In South Asian countries, like Pakistan and India, where gas reserves are low and demand exceeds supply, the rapidly growing markets have started seeking alternate sources, like LNG. Similar is the situation in China where the government is looking for all possible means to import gas, especially in LNG form.
Iran and Qatar, possess the world's second and third largest natural gas reserves, and are in close geographical proximity and represent significant benefits as regional exporters both of natural gas and LNG.
When natural gas is cooled to a temperature of approximately minus 260 degree Fahrenheit at atmospheric pressure, it condenses to a liquid called liquefied natural gas (LNG). One volume of this liquid takes up about 1/600th the volume of natural gas at a stove burner tip. LNG weighs less than one-half of water, actually about 45 percent as much, LNG is odorless, colorless, non-corrosive and non-toxic.
When vaporised it burns only in concentrations of 5 percent to 15 percent when mixed with air. Neither LNG nor its vapour can explode in an unconfined environment. The Liquefaction process of natural gas removes the oxygen, carbon dioxide, sulfur compounds and water.
LNG tanks are always of double-wall construction with extremely efficient insulation between the walls. Large tanks are low aspect ratio (height to width) and cylindrical in design with a domed roof.
Storage pressures in these tanks are very low, less than 5 pounds per square inch (Psig). Smaller quantities, 70,000 gallons and less are stored in horizontal or vertical, vacuum jacketed pressure vessels. LNG must be maintained cooled (at least below minus 117 degree F) to remain a liquid, independent of pressure. LNG is stored as a 'boiling cryogen'.
There are 40 LNG receiving terminals world wide, 17 export terminals and about 136 LNG ships handling 120 million tonnes (mt) of LNG every year Japan, India, South Korea, USA and a number of European countries import LNG. Japan has the largest number of LNG receiving terminals.
The LNG trade actually began in 1970s, as many target projects were planned in that era, to exploit the economics of scale in Liquefaction and to meet increasing demand. The first of these large scale projects was the Brunei export project to Japan in 1972. Trade in LNG grew more rapidly than the gas export market as a whole and its share increased from 7 percent to 19 percent of the total gas trade in 1982. However, when in 1983, the actual implementation of projects under construction began; international LNG trade virtually stopped growing.
Some of the proposed projects like the one from Iran to the US and Japan, and from Algeria and Nigeria to the US and Europe were not carried out. International trade began in 1954. Its success led to the first commercial base load international. LNG project in 1964 between Algeria and the UK for over a 15-year contract. LNG supply capacity for East Asia stands at 74.59 mt/year at present (IEEJ-February 2005). Capacity for currently planned expansion projects are expected to increase 30.14 mt by 2010 and 39.40 mt by 2020.
In the 1990's, East Asian LNG prices were 30 percent to 50 percent (about $1/ MM/Btu) higher than European levels. In 2002, Japan's LNG import price was $4.26/MMT/Btu. Unlike European and American natural gas markets, Asian markets have had no well-developed pipeline system and is far away from the natural gas sources.
Therefore, these markets conditions have led to the option of importing LNG. Besides that the Middle East LNG developers aggressively sell LNG both in the Pacific and Atlantic markets. Recently, major oil companies including BP, Shell and BG have advanced into LNG transportation, receiving terminals and gas marketing. Moreover, these giants have begun to own a growing number of LNG tankers as well.
As a principle, piped gas costs cheaper as compared to LNG. Under the present circumstances and upto the foreseeable future owing to the Iran to India gas pipeline project, the piped gas dream seems to be jeopardised.
However, importing gas from Iran through a pipeline via Pakistan will work out cheaper for India, with consultants estimating that it would cost just between $2.40 to 2.49 per million British thermal units (MM/Btu). The piped gas would be cheaper than shipping LNG, which would cost $4.10 MM/Btu.
Considering Pakistan's growing energy needs, the import of LNG is not an alternative to the import of piped gas but rather a complementary option. Though LNG will be 50 percent more expensive than piped natural gas, both score over the high cost of crude oil (US $70 per barrel as it is today) and the Petroleum products currently prevailing which are likely to be continue in the foreseeable future. LNG has the advantage that gas can be more economically taken by sea to locations on Pakistan's coastline.
Petronet (India) has contracted to buy 5 million tonnes a year from Qatar and the Indian Government has agreed to import 7.5 mt a year LNG from Iran. India has, in 2004, installed 02 LNG re-gasification terminals with guaranteed business for a time frame ending 20 years from now. 12 LNG receiving terminals have been approved by the government for construction. There is a growing demand world wide particularly in the US, where all LNG receiving terminals are located on the East coast and the Gulf of Mexico. China has made a US $70 billion oilfield and a LNG agreement with Iran. Recently (January 2005) Yemen signed an agreement to export LNG to USA.
According to the International Energy Agency (IEA) World Energy Outlook 2004, world LNG import will reach 250 billion cubic meters (Bcm) in 2010 and 680 Bcm by 2030 from 150 Bcm in 2002. In another report it is perceived that LNG shipment of Asia Pacific is expected to reach 119 million tones by 2010 and will rise to 150 mt by 2015.
The LNG market will soon become twice its size, with a major share belonging to Taiwan, Korea, Japan and other Asian countries. The basic supply of LNG is because of the increasing demand for electricity. Middle East gas exports, mainly LNG, will grow tenfold, making it the world's largest gas exporting region by 2030.
Qatar had prudently opened its door to reputed ship-owners keen to enter the business. The 'Rasgas' Qatar, is in a deal with Italy's Edison LNG for an annual supply of 4.6 mt over a 25-year period.
State-run Sui Southern Gas Company (SSGC) has planned to import 350 to 500 million cubic feet per day (mmcfd) of LNG from Qatar or Iran. Three or four international firms, including Shell and Asia Petroleum, have approached SSGC as well as the Ministry of Petroleum and Natural Resources and offered to supply LNG from Iran or Qatar. SSGC has asked these firms to lower their price from $3.50 to $2.50 per mmcfd.
It may be remembered that the average buying price of natural gas in Pakistan is about $2.20 per mmcfd and the current industrial tariff of gas is $2.97/MM Btu. Natural gas will be converted into LNG at the field, in Qatar or Iran, and will be gasified in Pakistan. The domestic demand is rising at a rate of 6 percent while CNG station requirements are growing at 10-12 percent per annum. SSGC has to supply gas to the DHA Desalination plant, Fauji fertiliser plant at Bin Qasim, Tapal energy, Textile city and Al-Tuwairqi steel mills. Currently SSGC is distributing 1200 mmcfd to Sindh and Balochistan.
SSGC will build a 2.5 mt/year (350-500 mmcfd) LNG receiving terminal at Port Qasim near Karachi which is due to come into effect within four years. The project envisaged as an integrated LNG import contract inclusive of procurement, transportation, storage and regasification facility to be set up on a Build, Own and Operate (BOO) basis at the Port Qasim terminal or a Build, Operate and Transfer (BOT) facility at Karachi Port.
The cost of the terminal is estimated at $300 million. According to a very recent development, SSGC is expected to finalize appointment of consultants for the import of LNG by the end of August 2005. After getting the permission from the Government to go for LNG imports, SSGC has already floated an international tender seeking guidance from the consultants about the LNG trade.
In response to the tender, five consulting firms have responded to the company and, presently, SSGC is evaluating their technical and financial proposals.
High officials of state-run gas companies stated that demand in Pakistan in 2010 would be 200 to 500 mmcfd in addition to the domestic production. One would respectfully like to mention some reservations.
Karachi alone needed an outsized amount of a natural gas to fulfil the requirements of the upcoming projects planned to be established especially in the Bin Qasim area. According to MD, KESC, all the six Bin Qasim power units, with capacity to produce 1260 MW, have converted to natural gas and yet the corporation is unable to run them on gas due to short supply. It may be noted that the SSGC has committed to supply '176 mmcfd'. Keeping in view the demand of natural gas for other upcoming projects like the steel mill, textile city, and fertiliser plant etc the capacity of the proposed SSGC LNG Re-gasification plant will be at least 1000 mmcfd.
According to calculations, all the new projected industries planned at Bin Qasim area will require 400 mmcfd of natural gas. It may be mentioned that the country's largest gas reserves, estimated at over 9 trillion cubic feet, at the time of discovery in the early 50's, are now depleting sharply and almost three-fourth of the reserves have already been consumed over the years. In addition, the supply of natural gas is often interrupted as a result of sabotage.
Secondly, the selection of foreign consultant in our country has remained a nightmare in most of cases. A recent example is that of PPL Pasni X-2 exploration case, in which the project, being declared a 'dry hole', was abandoned after spending US $31 million.
A report on the joint venture's end result revealed that it happened due to ill efficiency, ill planning and the hiring of the services of non-professional consultants. Moreover, the vendor's selection is another exercise which has to be done meticulously. Currently, Chiyoda Corporation, Yokohama Japan and JGC, (Japan) are the leading names owing to LNG plant construction. Chiyoda has built Qatar's largest LNG plant on a lump sum turnkey basis. JGC on the other hand, has built a number of major LNG plants world-wide.
The number of LNG trains awarded to JGC total 26 (31 percent of the world's share), with a total production volume of approximately 66 mt annually (44 percent of the world share). ConocoPhillips, USA is another global leader in LNG carried construction.
Since, under an LNG pricing formula for the Asian market, LNG prices have so far been based on crude oil prices as a benchmark, which are soaring at a phenomenal pace (US $64/barrel as to -date), SSGC should finalize their project at the earliest convenience before the price touches $100/barrel. A fixed price formula to be adopted for stability which would not be affected by oil price fluctuations.
As mentioned earlier, SSGC has two options of building a LNG terminal either at Port Qasim or at Karachi Port. The LNG plant to be built at Port Qasim entails sufficient draft requirement. The average-sized LNG tankers operating in the world carry about 63,000-65,000 mt of LNG and the largest size carry around 100,000 mt.
These average sized carriers require a sea water depth of about 11.35 meters (minimum) at the port. Pakistan oil and gas sector review document reveals that at Port Qasim, Marginal Wharf-1, FOTCO and ETPL-13 have the draft of 10,11 and 10 meters respectively, hence are not capable of handling such large hulls. Moreover, these vessels also contain a large size beam, which is about 50 meters and cannot be handled conveniently;
I hope that the above reservations would be considered by the authorities concerned.
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ESTIMATED BREAKUP OF LNG VALUE CHAIN
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(Price in US$)
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Exploration and Production 0.5-1.0/MM Btu
Liquefaction 0.8-1.2/MM Btu
Shipping 0.4-1.0/MM Btu
Re-gasification/Storage 0.3-0.5/MM Btu
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Total $2-3.7MM Btu
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