cheniere’s sabine pass facility: u.s. gulf coast lng has ... · gas as a pretreatment solution...
TRANSCRIPT
Cheniere’s Sabine Pass facility: U.S. Gulf Coast LNG has started
March 2017March 2017
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Copyright © Palladian Publications Ltd 2017. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the copyright owner. All views expressed in this journal are those of the respective contributors and are not necessarily the opinions of the publisher, neither do the publishers endorse any of the claims made in the articles or the advertisements. Printed in the UK.
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ON THIS MONTH’S COVER
MARCHMARCH 20172017
67 Floating liquefaction nearshoreAdrian Finn, Costain, UK, considers the commercial proposition of LNG production on floating vessels.
73 Cryogenic insulation – a vital componentAnatoli Kogan, Lydall Performance Materials, USA, discusses the optimisation of insulation for LNG marine fuel tanks.
77 VIP, the new standard for LNG transfer?Erik Admiraal, Demaco, The Netherlands, presents the advantages of using a Vacuum Insulated Pipeline (VIP) for LNG transfer.
81 Insulation installationTed Berglund and Joe Hughes, Dyplast Products, USA, explain the importance of correct insulation installation at LNG facilities.
87 Mediterranean small scale LNG becomes a realityMauro Evangelisti and Sara Evangelisti, Gas and Heat S.p.A., Italy, look at the development of the Mediterranean’s first small scale LNG storage terminal, located in Sardinia, Italy.
91 Superior storagePaul Whayman and Mark Meyts, Technodyne International Ltd, UK, outline recent developments in LNG storage tank design.
95 Yamal LNG: assessing the risksChristian Bladanet, TechnipFMC, France, looks at the extreme design challenges faced during the development of the Yamal LNG project.
102 Changing with the timesRune Knott, Wärtsilä, Norway, looks at how LNG infrastructure is adapting to help meet the requirements of a changing market.
105 Clever combinationBjörn Munko, TGE Marine Gas Engineering GmbH, Germany, and Poul Skjøth, Burmeister & Wain Scandinavian Contractor A/S, Denmark, explain how a combined FSRU and power barge solution can help to access new LNG supply markets.
109 Gastech 2017 previewLNG Industry previews a selection of companies that will be exhibiting at this year’s Gastech Conference & Exhibition in Japan from 4 to 7 April.
128 15 facts... on Japan
03 Comment
05 LNG news
12 The future of Japanese LNGSindre Knutsson and Mai Phan, Rystad Energy, Norway, look at the future of the Japanese LNG market in the midst of nuclear restart operations.
19 Fuel systems at seaMike Wells, ACD, USA, discusses high pressure LNG fuel systems in marine applications.
25 Lowering emissionsKoichi Nishifuji, Class NK, Japan, discusses alternative fuels and NOx and SOx emission reduction technologies.
30 US LNG: the Eagle has landedAndrew Walker, Cheniere Energy, Inc., USA, details the changing US LNG picture and outlines the impact of the Sabine Pass export project.
36 Creating an integrated maritime industry in QatarNakilat, Qatar, present their involvement across the LNG supply chain in Qatar.
39 Power & water solutionsPuneet Sharma, MODEC International, Inc., USA, describes the company’s Floating Power and Water Solutions that provide clean water and/or electrical power more economically, faster and more efficiently than conventional land-based solutions.
43 Meeting expectationsMarcel Ott, Winterthur Gas & Diesel Ltd., Switzerland, analyses the use of LNG as a fuel for marine low-speed engines.
48 Right around the cornerStuart Nicoll, Maritime Strategies International, UK, explains why, despite a bright future, vessel owners must prepare for changes in trade patterns and a larger LNG spot market.
52 LNG markets: the bumpy road to 2020Anne-Sophie Corbeau, KAPSARC, Saudi Arabia, looks at the challenges and obstacles that the LNG market must overcome en route to market recovery.
57 Small scale LNG pretreatment technologyPaul Baker, Guild Associates, Inc., USA, presents the details of a processing system designed to remove impurities from pipeline gas as a pretreatment solution for small scale LNG liquefaction plants.
61 LNG Wobbe Index controlJohn Y. Mak, Fluor Energy and Chemicals, USA, analyses how, when used for power generation, natural gas compositions must be within design ranges determined by the Wobbe Index.
The Sabine Pass Liquefaction facility shipped its fi rst cargo of LNG on 24 February 2016. This represents the fi rst commercial
export of domestic natural gas from the contiguous US in the form of LNG. It also marked the entry of new liquefaction player,
Cheniere Energy, Inc. , into the LNG production business.
Copyright © Palladian Publications Ltd 2this publication may be reproduced, storin any form or by any means, electronic,or otherwise, without the prior permissioexpressed in thi
of Circulations (ABC). rom our sales department.
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Together facing a brighter tomorrow At Yokogawa, we believe the sky’s the limit. And to reach beyond today’s horizons, we work step-by-step with you to make the unimagined a reality. That’s how we move forward, through the synergy of co-innovation partnership. Join hands with us, and together we can sustain a brighter future. Yokogawa: Building a better tomorrow with you today.
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Japan is the world’s largest importer of LNG at approximately 35% of global demand. Tokyo is the world’s largest city, and also the world’s largest LNG importing zone. It therefore makes perfect sense that
in April 2017, the world’s largest global gas and LNG event, Gastech, is coming to town.
As the LNG industry readies itself for this year’s exhibition and conference in Tokyo, there is a real buzz being generated by the show. With over 25 000 attendees, 2500 conference delegates and over 600 exhibitors arriving from over 70 countries worldwide, the event promises new ideas, innovative solutions and the possibility of building profitable business connections.
As the eyes of the LNG world fall upon Tokyo, it is worth considering how the industry in Japan continues to develop, particularly as the country begins to restart their nuclear reactors.
If recent reports are to be believed, Japan’s LNG buyers are using their position of power as the world’s largest buyers of the fuel to earn concessions for more flexible terms. Japan’s electric utilities have won provisions that will allow them to divert contracted LNG cargoes in the eventuality that nuclear reactors are restarted. This could set a worrying precedent for LNG as more contracts start coming up for renewal.
Furthermore, the Japanese electric companies are pushing to gain allowances to resell imported cargoes and reduce their dependence on long-term contracts as Japan’s LNG demand dwindles. A shrinking population and greater use of alternative fuels has further contributed to this marked decrease in demand. Even as Asian spot LNG prices have dropped 65% from their 2014 peak, Japan’s electric utilities seemingly still want to restart their nuclear reactors since they are a lower-cost power generation source.1
This is not to say that LNG is being hurried out of the door in Japan. For many energy companies, LNG is still seen
as a cornerstone fuel. Japanese gas consumption hit record levels in January. Tokyo Gas reported that usage in the capital city reached over 60 million m3.
Japan has imported approximately 88 million tons of LNG over the last two years, and whilst it is true that this figure is expected to fall to 60 million tons by 2030, a growing number of Japanese companies are diversifying in order to ensure continued growth. As an example, Tokyo Gas is planning to expand its global presence in the fight against domestic demand troubles. As one of Japan’s largest LNG buyers, the company has announced a number of international projects, including an exchange agreement that will enable the energy provider to reduce shipping times and costs, and the signing of a memorandum of understanding with PT. Miura Indonesia to establish a strategy for industrial and commercial customers in Indonesia.
In the face of a changing energy picture in Japan, it is clear that LNG buyers will have to follow the lead of Tokyo Gas in switching their angle of attack.
Delving into the future of Japanese LNG more deeply, this issue of LNG Industry contains a regional report from Rystad Energy (p. 12), focusing on the impact of nuclear restart operations on the LNG market. The outlook for Japanese LNG will no doubt be one of the main talking points of this year’s Gastech Conference and Exhibition. A preview of a selection of exhibiting companies can be found towards the back of this issue (p. 109). If you are in attendance in early April, please visit the LNG Industry team at stand 11-390 in Hall 4, where we look forward to meeting you! 1. http://uk.reuters.com/article/uk-japan-lng-reactors-
idUKKBN15W0JV
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March 2017 5
LNGNEWSUSAUSA
Venture Global LNG files formal application to construct export terminal
V enture Global LNG has announced that its subsidiaries, Venture Global Plaquemines LNG and Venture Global Gator
Express have completed the preliminary review process with FERC and have now submitted the formal application requesting FERC’s authorisation to site, construct and operate the Plaquemines LNG export terminal and the Gator Express pipeline system.
The 20.0 million tpy Plaquemines LNG facility will be constructed on a 632-acre site in Plaquemines Parish, Louisiana at river mile marker 55 on the Mississippi River, approximately 30 miles south of New Orleans, Louisiana. The export facility includes over 7000 ft of Mississippi River frontage with three LNG loading docks.
In a joint statement, Co-CEOs Bob Pender and Mike Sabel said, “Submitting our formal application is a significant milestone in the development of our second low cost LNG export terminal. With the support of the Plaquemines Port and the Plaquemines Council, this large, attractive site on the Mississippi River is convenient and safely accessible to our international LNG customers. Further, we can access plentiful sources of US natural gas through nearby, liquid interconnection points and skip the high-cost, long-distance lateral pipelines that many projects are burdened with.”
Working with GE Oil & Gas as a strategic partner, Plaquemines LNG is utilising GE’s plant-wide LNG process system, incorporating a comprehensive power, pretreatment and highly modularised LNG liquefaction system. This system, together with the enormous logistic advantages of the Plaquemines site, allows Venture Global to continue to innovate and lower the cost of providing LNG to the growing global market for plentiful US natural gas.
CanadaCanada
Seaspan takes delivery of LNG dual-fuelled/hybrid ferry
Seaspan Ferries Corp. (SFC) has announced that the Seaspan Reliant – the second of two new
dual-fuelled/hybrid (diesel, LNG and battery) ferries – has been successfully delivered.
The vessel is currently docked at the SFC Tilbury Terminal in Delta, British Columbia (B.C.), Canada, following an eight-week, 10 661 nautical mile journey from the Sedef Shipyard in Istanbul, Turkey. It is 148.9 m long and can accommodate up to fifty-nine 53 in. trailers. It is now set to undergo a number of regulatory inspections and crew training programmes throughout March before entering operation in April.
The President of Seaspan Ferries, Steve Roth, said: “The arrival of the Seaspan Reliant marks a proud milestone in the history of Seaspan Ferries Corporation.
“With the introduction of a second new technologically advanced, LNG-fuelled vessel to our fleet, we are living out a clear commitment to our drop-trailer customers as well to the waterways in which we operate. As with the Seaspan Swift, the Seaspan Reliant will reduce our greenhouse gas emissions dramatically compared to other current alternatives while delivering the highest level of efficiency, performance and reliability.”
Seaspan Reliant’s sister vessel, Seaspan Swift, arrived in December 2016 and commenced operations in January 2017. The company currently operates a seven-ferry fleet out of five terminals in B.C., and supplies more than 50% of all cargo to Vancouver Island.
FranceFrance
Fosmax LNG considers small scale LNG vessel loading services at Fos Cavaou
Fosmax LNG has announced that it is considering making short/medium-term investments to modify its existing
facilities to make them capable of receiving both existing and planned small scale LNG vessels at the Fos Cavaou LNG terminal in France.
The company claims that these investments are being planned in order to offer LNG market players the opportunity
to load small scale LNG vessels with LNG under optimal safety, reliability and performance conditions.
As such, the company has launched a call for expressions of interest to discuss the technical aspects of the project with interested parties, and to evaluate the requirements and expectations related to the proposed small scale LNG vessel loading service.
6 March 2017
News Highlights
Visit our website for more news: www.lngindustry.com
Steelhead LNG appoints Chief Financial Offi cer
Total seeking to buy Iranian LNG project
Damen reacts to growing LNG market
LNGNEWSBelgiumBelgium
World’s first LNG-powered cutter suction dredger scheduled for 2019 delivery
DEME Group has announced that the world’s first LNG-powered cutter suction dredger, Spartacus, is
set to join the company’s fleet.Spartacus will be constructed at Royal IHC in
the Netherlands, and will be 164 m long. It will have a total installed capacity of 44.180 kW, and will be capable of cutting harder soils at faster speeds. This will mean that the dredger will not have to rely on dynamite and blasting. The vessel is scheduled for delivery in summer 2019, and will be the most powerful cutter suction dredger in the world.
The vessel will be able to dredge in waters of up to 45 m. This is compared to the current upper limit in the market of 35 m. It will also be capable of operating in remote locations where there is limited infrastructure.
Spartacus follows the order of the first LNG-powered trailing suction hopper dredgers, Minerva and Scheldt River, and will have a Green Passport and Clean Design notation.
It will also feature a number of innovations, including a waste heat recovery system that converts heat from the exhaust gasses into electrical energy.
AustraliaAustralia
Woodside and GE to support use of LNG as fuel in Western Australia
Woodside has released a statement claiming that it has signed an agreement with GE to support the use of LNG as fuel in
Western Australia.The agreement will provide customers with the option of seamless
access to reliable LNG fuel supply and gas-fuelled transport and power generation solutions.
Peter Coleman, the CEO of Woodside, said: “The agreement between our companies will harness the combined experience and offerings of Woodside and GE, allowing customers to choose LNG as a fuel that will deliver significant cost and emissions reductions.
“Woodside is ideally placed to lead the transition to LNG fuelling, with world-class LNG facilities in the Pilbara in close proximity to heavy industries.
The Regional Director for GE Oil & Gas ANZ/PNG, Mary Hackett, added: “Businesses are continually under pressure to seek and adopt solutions that reduce their emissions footprint, while decreasing costs. LNG is a fuel source that is sustainable and cost-effective.
“Developing new fuel technology to power industries such as marine, transportation and mining is key – and as a Digital Industrial Company that works across multiple industries and sectors, GE looks forward to working with Woodside to deliver gas technology solutions for customers.”
A World of SolutionsVisit www.CBI.com
A COLLABORATIVE APPROACH
CB&I understands our customers’ needs for economical projects that compete in today’s competitive, global marketplace. Our collaborative approach provides a safe, environmentally responsible and cost-efficient design and execution strategy that assures certainty of outcome and a financeable project.
From engineering and construction to commissioning, initial operations and ongoing maintenance, CB&I helps customers get their gas to market – delivering consistent results regardless of the project location. Contact CB&I to learn how our complete solutions can benefit your next LNG project.
ONSHORE LIQUEFACTIONFLOATING LNGREGASIFICATIONPEAK SHAVINGLNG STORAGE
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8 March 2017
LNGNEWS
28 - 30 March 2017
StocExpo EuropeRotterdam, The Netherlandswww.easyfairs.com/stocexpo-rotterdam-2017/
stocexpo-rotterdam-2017
04 - 07 April 2017
GastechChiba, Tokyo, Japanwww.gastechevent.com
17 - 19 May 2017
CWC China LNG & Gas International Summit & ExhibitionBeijing, Chinawww.chinalngsummit.com
30 - 02 June 2017
Nor ShippingOslo, Norwaywww.nor-shipping.com
LithuaniaLithuania
Chart LNG Storage Tanks on the way to Klaipeda Port
Three of Chart’s Decinske Giants cryogenic storage tanks, designed and manufactured for the Klaipeda LNG reloading
station, have been shipped from the Chart Ferox facility in the Czech Republic and are en route to AB Klaipedos Nafta in Lithuania. River barges will first take the tanks to Hamburg where they will be re-loaded onto a sea cargo carrier and sailed through the Baltic Sea to the port of Klaipeda.
Foundations at the site of the LNG reloading station have already been prepared, by partner company PPS Pipeline Systems, in anticipation of the first three tanks’ arrival in mid-March. The two remaining tanks, are scheduled to arrive from the Czech Republic at the beginning of the summer to provide an initial storage capacity of 5 million litres of LNG, which is approximately 3 billion litres of natural gas in gaseous form.
Marius Pulkauninkas, CEO of AB Klaipedos Nafta, said: “When the LNG distribution station is put into operation, the port of Klaipeda will become the LNG hub for the Baltic countries and north-eastern Poland.”
The LNG reloading station is aimed at creating a small scale LNG operational infrastructure and developing the LNG market in the Baltic Sea region. The station will be comprised of LNG tanks with a total capacity 5000 m3. Gas from the floating storage and regasification unit (FSRU) Independence will be delivered to the storage tanks by a gas tanker and distributed by road tank trucks or vessels. There are plans to expand the LNG station’s capacities up to 10 000 m3. The LNG station will be equipped with two truck filling stations and will be accommodated for reloading LNG onto gas tankers.
The PhilippinesThe Philippines
DOE wants to convert Malaya thermal plant into LNG facility
A ccording to multiple sources, the Department of Energy (DOE) has said that the winning
bidder of the 650 MW Malaya Thermal Power Plant Complex should convert the power asset into a LNG plant.
However, the bid documents do not indicate the conversion of the Malaya plant into an LNG plant. Therefore, there may be a need to start the bidding process all over again.
Four companies have expressed interest to participate in the auction. APT Global Inc., Phinma Energy Corp., Riverbend Consolidated Mining Corp. and AC Energy Holdings Inc. submitted letters of interest. Their bids will be evaluated in preparation for the auction set on 8 March.
Power Sector Assets and Liabilities Management Corp. manages the assets and liabilities of National Power Corp. as mandated by the Electric Power Industry Reform Act of 2001. It will also undertake the bidding process.
Situated in Pililia, Rizal province, the Malaya plant was rehabilitated in 1995 by Korea Electric Power Corp. under a 15-year rehabilitate-operate-manage-maintain agreement. It consists of a 300 MW unit with a once-through type boiler and a 350 MW unit fitted with a conventional boiler.
08 - 09 May 2017
FLNG GlobalAmsterdam, The Netherlandsenergy.knect365.com/flng
08 - 11 May 2017
FlameAmsterdam, The Netherlandsenergy.knect365.com/flame-conference
Chart is pioneering the adoption of LNG as a clean-burning, safe and economical fuel alternative for energy, transportation and industry.
www.ChartLNG.com
SHIPFUELING
RAILFUELING APPLICATIONS EXPLORATION
S O LU T I O N S
10 March 2017
LNGNEWSUSAUSA
Samsung Engineering and KBR to design and construct Texas LNG project
Texas LNG Brownsville LLC has selected Samsung Engineering Co. Ltd and KBR Inc. to build its proposed 4 million tpy LNG
export facility.Samsung and KBR will provide pre-final investment decision
(pre-FID) detailed engineering, and post-final investment decision (post-FID) engineering, procurement and construction (EPC) services for the project.
Samsung has already carried out the conceptual study, pre-front end engineering and design (pre-FEED) and FEED work for the project. The design involves the construction of modular designed and pre-fabricated liquefaction trains, using proven technology and standardised components in a controlled shipyard environment.
As Texas LNG’s owners’ engineer, Braemar Engineering is working with Samsung and KBR and continues to identify value engineering enhancements to reduce project costs and optimise performance. It is also responding to data requests during the US FERC permitting process.
KBR, meanwhile, has experience in the design and fabrication of over 1.3 million t of modules, including the world’s first fully modularised LNG facility. It also has experience with the APCI AP-C3MR™ technology, which Texas LNG will utilise.
Pre-FID detailed engineering is expected to start in 2017. Over the coming months, agreements between Texas LNG and Samsung and KBR for pre-FID detailed engineering EPC will be negotiated.
This milestone towards FID follows the recent announcement that Texas LNG has executed detailed non-binding term sheets with four independent LNG purchasers in Southeast Asia and China for a volume of 3.1 million tpy.
FID for the development of the project is expected in 2018.
FranceFrance
Chart Ferox to design and construct second natural gas fuelling station
Chart Ferox – a subsidiary of Chart Industries Inc. – has hosted a delegation from Proviridis at the Ferox facility
and concluded an agreement for a second, Chart designed and constructed, natural gas fuelling station.
Like its counterpart, the facility will be commissioned during 1Q17. The fuelling station will be located near to the container terminal at France’s main trade seaport, Marseille-Fos.
The fully automated station will be operated 24/7 by a company owned by Proviridis – V-gas. It will dispense LNG and CNG for natural gas fuelled heavy haulage vehicles and passenger cars, respectively.
Chart’s scope includes complete turnkey installation, as well as servicing and maintenance. The company will use its Chart Vacuum Technology®, as well as equipment such as the LNG Dynaflow 3000 dispenser.
AustraliaAustralia
Swift to provide entertainment and connectivity services for Prelude
Swift Networks Group Ltd has announced that is has been awarded a material long-term contract to provide design,
construction, maintenance and support services to Shell’s Prelude LNG project offshore Western Australia.
Through agreements with both Nokia and Shell, Swift will deliver a suite of entertainment and connectivity services for the floating LNG (FLNG) unit, initially for a five-year period. These include the following:
• Foxtel TV.• Free-to-air TV.• Hollywood movies on demand.• Wireless internet via Nextgen subsea optical fibre cable.• Custom alerting and messaging, with connection to
public address and general alarm (PAGA) systems for extending communication to all screens in the event of an emergency.
• Wellbeing and corporate information channels.• Ongoing maintenance and support with 24/7 helpdesk.Xavier Kris, the Chief Executive Officer of Swift Networks, said:
“We are excited to support Shell on Prelude, which is one of the world’s most significant LNG projects.
“Shell faced a significant technical challenge in keeping its offshore workers entertained, informed and connected. We are pleased that the recognition of Swift’s technological capabilities has led Shell to invite us to provide a comprehensive telecommunication and digital entertainment solution to the Prelude project.”
Liquef ied Natural Gas
Who developed the world’s first LNG tanker?
Who opened up the Asia-Pacific market by exporting LNG from Alaska to Japan?
Whose Optimized Cascade® Process technology was selected for four of the last
seven LNG projects in Australia?
Whose technology is expected to produce 25% of the world’s LNG by 2020?
Answer: ConocoPhillips
With all that expertise and experience in LNG, shouldn’t you be
talking to ConocoPhillips, too?
To learn more, visit lnglicensing.conocophillips.com.
Optimized Cascade® is a registered trademark of ConocoPhillips Company in the United States and certain other countries.
© ConocoPhillips Company. 2017. All rights reserved.
12
Following the global recession in 2008 – 2009 and the 2011 Tōhoku earthquake and tsunami, the Fukushima
accident cast a long shadow over the Japanese energy sector. Japan’s sudden need for alternative sources of energy
following the nuclear shutdown forced a shift in energy imports. LNG imports surged to replace the loss of nuclear power generation.
In 2015, nuclear reactors began to restart and, as of January 2017, 26 reactors had applied for permission to restart operations, signalling another shift in Japan’s energy mix. Nuclear restarts will ease Japan’s dependence on LNG, as well as facilitate global LNG demand, creating a more flexible ‘buyer’s market’. In Rystad Energy’s base case analysis, the company expects 18 reactors to come online by 2025 and Japan’s LNG imports to fall to 69 million tpy, down from 85 million tpy in 2015. This
Sindre Knutsson and Mai Phan, Rystad Energy,
Norway, look at the future of the Japanese
LNG market in the midst of nuclear restart
operations.
The future of
13
14 March 2017
article highlights the challenges that LNG will face as nuclear power resumes operations, Japan’s energy mix outlook and its role in shaping the global LNG market.
2005 – 2015: Nuclear shutdowns shift energy demand to LNGAfter a period of slow growth from 2005 to 2010, Japan’s power sector experienced a substantial change following the 2011 Tōhoku earthquake and tsunami. The resulting nuclear emergency at the Fukushima power plant led to a suspension of all nuclear operations for safety inspections. In 2010, nuclear operations were producing 288 TWh (approximately 25% of Japan’s energy usage) from 54 reactors. Oil and gas were primarily utilised to make up the immediate shortfall from the nuclear shutdowns. Oil demand for power generation doubled between 2010 and 2012, increasing from approximately 99 TWh in 2010 to 197 TWh in 2012, accounting for 36% of the 272 TWh lost from nuclear. Gas-for-power generation also increased 100 TWh (to 461 TWh), covering 37% of power demand previously filled by nuclear. In contrast to oil and gas, Japan did not experience any significant increase in coal demand for power generation as coal-fired plants had already been running baseload at a high utilisation rate. The remaining loss in nuclear power generation was covered by power conservation policies and efficiency gains, leading to an overall decline in power consumption. While oil and gas were the primary contributors to making up the shortfall, oil
consumption has retreated to 2010’s level, while gas consumption has stayed at the post-nuclear shutdown level of approximately 460 TWh.
Despite little growth in city gas consumption in Japan, gas-for-power increased, leading to a surge in LNG imports. The country increased LNG imports by 27% within two years, from 70 million tpy in 2010 to 87 million tpy in 2012. Over the same period, Japan’s average LNG import prices climbed from US$10.5/million Btu in 2010 to US$16.1/million Btu in 2012 (while Brent oil prices increased from US$80/bbl to US$111/bbl over the same period). LNG imports peaked in 2014 at 89 million tpy, declining in 2015 as nuclear reactors returned to operations.
2015 – 2025: Nuclear restart resets Japanese energy sectorOver the next 10 years, Rystad Energy expects growth in the city gas sector and a decline in total power generation. The resumption of nuclear operations will shape the Japanese power sector and be the main driver for the country’s LNG imports.
City gas consumption is expected to reach approximately 31 million tpy in 2025 from 27 million tpy in 2015, mainly within the industrial sector as natural gas has gained share from oil products in industrial energy consumption. Total city gas
consumption grew by 1% y/y between 2005 and 2015. While gas demand in the household and commercial sectors is on a declining trend, industrial demand has been growing, leading to a moderate overall increase in city gas consumption.
Total power generation in Japan has been falling due to power conservation policies, a shrinking population, and weak economic growth. Japan’s power generation mix going forward is highly dependent on the pace and magnitude of its nuclear restarts. The resumption of nuclear operations will reverse the surge in usage of natural gas and oil for power generation that the country experienced in recent years. However, with a lengthy nuclear restart process, a rapid decline in gas consumption is not expected. Before restart approval, nuclear plants must go through a risk and safety reassessment (stress test) carried out by the Nuclear Regulation Authority (NRA). The assessments include simulations on the effects of potential tsunamis, earthquakes and loss of off-site power events. After passing the reassessment test, the restart must be approved by the prime minister and then the local government. Local opposition to restarts is strong as public trust in the safety of nuclear power has eroded.1
In Rystad Energy’s base case, Japan will see 12 out of the 26 reactors initially under review become operational by 2020. Three of these reactors are already online. Furthermore, another six reactors are likely to restart by 2025. In the analysis, the plant’s geographic position, distance to populated areas, age, status of stress tests, as well as political opposition, were
Figure 1. Nuclear restart – base case (GW) (source: Rystad Energy research and analysis).
Figure 2. Japan’s power generation mix (TWh) (source: Rystad Energy research and analysis).
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16 March 2017
assessed. The restart of 18 reactors by 2025 would add 15.8 GW of nuclear capacity (Figure 1). This equates to power generation of approximately 100 TWh, or 10% of Japanese power generation in 2025, assuming a 70% nuclear capacity factor (Figure 2). In Rystad Energy’s high case scenario assuming faster restarts, 26 reactors are expected to come online by 2025, adding 25 GW of capacity. This equates to power generation of approximately 160 TWh (16% of power generation in 2025). The remaining reactors are not expected to return by 2025.
According to the Japanese Government’s Long-Term Energy Supply and Demand Outlook, 22 – 24% of electricity will come from renewables by 2030, up from 13.5% in 2016.4 The strategy also pushes for nuclear power to supply 20 – 22% of Japanese power generation in 2030 to meet their greenhouse gas (GHG) target under the UN’s Intended Nationally Determined Contribution. The restart of nuclear power plants is, however, being strongly challenged by public opposition. Delays in restarting nuclear reactors would require longer-term reliance on LNG, coal, and renewables. In order for Japan to meet their GHG target, renewables would ideally fill the supply gap, but cost considerations may give LNG an advantage over renewable energy sources.
In Rystad Energy’s base case, Japan’s LNG imports are expected to be 69 million tpy by 2025, falling from 85 million tpy in 2015. The high case scenario, in which nuclear resumes faster, estimates that Japan’s LNG imports could fall to 62 million tpy by 2025 (Figure 3).
This fall in LNG imports would mean that Japan is overloaded with long-term contracts. This over-contracted position, combined with inflexible destination clauses, could force the country to absorb these contracted volumes and be shut out of the spot market. In an oversupplied market where Japan is unable to renegotiate destination-clauses in long-term contracts, there will be a drop in US LNG flows to Japan. With tolling agreements, no destination clause and a Henry Hub (HH) price link, US LNG is the most flexible term supply to Japan (Figure 3), accounting for 20% of total contracted volumes by 2019.
Managing the LNG market: global, local, and contract uncertainty convergesConcurrent with its shifting energy mix, Japan is pushing for market reforms and liberalisation. In mid-2016, the country’s Fair Trade Commission initiated an investigation into whether destination clauses in LNG contracts impede competition laws. Over 70% of long-term contracts to Japan have destination clauses. If these contracts are found to be in violation, this would significantly strengthen Japan’s negotiating position. The Japanese government is also making efforts to support and increase spot LNG
trading. In 2016, the Singapore Exchange and Tokyo Commodity Exchange entered into a cooperation agreement to develop the spot LNG market in Asia. In addition, the Japanese government is attempting to break up monopolistic utilities and encourage more third-party power suppliers. Success of these initiatives may simplify the country’s energy burden, reduce price shocks, and help meet GHG emission standards.
According to cost of supply analysis in Rystad Energy’s bottom-up field by field Upstream Database, Brent crude prices are forecasted to reach US$107/bbl by 2025. This is equivalent to long-term LNG contract prices (14.85% indexed to oil) of US$16/million Btu. HH prices are expected to fluctuate between US$3/million Btu and US$5/million Btu towards 2025, mainly based on the breakeven level required to balance US domestic gas production with consumption and export. Asian spot LNG and NBP prices are expected to remain low until the early 2020s as the market is oversupplied (Figure 4). Rystad Energy sees the LNG market rebalancing in the early 2020s as well. New projects will need to be sanctioned then in order to meet demand as existing supplies begin to deplete.
Given anticipated rising oil prices, long-term oil-linked LNG contract prices would climb substantially above spot prices. This
Figure 3. Japan’s projected LNG imports and contracted volumes (million tpy) (source: Japan’s import statistics,2 Rystad Energy research and analysis).
Figure 4. Global gas prices (US$/million Btu) and Brent crude price (US$/bbl) (source: Rystad Energy research and analysis3).
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will lead to strong pressure for contract renegotiation and spot trading.
View from the LNG exporters sideOut of countries currently exporting LNG to Japan, the primary suppliers are Qatar, Malaysia and Australia. LNG imports from Qatar doubled from 2010 to 2012, but have fallen by 25% from 2013 to 2016.
Given a scenario in which contract renegotiations and spot trading are critical, exporters with lower breakeven costs will be the most flexible and open to new terms. Being one of the suppliers with the lowest breakeven costs and largest available volumes, Qatar is expected to play a key role in shaping a spot LNG market in Japan.
Figure 5A shows short-term marginal cost of various LNG suppliers in 2016. The short-term marginal cost includes all variable costs related to the operation of a project and royalties. Transportation to market is not included. In an oversupplied LNG market, Qatar recognises its competitive advantage lies in its low breakeven prices and flexibility. It may be more difficult for other suppliers, such as Australia, to accept renegotiations.
In the mid-2020s, Japan may require additional LNG supplies as existing contracts begin to expire. Japanese buyers will certainly prefer exporters that offer flexible short-term contracts. This means that countries with the lowest full cycle production costs and large available resources will be preferred providers compared to their competitors. Rystad Energy’s UCube shows that Iran has the lowest breakeven prices for unsanctioned LNG projects. The breakeven price is the minimum flat gas price needed to cover the full cycle costs of a project excluding transportation to market. However, whether or not Iran supplies LNG to Japan depends on how quickly LNG projects are sanctioned and developed (Figure 5B).
Figure 5. Volumes and short-term marginal costs for currently producing LNG projects in 2016 (A), and volumes and breakeven price for unsanctioned LNG projects in 2025 (B) (Source: Rystad Energy UCube5).
ConclusionOverall, the pace and magnitude of the resumption of nuclear operations will be the primary factor in how the Japanese energy sector matures. By lowering gas-for-power generation demand, nuclear will put downward pressure on Japanese LNG demand and consequently long-term contract prices. Concurrent to this will be a need to encourage a more transparent gas trading market. As the LNG market has gone through a significant period of expansion, there will need to be change as well. Regardless of the shift in domestic demand related to nuclear, Japan will continue to rely on LNG as its safest, cleanest, and best option for power generation over the long-term. However, with an increase in the number of importers, exporters, cargoes, and contract options, the LNG market is undergoing a generational shift as well. As the world’s largest consumer of LNG, Japan must take the lead in modernising the global LNG market to fit this new reality, both global and domestic.
References1. Japan’s Nuclear Regulation Authority.2. Japan import statistics, Trade Statistics of Japan,
Ministry of Finance.3. Prices are nominal, annual average, assuming normal
weather without seasonal variations. East Asian spot LNG excludes regasification cost. NBP is National Balancing Point, UK’s traded spot gas prices. Brent crude price forecast is Rystad Energy’s base case scenario. JCC-indexed is Japan’s customs clearance price, long-term LNG import prices into Japan linked to Brent crude with a lag – history is based on historical Brent crude and forecast is based on Rystad Energy’s Brent base case forecast. Brent crude forward as of 26 January 2017.
4. Japan’s Ministry of Economy, Trade and Industry.5. Rystad Energy UCube, Upstream Database.
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