Liquefied Natural Gas

by Greenwald, Gerald B.

• ISBN13: 9789041196644
• ISBN10: 9041196641
• Format: Hardcover
• Copyright: 1998-09-01
• Publisher: Kluwer Law Intl

Summary

This unique work analyses the commercial, legal and financial aspects of the complex process of developing an international energy project For The production and marketing of liquefied natural gas (LNG). The authors, informed by their significant experience and insight in the LNG industry, describe the essential chains in the commercialism of natural gas as LNG: entrepreneurial aspects, functional LNG facilities and a linked series of contracts and contractual relationships. The expert contributions elucidate the import and significance of the crucial dependent factors that appear and reappear in all stages of a successful LNG project. Each activity, each facility, each contract must be understood in the context of the overall project development process. By providing an understanding of the whole, this book can inform the performance of those who have personal responsibility in the LNG industry, including energy lawyers, engineers and bankers.

Table of Contents

Acknowledgements	xv	(2)
List of Contributors	xvii	(4)
Table of Figures	xxi	(4)
List of Abbreviations	xxv	(4)
Introduction	xxix
Chapter 1 LNG THEMES AND VARIATIONS	1	(12)
Gerald B. Greenwald
1.1 Natural Gas into LNG	1	(2)
1.2 The Process of Project Development	3	(1)
1.3 Project Development Schedules	4	(1)
1.4 LNG Markets	5	(5)
1.4.1 LNG Market Cycles	5	(1)
1.4.2 Regional Markets	5	(1)
1.4.3 Marketing the Project	6	(1)
1.4.4 Transparency	7	(1)
1.4.4.1 The Role of Japanese Trading Companies	8	(1)
1.4.4.2 Buyers as Project Investors	8	(1)
1.4.4.3 The Indonesian Model	9	(1)
1.5 LNG Chains	10	(1)
1.6 Technology, Economy of Scale and Trade Expansion	10	(3)
Chapter 2 LNG MARKETS: HISTORICAL DEVELOPMENT AND FUTURE TRENDS	13	(60)
Robert J.E. Jones
2.1 Introduction	13	(3)
2.2 Historical Development of the LNG Trade	16	(10)
2.2.1 LNG Roots in Europe	16	(2)
2.2.2 The Emergence of the Japanese LNG Trade	18	(3)
2.2.3 New Market Leadership from South Korea and Taiwan	21	(1)
2.2.3.1 South Korea	21	(2)
2.2.3.2 Taiwan	23	(3)
2.3 Potential New Asian Markets	26	(17)
2.3.1 Thailand	27	(8)
2.3.2 India	35	(1)
2.3.3 China	36	(3)
2.3.4 Philippines	39	(2)
2.3.5 Pakistan	41	(1)
2.3.6 Singapore	42	(1)
2.3.7 Summary	42	(1)
2.4 The LNG Suppliers	43	(11)
2.4.1 Indonesia	43	(1)
2.4.1.1 Contracts	44	(2)
2.4.1.2 Facilities	46	(1)
2.4.2 Malaysia	46	(1)
2.4.2.1 MLNG	47	(1)
2.4.2.2 MLNG Dua	47	(2)
2.4.3 Australia	49	(1)
2.4.4 Brunei	49	(2)
2.4.5 Abu Dhabi	51	(1)
2.4.6 Alaska	52	(1)
2.4.7 Qatar	52	(1)
2.4.7.1 Qatargas	52	(2)
2.4.7.2 Ras Laffan	54	(1)
2.4.8 Oman	54	(1)
2.5 Possible Future Suppliers	54	(12)
2.5.1 Indonesia	55	(1)
2.5.1.1 Natuna	55	(2)
2.5.1.2 Wiriagar Deep (Tangguh)	57	(2)
2.5.2 Malaysia	59	(1)
2.5.2.1 MLNG Tiga	59	(1)
2.5.3 Qatar	59	(1)
2.5.3.1 Enron	59	(1)
2.5.4 Australia	60	(1)
2.5.4.1 North-West Shelf Expansion	60	(1)
2.5.4.2 Gorgon	60	(2)
2.5.4.3 Other Australian Projects	62	(1)
2.5.5 Papua New Guinea	63	(2)
2.5.6 Alaska North Slope	65	(1)
2.5.7 Yemen	65	(1)
2.5.8 Sakhalin	66	(1)
2.5.9 Middle East	66	(1)
2.6 Asian LNG: Matching Supply and Demand	66	(5)
2.6.1 Forecasting Supply and Demand	66	(2)
2.6.2 Asian Supply and Demand	68	(3)
2.7 A New Era of LNG for Europe	71	(2)
Chapter 3 LNG PROJECT FEASIBILITY	73	(52)
Andrew R. Flower
3.1 Introduction	73	(2)
3.2 Why LNG?	75	(2)
3.3 The LNG Chain	77	(25)
3.3.1 Natural Gas Reserves	79	(2)
3.3.2 Feedgas	81	(2)
3.3.3 LNG Plant	83	(5)
3.3.4 Storage and Loading	88	(2)
3.3.5 LNG Plant Design and Construction	90	(4)
3.3.6 LNG Plant Capital and Operating Costs	94	(2)
3.3.7 Transportation	96	(6)
3.4 The Market	102	(3)
3.5 Sale and Purchase Agreement	105	(4)
3.6 Government	109	(4)
3.7 Project Structure	113	(5)
3.8 Finance	118	(1)
3.9 The Economic Model	119	(3)
3.10 Summary	122	(3)
Chapter 4 THE CHAIN OF LNG PROJECT CONTRACTS	125	(66)
Peter P. Miller
4.1 Introduction	125	(10)
4.1.1 Hallmarks of an LNG Trade	126	(2)
4.1.1.1 Integration	128	(1)
4.1.1.2 Size	129	(1)
4.1.1.3 Cost and Financing	129	(1)
4.1.1.4 Security of Supply	130	(1)
4.1.1.4.1 Role of Governments	130	(1)
4.1.1.4.2 Nature of Sellers and Buyers	131	(1)
4.1.1.4.3 Term	131	(1)
4.1.1.4.4 Volumes	131	(1)
4.1.1.4.5 Scheduling	132	(1)
4.1.1.4.6 Take-or-Pay	132	(1)
4.1.1.4.7 `SMUT'	132	(1)
4.1.2 Future Trends	133	(1)
4.1.3 Paradigm	133	(1)
4.1.4 Legal Perspective	134	(1)
4.2 `Concession' Arrangements	135	(12)
4.2.1 Early Concessions	135	(1)
4.2.2 Licences and Leases	136	(1)
4.2.3 Production-Sharing Contracts/Contracts for Work	137	(1)
4.2.4 Development Agreements	137	(1)
4.2.5 Standard (and Not So Standard) Terms	138	(1)
4.2.5.1 Scope	138	(1)
4.2.5.2 Effective Date and Term	139	(1)
4.2.5.3 Licence/Contract Area	139	(1)
4.2.5.4 Operator	140	(1)
4.2.5.5 Fiscal Regime	141	(1)
4.2.5.6 Title	142	(1)
4.2.5.7 `Work' Obligations	143	(1)
4.2.5.8 Use of Local Goods and Services	144	(1)
4.2.5.9 Environmental Requirements	145	(1)
4.2.5.10 Government Obligations	145	(1)
4.2.5.11 Applicable Law and Dispute Resolution	146	(1)
4.2.5.12 Termination	146	(1)
4.3 Venture Arrangements	147	(7)
4.3.1 Types of Ventures	147	(1)
4.3.2 Common (and Uncommon) Principles	148	(1)
4.3.2.1 Effective Date, Term and Termination	148	(1)
4.3.2.2 Nature of Participating Interests	148	(1)
4.3.2.3 Designation of Operator: Rights, Duties and Obligations	149	(1)
4.3.2.4 Operating Committee or Board of Directors	150	(1)
4.3.2.5 Work Programmes and Budgets; Sole Risk	150	(1)
4.3.2.6 Disposition of Production	151	(1)
4.3.2.7 Abandonment, Surrender, Extension, Renewal	151	(1)
4.3.2.8 Transfers of Interests	152	(1)
4.3.2.9 Withdrawal	152	(1)
4.3.2.10 Relationship of the Parties and Taxes	153	(1)
4.3.2.11 Dispute Resolution and Applicable Law	153	(1)
4.3.2.12 Additional Provisions	153	(1)
4.4 From Discovery to Development	154	(4)
4.4.1 Data Collection and Analysis	154	(1)
4.4.2 Studies and Other Pre-FEED Activities	155	(1)
4.4.3 The Front End Engineering and Design (FEED) Contract	155	(1)
4.4.3.1 Function of the FEED Contract	155	(1)
4.4.3.2 FEED Contract Terms	156	(2)
4.5 Engineering, Procurement and Construction (EPC) Contracts	158	(7)
4.5.1 Scope	158	(1)
4.5.2 Long-Lead Items	159	(1)
4.5.3 EPC Contractor Selection	160	(1)
4.5.4 EPC Contracts for LNG Plants	161	(1)
4.5.4.1 Contract Price	162	(1)
4.5.4.2 Project Scheduling	162	(1)
4.5.4.3 Completion	163	(1)
4.5.4.4 Testing and Acceptance	163	(1)
4.5.4.5 Provisions Relating to Financing	164	(1)
4.6 The LNG Sale and Purchase Agreement (SPA)	165	(22)
4.6.1 Marketing	165	(1)
4.6.2 Preliminary Steps	165	(1)
4.6.3 The SPA Terms	166	(1)
4.6.3.1 Term	166	(1)
4.6.3.2 Quantities, Rates of Taking and Adjustment	167	(3)
4.6.3.3 Programmes and Schedules	170	(1)
4.6.3.4 LNG Quality and Other Technical Provisions	171	(1)
4.6.3.5 Price	172	(4)
4.6.3.6 Take-or-Pay	176	(1)
4.6.3.7 Invoices and Payment	177	(1)
4.6.3.8 Sources of Supply	178	(1)
4.6.3.9 Transportation	179	(3)
4.6.3.10 Facilities Construction and Co-ordination	182	(1)
4.6.3.11 Conditions Precedent	183	(2)
4.6.3.12 Allocation	185	(1)
4.6.3.13 Governing Law and Dispute Resolution	186	(1)
4.7 Trends and Prospects	187	(4)
4.7.1 New Sources	187	(1)
4.7.2 Emerging Markets and New Buyers	188	(1)
4.7.3 Trends and Prospects	189	(1)
Chapter 5 THE LNG TRANSPORTATION LINK	191	(47)
Richard G. Eddy
5.1 Unique Features of LNG Transportation	191	(2)
5.1.1 Dedication to the Trade	191	(1)
5.1.2 Extreme Reliability Requirement	192	(1)
5.1.3 Outstanding Safety Record	192	(1)
5.1.4 Custody Transfer System Acceptance	193	(1)
5.2 Design and Construction of LNG Ships	193	(18)
5.2.1 History of Development	193	(1)
5.2.1.1 Self-Supporting Prismatic Type `B'	194	(2)
5.2.1.2 Dual Membrane	196	(1)
5.2.1.3 Single Membrane	197	(2)
5.2.1.4 Self-Supporting Spherical Type `B'	199	(1)
5.2.1.5 Future Size Development	199	(3)
5.2.2 Role of International Maritime Organisation (IMO) and Classification Societies	202	(1)
5.2.2.1 International Maritime Organisation	202	(1)
5.2.2.2 Classification Societies	203	(1)
5.2.3 Role of Licensors	203	(1)
5.2.4 Construction Time Required	204	(2)
5.2.5 Establishing Ship Requirements	206	(3)
5.2.6 Preliminary Cost Estimates	209	(2)
5.3 Unique Features of the LNG Ship	211	(9)
5.3.1 LNG Cargo Systems	212	(2)
5.3.2 Instrumentation	214	(1)
5.3.2.1 Liquid Level Gauges	214	(1)
5.3.2.2 High and Low Level Alarm and Shutdown Systems	215	(1)
5.3.2.3 Pressure and Temperature Gauges	215	(1)
5.3.2.4 Gas Detection System	215	(1)
5.3.3 Nitrogen/Inert Gas	216	(1)
5.3.4 Ship-Shore Interface and Emergency Shutdown Systems (ESD)	217	(1)
5.3.5 Heel	218	(1)
5.3.6 Firefighting	218	(1)
5.3.6.1 Water Fire Extinguishing System	218	(1)
5.3.6.2 Dry Powder System	219	(1)
5.3.6.3 CO(2) System	219	(1)
5.3.6.4 Water Spray and Water Curtain Systems	219	(1)
5.4 LNG Transportation Contracts	220	(4)
5.4.1 Ship Characterisation and Classification	220	(1)
5.4.2 Hire and Off-Hire	221	(1)
5.4.3 Penalties for Non-Performance	222	(1)
5.4.4 Exceptions	223	(1)
5.5 LNG Ship Operations	224	(6)
5.5.1 Crewing	225	(1)
5.5.2 Crew Training	226	(1)
5.5.3 International Safety Management and Standards for Training, Certification and Watchkeeping	226	(1)
5.5.3.1 International Safety Management Code 1994 (ISM)	226	(1)
5.5.3.2 International Convention on Standards for Training, Certification and Watchkeeping for Seafarers (STCW) 1978 (revised 1995)	227	(1)
5.5.4 Port Requirements	228	(1)
5.5.5 Insurance	229	(1)
5.6 Extended Ship Life and Existing Ship Availability	230	(2)
5.7 Future Development Prospects	232	(6)
5.7.1 Steam Turbine Plus Reliquefaction	232	(2)
5.7.2 Diesel Electric Propulsion plus Reliquefaction	234	(4)
Chapter 6 LNG PROJECT FINANCE: SHARING RISKS WITH PROJECT LENDERS	238	(51)
Gerald B. Greenwald
6.1 Financing a Project in Segments	238	(6)
6.1.1 Upstream Development of Gas Supply	239	(1)
6.1.1.1 Unified Ownership	240	(1)
6.1.1.2 Production-Sharing Contract	240	(1)
6.1.1.3 Upstream Separation	240	(1)
6.1.1.4 Upstream Ownership	240	(1)
6.1.1.5 Separate Finance	240	(1)
6.1.2 Financing Downstream Development of Liquefaction, Storage and Loading	241	(1)
6.1.3 LNG Transportation	241	(3)
6.2 Extending the LNG Chain to the Electricity Grid	244	(1)
6.3 The Economic Feasibility of LNG Projects	245	(3)
6.3.1 Capital Cost and Lead Time	246	(1)
6.3.2 Payout Periods and Leverage	246	(1)
6.3.3 Borrowing Costs and Equity Returns	246	(1)
6.3.4 Take-or-Pay Quantity and Energy Price	247	(1)
6.4 The Financing Past Will Not Be Prologue	248	(8)
6.4.1 Japanese Import Finance	248	(1)
6.4.1.1 Brunei LNG Project	249	(1)
6.4.1.2 Abu Dhabi LNG Project	250	(1)
6.4.1.3 Indonesia LNG Project	250	(1)
6.4.1.4 Malaysia LNG Project	251	(1)
6.4.1.5 Australia North-West Shelf LNG Project	252	(1)
6.4.2 Balance Sheet Finance	252	(1)
6.4.3 Sharing Risk with Project Lenders	253	(3)
6.5 New Priorities for LNG Project Financing	256	(14)
6.5.1 National Export Credit Agencies	257	(2)
6.5.1.1 The United States Export-Import Bank	259	(1)
6.5.1.2 Export-Import Bank of Japan	260	(1)
6.5.2 The Multilateral Institutions	261	(1)
6.5.2.1 International Bank for Reconstruction and Development	262	(2)
6.5.2.2 International Finance Corporation of World Bank Group	264	(1)
6.5.2.3 European Bank for Reconstruction and Development	265	(1)
6.5.2.4 Asian Development Bank	265	(1)
6.5.3 Capital Markets	266	(3)
6.5.4 Commercial Banks	269	(1)
6.6 The Project Financial Plan	270	(3)
6.6.1 Estimating Capital Costs	270	(1)
6.6.1.1 Natural Gas Production	270	(1)
6.6.1.2 Onshore Facilities	271	(1)
6.6.1.3 Interest During Construction	271	(1)
6.6.1.4 Development Costs	271	(1)
6.6.1.5 Marine Transportation	271	(1)
6.6.2 Financial Analysis	272	(1)
6.7 Approaching Finance Markets	273	(3)
6.7.1 Financial Information Memorandum	274	(1)
6.7.1.1 The LNG Project	274	(1)
6.7.1.2 LNG Markets	274	(1)
6.7.1.3 Natural Gas Reserves and Supplies	274	(1)
6.7.1.4 Facilities and Technology	275	(1)
6.7.1.5 Storage, Loading and Shipping	275	(1)
6.7.1.6 Environmental Impact	275	(1)
6.7.1.7 Insurance Coverage	275	(1)
6.7.1.8 The Host State	276	(1)
6.7.1.9 Contractual Framework	276	(1)
6.7.1.10 Financial Presentation	276	(1)
6.8 The Lender's Analysis	276	(9)
6.8.1 Risk Mitigation	277	(1)
6.8.1.1 Sponsors' Experience	277	(1)
6.8.1.2 Proven Reserves	277	(1)
6.8.1.3 Proven Technology	278	(1)
6.8.1.4 LNG Buyer Experience	278	(1)
6.8.1.5 LNG Buyer Creditworthiness	278	(1)
6.8.1.6 Marine Transporter Experience	279	(1)
6.8.1.7 Host State Commitment	279	(2)
6.8.1.8 Host State Stability	281	(1)
6.8.2 Financial Coverage Ratios	281	(1)
6.8.3 The Security Package	282	(3)
6.9 New Policies for LNG Project Financing	285	(4)
6.9.1 Gas Exports and Gas Imports for Economic Development	285	(1)
6.9.1.1 Multilateral Development Institutions	285	(1)
6.9.1.2 Regional Import Finance Initiatives	286	(1)
6.9.1.3 Government Support	287	(1)
6.9.2 Shared Security	287	(2)
Chapter 7 LNG: THE STRATEGIC PLANNING ISSUES	289	(48)
Kimball C. Chen
7.1 Introduction	289	(1)
7.2 The Structure of the Industry and the Motivations of the Key Players	290	(11)
7.2.1 Sellers	292	(2)
7.2.2 Buyers	294	(1)
7.2.3 Energy Majors and Trading Companies	295	(1)
7.2.4 Governments of Buyers	295	(1)
7.2.5 Vendors and Engineering Service Providers	296	(1)
7.2.6 Financing Sources	296	(1)
7.2.7 Who Does What	297	(1)
7.2.8 Who Gets What--Host Government and Foreign Partners	298	(1)
7.2.9 What Technical Choices?	299	(1)
7.2.10 Commercial Strategies	299	(1)
7.2.11 Monopoly, Monopsony, Oligopoly	300	(1)
7.3 The Nature of Value	301	(2)
7.4 Important Externalities and Their Trends	303	(8)
7.4.1 Macro-economic Issues	303	(2)
7.4.2 Industrial Policy	305	(1)
7.4.3 Geopolitical Considerations	306	(2)
7.4.3.1 Contract Dependence	308	(1)
7.4.3.2 Transit Risk	309	(1)
7.4.3.3 Form Dependence	309	(1)
7.4.4 Financial Market Capacity	310	(1)
7.5 Competition, Cooperation and Comparative Advantage	311	(7)
7.5.1 Complementing Other Fuels	312	(1)
7.5.2 Competition with Energy Conservation	313	(1)
7.5.3 Choosing Not to Compete	313	(1)
7.5.4 Comparative Advantage	314	(1)
7.5.5 Horizontal Integration	314	(1)
7.5.6 Vertical Integration	315	(1)
7.5.7 Technology	315	(1)
7.5.8 Financial Integration	316	(1)
7.5.9 Cooperation (Even Between Competitors)	316	(1)
7.5.10 Cooperation and Competition within an LNG Export Project	317	(1)
7.6 Possibilities for Creating Change	318	(3)
7.6.1 The Importance of Time and Timing	318	(1)
7.6.2 The Creation of Markets	319	(1)
7.6.3 The Effect of New Entrants	320	(1)
7.6.4 The Economic Impact of Technology	321	(1)
7.7 Case Studies	321	(16)
7.7.1 Policy Formation as Condition Precedent: China	321	(3)
7.7.2 Finance Strategy: Mobil Corporation and the Financing of the Ras Laffan Project in Qatar	324	(3)
7.7.3 Geopolitics of Gas: Turkey	327	(1)
7.7.4 Emerging Markets: Pakistan	328	(2)
7.7.5 Growth in a Developed Market: Italy	330	(1)
7.7.6 Creation of Markets: Enron and the Dabhol Project in India	331	(1)
7.7.7 LNG Project Feasibility: Alaska North Slope	332	(2)
7.7.8 Equipment Vendors and Industrial Policy: The Example of Shipbuilding and Ship Operations	334	(1)
7.7.9 Comparative Advantage and Comparative Disadvantage: The Natuna Project in Indonesia	335	(2)
Index	337