MITIGATING THE CHALLENGES TOWARDS BEING AN

EFFECTIVE LNG IMPORTER

Rishi Rampersad-Maharaj
Senior Commercial Analyst

Kuncheria George
Commercial Analyst

Qatargas Operating Company LTD.

Doha, State of Qatar

ABSTRACT

Some developing nations have indicated a need for imported LNG to meet their future gas
demand. However, in many instances, their proposed LNG import terminal project development
timelines have slipped and theyve struggled to fill the resulting supply/demand gap. Factors
contributing to these delays may range from the slow pace of pipeline infrastructure development
to economic decisions regarding alternative sources of supply (e.g. domestic gas or alternative
fuels.)

This poster session recommends that, to be successful, the LNG import development process
needs to be highly systematic. To meet future energy demand, nations and governments must
provide the support needed for terminal and pipeline infrastructures to be ready when
needed. Key elements of these plans include a regulatory framework with policies that are clear
and transparent, competitive supply backed by available demand, commercially agreed upon
Master Development and Gas Plans for potential market sectors, project development plans for
the required infrastructure regasification units, storage tanks, and takeaway pipeline capacity
and the ability to switch fuels of choice.

Owned and presented by Host IGU Member Supporting Association

NATURAL GAS BECOMING A MAJOR FUEL IN THE MIX

It is estimated natural gas will account for almost 25% of the worlds total primary energy
demand mix by 2035 according to Wood Mackenzie. Today natural gas is the fastest growing
form of energy in the world and is considered to be the most flexible of all primary fossil fuels. It
is competitive, abundant, and most importantly, emits significantly fewer harmful pollutants than
other fuels making it the cleanest burning primary fossil fuel. LNG, as a form of natural gas, on
the whole plays a vital role in the projected growth of natural gas as a primary choice of fuel.
Cost effectiveness, social and environmental issues associated with using coal and nuclear energy
will continue to be the driving force of increasing demand for natural gas and LNG. A take away
from the COP21 summit, in Paris in December 2015, is the increasingly popular discussion of
LNG-to-power because of reduced prices for LNG and growing demand for power in many
regions, including Asia and Africa. A global deal on carbon dioxide emission reductions at the
COP21 could also favour gas-to-power over coal-fired generation. In addition, the International
Gas Union (IGU) released a report, at the same time as the COP21, highlighting how the
enhanced use of natural gas in power generation, heating and industry can drastically reduce
emissions, mercury and particulate matter.

The rise of natural gas and LNG has positive attributes as an alternative fuel to other main
stay fuels such as coal, heavy fuel oils and diesel used in power generation and its social and
environmental benefits compared to coal, fuel oils and nuclear fuels. LNG projects are capital-
intensive and technically very complex to develop. Thereby the development of a new LNG
project may face several risks that can result in expensive delays. The risks are significant and
the underlying causes span political circumstances, regulatory considerations, selection of fit-for-
purpose technology that deliver within cost and time and supply-demand fundamentals along
with ease of fuel switching from existing infrastructure.
The development of LNG infrastructure requires significant capital requirements and the
associated risks of implementing such projects cannot be underestimated. Using the Asia-Pacific
region and more specifically, the Association of Southeast Asian Nations (ASEAN) markets as one
example of developing/emerging markets where the potential drive for LNG demand and
infrastructural growth may come from, this poster session is meant to encourage discussion and
highlight to companies looking to enter or diversify into the LNG import terminal business a range
of considerations that need to be accounted for in order to confidently reach FID on a new LNG
import terminal that is commercially viable and able to attract funding.

LNG demand shifts in the global market (using ASEAN as an example)

Global demand for LNG is estimated at 330 bcm in 2015 according to Wood Mackenzie. Using
the Asia-Pacific region for illustration of the poster discussion and more specifically, the ASEAN
markets, the Asia-Pacific1 region accounted for 75% or 249 bcm of this global demand. Drilling
down within the Asia-Pacific region - China, Japan, Taiwan and South Korea accounted for 86%
or 216 bcm of the total Asia-Pacific demand. However, Japan, Korea and Taiwan are mature and
well established markets and will remain major buyers of LNG as they attempt to meet its
increasing demand for power, and move away from nuclear energy or coal use in power

1
Asia Pacific LNG import region defined as China, India, Indonesia, Japan, Malaysia, Pakistan, Bangladesh, Philippines,
Singapore, South Korea, Taiwan and Thailand

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generation, but growth will be limited. China, India and other emerging countries in the Asia-
Pacific region are potentially driving the LNG demand and have been making significant
investments into LNG infrastructure.

On the flip-side of the demand coin, there is estimated to be an almost 50% increase in LNG
supply by 2022 from 2015 after completion of new LNG projects currently under construction in
Australia, US and Russia with possible developments expected to be announced in Africa in the
future. This increase in LNG supply will need to be balanced by a rise in demand from existing
and emerging markets to be economically beneficial to all parties involved.

Globally, emerging LNG markets accounted for 50% of the LNG demand in 2015 and are
expected to grow as more emerging markets come onto the market with proposed LNG import
terminal development. There are nineteen import terminals plants under construction globally
which are estimated to start-up between 2015 to 2018 according to Wood Mackenzie. Almost
70% of these plants will come from Asia-Pacific region. In addition, there are 74 import terminals
that are proposed for construction with almost 40% or 29 of those plants coming from the Asia-
Pacific region. Emerging economies in the greater Asia-Pacific region namely - Indonesia,
Bangladesh, Philippines, China, Thailand, India, Japan, South Korea, Pakistan, New Zealand,
Vietnam and Myanmar have all proposed import terminals with startups ranging from 2017 to
2022.

Region 2000 2015 20202

Asia Pacific 26 66 95
Europe 9 22 31
Middle East - 4 6
North Africa - 1 3
North America 3 16 20
South America - 7 11
West Africa - - 1
Total 38 116 167
Fig 1: LNG import terminal infrastructural growth across regions from 2000 to 2020

Again, using the Asia-Pacific region as an example to illustrate the poster discussions, the
common driver for these countries seeking LNG is that other feedstocks, such as coal, whilst
comparatively attractive still carries the challenge of managing government policies on carbon tax
and environmental compliance. Other challenges for emerging markets in the Asia-Pacific region
is the associated credit risk compared to more mature economies. This impacts their borrowing
costs and challenges them to gain support for FID and capital spend for an LNG import and
downstream infrastructure.

Using the ASEAN region as a subset of the Asia-Pacific area and illustrated in Fig. 2, countries
in ASEAN such as Thailand and Singapore, have become new LNG market entrants with a
growing appetite for further LNG supply, while the Philippines is planning to become an LNG
importer soon and Vietnam proposing LNG import terminals for the future. By contrast,
Indonesias PERTAMINA has ambitiously contracted long term LNG supply by 2020 which will
require additional LNG import terminals to be constructed. Malaysias oil and gas supply declines

2
Includes operational, approved, proposed and under construction LNG import terminals

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is being augmented. With a changing dynamic in these countries, there is a focus on supplying
their domestic demand.

Vietnam is considering two LNG

Myanmar is looking at an
import terminals
FSRU plant
Philippines has one plant under
Thailand is considering an construction and a second one
FSRU on top of its operational is proposed
Map Ta Phut terminal

Three plants proposed to Malaysia has one operational

Indonesias existing 3 LNG import facility and is
operational plants constructing another

Fig.2: Proposed LNG import facilities in the ASEAN region3

Going forward, to secure access to their LNG needs, countries in ASEAN need to build a fit-
for-purpose LNG import terminal infrastructure so as to be able to diversify their future LNG
supply options.

Criteria to consider towards being an effective LNG importer (using the ASEAN region
as an example)

1. Energy security

World energy markets continue to be vulnerable to disruptions precipitated by events ranging

from geo-political strife to natural disasters. While most ASEAN countries are net exporters of
natural gas, declining indigenous natural gas outputs and increasing domestic natural gas usage
has led countries to consider formulating emergency response mechanisms. Response
mechanisms include stock-draw, demand restraint, fuel switching and surge production. While
supporting projects to explore offshore natural gas fields, some countries have started
strengthening their regasification capacity and storage facilities by building up liquefied natural
gas (LNG) receiving terminals.

Therefore, a country should work to identify measures to prevent and react to supply
disruptions across all sources of energy.

3
Wood Mackenzie LNG Tool

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 2. Government support

In addition to logistical and supply considerations, the role of government is integral to LNG
usage in downstream development. Government should step in where entire communities are
disconnected from the power grid or pipeline networks. Governments support is paramount in
getting environmental clearance and pushing through regulatory frameworks. Where gas
infrastructures do not yet exist, an entire regulatory framework must be established to ensure
proper regulation of the imported LNG. This involves a significant amount of time. Nonetheless,
governments may also slow the development of LNG and natural gas infrastructures through
extended environmental permitting processes and stringent import/export regulations with
adverse implications for the timeline, cost and viability of import terminal projects.

3. Sponsors/ Project Developers

A terminal development should be in line with the developers wider strategy. The terminal
could be seen to enable access to a high-value market especially if anchor off-takers can be
sourced or strengthen a marketing and trading position. For other investors, it could enhance
their ability to monetize upstream gas or strengthen their position in a given geographical region.
Either way, strategic fit and viability is one of the key considerations and drivers when looking at
possible import terminal developments.

Of course, no terminal project would be feasible without the necessary technical know-how
and expertise to design and construct it. As LNG continues to become a part of a nations supply
solution, it is essential to continue to develop the technical solutions for meeting their specific
needs.

4. Fit for purpose technical selection

LNG can be regasified at land-based or offshore floating import terminals. Storage can be
located on- or offshore as well. Several regasification options have emerged over time and are
currently available, as presented by the paper Opportunities and Challenges of using LNG as a
fuel in small to medium sized power generation from the Galway Group.

As they indicated, traditionally, LNG import terminals have been located onshore. The cost of
land-based terminals ranges between $250 million and $1 billion. These terminals require three
to four years to construct. Furthermore, they require sizeable land areas and deep-water ports,
as well as the addition of three or four tugs to manoeuvre the LNG ships. These terminals are
most suitable for servicing large power plants/markets that provide base-load capacity.

An alternative option for regasification is provided by Floating Regasification and Storage Units
(FSRUs). FSRUs are seen as a less costly, more flexible and more rapidly implementable solution
for LNG imports. This solution is becoming more prevalent worldwide. FSRU costs range between
$100-$250 MM, in addition to associated infrastructure costs, an estimated $50-$200 MM. The
FSRU construction period ranges between 12 and 30 months. See Fig. 3 below.
Re- Construction Storage Cost Flexibility of
gasification period location
On shore Onshore 3 4 years Onshore Capex USD$ Low flexibility. Vessel

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facility 250 1000 M4 needs to be on site for
delivery.
FSRU Offshore 1 3 years Offshore Capex USD$100 High flexibility. Vessel
250 M5 can be moved around.
Fig.3: On-shore LNG import terminal vs. FSRU

Sponsors and project developers needs to decide the most suitable option for a specific
market, assess the associated cost and schedule for completion in consideration to the local
conditions which is vital to match the optimum solution to each location.

Most efficient way forward is adopting an integrated approach, building discipline-focused

study team (for example Technical Team, Pipeline Team, Environmental Team, Stakeholder
Team, Legal Team, Marketing Team, Management Team.

5. Fuel choice

Coal and natural gas are the two most important fuel inputs for electricity generation globally,
with a share of approximately 45% and 24% in 2015, respectively according to WoodMackenzie.
In the Asia-Pacific region, this is 28% for coal and 6% for natural gas. Considerations of not only
which fuel but efficiency gains must be factored in the fuel mix and ease of fuel switching
capabilitities. Comparatively, coal is more widely available. Other factors that need to be
considered in further projections include the potential impacts of a carbon price on the generation
costs plus issues such as subsidy reforms according to the IEA Clean Coal Centre. The choice
may not only be based on generation cost, it will likely be influenced by each markets
government decision to maintain a diversified fuel mix. Besides, the Paris concluded COP21
climate change conference agreed on a low carbon roadmap. This will continue to support the
shift towards gas as a cleaner alternative to oil & coal, with natural gas regarded as a bridging
fuel to renewables in the future.

6. Demand

The appetite for natural gas as a fuel of choice for developing nations and power generation
continues to grow. At 21% of the primary energy mix according to Wood Mackenzie, natural gas
is the second most important energy source in the ASEAN region. Going forward, the proposed
expansion of gas pipelines, LNG plant constructions, and deployment of floating storage and
regasification units (FSRU) will likely facilitate an increase in natural gas power generation plants.

Fast-rising demand and limited interconnections between countries in Southeast Asia have
prompted the installation of several LNG import terminals in recent years with Indonesia,
Malaysia, Singapore and Thailand are now receiving LNG shipments. End users will need to
develop, finance and construct their own projects in order to burn natural gas for power
generation or consider the conversion implications from existing fuel to gas fired power
generation.

4 excluding receiving jetty and port costs

5 excluding berthing facilities

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 7. Competitive supply

The demand for LNG must be balanced by the supply. In a competitive supply market, LNG is
facing intense competition between existing LNG suppliers and this trend will continue in the
coming years with new entrants coming to the market. LNG suppliers will need to increasingly
offer competitive prices with flexible contractual terms and conditions to buyers to secure their
long term sales.

LNG buyers in emerging markets face the challenge of operating in a sub investment credit
environment. This may push buyers to seek out LNG suppliers that are free of lender imposed
credit constraints who may be in a stronger position to balance risk and return factors.

Fig.4: Criteria to consider for successful implementation of an LNG import terminal

Conclusion

LNG projects are large and complex, employing advanced technology, and such challenges
must not be underestimated. LNG project developments face risks that can result in expensive
delays. Prolonged commissioning and start-up periods, reduced performance, logistical
challenges, cost overruns and other problems can all significantly affect a projects economics.
The risks are significant and the underlying causes span political circumstances, regulatory
considerations, and unclear project definition, to technology that does not deliver. The framework
for a successful LNG import project should start by exploring some of the criteria outlined in this
paper.

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 Key criteria have been considered in defining the scope of project delivery for an LNG import
terminal and factors that must be planned for from conceptual stage through to its Final
Investment Decision (FID), and management for successful implementation thereafter. Qatargas
has worked with major LNG import terminals and countries to realise their LNG and natural gas
development goals and successful commissioning of LNG import facilities across the globe,
delivering 1st LNG cargoes to 17 import terminals around the world. In addition, Qatargas has
unique capabilities to meet and exceed its customers needs and is once again leading the
industry in providing new and innovative LNG supply chain solutions such as multi-port delivery
initiatives.
Bibliography
1. The European LNG terminal infrastructure 2015: Status and Outlook Abstract LNG Map
& Investment Database 2015, Gas Infrastructure Europe, 17 June 2015
2. Coal and gas competition in power generation in Asia by Nigel Dong and Paul Baruya,
IEA Clean Coal Centre profiles, 16 February 2015
3. The LNG infrastructure requirements across Asia by Nicholas Browne, WoodMackenzie,
ANGI-Conference, November 2015.
4. Study on Economic Partnership Projects in Developing Countries in FY2013 - Feasibility
Study for Introduction of LNG Receiving Facilities in Myanmar Final Report, Prepared by
The Ministry of Economy, Trade and Industry, Ernst & Young ShinNihon LLC, Japan
External Trade Organization and The Japan Research Institute, Limited, Mitsui O. S. K.
Lines, Ltd., JGC Corporation, Sumitomo Mitsui Banking Corporation, February 2014
5. Steps towards developing a successful LNG Import Terminal an ASEAN perspective,
KPMG Global Energy Institute.
6. LNG Regasification: The Hidden Issues, Roland Kupers, GasTech, Bilbao, Spain, 15th
March 2005.
7. Managing LNG project risk by Erik Skramstad and Jon Wredmark.
8. Bending the rules of LNG by Poulad Berenjforoush and Peter Maldonado, January 2014.
9. LNG Import Terminals : Offshore vs Onshore-A site and concept screening
methodoloygy by Mike Said & Joram Meijerink of Shell Global Solutions
10. Opportunities and Challenges of using LNG as a fuel in Small to Medium Sized Power
Generation by Gauthier van Marcke and Alina Dumitrasc, Galway Group

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Appendix I - Qatar the premier supplier of LNG to the worlds importing countries

Appendix II Qatargas has delivered 1st LNG cargoes to 17 LNG import terminals
around the world

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