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LNG INDUSTRY | July / August 2013

July / August 2013

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www.fmctechnologies.com ISSN 1747-1826 CONTENTS JUL/AUG 2013

03 Comment 50 Cover story: Built to last Kevin Jackson, MOGAS Industries Inc., USA, examines the benefits of using severe service, dual metal-seated ball valves 05 LNG news over single seated lift-and-turn ball valves in LNG molecular 10 Difficulties down under sieve applications. Alex Field, Energy Industries Council (EIC), UK, discusses the 57 Not just another gas development of the Australian LNG industry and potential Mark Henley, Bestobell Valves, USA, looks at why selecting stumbling blocks to its further growth. the correct valve is especially important in LNG applications. 61 A fuel for all Alex Field, Energy Industries Council (EIC), UK, Thomas Vles, Bottle Consulting, the Netherlands, outlines the discusses the development of the Australian LNG industry 10 and potential stumbling blocks to its further growth. drivers, barriers and developments in the use of LNG as a fuel. 64 Shipping in Martial Claudepierre, Bureau Veritas, France, discusses the

he LNG industry has burgeoned over the past contributions from new projects are also unlikely to meet decade, becoming increasingly integrated into the rises in demand, with only two facilities set to come online Tglobal gas market, yet the LNG market is set to in the next year. challenges and benefits of utilising LNG as a marine fuel. tighten over the next few years as demand closes in on supply. With a raft of projects already under construction Global LNG supply and a steady stream of developments at the planning In total, global LNG capacity is expected to grow by stages, Australia is set to challenge Qatar’s future position 8.4 million tpy to 277 million tpy in 2013, with even lower as the world’s largest producer of LNG. But with spiraling growth of 4.4 million tpy forecast for 2014. The supply cost issues and project delays, what is the outlook for demand imbalance is forecast to worsen further as several the Australian LNG sector and where does it fit in when it LNG regasification facilities are set to come online during comes to plugging the supply gap? 2013 and 2014; according to the EIC’s in house energy At the beginning of 2013, LNG accounted for around projects database, EICDataStream, a total of 34 LNG 13% of the global gas market and by 2030 it is forecast to regasification terminals are due to come online over this meet over 35% of delivered gas supplies. Yet in the near period globally. During January 2013, India’s long-awaited 69 Fuelling the revolution term, demand for LNG is expected to outpace supply, Dabhol terminal and Israel’s Hadera floating, regasification increasing by a factor of 4.3 and 8.9 in 2013 and 2014 and storage unit (FSRU) were commissioned, bringing respectively, an average rise of 37 million tpy each year. At a combined 7.9 million tpy of regasification capacity the start of 2013, global LNG capacity stood at online. China’s Zhuhai and Tangshan facilities along with Alan D. Hatfield, Braemar Engineering, USA, discusses the 269 million tpy, only 4.8 million tpy higher than at the Singapore’s first regasification plant are all also due same point 12 months earlier following the commissioning online during 2013, totalling 13 million tpy of regasification of just one liquefaction plant, the Pluto facility in Australia. capacity. A similar outlook awaits this year, with minimal capacity LNG projects coming online are expected to provide set to come online, exacerbated by the delay of sufficient supply to meet demand up until 2017, but by technology developments that are making natural gas fuelled Angola LNG’s Soyo 5.2 million tpy liquefaction facility 2020 demand will exceed supply unless planned projects during 2012, which has now been pushed back until the (yet to be sanctioned) are given the go ahead. This supply first half of 2013 due to commissioning issues. Supply deficit will impact on prices which, after hitting a 17 month vehicles a reality. 73 E-LNG – a comparison 10 LNGINDUSTRY JUL/AUG 2013 JUL/AUG 2013 LNGINDUSTRY 11 Karlheinz Aigner, Christian Beer and Michael Schmelz, Siemens Energy Oil & Gas Solutions, Germany, examine 15 Boomtown whether electric drives are a viable option for LNG plants. Peter W. Lewis, Department of Mines and Petroleum (DMP), Australia, discusses Western Australia’s burgeoning LNG 77 Portable gas industry. John Lamb and John Tirrell, CHI Engineering Services, Inc., 19 Leak-free FLNG USA, examine the practicalities of portable LNG solutions. David Brown, Tony Bokas and Mark Elliott, Baker Hughes

Process and Pipeline Services, explain how leak detection ON THIS MONTH’S COVER services can enhance the commissioning process and reduce costs.

MOGAS provides 24 Twin ships engineered valve solutions W. van Wijngaarden and F. Criminisi, SBM Offshore, for severe-service the Netherlands, and M. Schmidt, Linde AG, Germany, discuss applications, including a new mid-scale FLNG concept. July / August 2013 high-temperature, high-pressure, corrosive, 31 Optimised to float abrasive and erosive Antonio Pelagotti, Gabriele Mariotti and Carlo Cortese, environments. MOGAS GE Oil & Gas, Italy, discuss the development of serves many industries turbocompressors for FLNG applications. worldwide, offering isolation and control 35 Simple solution valve products in sizes Javid Talib, Brian Price and Shawn Hoffart, Black & Veatch, up to 36 in., with describe the benefits of using a single mixed refrigerant pressure classes up to process in FLNG facilities. ASME 4500. Larger Floating-ball Valve Solutions sizes, special applications for Mol Sieve Applications and unique material 39 Avoiding the disconnect requirements are available Stephen Woolway, Trelleborg Marine Systems’ Docking and upon request. Visit Mooring product area, Sweden, offers an integrated approach to FSRU mooring. www.mogas.com for more information. 45 To compress or to liquefy? Robert Dick, Phil Clark and David Stenning, Sea NG, Canada, examine the case for compressed natural gas transportation vs. LNG.

Copyright © Palladian Publications Ltd 2013. 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, LNG Industry is audited by the Audit Bureau of Circulations (ABC). recording or otherwise, without the prior permission of the copyright owner. All views expressed in this journal are An audit certificate is available on request from our sales department. 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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LNG_JulyAug_2013_01-02.indd 2 08/08/2013 14:13 CALLUM O’REILLY EDITOR COMMENT

s I write this month’s comment, I am keeping a close Industry experts estimate that BG Group, Origin Energy eye on one of the world’s oldest sporting contests – and Santos could have saved billions of dollars by merging AThe Ashes. For the uninitiated reader, The Ashes is a two of the three LNG ventures currently under construction fiercely competitive cricket competition that has been played in Queensland. Instead, we have seen a costly duplication of out between England and Australia since 1882. For many years, facilities and services, despite the fact that all three projects use Ashes cricket was dominated by Australia, who won eight test the same liquefaction technology and the same contractor. series in a row between 1989 and 2002-03. However, times There are growing fears that spiralling development costs have changed. England have emerged victorious in the last could hamstring Australia’s LNG industry as it attempts to two series and are leading this current test series 2-0, with just capture the second wave of project development. An article two tests still to play. from the Energy Industries Council (EIC), starting on p. 10 of this In England, much has been made of the recent plight issue, outlines a number of domestic factors that have resulted of the Australian cricket team. There are two main lines of in these huge cost escalations, including labour shortages, a thought as to why the country is suffering such a dramatic strengthening Australian dollar and a complicated regulatory decline in sporting fortunes. The first is that it has simply environment. stopped producing a regular supply of world-class players However, there are signs that the country’s main players are (there are, of course, a multitude of reasons as to why this finally ready to start working together. Santos and BG Group might be the case, which I will not go into here). The second recently signed the first significant bilateral agreement between suggestion is that this current team is underperforming, the Gladstone LNG and Queensland Curtis LNG (QCLNG) hampered by a succession of off-field controversies (rumours projects, which will interconnect both projects’ major pipelines of in-house fighting, lawsuits from previous coaches, and the in two places. The collaboration will allow the companies to suspension of one of their better players after he inexplicably buy, sell and swap gas supplies, which should help to maximise threw a punch at an English batsman in a bar prior to the start productivity and slash costs. of the series). Demand for LNG is set to remain strong and global energy But how is cricket related to the LNG industry, I hear you companies have expressed great interest in operating in ask? Well, it could be argued that Australia’s LNG industry is Australia, with the country securing 22% of all project finance facing similar challenges to its cricket team. Just as a shortage globally in 2012. But just as the Australian cricket team must of skilled workers (read world class players, in the cricket work together to rise to the challenge of emerging competitors analogy) is threatening to hinder the development of the in a sport it once dominated, the Australian LNG industry industry down under (the future of Australian cricket), a lack of must now continue to cooperate to see off competition from cooperation between ventures (players and coaching staff) is North America and Africa. If it can do so, the prize is potentially hampering the success of existing projects (the current cricket enormous (much larger than The Ashes urn, which is set to team). remain in England for a little while longer). CONTACT INFORMATION

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LNG_JulyAug_2013_03-04.indd 4 06/08/2013 09:54 LNGNEWS

USA South Korea Chart E&C wins liquefaction plant order Golar LNG secures financing for newbuilds

oble Energy Inc. has awarded Chart Energy & olar LNG Ltd has executed a US$ 1.125 billion NChemicals Inc. a contract to provide a processing Gfinancing agreement to fund the first eight of its 13 facility to produce approximately 100 000 gal./d of newbuild vessels and FSRUs. The facility is divided into LNG. The facility will be fully integrated with a new three tranches: a term loan of US$ 450 million funded by gas processing plant to be located in northern Weld a consortium of lenders and guaranteed by a 95% Korea County, Colorado, US. The plant, which is expected Trade Insurance Corporation (‘K-Sure’) policy, a term loan of to be fully operational by the end of 2014, will service US$ 450 million funded by The Export Import Bank of Korea Noble Energy’s northern Colorado operations in the (KEXIM) and a term loan of US$ 225 million funded by a DJ Basin. syndicate of commercial banks (the Commercial Tranche). The C100N plant selected by Noble Energy will The tranches have a 12 year repayment profile. provide a robust, flexible LNG plant using a wide range Commenting on the agreement, Golar’s Chairman of feed gas compositions. John Fredriksen said: “Golar has demonstrated its Meanwhile, Chart Industries’ Distribution & Storage commitment to LNG shipping and FSRUs with its business in China has been awarded a contract to newbuilding programme, on the back of extremely provide self-contained LNG station modules to Kunlun attractive long-term market fundamentals. To have Energy Investment, a wholly owned subsidiary of the support of the Korean ECAs to this extent, without PetroChina’s Kunlun Energy. requirement for contracts in place, enables Golar to take a The contract value of this order is in excess of more flexible and long-term approach to the LNG shipping US$ 50 million and is in addition to the US$ 45 million market. To see so many of our relationship banks together PetroChina order the company received and with the Korea Finance Corporation and a number of new announced in April 2013. banks participating in this oversubscribed facility is both This new order is not included in the company’s reassuring and welcome. Collectively they provide a strong second quarter 2013 orders and backlog. footing for the company’s ambitious growth plans and we look forward to their on-going involvement in our business.”

Nigeria Nigeria LNG lifts force majeure on exports

igeria LNG (NLNG) has lifted the force majeure which it agreed to do “under protest” in return for the Non its LNG exports, after the Nigerian Maritime immediate release of its vessels. NLNG has also agreed Administration and Safety Agency (NIMASA) lifted a to discontinue all its contempt proceedings against all the blockade on the company’s operations. The blockade, parties. which followed an ongoing tax dispute, prevented LNG NLNG is a joint venture between the Federal tankers from accessing NLNG’s loading terminal on Bonny Government of Nigeria, represented by the Nigerian Island in the Niger Delta region. It was finally lifted after National Petroleum Corporation, NNPC (49%), Shell the Nigerian government ordered NLNG to pay a reported Gas BV (25.6%), Total LNG Nigeria Ltd (15%), and Eni US$ 159 million worth of outstanding sums to NIMASA, International (N.A,) N. V. S. a. r. l (10.4%).

JUL/AUG 2013 LNGINDUSTRY 5

LNG_JulyAug_2013_05-09.indd 5 06/08/2013 10:01 LNGNEWS

USA South Korea AIDEA releases North Slope LNG plant Teekay exercises option for two LNG carrier feasibility report newbuildings

he Alaska Industrial Development and Export eekay LNG Partners L.P. has exercised two of its three TAuthority (AIDEA) has released a report on the Texisting options with Daewoo Shipbuilding & Marine feasibility of a proposed North Slope LNG plant. The Engineering Co. Ltd. (DSME) for the construction of two proposed facility is part of the Interior Energy Project, 173 400 m3 LNG carrier newbuildings for delivery in 2016. which calls for natural gas to be liquefied on the North These two newbuilding LNG carriers are in addition to Slope and trucked to Fairbanks for regasification and the two LNG carriers Teekay LNG ordered from DSME in distribution. The Interior Energy Project was initiated December 2012, which have since secured time-charter by Governor Sean Parnell with the goal of bringing employment commencing upon delivery. These newbuildings North Slope natural gas to Alaskans. The Legislature will also be constructed with the M-type, electronically advanced the project with the passage of SB23. controlled, gas injection (MEGI) twin engines, which are AIDEA has determined that a 9 billion ft3/yr expected to be significantly more fuel-efficient and have LNG plant on the North Slope is technically and lower emission levels than other engines currently being economically feasible for serving the initial Fairbanks utilised in LNG shipping. The partnership intends to secure North Star Borough heating demand. The plant is long-term contract employment for both vessels prior to their projected to successfully meet the community’s delivery in 2016. In connection with the exercise of these two price targets, and reduce the annual heating newbuilding options, the partnership secured further options cost for Borough residents and businesses by from DSME, which will enable it to order up to five additional US$ 14.09 – 17.09/thousand ft3 at the ‘burner tip’, LNG carrier newbuildings in the future. which is the equivalent of US$ 1.88 – 2.28/gal. of fuel The contract with DSME includes an installment payment oil. schedule similar to the two LNG carrier newbuildings ordered AIDEA will be conducting due diligence in the from DSME in December 2012. The partnership intends to process of selecting private sector business partners. initially finance the installment payments during construction In addition to the selection of business partners, using a portion of its existing liquidity, and expects to secure next steps include the development of the business long-term debt financing for the two newbuildings prior to structure and financial plan. their scheduled deliveries. NEWS HIGHLIGHTS X RWE sells stake in Excelerate Energy Scan for the The benefits of LNG (video) Energy Global X iPhone/ iPad App X Special Report: Building public support for LNG projects

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LNG_JulyAug_2013_05-09.indd 6 06/08/2013 14:06 LNG_JulyAug_2013_05-09.indd 7 06/08/2013 10:01 LNGNEWS

Angola Papua New Guinea Angola LNG delivers first cargo to Brazil Wood Group PSN wins PNG LNG contract

ngola LNG has delivered its first 160 000 m3 ood Group PSN (WGPSN) has been awarded a Acargo to Brazil. The cargo left Soyo aboard the Wcontract by Esso Highlands Ltd, a subsidiary of SS Sonagol Sambizanga LNG carrier in June and has Exxon Mobil Corp., to provide engineering, procurement, now been safely unloaded at Petrobras’ regasification construction and maintenance services to support its Papua terminal in Guanabara Bay, Rio de Janeiro. New Guinea (PNG) LNG operations. Commenting on the first cargo delivery Artur Pereira, WGPSN will provide brownfield engineering and CEO, Angola LNG Marketing Ltd said: “Our main priority procurement support to ExxonMobil’s operations in PNG, is safe and reliable production and delivery of Angolan including construction and maintenance services to both the LNG to the world. We have demonstrated this with our Hides gas conditioning plant in the highlands, and the LNG first cargo.” plant northwest of Port Moresby. The contract is effective At full production it is expected that over 70 cargoes from 1 August 2013. per year will leave the Angola LNG plant, supplying The PNG LNG project is an integrated development that 5.2 million tpy of LNG, plus propane, butane and includes natural gas production and processing facilities, condensate. onshore and offshore pipelines, and liquefaction facilities. A large number of master LNG sale and purchase The PNG LNG project is operated by Esso Highlands Ltd in agreements have been executed with energy companies co-venture with Oil Search Ltd, National Petroleum Company across the world, providing Angola LNG with a robust PNG Ltd, Santos Ltd, JX Nippon Oil and Gas Exploration Corp., and diverse portfolio of customers. Further agreements Mineral Resources Development Company Ltd and Petromin are currently being negotiated. PNG Holdings Ltd, and their affiliates. Angola LNG is a partnership between Sonangol, The five-year deal, estimated to be worth between Chevron, BP, ENI and Total that will gather and process £300 million and £450 million, comes with two two-year gas to produce and deliver LNG and NGLs. extension options. DIARY DATES 3 – 6 September 2013 30 September – 3 October 2013 10 – 13 November 2013 Offshore Europe 2013 Pump/Turbomachinery Symposia ADIPEC Aberdeen, UK Houston, TX, USA Abu Dhabi, UAE www.offshore-europe.co.uk turbolab.tamu.edu/articles/ www.adipec.com pump_turbomachinery_symposia

24 – 26 September 2013 14 – 16 October 2013 18 – 21 November 2013 LNG Global Congress LNG Tech Global Summit World LNG Summit London, UK Barcelona, Spain Paris, France www.lnggc.com www.lngsummit.com world.cwclng.com

8 LNGINDUSTRY JUL/AUG 2013

LNG_JulyAug_2013_05-09.indd 8 06/08/2013 10:01 LNG_JulyAug_2013_05-09.indd 9 08/08/2013 14:14 Alex Field, Energy Industries Council (EIC), UK, discusses the development of the Australian LNG industry and potential stumbling blocks to its further growth.

10 LNGINDUSTRY JUL/AUG 2013 he LNG industry has burgeoned over the past contributions from new projects are also unlikely to meet decade, becoming increasingly integrated into the rises in demand, with only two facilities set to come online Tglobal gas market, yet the LNG market is set to in the next year. tighten over the next few years as demand closes in on supply. With a raft of projects already under construction Global LNG supply and a steady stream of developments at the planning In total, global LNG capacity is expected to grow by stages, Australia is set to challenge Qatar’s future position 8.4 million tpy to 277 million tpy in 2013, with even lower as the world’s largest producer of LNG. But with spiraling growth of 4.4 million tpy forecast for 2014. The supply cost issues and project delays, what is the outlook for demand imbalance is forecast to worsen further as several the Australian LNG sector and where does it fit in when it LNG regasification facilities are set to come online during comes to plugging the supply gap? 2013 and 2014; according to the EIC’s in house energy At the beginning of 2013, LNG accounted for around projects database, EICDataStream, a total of 34 LNG 13% of the global gas market and by 2030 it is forecast to regasification terminals are due to come online over this meet over 35% of delivered gas supplies. Yet in the near period globally. During January 2013, India’s long-awaited term, demand for LNG is expected to outpace supply, Dabhol terminal and Israel’s Hadera floating, regasification increasing by a factor of 4.3 and 8.9 in 2013 and 2014 and storage unit (FSRU) were commissioned, bringing respectively, an average rise of 37 million tpy each year. At a combined 7.9 million tpy of regasification capacity the start of 2013, global LNG capacity stood at online. China’s Zhuhai and Tangshan facilities along with 269 million tpy, only 4.8 million tpy higher than at the Singapore’s first regasification plant are all also due same point 12 months earlier following the commissioning online during 2013, totalling 13 million tpy of regasification of just one liquefaction plant, the Pluto facility in Australia. capacity. A similar outlook awaits this year, with minimal capacity LNG projects coming online are expected to provide set to come online, exacerbated by the delay of sufficient supply to meet demand up until 2017, but by Angola LNG’s Soyo 5.2 million tpy liquefaction facility 2020 demand will exceed supply unless planned projects during 2012, which has now been pushed back until the (yet to be sanctioned) are given the go ahead. This supply first half of 2013 due to commissioning issues. Supply deficit will impact on prices which, after hitting a 17 month

JUL/AUG 2013 LNGINDUSTRY 11 low during the post-summer lull in 2012, have rebounded the 885 km subsea pipeline required to transport gas to with spot deals already closing in on US$ 19/million Btu Darwin. By comparison, the Angola LNG project in southern during the winter of 2013. With lucrative Asian buyers led by Africa has a capital cost of below US$ 1.7 billion per million t China and India, it is expected that prices in this region will of annual capacity. prevail until at least the end of 2014. These inflated prices are a direct result of Australia’s high cost environment. The remote project locations often Australian LNG projects require substantial infrastructure development to support It is against this backdrop that the markets have turned to their large workforces, and projects are also faced with Australia to provide supply growth over the next five years. importing many of the construction materials due to a Already the fourth largest LNG producer (see Figure 1), dearth of specialist local suppliers. Projects must also meet Australia is undergoing rapid infrastructure investment and the costs associated with major social investment currently has seven LNG projects under construction. The programmes and community partnerships, in addition to first of the new capacity is set to reach customers in early complying with rigorous environmental and safety 2015, when a 25.5 million tpy rise in global LNG liquefaction requirements. capacity is expected. A further 24 million tpy is expected in On top of these already inflated costs, at least four 2016, lifting global capacity up to 331.2 million tpy. Much projects have experienced escalating costs during their of this initial growth will be driven by the ramp-up of four construction phases. The Pluto (train 1), Gorgon, QCLNG and major projects, Queensland Curtis (QCLNG), Gorgon, GLNG projects have all reported cost increases since Australia Pacific LNG and Gladstone LNG (GLNG). making final investment decisions totalling US$ 36 billion, However, this rapid expansion has come at a price, with (see Figure 2). These projects have suffered from a variety of many of Australia’s already expensive LNG liquefaction budgeting issues, but Santos, BG, ConocoPhillips, Origin projects now facing serious cost escalations associated with and Chevron have all mentioned three similar reasons a barrage of domestic factors. Australia is now widely behind these cost increases: labour shortages, a regarded as the most expensive place in the world to build strengthening Australian dollar and a complicated LNG projects, with facilities estimated to be up to 80% regulatory environment. more capital intensive than any already in operation. The seven projects currently under construction amount to a Currency fluctuations total investment of over US$ 150 billion, with the most Since the start of 2009 the Australian dollar has appreciated expensive of these being the US$ 34 billion Ichthys LNG against most major currencies, in particular the US dollar, project operated by Inpex. With a cost of US$ 4 billion per pound sterling, Euro and the Japanese yen. As a result, million t of annual capacity, the project is still regarded as the cost of constructing large LNG liquefaction facilities the most capital intensive LNG project ever to be has increased in real terms. A case in point is Chevron’s sanctioned, largely due to its isolated location and Gorgon project. In December 2012, Chevron announced that Gorgon would cost US$ 52 billion, 40.5% more than its 2009 estimate of US$ 37 billion. Since 2009, the period during which Gorgon was sanctioned, the US$ – AU$ exchange rate has climbed from US$ 0.69 to US$ 1.04 in February 2013, a 33.7% increase. It is a similar story with both the QCLNG and GLNG projects, with the Australian dollar appreciating around 20% since the time of sanctioning. However, since mid-2011 the currency has undergone a sustained period of relative stability in comparison to the rises observed during the previous 12 months, increasing by around 3%. As a result, the remaining four projects that were sanctioned during this period are somewhat protected Figure 1. Top 12 LNG producers, as of February 2013. from the cost blowouts associated with currency appreciation. Labour costs With seven LNG facilities almost simultaneously under construction, energy contractors are facing difficulties hiring skilled manpower from within Australia’s overstretched labour pool. Part of the problem is Australia’s small population base, as well as the fact that many skilled workers are unwilling to uproot and move to the states with the most demand. Another problem lies with the strict requirements for issuing Enterprise Migration Agreements (EMAs), which are only issued for companies with a Figure 2. Original and revised budgets for Australian LNG minimum capital expenditure of AU$ 2 billion and a peak projects, as of February 2013. workforce over 1500.

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