 3.16mn t/yr fromcontrolling interests in its 1.2mn t/yr Alaska plant — the oldestLNG plant in the US — and a facility in Darwin, northernAustralia, where it began ramping up its exports from Februarylast year using gas from the Bayu-Undan field (AGL, February2006, p1).

Unlike the other majors, it has not issued forecasts on LNGproduction. But ConocoPhillips expects significant increases inproduction and one of its flagship projects will be its 30pc stakein the 7.8mn t/yr Qatargas 3 facility, which will deliver LNG car-goes — mainly to the US — from 2009. It now has substantialinterests in seven LNG plants either in production or planningaround the world.

Chevron is a small LNG producer by comparison, but it willhave the highest growth rate among its competitors, says

Chevron vice-president of upstream and gas, George Kirkland.The company plans to raise LNG output from 3.7mn t/yr now to21mn t/yr by 2015. “Growing our LNG business is central to ourgas strategy. This will transfer Chevron into a top-tier producerby 2015,” Kirkland says.

The biggest surge in Chevron’s LNG capacity will comeafter 2010 when the Greater Gorgon project comes on stream.Soaring costs have been a challenge, and Kirkland saysChevron has delayed start-up dates to after 2010 as it seeksto find the right design that will contain costs. He says Chevronhas yet to decide on the exact amount to be produced fromeach of its four Gorgon trains. “We are working on what trainsizes will provide us with the best economic return. That workis likely to spill into 2008. And until we know the scale of theproject and the shape it will take, we cannot comment oncosts,” Kirkland says.

Chevron has a 19pc stake in the 22mn t/yr Olokola LNGproject in Nigeria, where start-up has been pushed out furtherto 2012. And it will jointly lead the 5mn t/yr Angola LNG projectwith Angola’s state-owned Sonangol, where ExxonMobil isrelinquishing its 13.6pc stake to Sonangol. Construction ofAngola LNG is expected to start this year. Chevron has alsoproposed the first LNG plant in Venezuela — a 4.7mn t/yr facil-ity. No start-up date has been given yet but conceptual engi-neering started in 2006.

Gas productionLNG projects will be underpinned by rising capacity to producegas. Chevron’s natural gas output reached 4.95bn ft³/d (51.1bnm³/yr) in 2006, with its $17.6bn purchase of Unocal in August2005 helping lift its percentage of gas output to oil from 32pc in2004 to 35pc last year. The major aims to boost this share tonearly 40pc by 2016, says Kirkland.

ConocoPhillips lifted its gas production by almost 60pc to4.97bn ft³/d last year against 2005 following its $36bn acquisi-tion of US independent Burlington Resources, completed inMarch last year. This lifted the major’s total ratio of gas to oil out-put from 30pc in 2005 to 37pc. But ExxonMobil’s Tillersonexpects gas to stay at 37-40pc of its production until 2010.ExxonMobil’s massive gains in production, due to gas invest-ments in Qatar and elsewhere, will be matched by new oil pro-jects in places such as west Africa, Russia and the Caspian.

US majors step up LNG pace

Chevron Conoco- BG Total BP ExxonMobil Shell0

5

10

15

20

25

Asia-Pacific

Atlantic basin

Key firms LNG production in 2010 mn t/yr

Estimated 2010 equity LNG capacity— Shell Analysis, Poten & Partners

Phillips

Key firms’ LNG production in 2010 mn t/yr

April 2007


Argus GGlobal LLNG —— News

UK gas system operator National Grid has declared forcemajeure on its uncompleted Milford Haven pipeline, following acourt decision to set aside local planning approval of a pres-sure reduction installation (PRI) that will limit or delay the over-all capacity of the pipeline project.

But the capacity reduction is likely to be very limited,according to preliminary estimates from National Grid, sug-gesting that the UK’s overall winter supply picture will not begreatly affected, especially since LNG may not flood into theUK at current forward winter prices.

And the High Court’s decision only sends the project backto the local council for approval, although the local governmentis unlikely to reconsider the planning application until 15 May atthe earliest, according to National Grid.

The overall pipeline project is designed to connect two newLNG terminals at Milford Haven on the Welsh coast to theNational Transmission System (NTS). The Cilfrew PRI at thecentre of the force majeure declaration allows gas from one ofthe new lengths of high-pressure pipeline under construction toenter the local, lower-pressure pipeline network in south Wales.The PRI is required to achieve full capacity on the broaderpipeline project, although early estimates suggest that onlyaround 40 GWh/d, or just under 3.8mn m³/d of capacity, will belost from a project that will be able to ship up to 950 GWh/dwhen fully operational.

Pipeline protestParts of the project, including pipeline routes and other instal-lations along the way, have been contested by protesters,some of which have taken action to prevent the pipeline’s com-pletion. But National Grid has so far been able to work aroundthe protesters and has completed much of the necessarypipeline work for the first phase of the project.

The pipeline project will connect the 6bn m³/yr Dragon ter-minal owned by UK firm BG, Malaysia’s Petronas and

European refiner Petroplus and the 10.7bn m³/yr South Hookterminal owned by Qatar’s QP, ExxonMobil and Total. NBP gasprices have not looked attractive against the US market of late,which could dampen the enthusiasm of UK capacity holders,with front-winter prices at the UK’s hub well below those of itsUS equivalent.

UK ggrid ffirm ddeclares fforce mmajeure oon LLNG link

While waiting to see whether its takeoverby Enel-Acciona goes through and whatits future holds, Spain’s Endesa iscalmly planning new investments inEurope, including a 4bn m³/yr LNG ter-minal in France.

Endesa France, the company’s65pc-owned French affiliate, has madea three-year reservation on a site inVerdon-sur-Mer on the Atlantic and isinvestigating construction and obtaininga long-term LNG supply. It needs theLNG for 2,000MW of new combined-cycle gas turbines that it plans to have inoperation on new and existing sites inFrance by 2011.

Endesa’s French affiliate, formerlyknown as Societe Nationale del’Electricite et de Thermique (Snet), isthe third-largest French generator, with2,477MW of coal-based capacity. Alongwith other assets in Spain and Italy, ithas been promised to Germany’s Eon inexchange for Eon’s promise to renounceits bid for the whole of Endesa.

Endesa has experience of LNG, withshares in five terminal projects at variousstages of development on the Atlanticand Mediterranean coasts, three inSpain and two in Italy. The company has20pc in the 6.5bn m³/yr Sagunto terminalin operation on Spain’s eastern

Mediterranean coast, south ofBarcelona, and 20pc of the 4bn m³/yrReganosa terminal under constructionon Spain’s northeast Atlantic coast, dueon stream this year. It will have 45pc intwo small terminals to be built on Spain’sCanary islands, awaiting authorisation.

In Italy, Endesa has a 25.5pc sharein the 4bn m³/yr Livorno offshore termi-nal project, which will handle gas fromNigeria and Qatar. It has requested per-mission to build an 8bn m³/yr terminal atMonfalcone, where Italy’s Enel hoped tosite a deepwater LNG facility in the late1990s and was refused permission bythe local authorities.

Spain’s Endesa plans investment

TrollKvitebjorn

UK

NORWAY

St Fergus

Bacton

Teesside

Statfjord

UK

Sleipner

Kollsnes

Easington

OrmenLange

Haltenbankenfields

BBL (to Netherlands)

Interconnector(to Belgium)

Draupner

Karsto

AsgardTransportPipeline

Frigg

Amlwch

Milford Haven

Isle of Grain

Canvey Island

Zeebrugge

BalgzandNETHS.

Gateway(Barrow)

Rotterdam

Gas field/platformExisting gas pipelineProposed gas pipeline

LNG terminalProposed LNG terminal

NW Europe LNG and gas import infrastructure



Initial supplies to Thailand’s first LNG import terminal couldoriginate from a joint import scheme with another northeastAsian buyer if LNG is bought from Australia’s North West Shelf(NWS) venture.

Thai terminal operator state-owned oil firm PTT is in discus-sions with Japanese and South Korean LNG importers toexplore the possibility of sharing imports from NWS based ontheir different peak demand seasons, says energy ministry pol-icy and strategy co-ordination officer, Sarawut Kaewtathip.

Japanese and South Korean utilities routinely experience ajump in demand during their winter months of December andJanuary, the same time that Thai power demand dips due to thecooler temperatures.

Conversely, in Thailand’s warmer months of April and May,higher power consumption sees Thailand’s LNG usage typicallyat its peak, while warmer weather results in reduced LNGdemand for the northeast Asian consumers.

Iranian agreementThe possibility of importing Australian LNG supplements anexisting agreement that PTT signed with Iranian Pars LNG inJuly last year (AGL, August, p14).

The preliminary agreement involves a 3mn t/yr, 20-year sup-ply contract starting in 2011. PTT LNG, the subsidiary in chargeof overseeing the facility, is also holding negotiations with pro-ducers from Malaysia and Qatar.

The 5mn t/yr Thai LNG terminal, scheduled to be commis-sioned by 2011, will be expanded to 10mn t/yr if domesticdemand grows as expected. Imports to the terminal areexpected to begin at 2.4mn t/yr in 2012 before rising to 5mn t/yrtwo years later and to 10mn t/yr in 2016 if the terminal expandsto its maximum capacity.

The terminal will be located on the coast of Rayong provincein southeast Thailand on reclaimed industrial port land pur-chased by PTT on a 30-year lease. The regasified LNG will beused mainly for base-load power generation and as petro-chemical feedstock.

Feed studiesThe Rayong terminal is at a front-end engineering and designstage, with PTT LNG aiming to build at least two 160,000m³ stor-age tanks. PTT is considering building its own fleet of five135,000m³ LNG carriers to serve the terminal.

Although PTT remains the sole operator of this terminal, thecompany is open to investment enquiries from Thai and foreigncompanies. A lot of Thai companies have expressed interest inhaving a stake in the terminal, especially state-owned power util-ity Egat, says Kaewtathip.

Gas demand in Thailand could increase to 8.7bn ft³/d (90bnm³/yr) by 2021 from this year’s estimated 3.5bn ft³/d. In 2006,66.1pc of the country’s 141,948GWh of electricity output camefrom natural gas. Domestic gas production is expected to makeup about 73pc of demand this year, while pipeline imports fromMyanmar (Burma) will contribute the remaining 27pc.

The predicted jump in natural gas usage is a result of theaddition of up to 23 new 700MW independent power projectscoming on line by 2021. This additional demand could see 23pcof gas coming from LNG imports, 30pc through piped gas fromMyanmar and 47pc in domestic production, according to gov-ernment estimates.

PTT’s upstream subsidiary PTTEP is developing five moreblocks in Myanmar’s Moattama region with possibly over 60 tril-lion ft³ in estimated gas reserves. PTTEP is also a partner inMyanmar’s 110mn ft³/d offshore Yandana gas project.

Thai project mulls import sharing

Iran claims to be pushing on withupstream developments despite theprospect of tougher UN sanctions overits nuclear programme. But costs, aswell as political risk, now threaten high-profile gas projects.

Iranian president MahmoudAhmadinejad’s announcement on 9 Aprilthat Iran has started producing nuclearfuel on an industrial scale was greetedwith scepticism by experts outside Iran.

Tehran faces the possibility of furtherUN sanctions when the InternationalAtomic Energy Agency produces its nextreport on Iran’s nuclear programme bythe middle of May.

Oil ministry officials say the threat ofmore sanctions will not preclude invest-ment in key projects. They predict that

Iran’s oil show in Tehran on 18-22 April willcoincide with the signing of new con-tracts. Iran hopes to attract $30bn inupstream investment over the next sevenyears. The country needs to replaceannual depletion at maturing fields of250,000 b/d, while boosting crude capac-ity to 5mn b/d from 4mn b/d by 2012.

But the spectre of rising costs isthreatening negotiations with foreignfirms over high-profile LNG projects.Total’s sharply increased cost estimatefor developing the 10mn t/yr Pars LNGplant in southern Iran — which has risento $12bn from $5bn — has put it at log-gerheads with Tehran.

“The Total offer was not in line withour expectations,” says Vaziri. “They arereconsidering their position.”

Total is unlikely to back out of thePars project, but cost revisions couldaffect Iran’s long-delayed LNG plans.Tehran claims steady progress at state-owned NIOC’s Iran LNG project, and innegotiations with Shell and China’sstate-controlled producer CNOOC onother LNG projects. CNOOC last yearbegan talks for the $16bn developmentof the North Pars field while China’sCNPC in January signed a $3.6bn dealto develop phase 14 of Iran’s South Parsoffshore gas field and build a 4.5mn t/yrLNG plant (AGL, February, p12).

But prompt investment will beneeded to meet Iran LNG revenue tar-gets of “$35bn-40bn/yr by 2014”,according to a senior source at state-owned gas exporter Nigec.

Iran pushes on despite sanctions threat

A global LNG spot market is likely to emerge, but its develop-ment needs an overcapacity of LNG import facilities. This devel-opment is uncertain because of political opposition and risingcosts, delegates said last month at the CWC LNG conference inSan Antonio, Texas.

Massive growth in the LNG industry has enabled modes ofbusiness that were not possible even seven years ago, sayschief operating officer of Dutch LNG infrastructure group 4Gas,Simon Bonini. These new modes are changing the way the mar-ket is designed, Bonini says.

Most LNG import facilities have little spare capacity and lackflexibility for spot trade. But this lack of flexibility is related to pro-duction requirements, not to the market, says Bonini. The originof the 100pc take-or-pay contract is to keep production running,as LNG production facilities benefit from maximising output,Bonini says.

The 90pc utilisation rate of import facilities is left over frompoint-to-point sales, with the slack in capacity for operationalproblems and weather, Bonini says. This system allows optimi-sation around volume rather than price, which minimises flexi-bility. This is not an issue in oil and products and is not under-stood in LNG, he says.

But import capacity is the lowest cost element in the globalLNG delivery system. “Flexibility is coming, and it can only starton the physical side,” says Bonini.

The LNG market is somewhat inefficient, Bonini says.Buyers and sellers can benefit from balancing global supply anddemand more efficiently. For example, end-user buyers haveuncertain demand profiles in the markets that they supply, saysBonini. These buyers have risks in buying for peak demand oraverage demand.

The role of storage is misunderstood in LNG, says Bonini.“Storage today really is not storage. It is buffer,” he says. Thereis a role for true storage without regasification, he says.

Cancelled projectsBut there are problems in increasing LNG import capacity inNorth America. Increasing costs and political opposition haveled to the cancellation of some projects, and excess LNG importcapacity is not being built. “There are not so many LNG termi-nals being built. There are very few,” says the president of USfirm Cheniere LNG, Keith Meyer. “There are lots of dots on themap that people are talking about but no real activity,” he says.“Many of these are never going to see a shovel of dirt turned,”Meyer says.

Meyer cites problems like public opposition and increasesin capital costs as a result of the increased level of LNG activityglobally. A number of projects have been abandoned, Meyersays. “Behind each one of these is a developer who believesthat the project will be built,” he says.

Meyer points to the recent trend in anti-LNG legislation.“Each of these pieces of legislation can trace its roots to a localunsatisfied community. Community support needs to be earnedand it needs to be earned everyday,” Meyer says. Chenierespent two years developing community support for the devel-

opment of its LNG facilities. “If there is a message to the devel-oper of a regasification terminal, it is to get your local commu-nity on board,” Meyer says.

Risky businessIn addition, there are financial obstacles and market risks in thedevelopment of a global LNG spot market. Vice-president ofproject and export finance for HSBC Securities USA, ChrisGerlach, says lenders understand that overcapacity is the key totaking advantage of arbitrage and enabling spot trade. But theupfront investment costs to build LNG terminals are prohibitive.“You can recoup a lot in 30 years but how do you handle the firstthree years?” asks vice-president of Norway-based AkerKvaerner LNG, Greg Pepper.

There is a need for operational considerations to be writteninto contracts, says Steven Sperling, head of US risk manage-ment firm LNG Solutions Group. Financing and capacity doesnot matter if you are unable to get your ship into port, Sperlingsays.

Meyer notes that one of the emerging trends in the LNGindustry is to move away from tying imports to a utility. Before2004, 90pc of LNG was tied to a utility, he says. By 2010, half ofthe 38bn ft³ of imports will not be tied to a utility but will be avail-able for spot cargoes. “We see the spot trade, maybe calleddiversion trade, as growing,” Meyer says.

But president of US firm Sempra LNG, Darcel Hulse, warnsof over-optimism in the growth of the LNG market. “Bear in mindthat LNG is a small fraction of the gas that is consumed in theworld and will continue to be a small fraction of the gas that isconsumed in the world,” Hulse says.

The US will not be able to compete for LNG importsbecause it will shift to coal for power generation if natural gasreaches $8-10/mn Btu, says commodity risk manager for UKhedge fund Waterphord, Graeme MacKenzie. MacKenzie sayshis fund will not buy cargoes but will invest in storage andpipeline gas. If you do not get business from Wall Street traders,you do not get the liquidity needed for a spot market,MacKenzie says.

But Bonini has a more optimistic outlook. Contracts andfinancial barriers are a hurdle that will be overcome, says Bonini.“There is a strong future for a true global LNG market.”

April 2007


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April 2007Argus GGlobal LLNG —— Companies

Chevron has abandoned plans to build a $650mn LNG regasifi-cation terminal on the Baja California peninsula in northwestMexico. It has withdrawn the three permits required to developthe project, which has been on hold for some time.

The decision is in line with Chevron’s business needs, as theproject is no longer aligned with the company’s equity gasresources, says spokeswoman Margaret Cooper. Chevron hasdecided to send gas reserves from the Greater Gorgon gasfields off northwest Australia to Japan instead of to BajaCalifornia, she says.

But Chevron has not given up its plans to build an LNGregasification terminal elsewhere in North America and is evalu-ating other potential sites, Cooper says. The project becameunfeasible for Chevron once Shell and US firm Sempra Energydecided to co-operate on a competing LNG terminal 16kmaway at Ensenada (AGL, April 2006, p16).

Chevron acknowledges that the first project to be com-pleted in the region would have a major market advantage.Industry analysts say a Chevron-run facility on the Pacific coastof North America could still take on a key role in regional energymarkets, given that Chevron is a major player in the refiningbusiness and in the fuels market in California.

Green protestThe withdrawal of the permits put an end to a battle with USand Mexican environmentalists, who claimed that the Chevronproject would harm bird, sea mammal and plant habitats.Chevron decided to build the project offshore near theCoronado Islands — rather than onshore — to avoid opposi-

tion from environmentalists. But protests worsened when envi-ronmentalists learned that Chevron would use the southern-most of the Coronado Islands as a breakwater to protect a con-crete island to be built by the company, which would have beenthe location for the terminal.

The first stage of Shell-Sempra’s $1.5bn Costa Azul projectis expected to start up next year. Sempra has an agreement withBP and Tangguh LNG to bring in LNG from Indonesia, whileShell will take supplies from Russia’s Sakhalin Island project.Sempra has said that it will seek an increase in capacity of theCosta Azul terminal from 1bn ft³/d (10.33bn m³/yr), operationalnext year, to 2.5bn ft³/d in 2010.

Manzanillo delayed againAt least five other companies planned to bring LNG to the BajaCalifornia coastline to fire power plants on both sides of the US-Mexico border. In February 2004, US independent Marathongave up its plans to build a $1.5bn terminal at Tijuana, citing alack of local political support. US firm El Paso, ConocoPhillipsand Italian firm Eni subsidiary Moss Maritime have also droppedtheir respective projects.

The public tenders to purchase LNG and to build a regasi-fication terminal at Manzanillo, on Mexico’s Pacific coast, havebeen delayed by another month. The Manzanillo project, pro-moted by state-run utility CFE, is under review by the govern-ment. Interested parties have been told that the next clarifica-tion meeting for the LNG purchase has been put back to 19April, and the next meeting for the regasification terminal willnow be on 24 April.

Chevron ditches Mexican LNG plans

French engineering firm Technip is lead-ing the race to land the contract for theconstruction of two export terminals forthe 22mn t/yr Olokola LNG (OK LNG)project in Nigeria.

OK LNG, the first Nigerian LNG plantthat will be built outside the oil-rich butviolent Niger delta, is planned to comeon stream by 2012. It will be built in theOlokola Free Trade Zone which strad-dles Ogun and Ondo states in south-west Nigeria.

The OK LNG plant will have four LNGtrains, each with a capacity to produce5.5mn t/yr of LNG. Exports will be soldmainly in the Atlantic market. OK LNGwill initially start with two trains.

The gas for development of the OKLNG project will come from onshore andoffshore oil and gas fields operated bythe project sponsors, including the jointventure between state-owned NNPC and

Shell and the NNPC-Chevron Nigeriajoint venture.

A final investment decision has yet tobe made on the project, whose currentshareholders are state-owned NNPCwith 49.5pc, Chevron with 18.5pc, Shellwith 18.5pc and UK gas firm BG with theremaining 13.5pc.

The award of the contract for theexport terminals will be a step forward forthe scheme, which has been delayedfrom its original start-up date of 2009.

Hot contender“Technip is a hot contender for the LNGterminal job and, barring unforeseen cir-cumstances, is set to be awarded thecontract,” an OK LNG source tells Argus.

Technip is already part of a consor-tium — known as TSKJ — with Italy’sSnamprogetti, Halliburton’s KelloggBrown and Japan’s JGC that has built

the five existing trains of the Bonny-based 18mn t/yr Nigeria LNG (NLNG).

Chevron has tendered to build twogas production platforms to supply theOK LNG facility. The first is at the existingOkan gas processing plant and will be a1.4bn ft³/d (14.5bn m³/yr) plant contain-ing gas separation, dehydration, exportgas compression facilities in a waterdepth of 17m. A second, smaller plat-form capable of processing 700mn ft³/dof associated gas will also be put up atthe Funiwa gas processing plant.

Nigeria is aiming to boost its gasexports to over 2mn b/d of oil equivalentby 2012. This is based on exports fromOK LNG; the 18mn t/yr NLNG project —set to rise to 22mn t/yr when train 6 comeson stream at year-end; the 10mn t/yrBrass LNG scheme; the West African GasPipeline project; and the 34,000 b/dEscravos gas-to-liquids project.

Technip leads Nigeria’s Olokola race

April 2007


Argus GGlobal LLNG —— Chile

Chile has three formal plans to import LNG. But the main projectin the central coastal city of Quintero is now expected to costmore and take longer than the government originally estimated.And two separate projects are dogged by questions of viabilityand competitiveness with coal.

A consortium led by the UK’s BG signed a shareholdersagreement on 9 March for the main project, setting up a joint-venture company called GNL Quintero. BG has a 40pc stake inthe project. Chile’s state-run oil company Enap, Spain’s Endesaand Chilean gas distributor Metrogas each hold 20pc. Definitivecontracts for the 2.5mn t/yr project are slated to be signed in thesecond quarter, project sources say.

But the government is unlikely to meet its goal of inaugurat-ing the LNG terminal and regasification plant next year. Initialoperations are expected “in the first half of 2009” under a pre-liminary “fast-track” mode, a BG spokesman says, with the ter-minal “fully operational by the second quarter of 2010”.

Government officials have repeatedly said they aim to inau-gurate LNG imports in 2008, but sources say 2009 is “morelikely” at this stage. Delay raises the risk of a shortfall in electric-ity supplies if there is a season of sparse rainfall that limits hydro-electric generation — particularly in 2008-09, before major newpower plants come on stream. This potentially tight-supplyperiod coincides with the run-up to presidential elections inDecember 2009.

About 55pc of power generation in Chile’s central gridcomes from hydropower, while 25.2pc comes from natural gas.Most of the gas-fired plants have now been converted to diesel.Electricity demand in the central grid is growing at around 7pc/yr.

Official documents maintain that the project will cost$400mn. But financial sources now say the cost could almostdouble. Aside from the rising costs of raw materials and equip-ment, Santiago has indicated publicly that it is in a rush to getthe project off the ground, compromising its negotiating positionwith suppliers, critics say. The partners have bypassed compet-itive tenders in favour of direct negotiations with contractors in abid to speed up construction.

BG declined to comment on the cost of the project, but thefirm has generally maintained a low profile in Chile and has notyet opened a local office.

Competing coal The project’s high costs and delays add to a prevailing senti-ment in Chile that LNG will ultimately serve as a back-up fuel forexisting power plants, not a fuel for new construction.

Official documents confirm that most of the new powerplants that will be built in Chile in the medium term will use coal,which is less expensive on the international market than LNG.

Despite the added costs and delays, the main Quintero pro-ject is a must for the government. Enap needs gas to run its twomain oil refineries, and Metrogas needs supplies to distribute toits residential, commercial and industrial gas customers.

Former president Ricardo Lagos unveiled the LNG project inMay 2004, following Argentina’s decision to start redirectingpiped gas exports to its booming domestic market. Since then,

Chile has seen sharp fluctuations in Argentinian gas imports,forcing gas-fired industries and power generators to convert tomore expensive and less efficient diesel. Prior to the crisis, Chileimported about 22mn m³/d of Argentinian gas. Chilean officialsnow say they expect Argentinian gas exports to dry up alto-gether by 2010.

Chilean chemical company Oxiquim, meanwhile, is quietlylaying the groundwork for separate LNG facilities adjacent to theBG-led project in Quintero bay.

Oxiquim received an environmental permit on 5 March fromregional environmental authority Corema to build a $262mn,5mn m³/d (1.3mn t/yr) LNG facility. Sources say the project isnot viable without the major gas buyers already committed tothe BG-led project. By filing for a permit, Oxiquim is seeking tonegotiate the sale of its slice of the terminal in anticipation of itsexpansion, sources say.

Room for twoOxiquim environment and security manager ExequielMaldonado tells Argus that there is room for both projects iffuture demand is taken into account. The firm has been han-dling LPG in Quintero bay since 1995, Maldonado says, givingthe company the experience to carry out this separate projecton its own. He says the company plans to initiate LNG importsin as little as 18 months, offloading the fuel from floating storagefacilities. Oxiquim has an international partner and a local part-ner to develop its project, he adds.

Plans for an LNG terminal in Mejillones on the northern coastto serve the mining industry appear to have been discarded fornow, because coal is considered more competitive. But in thenext two to three months, state-run copper producer Codelcoand a group of private-sector mining companies will concludestudies to determine the cost and feasibility of temporarilyinstalling a floating regasification vessel to supply the 2009-11period before new coal-fired plants come on stream, Codelcopresident Jose Pablo Arellano said on 27 March (see p15).

Northern Chile’s two main power generators, Suez andGasAtacama, are expected to co-operate, but only Anglo-Australian firm BHP Billiton has publicly committed to the pro-ject, along with Codelco.

LNG projects dogged by problems

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Construction of the new LNG train X in Trinidad and Tobago isdependent on development of the Loran-Manatee gas fieldsthat straddle the country’s maritime border with Venezuela, saysenergy minister Lenny Saith. “Loran-Manatee is important if weare to go for another LNG train because it does provide a largeenough volume to support another train,” Saith says.

In an agreement signed on 20 March, prime minister PatrickManning and Venezuela’s president Hugo Chavez agreed that70pc of the reserves belonged to Venezuela, with around 2.65trillion ft³ (75bn m³) belonging to Trinidad and Tobago. The fieldscontain 10 trillion ft³ of proven reserves. Chevron operatesLoran, on the Venezuelan side of the maritime border, and is apartner in the Manatee field, in Trinidad, with the UK’s BG.

No ownership split has yet been agreed in relation to theKapok-Dorado fields, which hold around 5 trillion ft³.

BG is the government’s preferred choice to build the newproduction unit. An initial agreement has been signed with BGTrinidad and Tobago to carry out an 18-month feasibility study todetermine whether train X will be built. The governmentapproached several companies but the most attractive proposalwas submitted by BG, says Trinidad and Tobago junior energyminister Penelope Beckles.

New possibilitiesThe proposed project “will open up new possibilities for thecountry’s gas — and perhaps also Venezuelan gas — to reachmarkets”, says BG chairman Robert Wilson.

Jamaica has been identified specifically by Manning as onepossible market. Train X “will ensure that Jamaica will be able toget LNG for its bauxite refineries and power stations”, he says.

Trinidad in 2004 agreed to supply Jamaica with 158mn ft³/d(1.6bn m³/yr) of LNG. But officials recently admitted that no spare

LNG capacity would be available to meet the commitment.Manning publicly assured Jamaica that the government was“determined to satisfy its contractual obligations… notwithstand-ing statements to the contrary coming from dubious sources”.

Jamaica has now turned to Venezuela, which agreed tosupply 1.5mn ft³/d of gas by 2009. No final decision has beenmade on whether the gas will be in the form of LNG, or com-pressed natural gas (CNG), or whether natural gas will bepiped to Jamaica. But analysts in Caracas say Venezuela canonly meet its obligation in the time schedule agreed if the LNGis supplied through a third party. Manning says Trinidad can bethat “third party”.

Jamaica plans to build a $250mn LNG terminal at PortEsquivel on the island’s south coast. But with the terminalunlikely to be completed by 2009, the government is planning topurchase a floating LNG regasification terminal, which could beconstructed and delivered in 18 months.

Excluding the Loran-Manatee and Kapok-Dorado gas fields,Trinidad and Tobago’s proven and possible reserves stand at 34trillion ft³, according to official figures. The country’s natural gasproduction increased by 38pc in 2006 to 3.9bn ft³/d, drivenmainly by higher LNG production.

The country’s sole LNG producer is Atlantic LNG, whichexports 15mn t/yr from four production units. Owned by BG, BP,Spain’s Repsol-YPF, Suez LNG and Trinidad’s state-ownedNational Gas, Atlantic LNG has traditionally supplied 75pc of USLNG imports. But shipping LNG to Europe is becoming moreprofitable for Atlantic LNG. The consortium sold 37pc of its pro-duction in Europe and Asia-Pacific last year, up from 12pc in2005, according to BP. While Atlantic LNG received $9.17/mn Btuon exports to Spain last year, just $3.71/mn Btu was paid forexports to the US, according to the US Department of Energy.

Trinidad’s train X on track after Loran-Manatee

Chile’s strategic copper mining sector isevaluating temporary imports of LNGthrough a regasification vessel to coverenergy demand ahead of the start-up ofnew coal-fired power plants.

“In the short term, while there is noadditional capacity from coal, we areexamining the possibility of relying onLNG in the intervening period,” presidentof state-run copper mining companyCodelco, Jose Pablo Arellano, said on 27March. “We are examining this possibilitywith other mining companies. We arenow in the process of conducting studiesto determine the costs and timeframe. Inthe next two to three months, we willhave conclusions.”

Arellano’s remarks reinforce thegrowing view that LNG is less competi-

tive than coal for generating electricity inthe country.

The Chilean government last yearcommissioned Codelco to lead a projectfor importing LNG to cover a growingshortfall of natural gas shipped acrossthe Andes from Argentina.

The preliminary idea was to developa permanent LNG import terminal atMejillones on the northern coast, alongthe same lines as a planned terminal atQuintero on the central coast (see p14).

This proposal has now been dis-carded in favour of a short-term optionthat could see imports from floating stor-age in as little as 17 months.

France’s Suez, the largest powergenerator in northern Chile in terms ofinstalled capacity, proposed in 2005 a

“fast-track” regasification vessel forQuintero to accelerate gas importsbefore the permanent 2.5mn t/y terminaland storage are constructed.

The government rejected the pro-posal, in part because of the Chilean mil-itary’s concerns over logistics. Now Suezseems likely to take the lead in imple-menting its proposal in the north.

Other mining companies that havebeen reviewing the LNG option in north-ern Chile include Anglo-Australian firmBHP Billiton, Collahuasi — a Chileanventure owned by Switzerland’s Xstrata— UK-based company Anglo American,a group of Japanese companiesheaded by Mitsui, and El Abra, ownedby US company PhelpsDodge, togetherwith Codelco.

Chile’s mining titans weigh floating LNG option

April 2007


Argus GGlobal LLNG —— US

US firm Cheniere Energy is convinced that the US, with its year-round demand, will become the swing market and sponge forworld LNG, absorbing volumes not needed in Europe and Asia-Pacific. In preparation, the Houston-based firm is building tworegasification terminals on the Gulf of Mexico — at Freeport,Texas, and Sabine Pass, Louisiana — has full permits for twoothers, and is discussing long-term LNG supplies.

“The fundamentals are that US production is falling. Gasfrom the deep offshore and non-conventional gas costs at least$6/mn Btu to produce, Canada is exporting less as its ownneeds grow and US demand is rising by 2pc/yr,” executivedirector of Cheniere LNG Jean Abiteboul tells Argus. “Only LNGcan fill the gap.”

By 2010, US terminal capacity will be 150bn m³/yr, with theaddition of Baja California, Cameron, Golden Pass, Freeportand Sabine Pass to the four existing onshore terminals and USfirm Excelerate’s offshore capacity. “The load factor could beclose to 70pc,” Abiteboul says, “better than elsewhere and agood reason to send available LNG to the US, especially whenyou look at the forward price curve. This means a significantspot market.” Cheniere, he adds, will be well placed to benefit.

Constructive expansionThe 15bn m³/yr Freeport terminal, in which Cheniere hasretained 30pc, will be operational in the first quarter of 2008.Take-or-pay terminal use agreements have been signed withConocoPhillips for 10bn m³/yr and with chemical firm Dow for5bn m³/yr for 20 years, with the possibility of an extension.

The 26bn m³/yr phase 1 of the Sabine Pass terminal, whollyowned by Cheniere, will be operational in the second quarter of2008. An extension, already under construction, will bring totalcapacity to 40bn m³/yr by the second quarter of 2009. Of thiscapacity, 10bn m³/yr has been reserved by Total and another10bn m³/yr by Chevron. Cheniere will keep the remaining 20bnm³/yr. The company is in preliminary discussions for long-termsupply contracts, but will initially buy spot, Abiteboul says.

The 26bn m³/yr Corpus Christi terminal in Texas and the33bn m³/yr Creole Trail in Louisiana have been given all thenecessary permits and front-end engineering and design(Feed) has been carried out for Corpus Christi. But the finaldecision on starting construction depends on commercial andfinancial conditions.

Cheniere in March said it is seeking up to 5bn m³/yr startingin 2008 and 10bn m³/yr in 2009, and would “contemplate con-struction of the next terminal when 10bn m³/yr is achieved”. Andit “will hold 10bn m³/yr of receiving capacity for spot and shortterm”. Cheniere has permits for pipelines to transport the gasfrom its LNG terminals to major interstate pipelines serving thecountry’s main consumption areas.

It has a charter for two LNG carriers in the 150,000m³ rangewith Japan’s K Line. And it is considering gas production “as aneventual possibility,” Abiteboul says.

Cheniere ssees UUS aas kkey sswing mmarket

Shell is cancelling plans to build its 1bnft³/d (10.3bn m³/yr) Gulf Landing LNGimport terminal, located 38 miles (61km)offshore from Cameron Parish,Louisiana, in the Gulf of Mexico. The$700mn project was scheduled to beoperational in 2008-09. Gulf Landing wasoriginally planned in 2003, and the USMaritime Administration and the USCoast Guard approved the project forconstruction in 2005.

Gulf Landing was subject to protestfrom environmentalists for its use of an“open-loop system”, which uses oceanwater to warm the LNG for regasification.

Environmentalists argue that this methodkills plankton and larvae and endangersother aquatic species. But Shell says theproject was cancelled for economic rea-sons. There are about 15 other projectsin various stages of permitting in the USGulf of Mexico. And three projects are inthe construction stage.

BP recently stopped work on its$650mn, 1.2bn ft³/d LNG terminalplanned for Pelican Island nearGalveston, Texas, citing an “assessmentof the project’s economics”. Shell hascapacity positions at two terminals alongthe US east coast, but Gulf Landing was

its first LNG import terminal developmentin the US Gulf coast.

The Federal Energy RegulatoryCommission expects about 12 terminalsto be built in the US, the majority of whichare likely to be constructed in the Gulf,where communities and local govern-ments have been more receptive toenergy infrastructure projects.

US authorities have approved 19LNG regasification terminals out ofapproximately 40 applications since 2005.The earliest addition to the US’ existingLNG import fleet will be the Freeport LNGterminal in early 2008 (see above).

Shell ditches Gulf Landing import terminal

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April 2007Argus GGlobal LLNG —— Corporate

Brazil’s state-controlled oil and gas firm Petrobras and Russiangas monopoly Gazprom recently signed an initial agreement thatcould result in Gazprom supplying LNG to Brazil. The agreementseeks to speed up joint ventures in LNG storage and transportprojects, as well as joint gas pipeline projects.

The announcement is the latest in a series of Brazilian gov-ernment initiatives to increase the supply of natural gas to thedomestic market. The company decided to invest in LNG aftersuspending investments in Bolivia, as part of a plan to guaran-tee natural gas supplies and ensure electricity generation duringtimes of drought.

The policy is intended to help bring other sources of gas online to reduce dependence on Bolivia, which supplies roughlyhalf of Brazil’s natural gas demand.

Petrobras announced that it would move ahead with LNGprojects last year after Bolivian president Evo Morales nation-alised the country’s oil and gas reserves in May last year. Braziland Bolivia recently reached an agreement regarding a priceincrease for Bolivian gas imports.

LNG projects are part of Petrobras’ $87.1bn 2007-11 invest-ment plan, of which $17.6bn will be allocated to develop Brazil’snatural gas production.

Floating regasificationPetrobras originally announced that it would begin importingLNG by 2009, but is now targeting the second half of 2008,Petrobras chief executive Jose Sergio Gabrielli said in a recentmeeting with analysts.

The company plans to import 20mn m³/d of LNG and rent orbuy two floating storage and regasification units — one 6mnm³/d plant in the northeastern state of Ceara, and a 14mn m³/dunit in Rio de Janeiro.

Petrobras estimates that with the two new LNG projects

combined with Bolivian imports and domestic production, Brazilwill have 121mn m³/d of natural gas available by 2011. Of thistotal, 30mn m³/d will be imported from Bolivia and 20mn m³/dwill be imported through the LNG terminals. The company plansto more than double its domestic natural gas production to71mn m³/d from 31.4mn m³/d by 2011. With the increased sup-ply, natural gas will be responsible for 11pc of the country’senergy production by 2011, up from 9.5pc in 2006.

Industrial diversionA company spokesman says it is considering further expansionof its LNG programme to include a plant in Rio Grande do Suland another in Bahia. These plants would increase LNG capac-ity by an additional 20mn m³/d.

According to a recent study by the Brazilian gas distributionassociation (Abegas), natural gas use for energy has roughlytripled over the past 10 years. The group says the client baseusing natural gas grew by 20pc since 2003 to 1.2mn users.

Abegas says gas sales in Brazil reached 15.2bn m³ lastyear, of which two-thirds went to consumers in the industrialisedsoutheast. Gas distributors in Brazil sold an average 41.7mnm³/d in 2006, although true consumption was higher asPetrobras uses over 10mn m³/d in its operations.

The government and Petrobras are worried about the poten-tial gas supply shortage to the market. Petrobras recently sub-mitted plans to the government to begin diverting gas fromindustrial consumers to supply power generation plants, aftertests showed that Brazil’s thermoelectric generation capacitywas lower than previously thought.

Analysts say Petrobras may run into problems if LNG mar-kets continue to be tight. In addition to Gazprom, Petrobras isconsidering Venezuela, Trinidad and Tobago and Angola aspotential suppliers.

Petrobras to quicken projects with Gazprom

The US Maritime Administration hasgranted a deepwater port licence to theNeptune offshore LNG project of SuezEnergy North America, a branch ofFranco-Belgian firm Suez.

The licence allows the constructionand operation of an LNG delivery sys-tem in Massachusetts Bay. Several finaladministrative permits are expectedbefore the summer.

The facility will be located about17km from the coast and provide11.3mn-21.2mn m³/d of gas, enough toserve 1.5mn-3mn homes daily. TheNeptune project will fill a growing need inNew England, where gas demand isexpected to increase by 1pc-2pc/yr overthe next two decades, with

Massachusetts alone accounting for halfof the region’s consumption.

Without new capacity, New Englandcould face a shortage of gas approach-ing 14.1mn m³/d in 2010.

The company expects to have a fullyoperational project by 2009 at the latest,including construction of a lateral con-nection to HubLine — the existing sub-sea pipeline — specially designed shipsand sufficient LNG supply.

Suez has firm commitments fromHoegh LNG, Mitsui OSK Lines (MOL)and Samsung Heavy Industries that thetwo LNG regasification vessels will bedelivered at the targeted start-up date(AGL, January, p17). “With its Neptuneproject, Suez is the only company that

has received permission to build a termi-nal elsewhere than on the Gulf ofMexico,” Suez Energy International chiefexecutive Dirk Beeuwsaert tells Argus.“We are interested in the Gulf of Mexico,too, but we will buy terminal capacitythere, rather than build.”

Suez is more cautious about lique-faction projects that require a guaran-teed gas supply for 20 to 30 years,Beeuwsaert says. “But producing coun-tries now want to use their gas todevelop their own industries.”

And the company is “not too inter-ested” in upstream commitments, whichrequire big capital outlays. “Up to now,we have used our capital for electricity,with success.”

US approves Neptune import project

April 2007


Argus GGlobal LLNG —— In brief

Itochu joins Namibia LNG projectJapanese trading house Itochu willacquire 20pc of the Kudu natural gas fieldlocated off the west coast of Namibia inthe hope of participating in the country’sfirst LNG development project and secur-ing exports to Japan. The company willbuy the stake for more than ¥10bn($85mn) from UK-based Tullow Oil. Tullowtook over the Kudu project from originaloperator Shell, which withdrew in 2002after failing to locate enough reserves tojustify a large LNG project. Itochu says itexpects the project’s new appraisal — tobe conducted in May this year — to showpotential reserves of more than 5 trillionft³ (141bn m³). If this estimate is accurate,it would lead to the realisation ofNamibia’s first LNG project.

Japan, China boost LNG co-operationJapanese and Chinese firms have signedLNG co-operation pacts, taking a cuefrom improving diplomatic ties betweenthe two countries, symbolised by the firstvisit of a Chinese premier to Japan inalmost seven years. Japan’s leading oilrefiner, Nippon Oil, has signed a long-termstrategic energy co-operation pact with

China’s state-owned CNPC. The pactcovers joint LNG transportation, as well asthe joint management and co-use of LNGstorage facilities. Nippon Oil is a relativelynew entrant to Japan’s LNG market but israpidly expanding its overseas upstreamproduction through projects such asIndonesia’s Tangguh and Malaysia’s Tigaand domestic LNG terminal investment(AGL, March, p4). The two firms are to dis-cuss details of the co-operation in thenear future. In a separate deal, Japanesetrading house Mitsui has signed an initialagreement on spot LNG trading withChina’s state-owned CNOOC. The dealbetween Mitsui’s UK unit and CNOOC isexpected to allow the two sides to enactspeedy LNG transactions when the needfor spot volumes arises in the future.These agreements were signed at anenergy industry seminar held in Tokyo on12 April, where Japanese energy busi-ness heads met a Chinese delegation ledby Chinese premier Wen Jiabao and thehead of China’s key economic planningbody the NDRC, Ma Kai. During the visit,Japanese premier Shinzo Abe and Wenagreed to build up a strategic partnershipin energy security.

Libya targets Ras Lanuf hubLibya wants to transform its Ras Lanufexport terminal into a downstream hub foroil and gas, and “a centre of oil invest-ment”, head of state-owned NOC ShukriGhanem tells Argus. New plans for thehub could include projects by Shell, whichis exploring for gas to supply an LNG pro-ject, at the same time as it revamps theageing Marsa el-Brega LNG plant. BP isdiscussing a cluster of offshore andonshore fields, says Ghanem. Thesecould form the basis of an integrated LNGproject similar to Shell’s venture. Gas is anew upstream focus for Libya. Its fourthEpsa-4 upstream bidding round will con-centrate “more on gas-prone areas”, saysGhanem. “We have a lot of potential ingas. We will choose 10-15 areas and putthem to tender” as soon as the third quar-ter, he says. Libya has transformed itselfinto an exploration hot spot since USsanctions were lifted in 2004.

LionGas terminal to fuel new CCGT Dutch independent 4Gas has agreed tosupply the new Enecogen power plantwith gas from its proposed LionGas LNGterminal in Rotterdam. The 840MWEnecogen power plant is expected tosource all of its gas from the nearby LNGfacility once the phases of the terminalare operational in 2010 and 2011 respec-tively. Enecogen says the plant hasreceived all the necessary permits fromthe Dutch authorities, with a final deci-sion on the plant’s construction expectedto be taken in the second quarter of thisyear. The Enecogen project is a joint ven-ture between Dutch energy firm EnecoEnergie and UK generation companyInternational Power. The plant has thepotential to meet up to 5pc of total Dutchelectricity demand, although the facilitywill not provide base-load power supply,according to a spokesman. Enecogenand LionGas have agreed to co-operatein other areas, including building waterinlet and outlet infrastructure, establish-ing a joint connection to the gas trans-port network, the direct supply of elec-tricity from the plant to the LNG terminal,the use of residual heat from the powerplant to heat LNG and the use of the ter-minal by Eneco Energie. Construction ofthe LionGas LNG terminal is scheduledto begin in mid-2007, with the terminal

Shell expects its projects in Qatar until2012 to be the largest single nationaldestination for the company’s expendi-ture over that period, having alreadyhanded out $10bn in contracts, says thecompany’s gas chief Linda Cook. It willbe investing in the 140,000 b/d Pearlgas-to-liquids plant and the 7.8mn t/yrQatargas 4 facility, which could poten-tially account for 44pc of the company’splans to nearly double its operated LNGcapacity to 17.5mn-18.2mn t/yr by theend of 2010.

Shell’s planned expenditure puts it inline with ExxonMobil’s investments inQatar, with its Rasgas 5,6 and 7 andQatargas 2 projects aiming for a com-bined output of 35.9mn t/yr by 2009.

Qatar expects to more than doubleits current LNG production from 31mnt/yr to 77mn t/yr by 2010. It expects 2006profits of $25bn from revenues of $32bn,with LNG exports up to 25mn t/yr from22.9mn t/yr in 2005, says Qatar’s state-

owned QP’s finance manager,Abdulrahman Al-Shaibi.

Qatargas 4 is due to export all of its7.8mn t/yr of output to the US. Permitproblems over US greenfield LNG termi-nals will not create a supply bottleneck,Cook says.

“There are some questions beingraised over the building of terminals,”Cook tells Argus. “There is no doubt thatsome LNG import terminals are finding ithard to get the necessary permits but Ido not think that is the bottleneck in theLNG sector right now. It is more the sup-ply side actually, we are finding thedemand increase is going quite apace.It is the supply that has the challenge inkeeping pace with that.”

Cook says increasing LNG demandwill spur gas production by the majors.“There will have to be an increase in theproduction of gas as opposed to oil withdemand going the way it is, and in par-ticular for LNG, I think,” she says.

Qatar tops majors’ investment plans


April 2007Argus GGlobal LLNG ——Argus GGlobal LLNG —— In brief

expected to have a regasificationcapacity of 9bn m³/yr in its first phase.The project’s second phase is expectedto double throughput capacity at theLNG terminal, but no details of thetimescale are available.

LNG key to balancing Europe’s supply LNG is a key “response mechanism” tomanaging Europe’s looming gas supplyoverhang in 2007-12, vice-president forLNG at Norway’s Statoil, Otto Granli, toldthe Flame conference in Amsterdam lastmonth. In the longer term, Europe’sdeclining indigenous production and ris-ing demand will mean a greater relianceon gas imports, but supplies in the nextfive years are relatively abundant, hesays. LNG cargoes can be diverted toother markets, so “LNG is an importantcontributor to a balanced market and willhelp prevent a depressed market,” saysGranli. LNG is drawn to the highest-priced market, Granli says. With relativelylow European prices, cargoes will

increasingly flow to the US and Asia-Pacific. After 2012, the supply situationchanges and the market will rebalance,Granli says.

Snohvit on scheduleNorway’s Statoil is “optimistic” that itsSnohvit LNG project in the Barents Seawill start up in the third quarter of this year,with commercial operations beginning inthe fourth quarter, says Statoil LNG chiefOtto Granli. The company aims to doubleits European gas sales from 25bn m³/yrto 50bn m³/yr by 2015. Total productionfrom the Norwegian continental shelf isset to rise to 120bn-130bn m³/yr in 2007-15, says Granli.

Majors add to Australian acreageThe Australian federal government hasawarded another 12 offshore permits inits latest release of upstream acreage,with majors Chevron, Shell andExxonMobil continuing to flock to theregion to try and add to their rapidly

growing gas reserves. A record 52 bidsfor 20 of the 22 blocks on offer werereceived, which Canberra says reinforcesAustralia’s upstream as being low riskand highly prospective. The three majorshave added three more permits in theExmouth plateau in the Carnarvon basin,home to Chevron’s proposed GreaterGorgon LNG project with Shell andExxonMobil, as well as the existing NorthWest Shelf LNG development.

Qatargas not worried by UK surplusQatargas is not worried that theQatargas-ExxonMobil 10.7bn m³/yr SouthHook LNG terminal in Wales will be over-

Japanese trading house Marubenihas signed an initial basic agreementwith Qatar’s state-owned QP to take astake in the Qatargas 4 project, allowingit to take around 1mn t/yr of LNG. QPowns 70pc of the 7.8mn t/yr project andShell owns 30pc of the project, which isscheduled to begin LNG supplies in2010. According to Marubeni, the part-ners have yet to agree on the size of thestake to be taken by the Japanese firmand details of the LNG supply terms.But QP says the LNG will be destinedfor Japan in one of the super large LNGvessels known as a Q-flex. Marubeni isalready a 2.5pc shareholder in the9.5mn t/yr Qatargas 1 project.

Utilities in Okinawa are discussingjoint LNG imports beginning in 2010.Okinawa EElectric PPower, the power util-ity on Japan’s southernmost prefectureof Okinawa, is constructing its first LNG-fired combined-cycle power plant inYoshinoura, on the southeastern coastof Okinawa’s main island (see p8). Theplant will be equipped with Okinawa’sfirst LNG import terminal — installed

with two 140,000m³ LNG tanks and aberth capable of receiving a 130,000m³vessel. The company is seeking toimport 300,000-400,000 t/yr of LNGbeginning in 2010 in order to supply thefirst two 250MW units, scheduled forstart-up in November of that year and inMay 2011 respectively. Two more250MW units will be added by 2020.The power utility’s plan to develop LNGimport infrastructure has coincidedOkinawa GGas’ plan to switch frompropane to LNG for its piped gas sales.Okinawa Gas plans to begin the LNGswitch in 2013, receiving less than30,000 t/yr of LNG from OkinawaElectric Power.

Fukuoka-based regional gas utilitySaibu GGas has renewed its existing LNGimport contract with Malaysia’s state-owned Petronas subsidiary, MalaysiaLNG, by another 15 years. Under thenew 15-year deal, Saibu will receive upto 390,000 t/yr of LNG ex-ship begin-ning in October 2013. Saibu was aimingto increase the volume of the contractfrom Malaysia as it has been importing

more than the 357,000 t/yr agreedunder the existing contract in recentyears in order to accommodate risingdemand in the southern Kyushu region(AGL, January, p6).

Japanese power utility TohokuElectric PPower has signed an initialagreement to more than double its LNGimport purchase from Australia’s NorthWest Shelf (NWS), beginning in 2010.Tohoku has been importing up to450,000 t/yr of LNG fob NWS under itsexisting contract running from 2005 to2019. The contract revision will allowTohoku to receive 1mn t/yr of LNG ex-ship in 2010-19. With the increased vol-ume, Tohoku is aiming to replace part ofthe 830,000 t/yr imported under its con-tract with Indonesia that is due to expirein 2009. This adds to the 420,000 t/yr tobe imported from 2010 under a 20-yearcontract signed with Russia’s Sakhalin2 (AGL, January, p12). It has recentlysigned a contract to receive 120,000 t/yrfrom Indonesia’s Tangguh for 15 years,which is also scheduled to begin in2010 (AGL, December, p3).

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April 2007Argus GGlobal LLNG ——


Argus GGlobal LLNG —— In brief

supplied, Qatargas marketing directorAlaa Abu Jubara told an Amsterdam con-ference last month. “We are committed tobringing gas to the UK from next year,”Abu Jubara says, adding that Qatargasdoes not think that there will be over-supply in Europe. “We did a lot of studyinto the supply and demand situation,and we think that the declining [indige-nous] production will have an impact,”Abu Jubara says. The South Hook termi-nal is designed to process 15.6mn t/yr ofLNG and its first train is set to come online in early 2008. Deliveries to the termi-nal will come from the 7.8mn t/yr first trainat the Qatargas 2 project.

MapleLNG gets go-aheadCanada’s MapleLNG project announcedon 15 March that the Novia Scotia gov-ernment has granted environmentalapproval for an LNG receiving andregasification terminal planned forGoldboro, Novia Scotia, adjacent to theMaritimes and Northeast Pipeline, whichserves markets in eastern Canada andthe US northeast. MapleLNG is a jointventure between Rotterdam-based inde-pendent LNG terminal developer 4Gasand Suntera — a joint venture betweenRussian oil and gas company Itera and a

Russian investment firm Sun Group. Theterminal will initially have three storagetanks with a total capacity of 5.7mn ft³(161,000m³) and will be able to transportup to 1bn ft³/d. The terminal may expandits total transport capacity to 2bn ft³/dand three more storage tanks may beadded at a later stage. The facility willaccommodate carriers of up to 8.8mn ft³.MapleLNG will file for construction per-mits with the Novia Scotia government inMay. Additionally, the planned terminalmust undergo a federal environmentalassessment and the Technical ReviewProcess of Marine Terminal Systems andTransshipment Sites to assess shipsafety and port security. The facility isexpected to enter service by 2010. “Wehave the ability to market upstream anddownstream, a strategic advantage inthe LNG marketplace with suppliersseeking access to the premium valuenatural gas markets afforded in north-eastern US and Canada,” saysMapleLNG general manager, DerekOwen. According to the developers, theterminal is strategically placed to receiveLNG cargoes from locations throughoutthe Atlantic basin, including north Africa,Nigeria, Russia and Norway, as well asfrom the Middle East.

Kogas to operate Gulf LNG terminalGulf Coast LNG Partners, the developerof the Calhoun LNG terminal located onthe US Gulf of Mexico, announced on 23March that Korea’s Kogas, Houston-based EMS, and LG, a Korean conglom-erate, have agreed to become the termi-nal operators and assume an equitystake in the project. Kogas brings signif-icant clout as it is the world’s largest LNGimporter and terminal operator. It importsover 23mn t/yr and is planning its fourthdomestic terminal. LG is involved withterminal engineering and construction,and EMS has experience in managingpipeline systems in the Gulf region. Anumber of terminals proposed in the USeast and west coasts have encounteredsignificant public opposition rising fromsafety and environmental concerns.Developers have had more success inthe Gulf region, which has traditionallybeen more welcoming towards energyinfrastructure projects (see p16). “We arevery excited about the Calhoun LNG ter-minal project because of its proximityand access to significant markets,remote location inside of a petrochemi-cal port, and tremendous public sup-port,” says Kogas executive vice-presi-dent June-Sun Kil.

Oil-linked pricing of long-term continen-tal European gas contracts — includingLNG supply contracts — is likely to per-sist until regional gas markets becomemore competitive and are no longerdominated by incumbents, according toa recent energy consultancy report.

The report published by the OxfordInstitute for Energy Studies suggeststhat European gas players are comfort-able with the current system and havethe market power to maintain the statusquo. Accordingly, it argues that theinfluence of oil product prices on gasprices is likely to decline only graduallyin the absence of pressure from theEuropean Commission.

But the emergence of daily balanc-ing markets across the continent —combined with the increasing availabil-ity of flexible gas supplies from the UK— could provide some impetus to the

erosion of the contractual link betweengas and oil product, going forward, thereport says. But the continuing strengthof oil-indexation in long-term gascontracts is at odds with the report’sfinding that the economic rationalebehind the system is weak and is likelyto weaken further.

Unreflective linkThe report argues that the original rea-son for the linkage between gas and oilproduct prices — which has centred onthe ability of end-users to switchbetween burning gas and oil products— is no longer reflective of theEuropean market.

The ability of oil products to be aviable alternative to gas has beendiminished by factors such as the costof maintaining oil-burning equipmentand substantial oil product stocks, the

relatively greater efficiency of gas-burn-ing equipment and tougher environ-mental standards, the report says.

An alternative to oil-linked pricingwould be indexation to gas traded at asingle market hub such as the UK’sNBP or some combination of prices atthe NBP, the Dutch TTF and theZeebrugge hubs, the report says.

The experience of the UK and USgas markets suggests that the removalof the formal contractual link betweengas and oil product prices would notnecessarily break the long-term pricecorrelation between the fuels.

And the continued link between gasand oil prices in the UK and US marketscould be a factor that may help removesome of the continental Europeanobjections to the EU’s goal of formallyunlinking gas contracts in the future, thereport says.

Oil link in LNG contracts expected to persist


April 2007Argus GGlobal LLNG ——Argus GGlobal LLNG —— In brief

LNG on the cards for PNGImpetus is building towards an LNG pro-duction project in Papua New Guinea(PNG), with ExxonMobil to lead afeasibility study for a venture based on itsHides gas field. ExxonMobil and itspartners are looking at a 5mn-6.5mn t/yrLNG plant, targeting first cargoes by2012-13. Project partner Oil Search provi-sionally estimates the project cost at$6bn-7bn. The study is scheduled to befinished by the end of this year. An LNGoption for the Hides field follows aban-donment of a proposed pipeline projectlinking PNG to Australia.

Eni buys into Angola LNGItalian state-controlled oil and gas firmEni has signed an initial agreement totake a 13.6pc stake in the Angola LNGproject, which entails the development ofa $4bn, 5mn t/yr liquefaction plant atSoyo, located 300km north of Luanda.LNG from the plant is set to be exportedto the US Gulf coast, where Eni is acquir-ing 5bn m³/yr of capacity in thePascagoula terminal. When the deal goesto completion, the new shareholdings inAngola LNG will be state-owned producerSonangol with 22.8pc, Chevron 36.4pc,Eni 13.6pc, Total 13.6pc and BP 13.6pc.

Spain orders new vesselsA 50:50 consortium between Spanishproducers Repsol-YPF and Gas Naturalhas ordered three new LNG carriers. The173,000m³ diesel-electric vessels,ordered with Spain’s Naviera Elcano andNorwegian shipper Knutsen Shipping, willoperate from 2010 on the Peru LNG pro-ject. The new ships will boost the jointventure’s fleet of 11 tankers to 16 vesselsof 35,000-173,000m³, following two fur-ther deliveries of a newly built ship thisDecember and another, already opera-tional, at the beginning of 2009.

Yemen LNG plant survives riotTotal’s $3.7bn Yemen LNG plant was thescene of a riot by Yemeni workers after aFrench worker at the site was alleged tohave thrown a copy of the Koran to thefloor during an argument. A helicopter andseveral vehicles were destroyed in the

unrest, but Total says damage to the plantis superficial and work is “continuingunder normal conditions”. The first train ofthe 6.7mn t/yr plant is due on stream atthe end of next year. Total says it “regretsthe incident and is co-operating with aninvestigation by Yemeni authorities”.

Shell chief stays onShell chief Jeroen van der Veer is extend-ing his tenure until the end of June 2009,allowing the major more time to bring on anew generation of potential leaders. Vander Veer will be 60 in October, but the firmended mandatory retirement ages forsenior executives at the unification ofRoyal Dutch and Shell, avoiding the con-troversy that preceded BP chief JohnBrowne’s retirement announcement. Vander Veer’s decision will provide “valuablecontinuity and leadership in Shell over thenext years”, chairman Jorma Ollila says.

Tokyo GGas has been discussing withport and coastal authorities the possiblefuture introduction of LNG vessels largerthan 200,000m³ — known as Qatarmaxand Qatarflex — into its three LNGreceiving terminals of Sodegaura,Ohgishima and Negishi in Tokyo bay.“We are at a stage prior to beginning theactual revamp of our terminals in order toaccommodate ships as large as210,000m³ or 260,000m³,” a Tokyo Gasspokesman says, although the companystill did not know when it would begin theproject. This follows an earlier move byChubu EElectric PPower, the country’slargest importer of Qatari LNG, to pro-ceed with refitting the receiving berths atits Kawagoe and Chita terminals by 2010(AGL, January, p5). As domestic demandrises to boost LNG imports, Tokyo Gas isalso planning to build larger-than-con-ventional LNG carriers as the eighth and

ninth addition to its LNG fleet. Accordingto Tokyo Gas, it has developed a177,000m³ LNG carrier — larger than theconventional 145,000-153,000m³ ships— jointly with Japanese shipbuildersMitsubishi HHeavy IIndustries andKawasaki SShipbuilding. The larger carrieris a maximum size that can still use theexisting berths at LNG terminals in Japanand supplier countries without muchadditional investment for refitting. TokyoGas plans to expand its own LNG fleet toseven by fiscal year 2010-11 — whichruns from April to March — and eventu-ally to nine afterwards (AGL, August,p19). The company is expected to placeorders by the end of 2007 for the twonew ships, which will be used to trans-port LNG primarily from Australia’sDarwin and Russia’s Sakhalin island, aswell as for spot requirements under ship-ping alliances (AGL, January, p10).

Japan’s largest gas utility, Tokyo GGas,has appointed vice-chairman NorioIchino as the new chairman of the com-pany, where he will be replacingHideharu Uehara. The appointment willtake effect on 1 April. Tokyo Gas willleave the position of vice-chairmanvacant. Uehara will step down to a posi-tion of director-consultant.

Shell says it will pay $353mn to non-US investors “without admitting anywrongdoing” over its 2004 reservesscandal, as well as an extra $6mn incosts. The company will distribute$200mn to its US investors, of which$120mn is held by the Securities andExchange Commission, along with$80mn in new monies. The major hasalso secured the C$8.7bn ($7.6bn) buy-out of the 22pc of outstanding shares inits subsidiary Shell Canada.

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April 2007


Argus GGlobal LLNG —— Market overview

Lower prices and ample alternative supply slowed LNG deliver-ies to northwest Europe in March and April, and shipmentslooked likely to remain subdued through the summer barring amajor shift in the market.

UK LNG deliveries slowed to a trickle, with just one vesselarriving at the Isle of Grain and none docking at Excelerate’s newTeesside terminal — which has remained idle since unloading apartial commissioning cargo in February.

As for the Isle of Grain’s operating rules, the berthing slotsabandoned by primary capacity holder BP-Sonatrach wereoffered to third-party shippers, although the capacity on offerwas only a fraction of a standard cargo size, and none of theberthings were purchased by other shippers.

Since the Isle of Grain restarted commercial operations in2005, BP has regularly skipped deliveries or purchased third-party cargoes for shipment to the UK when opportunities else-where were more attractive. Although Sonatrach has historicallybeen a more reliable shipper to the UK — supplying regular fort-nightly cargoes since November 2005 — it too has begun todivert gas away from the UK, most notably to the US, where itsBerge Arzew tanker has called recently.

In Belgium, deliveries were more frequent than in the UK,although diversions to the US were also reported. Supply toZeebrugge was shored up by the commencement of a contractbetween Qatar’s Rasgas 2 and Distrigas, which delivered its firstcargo in late March.

But looking ahead, Distrigas’ new 2.75bn m³/yr Rasgascontract is smaller than its expired 4.5bn m³/yr Sonatrach deal,and may not fully replace the once regular procession of shipsfrom Algeria’s Arzew to the Belgian port. And contractual mat-ters aside, Zeebrugge may sit idle for a good deal of April andMay, with one berthing slot still available for April and three left

open to the market in May. The recent spate of diversions away from northwest Europe

was largely expected as prices in the US have been consistentlyabove those in either the UK or Belgian markets since Europeanprices collapsed this winter. But some questioned the lack ofdeliveries, especially to the UK, during the winter’s last gasp ofcold weather in late March. But even at its peak, demand wasinsufficient to threaten pipeline gas supplies — and the marketcoped well without additional LNG.

Elsewhere in Europe, a port strike at Marseille over the workarrangements at the yet uncompleted Fos Cavaou terminal wasnot thought to have hindered LNG shipments, although otherenergy tankers were backed up for days by the action.

And in Spain, where demand has been light during the tran-sition from winter to summer peaks, LNG receipts slowed —allowing reserves to be cleared from what had been full storagetanks at the country’s four terminals.

The latest figures from Spain’s system operator suggest thatmore gas was sent out of the country’s terminals than

UK LNG receipts slow as Belgian contract begins

Global LNG prices at a glance $/mn Btu

USJan Feb ±

Cove Point 7.74 8.23 +0.49US average 6.14 7.13 +0.99

AsiaJan Feb ±

Japan 7.05 6.91 -0.14South Korea 7.42 7.07 -0.35Taiwan 7.85 8.01 +0.16

EuropeJan Feb ±

France 5.40 5.55 +0.15Belgium 11.13 10.05 -1.08Spain 4.58 4.56 -0.02

p23

Henry Hub and UK NBP $/mn Btu

Apr 06 Jul Oct Jan 073

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Henry Hub

UK NBP

Henry Hub and UK NBP $/mn Btu


April 2007Argus GGlobal LLNG —— Market overview

was received, potentially in an effort to free space in the facilities’storage tanks.

At the start of March, LNG storage at each of Spain’s fiveoperating terminals was at least 70pc full, leaving little capacityto accept delivery of a large cargo. But over the course of themonth, more LNG was regasified and put into the national

pipeline system than was accepted by ship, clearing out extraroom at the terminals ahead of a further demand fall this month.

Sendout of regasified LNG from Spanish terminals totalledjust over 22TWh in March, some 13.8pc more than was receivedat the terminals over the course of the month, drawing down LNGstocks at the facilities.

LNG prices $/mn BtuImporter/source Mar 006 Apr May Jun Jul Aug Sep Oct Nov Dec Jan 007 Feb MarJapanAbu Dhabi 6.15 6.16 6.47 6.69 6.72 6.96 7.10 7.15 7.11 7.11 7.15 6.86 *5.59Algeria 9.77 10.73Australia 6.20 5.93 6.29 6.03 6.27 6.57 6.80 6.62 6.58 6.96 6.54 6.49 *5.76Brunei 5.71 5.64 5.74 5.63 5.96 5.96 5.95 5.94 5.94 5.93 5.93 5.98 *5.60Egypt 10.96Indonesia 7.97 7.83 8.69 8.51 8.50 8.38 8.81 7.90 7.47 7.25 7.59 7.18 *7.94Malaysia 6.26 6.17 6.36 6.20 6.34 6.52 6.95 6.65 6.82 6.80 6.56 6.35 *5.80Nigeria 10.05 12.98Oman 14.16 8.68 3.80 6.94 5.88 8.37 9.77 6.93 8.93 10.06 8.55 10.99 *8.23Qatar 6.93 6.99 7.71 7.81 7.29 8.15 8.30 8.10 7.38 7.63 7.56 7.27 *5.92Trinidad 19.73 5.73 9.60 11.17 11.10US 6.35 6.42 6.78 6.64 6.70 7.11 7.18 6.22 6.34 6.35 6.04 5.89 *5.88Average 7.16 6.74 7.02 7.00 6.85 7.13 7.63 7.16 7.18 7.31 7.05 6.91 *6.34

ChinaAustralia 3.82 3.15 3.24 3.14 3.16 3.18 3.16

South KKorea 8.55 7.99 9.52 10.27 10.24 10.38 12.33 8.91 9.51 10.55 *7.42 *7.07 *7.43

TaiwanAustralia 7.37 7.22 7.15Egypt 9.71Indonesia 10.76 10.97 11.93 12.36 12.07 12.43 12.65 11.07 9.70 9.64 *8.89 *9.47 *9.79Malaysia 7.17 8.58 6.37 6.68 7.17 7.45 7.37 7.13 6.90 6.77 *6.80 *6.56 *6.81Oman 13.45 13.42 9.97 10.18Trinidad 10.01Average 9.50 9.79 8.65 8.33 9.62 9.61 9.60 9.61 8.04 8.93 *7.85 *8.01 *8.30

BelgiumAlgeria 13.41 7.30 6.48 6.81 9.79 6.61 5.13 4.06 7.35 5.94 *11.13 *10.05 *9.38

France 66.29 5.47 6.70 6.38 6.31 3.98 6.51 5.61 7.08 5.85 *5.40 *5.55 *4.76

PortugalNigeria 4.78 4.67 7.17 3.95 4.34 4.47 5.92 4.62 4.93 5.47 *4.47 *4.16 *3.99

SpainAlgeria 5.87 6.59 6.89 5.67 6.90 6.85 7.37 6.98 6.98 6.66 *4.80 *4.80 *4.42Egypt 5.89 6.80 6.14 6.35 6.60 6.47 6.47 8.88 Libya 6.18 6.30 6.56 6.52 6.72 6.74 6.74 6.91 7.61 *4.76 *4.77 *4.39Nigeria 5.33 5.33 5.33 5.33 5.33 5.33 5.33 5.33 5.33 5.33 *4.80 *4.80 *4.42Oman 5.49 5.51 5.79 5.90 *3.64 *3.64 *3.39Qatar 6.33 6.28 6.65 6.61 7.19 6.95 7.25 6.97 7.38 *4.75 *4.77 *4.38Trinidad 6.24 5.54 6.11 4.86 7.00 5.99 3.79 6.16 6.54 6.12 Average 5.85 6.04 6.03 5.70 6.35 6.05 6.23 6.28 6.43 6.39 *4.56 *4.56 *4.21

UKAlgeria 9.05 7.03 6.82 6.20 6.77 6.79 6.24 5.49 7.15 5.85Egypt 12.40 8.08 7.86 8.47 9.44Trinidad 9.16 7.31 7.13 6.87

USCove PPointAlgeria 7.00 6.56 6.03 6.06 5.84Egypt 5.65 8.15 8.32 5.84Trinidad 6.71 6.84 6.66 6.08 5.77 6.88 6.63 3.94 7.45 5.69 8.23

Elba IIslandTrinidad 6.78 6.80 6.54 5.61 5.57 6.69 6.50 4.39 6.84 7.49 5.52 6.60Egypt 6.90 6.88 5.61 5.57 6.73 6.62 3.89 6.58 8.00 5.52 6.82

EverettTrinidad 7.53 6.84 7.30 5.82 6.23 6.67 6.02 6.85 7.61 7.42 7.11 7.54

Lake CCharlesEgypt 6.65 6.62 5.36 5.34 6.25 6.58 7.72 5.29 6.35Nigeria 6.65 6.62 5.37 5.34 6.36 6.25 3.69 6.58 6.58 5.29 6.35Trinidad 6.67 5.49 7.05 5.84 6.25 5.93

Gulf GGatewayTrinidad 6.96

US aaverage 7.16 6.77 6.75 5.70 5.79 6.65 5.89 5.09 7.04 7.43 6.14 7.13 *7.15

Puerto Rico 6.69 7.10 7.10 7.10 6.61 6.69 6.69 6.69 6.00*estimate. Prices from national statistical sources and Argus estimates. All prices are ex-ship and exclude regasification

April 2007Argus GGlobal LLNG ——


Argus GGlobal LLNG —— European pipeline markets

MMaarr 0066 AApprr MMaayy JJuunn JJuull AAuugg SSeepp OOcctt NNoovv DDeecc JJaann 0077 FFeebb MMaarrIImmppoorrtteerr SSoouurrcceeUK 11.72 12.14 12.69 11.49 11.54 11.22 9.32 8.90 8.51 8.75 6.45 7.28 7.75Germany Norway 6.86 7.01 7.13 7.55 7.61 7.75 7.74 7.74 7.65 7.57 7.32 7.10 7.01

Russia 6.82 6.97 7.08 7.51 7.56 7.70 7.70 7.69 7.60 7.52 7.28 7.06 6.97NLS 6.90 7.06 7.17 7.60 7.65 7.80 7.79 7.78 7.70 7.61 7.37 7.15 7.05

France NLS 6.76 6.91 7.02 7.44 7.49 7.63 7.63 7.62 7.53 7.45 7.21 7.00 6.91Russia 6.50 6.64 6.75 7.43 7.20 7.34 7.33 7.32 7.24 7.16 6.93 6.73 6.64Norway 6.46 6.60 6.70 7.38 7.16 7.29 7.28 7.28 7.20 7.12 6.89 6.68 6.60Algeria 6.56 6.70 6.81 7.30 7.03 7.03 7.03 7.03 7.03 7.03 7.03 7.03 7.03

Hungary Germany 6.76 6.91 7.02 7.44 7.49 7.63 7.63 7.62 7.53 7.45 7.21 7.00 6.91Russia 6.86 7.01 7.13 7.55 7.61 7.75 7.74 7.74 7.65 7.57 7.32 7.10 7.01

Italy NLS 7.05 7.20 7.32 7.76 7.81 7.96 7.95 7.95 7.86 7.77 7.52 7.30 7.20Algeria 7.09 6.97 7.08 7.51 7.56 7.70 7.69 7.69 7.60 7.52 7.28 7.06 6.97Russia 7.05 7.20 7.32 7.76 7.81 7.96 7.95 7.95 7.86 7.77 7.52 7.30 7.20

European pipeline border prices, long-term contracts $/mn Btu

Curve trends higherCurve prices trended higher in March, despite the con-

tracts losing ground on three occasions. Curve price move-ments were said to have been driven by speculative plays,with the front-winter contract reckoned to have been thefocus of trade during the month. The front-winter price rosefrom an intra-month low of 40.5p/th at the start of March to ahigh of 47.7p/th towards the end of the month.

Curve strength was said to have helped firm the summer2007 contract in the run-up to expiry, with the contract head-ing into delivery at over 20p/th. The summer contract’s late-March strength was also said to have been supported by theprompt, which firmed in response to a run of late-season coldand Norwegian supply problems. Prompt prices ranged from18-21p/th for the month as a whole, with prices buoyed byrestricted storage withdrawals in response to the summer2007 contract’s premium to the prompt for most of March.

The Interconnector made a number of transitions in themiddle of March, but finally settled on UK export mode on 21March. Some observers said Interconnector flows hadramped up at the start of April due to the recent spate of LNGcargoes diverted away from Zeebrugge. The Methania wasoriginally scheduled to arrive at Zeebrugge on 1 April, but theBelgian port announced that the cargo had been divertedonly a few days before its planned arrival date. The day-ahead basis remained in the positive for much of March,swinging from plus 0.2p/th to plus 0.6p/th.

Norway’s giant Troll field was off line for about a week at theend of March, causing Dutch prompt prices to spike duringthe partial outage. The Dutch day-ahead climbed to€11.50/MWh, after having finished at €9.50/MWh shortlybefore the outage.

Norwegian gas processing plant Karsto experienced sup-ply problems just before the Troll field went off line. Traderssuggested that this had also helped push the Dutch promptprice higher.

Interconnector flows vs NBP/Zeebrugge basis

Oct 05 Jan 06 Apr Jul Oct Jan 07 Apr-60

-40

-20

0

20

40

60

-30

-20

-10

0

10

20

30

I/C flows (mn m³) (left-hand scale)Prompt basis (p/th) (right-hand scale)

Argus assessments of border prices March 2007

Germany €€/MWh $/’000m³ Exporter SourceRuhrgas 18.01 252.23 GFU Troll

17.90 250.70 Gazprom Russia18.12 253.76 Gasunie Portfolio

WIEH 17.90 250.70 Gazprom Russia

France €€/MWh $/’000m³ Exporter SourceGaz de France 17.74 248.41 Gasunie Portfolio

17.05 238.82 Gazprom Russia16.95 237.30 GFU Troll18.05 252.73 Sonatrach Algeria

Italy €€/MWh $/’000m³ Exporter SourceSnam 18.50 259.10 Gasunie Portfolio

17.90 250.64 Sonatrach Algeria pipe18.50 259.10 Gazprom Russia

Hungary €€/MWh $/’000m³ Exporter SourceMol 17.74 248.41 Ruhrgas Portfolio

18.01 252.23 Gazprom Russia

UK €€/MWh $/’000m³ Source9.87 278.71 North Sea


April 2007Argus GGlobal LLNG —— US

Henry Hub vs Zeebrugge $/mn Btu


4

6

8

10

12

14

16

Zeebrugge

Henry Hub

Henry Hub vs Zeebrugge $/mn Btu

Oct 05 Jan 06 Apr Jul Oct Jan 07 Apr-4

-2

0

2

4

6

8

Zeebrugge 1st full-month vs NBP (p/therm)

NBP = 0

RReeggiioonn 3300 MMaarr 2233 FFeebb ±± YYeeaarr aaggoo FFiivvee yyeeaarr %%±±

aavv.. 55 yyrr aavv..

East 702 898 -196 848 584 +20.21

West 238 243 -5 231 196 +21.43

Producing 629 592 37 58 452 +39.16

TToottaall lloowweerr 4488 11,,556699 11,,773333 -116644 11,,999966 11,,223322 ++2277..3355

—— EIA

US gas in underground storage bn ft3

Easing temperatures sap pricesTemperatures across much of the continental US moder-

ated in March, easing pressures on natural gas, althoughspot gas in some regions registered a slight uptick to finishthe month. Benchmark Henry Hub gas fell by a modest9¢/mn Btu to $7.35/mn Btu, but other hubs in the southtraded at a discount, bringing the regional average pricedown to $6.86/mn Btu.

Nymex prompt month gas fell in mid-March, but pickedup steam towards the end of the month. April contracts set-tled at $7.56/mn Btu before rolling off the board. The Maycontract traded at $7.67/mn Btu at the end of March.

Generators and grid operators will be anxiously awaitingmore detailed forecasts of the upcoming summer months,after initial hurricane forecasts showed an active seasonthis year. Forward gas markets are showing similar curvesto last year in late summer, with winter contracts as muchas $1.50/mn Btu lower. Higher basis prices for regions suchas the northeast underline the market’s concern aboutanother long hot summer.

Maritimes and Northeast Pipeline has received approvalfrom the Federal Energy Regulatory Commission to doublecapacity from Canada to the northeast US. The Phase 4Project includes upgrades to existing facilities in Maine andMassachusetts, and new compressor stations in Maine.The project will boost pipeline transfer capacity from418mn ft³/d to 833mn ft³/d and should be completed bylate 2008. The company will dedicate the increased capac-ity for LNG imported to the Canaport receiving and regasi-fication terminal in St John, New Brunswick.

EEuurrooppee ((pp//tthheerrmm))UK NBP, 1st monthUK NBP, 2nd monthUK NBP, 3rd monthIce, 1st monthIce, 2nd monthIce, 3rd month((€€//MMWWhh))Zeebrugge, 1st month Zeebrugge, 2nd monthZeebrugge, 3rd monthTTF 1st monthTTF 2nd monthTTF 3rd month

UUSS (($$//mmnn BBttuu))Henry Hub, 1st monthNY (Transco Zone 6)Columbia TCOSoCal borderNymex, 1st monthNymex, 2nd month

Spot market natural gas prices (pipeline)

MMaarr 0066 AApprr MMaayy JJuunn JJuull AAuugg SSeepp OOcctt NNoovv DDeecc JJaann 0077 FFeebb MMaarr

49.85 41.57 35.76 37.88 40.64 35.39 38.73 48.48 47.69 39.92 29.35 19.01 20.0944.49 41.05 41.36 41.29 38.65 47.79 59.48 63.27 55.62 40.63 27.61 18.68 20.4443.25 43.41 44.06 40.14 51.74 67.47 73.66 69.19 55.64 37.06 25.76 18.62 20.9849.77 41.51 36.13 37.97 40.54 35.84 39.75 49.14 47.70 39.87 29.33 18.98 20.0644.45 41.24 41.53 41.29 39.27 48.80 60.20 63.56 55.67 40.55 27.52 18.66 20.5143.37 43.53 43.96 40.68 52.58 68.01 73.99 69.26 55.71 37.01 25.77 18.62 20.97

24.64 20.72 19.49 19.20 20.13 18.22 19.65 24.16 23.68 20.07 15.20 9.86 10.3022.02 20.91 20.96 20.39 19.41 23.86 29.29 31.30 27.32 20.32 14.32 9.64 10.5221.86 21.52 21.81 19.94 25.31 33.09 36.09 33.98 27.43 18.66 13.24 9.71 10.8322.83 21.31 21.02 19.75 19.77 19.09 19.91 24.00 24.01 20.59 14.98 9.73 10.4521.75 21.67 21.08 20.37 19.75 22.83 28.20 31.24 27.98 20.74 14.21 9.78 10.6521.73 21.77 21.70 20.48 24.10 32.02 33.94 33.16 27.89 18.82 13.44 9.79 11.08

6.98 6.65 5.97 5.84 8.04 5.81 4.15 6.64 8.32 5.63 7.76 7.44 7.357.59 7.06 6.56 6.35 10.01 6.11 4.39 7.38 8.87 6.10 9.54 8.25 7.857.47 6.89 6.19 6.01 8.28 5.92 4.27 6.88 7.88 5.61 7.96 7.69 7.795.95 5.57 5.29 5.01 7.36 5.51 3.90 6.39 7.94 5.95 7.29 7.03 5.957.21 6.56 6.38 6.10 8.21 6.05 5.62 7.53 8.32 5.84 7.67 7.53 7.567.42 6.81 6.62 6.37 8.45 8.23 7.04 7.99 8.56 6.14 7.66 7.62 7.67

Zeebrugge front month differential to NBP p/therm

April 2007


Argus GGlobal LLNG —— Competing fuels


Japan 66.61 68.25 67.58 66.56 72.76 71.67 73.42 72.79 74.42 83.45 84.61 83.70 90.31South Korea 57.36 58.01 55.92 55.31 58.35 59.18 60.20 59.30 59.64 61.31 61.55 62.46 66.05Indonesia 47.08 49.39 47.38 45.89 48.33 48.64 47.80 45.38 44.83 46.67 47.54 48.86 50.31ARA 65.00 63.31 59.38 62.50 62.35 70.06 65.58 66.20 67.48 68.20 68.33 68.94 71.42Nymex spec. (short tons) 53.99 52.53 51.09 49.66 46.39 47.52 45.37 43.06 40.63 41.73 39.44 40.63 40.63

International coal prices $/t


France month-ahead 54.67 45.99 39.15 44.79 54.35 52.24 51.78 63.24 62.40 62.52 48.94 34.06 28.48Spain pool weighted average 49.69 51.60 52.65 46.67 52.01 46.48 55.85 45.64 37.33 38.25 49.16 38.49 30.75Spain month-ahead 46.44 48.70 51.26 53.56 49.03 56.60 55.01 51.99 45.07 46.31 48.51 41.61 33.65PJM (off peak)($/MWh) 59.55 64.28 60.56 80.40 79.80 72.47 48.95 54.28 63.71 63.73 61.39 65.51 62.97Entergy mth-ahead ($/MWh) 53.48 60.75 63.61 75.48 68.38 62.59 56.61 52.60 59.73 57.88 53.80 60.80 58.78

International electricity prices €€/MWh


C+F Japan 615.84 679.13 692.87 689.51 678.47 678.11 599.36 555.01 542.19 551.69 534.88 564.18 578.05Fob South Korea 534.67 608.23 629.23 637.20 639.30 638.83 562.52 528.95 517.84 511.49 490.65 522.37 541.55German heating oil 571.61 620.88 630.86 630.60 642.37 657.91 575.99 548.45 542.77 549.33 493.93 527.79 548.93Heating oil fob W Med 566.68 612.19 625.88 627.38 625.55 644.58 569.19 537.85 531.68 542.63 483.32 510.64 540.26No 2 oil New York 552.28 615.61 612.55 595.68 597.45 613.79 522.09 509.57 513.32 519.93 470.20 525.05 540.29

International gasoil prices $/t


HSFO 180 fob South Korea 344.26 356.78 356.24 333.53 350.75 329.24 288.56 290.21 275.26 282.16 279.20 303.71 314.63HSFO 180 fob Singapore 337.00 349.96 348.83 329.53 347.65 329.26 287.15 287.21 272.23 278.59 271.58 296.79 309.31LSWR fob Singapore 352.48 383.10 382.89 373.15 367.38 335.72 286.10 269.62 258.98 277.26 256.18 280.37 296.401pc fuel oil fob NWE 306.52 318.78 316.43 303.95 318.05 328.43 269.67 259.68 256.25 266.63 229.86 246.68 260.411pc fuel oil fob W Med 319.75 315.47 323.86 308.77 328.19 340.41 273.49 265.75 264.35 276.71 245.73 251.86 272.22US Gulf coast 1pc 303.42 326.32 332.87 304.92 320.43 335.11 288.88 263.89 287.72 286.40 242.04 273.72 282.45New York 1pc 303.39 322.37 313.35 306.62 309.87 322.68 257.33 251.99 271.00 259.83 235.81 251.83 269.85

International fuel oil prices $/t


Japanese Crude Cocktail 61.03 61.30 66.53 67.81 67.96 71.84 72.06 64.44 59.87 58.51 60.43 55.13 naTapis 66.89 74.48 75.10 71.76 77.01 79.26 69.90 63.67 60.69 63.86 59.15 64.00 66.75Dubai (1st month) London 57.94 64.24 64.98 65.09 68.98 68.75 59.67 56.39 56.89 58.63 51.52 55.76 59.05BFO (dated) 62.17 70.34 69.70 68.74 73.72 73.36 61.80 57.88 58.92 62.38 53.67 57.48 62.16WTI (1st month) 62.71 69.91 70.61 70.89 74.38 73.20 64.06 59.12 59.38 62.27 54.10 59.03 60.84

Crude oil $/bl


New York 180cst 339.24 346.82 357.45 343.09 353.34 363.37 308.63 302.57 309.18 302.70 283.68 315.45 322.09New York 380cst 320.24 327.82 338.45 324.09 333.34 343.37 288.63 282.75 285.08 284.70 256.18 290.39 293.64Houston 180cst 322.46 340.92 345.00 322.77 345.97 353.11 302.13 286.18 278.53 279.43 264.23 283.89 286.82Houston 380cst 307.46 325.92 330.00 307.77 325.97 333.11 282.13 266.36 262.18 266.63 248.63 271.63 273.18Antwerp 180 cst 315.36 340.14 344.24 318.07 333.80 331.75 293.71 283.16 277.82 275.68 246.34 273.05 289.82Antwerp 380 cst 295.36 320.53 323.33 298.34 313.37 311.57 275.00 264.45 259.64 257.11 229.20 254.90 271.45Singapore 180cst 343.78 354.89 355.33 337.64 351.10 332.84 297.86 294.95 276.91 282.83 285.71 313.72 320.27Singapore 380 cst 331.65 344.53 345.24 326.41 339.29 320.32 287.29 286.38 267.14 271.05 276.45 302.56 309.95South Korea 180cst 367.17 377.82 385.60 368.91 381.19 360.09 340.95 327.83 330.09 317.85 348.93 355.44 352.73South Korea 380 cst 345.52 355.84 360.64 342.86 351.19 330.09 310.95 297.83 300.50 292.35 320.12 333.78 332.64Fujaira 180cst 341.52 356.63 358.93 343.91 359.90 346.41 298.07 293.10 282.09 283.80 282.48 321.39 323.86Fujaira 380 cst 332.50 345.84 342.62 325.68 337.19 324.09 281.17 281.86 271.91 273.70 270.50 311.56 313.68

International shipping fuel prices $/t


April 2007Argus GGlobal LLNG —— Competing fuels

Spain: Month ahead electricity vs LNG $/mn Btu


5

10

15

20

25

Month ahead

LNG

180cst fuel oil fob Singapore $/t

Oct 05 Jan 06 Apr Jul Oct Jan 07 Apr240

260

280

300

320

340

360

380

180cst fuel oil fob Singapore $/t

Coal: cif South Korea $/t


45

50

55

60

65

70

Coal cif South Korea $/t

European power: Prices ease amid warm weatherEuropean power markets drifted downwards in March amidunseasonal temperatures in the UK and continental Europe formost of the month. Healthy hydroelectric reservoir levels andgood run-of-river generation levels also depressed prices,which were only expected to recover with the onset of summermaintenance. The German base-load month ahead weakenedfrom €30.38/MWh at the start of March to €27.65/MWh by theend of the month, while the same contract in the UK fell from£22.48/MWh to £20.45/MWh over the same period. But liquidityin the power markets was limited during the month as tradersheld off from taking positions in advance of the release ofEuropean Commission emissions data for 2006 in early April.

Coal: Prices jump

Delivered European coal prices jumped by nearly $6/t in March to$75.41/t, on strong physical freight, traders covering short posi-tions and spot buying from South African producers. Cif ARAprices were $69.75/t in early March, after a modest rise in lateFebruary. Scandinavian utilities were heard buying around100,000t of spot Russian coal. In late March, a flurry of deals wasseen involving hitherto-scarce Russian and Polish material. AEuropean trader-utility bought five Panamaxes of Polish coal at$73.75/t cif ARA. A week later, a physical trader bought a spotPanamax of Polish coal at $76.50/t cif ARA. South African (fobRichards Bay) prices tracked a similar trajectory to climb $2/t to$54.30/t, on buying interest from Indian end-users and traders.

Products: Tracking oil up

European products prices tracked strong gains seen in crudefrom mid-March as tensions in the Middle East mounted. Robustdemand for motor fuel buoyed middle distillates, with a pro-longed strike by French port workers cutting refinery runs at theFos-Lavera complex in southern France, reducing the regionalsupply of 50ppm. The upswing in gasoil prices was pronouncedin the Mediterranean, as east Mediterranean buyers pursuedfresh cargoes of 0.2 sulphur Russian gasoil for use as motor fuel.Elsewhere, reduced snowmelt across Europe cut utilities’ accessto hydropower, buoying demand for low-sulphur fuel oil for powerplants. This helped mop up excess barrels of Russian fuel oil asthe arbitrage to Asia-Pacific swung shut.


50

60

70

80

90

Dated BFO

Tapis

Dated BFO vs Tapis $/blDated BFO vs Tapis $/blCrude: Iran tensions push up pricesCrude prices were stable for much of March with North Seabenchmark dated BFO around $60/bl. But late in the month, anescalation of tension between Iran and the west over the captureof 15 UK naval personnel in the Mideast Gulf raised fears ofregional conflict and a disruption of supply from Iran. Dated BFOclimbed to around $69/bl at the end of the month. An unseasonaldrawdown in US gasoline stocks also underpinned the gains asthe peak driving season approached, leading the US to suck ingasoline-rich grades from west Africa and the Mediterranean.But a glut of crude at the US midcontinent hub of Cushing putheavy pressure on the front-month WTI benchmark, pushing it toan unprecedented discount to Ice Brent of almost $2.50/bl.

Spain: Month ahead electricity vs LNG $/mn Btu

April 2007


Argus GGlobal LLNG —— Shipping

New Norwegian LNG shipper FlexLNG has ordered two novel carriers thatcan liquefy and regasify LNG on board.The niche operator, founded last year toown and operate medium-sized flexible— M-Flex — LNG carriers, has orderedtwo such vessels at South Korea’sSamsung Heavy Industries for deliveryfrom 2010. Japanese firm Ishikawajima-Harima Heavy Industries designed theincorporated SPB (self-supporting, pris-matic shape, IMO type-B) containmentsystem, licensed to Samsung. Flex LNGdoes not envisage the vessels compet-ing with conventional LNG carriers,rather operating in niche markets unsuit-able for conventional tonnage such as

offshore LNG and “short and small” LNGtrades. Belgium’s Exmar and fellowNorwegian firm Hoegh LNG have ves-sels capable of regasifying LNG onboard — LNG regasification vessels(LNGRVs), and shuttle and regasificationvessels (SRVs) respectively — but nonecan yet liquefy gas on board too.

France’s state-owned Gaz dde FFrancehas taken delivery of the third of threeLNG carriers from Aker Yards France,ending a long-running saga. The154,500m³ Gaselys was the leastdelayed of the three vessels orderedfrom the former Chantiers de l’Atlantiqueshipyard, after porosity problems discov-

ered in the secondary membranes oftheir cargo containment systems in 2005disrupted delivery schedules (AGL,February, p28). Gaselys, ordered third inJuly 2004, had been due for delivery latelast year. The second to be ordered,Provalys, arrived first — a year late — lastNovember (AGL, December 2006, p28).The first order, the 74,000m³ Gaz deFrance Energy, with which Chantiers del’Atlantique found the problem duringsea trials, arrived two years behindschedule in December (AGL, February,p28). GdF is chartering Gaselys for 20years from owner NYK Armateur, a sub-sidiary of Japan’s NYK Lines with 60pcand GdF with 40pc.

Shipping news

LNG order book Mar 2007

OOwwnneerr NNoo.. ooff mm³³vveesssseellss

Qatar Gas Transport Company 25 6,064,500NYK Line 10 1,484,600J5 Consortium 8 1,698,000Teekay Shipping 7 1,329,700K Line 7 1,068,000MISC 7 1,050,000AP Moller 6 921,600BG International 6 920,000China LNG Ship Management 5 731,300OSG/QGTC 4 864,000Pronav Ship Management 4 840,000BP 4 620,000Bergesen-Worldwide 4 611,400Mitsui OSK Line 4 611,400Exmar 4 603,600Sovcomflot-NYK 4 581,800Knutsen 3 469,447Dynacom Tankers Management 3 450,000Tokyo LNG Tanker 3 317,100Bluesky LNG 2 320,000Chevron 2 309,600Tokyo Electric 2 290,400Hoegh LNG/MOL 2 290,000Korea Line 2 290,000STX Pan Ocean 2 290,000Sonatrach 2 151,000Elcano 1 170,000Trinity LNG Carrier 1 154,200Tsakos Energy Navigation 1 150,000Golar LNG 1 145,700Maran Maritime Gas 1 145,700Cygnus LNG Shipping 1 145,400Hyundai Merchant 1 145,000Iino Kaiun Kaisha 1 145,000MOL/NYK/K Line/Mitsui 1 145,000Maple LNG Transport 1 19,100GGrraanndd ttoottaall 114422 2244,,554422,,554477

LNG vessel time charter rates $/dDDuurraattiioonnLong term 65,000Spot 70,000

OOwwnneerr NNoo.. ooff AAggee ooff fflleeeett mm³³ AAvv.. mm³³vveesssseellss AAvv.. MMiinn.. MMaaxx..

MISC 22 11 27 1 2,617,425 118,974Mitsui OSK Line 15 10 23 1 1,905,456 127,030Bonny Gas Transport 13 14 31 1 1,739,315 133,793Golar LNG 12 14 32 1 1,613,532 134,461Bergesen-Worldwide 11 8 34 0 1,354,179 123,107NYK Line 10 15 24 7 1,314,211 131,421National Gas Shpg. 8 12 13 10 1,092,306 136,538Burmah Gas Transport 8 29 30 28 1,010,700 126,338Aust. LNG Ship Optg. 7 14 18 3 903,330 129,047Brunei Shell Tankers 7 33 35 32 530,651 75,807Teekay Shipping 6 3 5 0 860,794 143,466K Line 6 11 24 1 802,840 133,807Hyundai Merchant 6 9 13 7 790,182 131,697SNTM-Hyproc 6 30 36 26 677,904 112,984Exmar 5 3 5 1 690,513 138,103SK Shipping 5 9 13 7 680,214 136,043Leif Hoegh 5 20 34 1 595,428 119,086Oman Shipping 4 2 2 1 580,000 145,000BG International 4 2 3 1 573,209 143,302Hanjin Shpg 4 9 12 7 545,347 136,337Shell Tank. (S’pore) 4 17 29 5 521,930 130,483SnamProgetti 4 24 38 9 212,700 53,175Maran Maritime Gas 3 2 2 1 436,500 145,500NYK/MOL/K Line 3 2 2 2 435,260 145,087Knutsen 3 2 3 1 414,826 138,275BP Shipping 3 4 5 4 414,000 138,000Gaz de France 3 1 1 0 381,130 127,043Tokyo LNG Tanker 2 3 4 2 295,223 147,612AP Moller 2 2 3 1 283,400 141,700Shell Group 2 4 4 3 278,752 139,376Korea Line 2 8 8 7 273,273 136,637MOL/NYK/K Line/SCI 2 3 3 3 272,088 136,044Tokyo Electric 2 3 4 1 272,006 136,003Marathon Oil 2 14 14 14 179,760 89,880Taiwan Maritime Tran 2 22 42 1 171,200 85,600Humpuss Trans 2 14 17 11 155,874 77,937Sovcomflot 2 38 38 38 143,000 71,500Messigaz 2 35 36 34 90,081 45,041Chemikalien Seetrans 2 32 32 32 71,000 35,500NYK Line 1 0 0 0 149,700 149,700Algeria Nippon Gas 1 3 3 3 147,845 147,845Osaka Gas 1 1 1 1 145,000 145,000IS Carriers 1 4 4 4 138,306 138,306Elcano 1 4 4 4 138,000 138,000Energy Spring 1 6 6 6 137,248 137,248Brunei Gas 1 5 5 5 135,000 135,000DistriGas 1 29 29 29 131,260 131,260Methane Transport 1 30 30 30 129,299 129,299Tractebel LNG 1 28 28 28 126,540 126,540Auxiliar Maritima 1 37 37 37 40,000 40,000TToottaall 222222 1122 00 4422 2277,,559977,,773377 112244,,331144

LNG shipping fleet Mar 2007


April 2007Argus GGlobal LLNG —— Shipping

Model assumes a 138,000m³ LNG carrier at 98pc utilisation travelling at 19knots. One day in port for loading and two for discharge. Boil-off rates of0.15pc/d when loaded, 0.1pc/d in ballast. 5pc of cargo returned as cargo heelon ballast leg. Bunker and MDO prices from Argus, assuming consumption of160t/d bunkers at sea plus 3t/d MDO in port. Cost of capital assumed at 5.5pc.Ship assumed to have 15 days/yr downtime.

Qatar-Japan 14.0 1,433,371 129,115 72,261 10,602 24,955 726,003 2,396,307 125,321 16,173,362 0.89 5.92 5.03

Qatar-S Korea 14.7 1,504,776 134,946 75,524 11,081 26,082 762,303 2,514,712 125,174 20,274,938 0.94 7.43 6.49

Qatar-Spain 11.2 1,147,751 105,791 59,207 8,687 20,447 580,803 1,922,686 125,906 12,022,047 0.71 4.38 3.67

Abu Dhabi-Japan 14.0 1,433,371 129,115 72,261 10,602 24,955 726,003 2,396,307 125,321 15,271,807 0.89 5.59 4.70

Algeria-Belgium 3.4 310,405 40,817 22,844 3,352 7,889 176,317 561,624 127,539 26,079,593 0.21 9.38 9.17

Algeria-France 1.1 103,857 21,658 12,121 1,778 4,186 57,046 200,646 128,020 13,284,361 0.07 4.76 4.69

Algeria-S Korea 20.0 1,801,145 179,095 100,233 14,706 34,615 1,037,146 3,166,940 124,065 20,095,304 1.19 7.43 6.24

Algeria-Spain 0.8 76,916 19,159 10,723 1,573 3,703 41,489 153,562 128,083 12,341,527 0.06 4.42 4.36

Algeria-US 10.9 983,932 103,292 57,809 8,482 19,964 565,246 1,738,725 125,969 19,634,815 0.64 7.15 6.51

Australia-Japan 7.9 801,457 78,302 43,823 6,430 15,134 409,674 1,354,820 126,597 15,896,523 0.50 5.76 5.26

Australia-S Korea 8.5 861,959 83,300 46,620 6,840 16,100 440,789 1,455,608 126,471 20,485,074 0.54 7.43 6.89

Brunei-Japan 4.9 498,948 53,312 29,837 4,378 10,304 254,103 850,881 127,225 15,531,588 0.31 5.60 5.29

Brunei-S Korea 5.7 579,617 59,976 33,566 4,925 11,592 295,589 985,265 127,057 20,579,975 0.36 7.43 7.07

Indonesia-Japan 7.2 730,872 72,471 40,559 5,951 14,007 373,374 1,237,234 126,743 21,938,269 0.46 7.94 7.48

Indonesia-S Korea 6.9 700,621 69,972 39,161 5,746 13,524 357,817 1,186,840 126,806 20,539,303 0.44 7.43 6.99

Libya-Spain 2.3 211,621 31,654 17,716 2,599 6,118 119,274 388,982 127,769 12,227,723 0.14 4.39 4.25

Malaysia-S Korea 4.7 478,781 51,646 28,904 4,241 9,982 243,732 817,285 127,267 20,613,868 0.30 7.43 7.13

Nigeria-France 8.8 795,345 85,799 48,019 7,045 16,583 456,346 1,409,136 126,409 13,117,168 0.52 4.76 4.24

Nigeria-Spain 8.4 759,423 82,467 46,154 6,772 15,939 435,603 1,346,358 126,492 12,188,292 0.50 4.42 3.92

Nigeria-US 13.4 1,208,441 124,117 69,464 10,192 23,989 694,889 2,131,092 125,446 19,553,276 0.79 7.15 6.36

Oman-Japan 13.0 1,331,364 120,785 67,599 9,918 23,345 674,146 2,227,156 125,530 22,521,795 0.83 8.23 7.40

Oman-S Korea 12.5 1,280,360 116,620 65,268 9,576 22,540 648,217 2,142,581 125,634 20,349,502 0.80 7.43 6.63

Oman-Spain 12.3 1,259,959 114,954 64,336 9,439 22,218 637,846 2,108,751 125,676 9,287,724 0.78 3.39 2.61

Oman-US 9.3 953,937 89,964 50,350 7,387 17,388 482,274 1,601,300 126,304 19,687,001 0.59 7.15 6.56

Trinidad-US 4.8 435,153 52,479 29,371 4,309 10,143 248,917 780,372 127,246 19,833,772 0.29 7.15 6.86

Alaska-Japan 7.4 668,113 74,137 41,492 6,088 14,329 383,746 1,187,904 126,702 16,241,111 0.44 5.88 5.44

Algeria-UK 4.0 364,287 45,815 25,641 3,762 8,855 207,432 655,792 127,413 16,248,980 0.24 5.85 5.61

Netbacks for 138,000m³ tanker March 2007

FFlleeeett HHiissttoorriicc FFuuttuurree EEssttiimmaatteedd SSccrraappppiinngg FFlleeeettssttaarrtt ddeelliivveerriieess sscchheedduulleedd ddeelliivveerriieess eenndd

YYeeaarr ddeelliivveerriieess**2000 115 12 1272001 127 1 1282002 128 10 1382003 138 14 1522004 152 21 1732005 173 18 1912006 191 27 2182007 218 4 32 2542008 254 54 2 3062009 306 41 5 3 3492010 349 15 15 2 377*as per order book

LNG vessel fleet development

Shipping data supplied by Drewry Shipping Consultants

Email: [email protected]

Web: www.drewry.co.uk

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010100

150

200

250

300

350

400

LNG fleet on the rise LNG fleet on the rise No. of vessels

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April 2007


Argus GGlobal LLNG —— Spark spreads

RReeggiioonn//ffuueell PPrriiccee PPrriiccee EElleeccttrriicciittyy SSppaarrkk sspprreeaaddss aatt vvaarryyiinngg ccoonnvveerrssiioonn rraatteess (($$//MMWWhh))$$//MMWWhh $$//MMWWhh

3300ppcc 3344ppcc 3388ppcc 4499..1133ppcc 5555ppccAAssiiaa-PPaacciiffiiccJJaappaannLNG ($/mn Btu)Coal, cif Japan ($/t)HSFO 180, cif Japan ($/t)

SSoouutthh KKoorreeaaLNG ($/mn Btu)Coal, cif Korea ($/t)HSFO 180, fob Korea ($/t)

EEuurrooppeeBBeellggiiuummLNG ($/mn Btu)Zeebrugge gas month ahead ($/mn Btu)Coal ($/t)1pc fuel oil fob NWE ($/t)

FFrraanncceeLNG ($/mn Btu)Pipeline natural gas, Russia ($/mn Btu)Coal ($/t)1pc fuel oil fob W Med ($/t)

IIttaallyyLNG ($/mn Btu)Pipeline natural gas, Russia ($/mn Btu)Coal ($/t)1pc fuel oil fob W Med ($/t)

SSppaaiinnLNG ($/mn Btu)Pipeline natural gas, Algeria ($/mn Btu)Coal ($/t)1pc fuel oil fob W Med ($/t)

AAmmeerriiccaassUUSS GGuullff ccooaassttLNG ($/mn Btu)Natural gas, Henry Hub Nymex ($/mn Btu)Coal ($/st)HSFO ($/t)

UUSS nnoorrtthheeaassttLNG ($/mn Btu)Natural gas, Transco Z6 NY ($/mn Btu)Coal ($/st)HSFO ($/t)

International spark spreads March 2007

Note: Spark spreads compare the cost of generating power at various heating efficiencies with the cost of buying power from the grid. A positive spreadindicates it is economical to buy fuel, while a negative spread indicates it is economical to buy power off the grid. Prices are taken from Argus oil, gas,coal and electricity daily market reports, the IEA, company sources and national statistical bodies.The model does not take account of local taxes or transport costs.

Conversion factors (left hand column units are multiplied by the factor shown to convert to units in the top row)

million barrels tons cubic cubic m³ ttons ttonsBritish of ooil of ooil feet metres LNG LNG LLNG

thermal equivalent equivalent (ft³) (m³) (specific (specificunits gas gas gravity ggravity

Equals 0.425) 0.475)

1 mmillion BBtu ((1mn BBtu) 1 0.172 0.0235 1000 28.3 0.0459 0.0195 0.02181 bbarrel oof ooil eequivalent ((boe) 5.8 1 0.136 5800 164.2 0.266 0.113 0.1261 tton oof ooil eequivalent ((toe) 42.5 7.33 1 42.5 1200 1.95 0.828 0.9251 fft³ ggas 0.001 0.000172 0.0000235 1 0.0283 0.0000458 0.0000195 0.00002181 mm³ ggas 0.0353 0.000608 0.00083 35.3 1 0.00162 0.000688 0.0007691 mm³ LLNG 21.8 3.76 0.513 21824 618 1 0.425 0.4751 tton LLNG ((specific ggravity 00.425) 51.3 8.85 1.207 51350 1450 2.353 11 tton LLNG ((specific ggravity 00.475) 45.9 7.91 1.081 45950 1300 2.105 1

6.34 21.56 72.57 0.79 9.18 15.84 28.70 33.3890.31 12.94 72.57 29.47 34.51 38.51 46.23 49.04

319.66 26.70 72.57 -16.34 -5.95 2.31 18.23 24.03

7.43 25.26 65.70 -18.42 -8.59 -0.78 14.29 19.7766.05 9.47 65.70 34.18 37.87 40.79 46.44 48.49

314.63 26.28 65.70 -21.81 -11.59 -3.45 12.21 17.92

9.38 31.89 40.53 -65.67 -53.27 -43.40 -24.39 -17.464.00 13.60 40.53 -4.76 0.53 4.74 12.85 15.80

71.42 10.24 40.53 6.44 10.43 13.59 19.69 21.92260.41 21.75 40.53 -31.90 -23.44 -16.71 -3.75 0.98

4.76 16.18 37.69 -16.20 -9.91 -4.90 4.75 8.276.64 22.58 37.69 -37.49 -28.70 -21.72 -8.26 -3.36

71.42 10.24 37.69 3.61 7.59 10.76 16.86 19.08272.22 22.74 37.69 -38.02 -29.18 -22.14 -8.59 -3.65

4.21 14.31 62.46 14.80 20.36 24.79 33.33 36.447.20 24.48 62.46 -19.06 -9.53 -1.96 12.64 17.95

71.42 10.24 62.46 28.38 32.36 35.53 41.63 43.85272.22 22.74 62.46 -13.25 -4.41 2.63 16.18 21.12

4.21 14.36 44.54 -3.29 2.29 6.74 15.30 18.426.95 23.63 44.54 -34.15 -24.96 -17.64 -3.56 1.58

71.42 10.24 44.54 10.46 14.44 17.61 23.71 25.93272.22 22.74 44.54 -31.18 -22.33 -15.30 -1.74 3.20

7.15 24.40 58.78 -22.46 -12.97 -5.42 9.12 14.427.35 24.99 58.78 -24.44 -14.72 -6.98 7.92 13.34

40.63 5.82 58.78 39.39 41.66 43.46 46.93 48.19260.64 21.77 58.78 -13.72 -5.25 1.49 14.47 19.20

7.15 24.40 59.99 -21.25 -11.76 -4.21 10.33 15.637.85 26.69 59.99 -28.89 -18.51 -10.25 5.66 11.46

40.63 5.82 59.99 40.60 42.86 44.67 48.14 49.40269.35 22.50 59.99 -14.93 -6.18 0.78 14.20 19.08


April 2007Argus GGlobal LLNG —— LNG movements

Import volumes ’000t

IImmppoorrtteerr//ssoouurrccee MMaarr 0066 AApprr MMaayy JJuunn JJuull AAuugg SSeepp OOcctt NNoovv DDeecc JJaann 0077 FFeebbJJaappaannAbu Dhabi 552 236 374 428 448 547 426 548 487 303 548 490 Algeria - - - - - 66 - 61 57 - - - Australia 1,101 697 1,243 1,065 1,239 1,320 811 1,125 824 1,139 1,134 1,062 Brunei 536 528 529 495 524 562 522 624 530 528 527 496 Egypt 118 57 50 164 - - - 58 59 - 60 108 Indonesia 1,395 1,051 1,227 1,107 1,054 1,156 1,228 1,267 1,106 1,157 1,220 1,100 Malaysia 871 759 823 958 1,040 1,153 960 1,112 925 987 1,273 1,231 Nigeria - - - - - - - 60 - 105 - - Oman 127 62 124 252 187 376 187 187 308 377 371 183 Qatar 619 593 791 664 541 719 730 419 536 653 709 583 Trinidad 56 55 - - - 54 56 56 56 - - - US 142 107 107 107 108 108 72 61 92 85 94 96 TToottaall 55,,551166 44,,114444 55,,226677 55,,224400 55,,114400 66,,006622 44,,999911 55,,557788 44,,998800 55,,333344 55,,993355 55,,334499

SSoouutthh KKoorreeaa 22,,880000 22,,007744 22,,119988 11,,665555 11,,224400 11,,118811 11,,118877 11,,559911 22,,004455 22,,775511

CChhiinnaa ((GGuuaannggddoonngg))Australia - - - 57 62 - 31 174 119 244 119

TTaaiiwwaannAlgeria - - 60 60 - - - - - - Australia - 60 60 - - 58 - - - - Egypt - - - - - - - 126 - - Indonesia 184 308 244 122 366 303 186 366 244 366 Malaysia 293 235 357 414 413 360 293 235 356 174 Oman 45 - 19 - - - 123 61 - - Qatar - - 64 61 - 128 61 - - - Trinidad - - - - - - - - - 111 TToottaall 552211 662222 778855 665577 777799 884488 666633 778899 660011 665511

BBeellggiiuumm Algeria 338 278 283 454 - 62 172 235 345 356 TToottaall 333388 227788 228833 445544 - 6622 117722 223355 334455 335566

FFrraannccee 779922 888811 11,,000011 779988 880011 991177 770077 888855 11,,009977 11,,002244

GGrreeeeccee 4488 1166 1166 4488 4488 4488 3322 8833 4488 7744 110044 4488

IIttaallyy 225522 220099 222299 220044 114455 8888 116600 222288 119955

PPoorrttuuggaall Nigeria 176 110 61 115 175 174 113 164 104 168

SSppaaiinn Abu Dhabi - - - 168 - - - - - - Algeria 276 127 86 113 82 84 146 236 211 317 Egypt 542 285 401 - - - 161 295 196 77 Libya 49 69 16 50 34 33 17 - 70 16 Nigeria 449 379 465 709 409 490 548 345 279 447 Oman 132 66 - - 124 65 - - - - Qatar 202 325 288 292 360 320 382 179 - 252 Trinidad 340 145 212 170 199 170 56 216 215 253 TToottaall 11,,998899 11,,339955 11,,446688 11,,550022 11,,220088 11,,116600 11,,331100 11,,227711 997711 11,,336633

TTuurrkkeeyy Algeria 304 295 236 125 173 58 300 244 296 373 299 294 Nigeria 53 128 56 - - 113 - 160 120 61 112 125 TToottaall 335577 442233 229922 112255 117733 117711 330000 440033 441155 443344 441111 441188

UUKKAlgeria 181 119 116 112 118 96 50 56 176 120 Egypt - 110 - - - 59 116 - 121 121 Qatar - - - - - - - - 53 - Trinidad 114 - 56 - - 57 - - 169 - TToottaall 229944 222288 117722 111122 111188 221133 116666 5566 551199 224411

UUSS CCoovvee PPooiinntt Algeria 59 55 - 55 59 - - - - - 49 Egypt - - - - 58 - - - 58 58 58 Trinidad 114 227 227 229 117 230 106 58 - 118 173 117

UUSS EEllbbaa IIssllaanndd Trinidad 155 160 210 154 206 155 156 153 206 223 154 245 Egypt - 102 57 114 60 173 115 50 57 50 55 56

UUSS EEvveerreetttt Trinidad 320 272 324 266 278 278 178 270 274 323 390 273

UUSS LLaakkee CChhaarrlleess Algeria - 163 - - - - - - - - - - Egypt - - 330 165 175 - 56 - 215 115 59 56 Nigeria - 117 60 117 120 121 118 175 112 60 104 112 Trinidad - 52 104 103 51 51 51 - - 52 - -

UUSS ttoottaall 664488 11,,114466 11,,331122 11,,220033 11,,112222 11,,001166 778800 770066 992211 999999 11,,004433 885599

PPuueerrttoo RRiiccooTrinidad 50 53 - 59 17 59 - 33 59 59 54

April 2007


Argus GGlobal LLNG —— LNG movements

US LNG imports for the first quarter of this year are esti-mated to be 47pc higher than imports a year ago, the USEnergy Information Administration (EIA) said in its Short-Term Energy Outlook released on 10 April.

US LNG imports this year are expected to rise by around170bn ft³ (4.8bn m³), or more than 22pc, compared with2006 to reach 750bn ft³. Imports could rise even more andreduce US natural gas prices if LNG demand slows outsideof the country. LNG imports are expected to surpass 1 tril-lion ft³ in 2008.

First-quarter imports jumped sharply, climbing by 47pcon the year. And further growth is possible. The EIA notesthat high US landed prices have boosted flows of LNG tothe US and imports could “dampen domestic natural gasprices”. Further growth is forecast for next year, when theEIA pegs imports at more than 1 trillion ft³.

Japan’s LNG imports fell by 10pc in February to 5.35mnt, down from 5.94mn t in January. The reduction in deliver-ies was fairly evenly spread among all of the country’s mainimporters, with Indonesian imports dipping from 1.2mn t inJanuary to 1.1mn t in February.

While Egypt was by far the most expensive source ofLNG in January, when its supplies of 60,000t changedhands at $11.42/mn Btu, imports from Oman joined it in theabove $10/mn Btu league in February. But the average priceof Japan’s imports still eased in February, to $6.91/mn Btu,down from $7.05/mn Btu in January.

US imports boomp p

Jul 05 Oct Jan 06 Apr Jul Oct Jan 070.6

0.8

1.0

1.2

1.4

1.6

IndonesiaMalaysia

Japanese imports mn t

Australia -1,186.8+ Imports - Exports

Indonesia -16.4

South Korea +2,750.9

Japan +5,348.7

Turkey +418.3Italy +195.2

Belgium +355.9 USACove Point +117.1Elba Island +301.3Everett +273.0Lake Charles +168.0Total +859.4

Greece +48.1

Qatar -1,052.3

from USA (Alaska)

Taiwan +651.0

— Drewry

Trinidad -96Nigeria -735.8

Libya -2071.1

Algeria -1203.8

Brunei -583.7

Puerto Rico +53.7

Portugal +167.9

Spain +1,362.5

Malaysia -977.74

US -93.5

Abu Dhabi -489.9

UK +240.9

China +62.4

Oman -1576.2

Egypt -2106.5

Latest estimated gas imports and exports ’000t/month

US imports mn t

Jul 05 Oct Jan 06 Apr Jul Oct Jan 070.4

0.6

0.8

1.0

1.2

1.4Total US imports

from Trinidad

US imports mn t

Malaysia23%

Indonesia21%

Australia20%

Qatar11%Brunei

9%

Abu Dhabi9%

Oman 3%Egypt 2%US 2%

Japan LNG import sources Feb 2007 %

’000tMalaysia 1,231.3Indonesia 1,099.5Australia 1,061.6Qatar 583.2Brunei 495.8Abu Dhabi 489.9Oman 183.1Egypt 108.3US 96.0TToottaall 55,,334488..88

argus global lng april 07

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