World Maritime University The Maritime Commons: Digital Repository of the World Maritime University World Maritime University Dissertations Dissertations 2009 The gas market and LNG shipping in transition : the potential impact on the Algerian LNG industry. Toufik Bensari WMU Follow this and additional works at: https://commons.wmu.se/all_dissertations Recommended Citation Bensari, Toufik, "The gas market and LNG shipping in transition : the potential impact on the Algerian LNG industry." (2009). World Maritime University Dissertations. 1113. https://commons.wmu.se/all_dissertations/1113 This Dissertation is brought to you courtesy of Maritime Commons. Open Access items may be downloaded for non- commercial, fair use academic purposes. No items may be hosted on another server or web site without express written permission from the World Maritime University. For more information, please contact [email protected]. WORLD MARITIME UNIVERSITY Malmö, Sweden THE GAS MARKET AND LNG SHIPPING IN TRANSITION The Potential Impact on the Algerian LNG Industry By TOUFIK BENSARI Algeria A dissertation submitted to the World Maritime University in partial fulfilment of the requirements for the award of the degree of MASTER OF SCIENCE In MARITIME AFFAIRS (SHIPPING MANAGEMENT) © 2009 Copyright Toufik Bensari, 2009. DECLARATION I certify that all the material in this dissertation that is not my own work has been identified, and that no material is included for which a degree has previously been conferred on me. The contents of this dissertation reflect my own personal VIews, and are not necessarily endorsed by the University. Signature: ..... Date: Supervised by: Professor Patrick DONNER Associate Academic Dean World Maritime University Assessor: . Captain Jan Horck Institution: World Maritime University Co-Assed by: Mr. Stephan Tschudi-Madsen Institution/Organization: President of Hoegh LNG ACKNOWLEDGEMENTS Before all else, I would like to invoke in this dissertation the name of Allah, the All-Knowing and the Grantor of science, who teaches us by the means of the pen and teaches the man what he never knew, for His great generosity that permitted us to be enlightened and guided to the truth. I also wish to express my heartfelt thankfulness to the Almighty, for the physical and mental health and for the power, the patience, the guidance and wisdom that He has provided me throughout the process. After the grace of God and His mercy to us, I have to acknowledge the grace and the kindness of the French Government for sponsoring my 17-month master program at the World Maritime University (WMU). Special thanks to this Government for providing me this opportunity. I also have to attribute the existence of this work to Mr. Reazal, the Director of the Algerian Merchant Marine, who indeed allowed me to be one of the WMU students with his support and his approbation. My gratitude is given to Mr. Hayab, the Director of the Commercial Department of Sonatrach, who showed his willingness to develop this dissertation with his great experience and advice. My great indebtedness and deepest gratitude to my esteemed and distinguished consultant and encourager, Professor, Patrick Donner, for embracing my work and graciously assisted, guided and supervised my academic pursuits. I have really appreciated his meticulous advice and have greatly benefited from his great experience. I am fortunate to have him as a supervisor for the opportunities he provided and his continual availability, patience, valuable advice and knowledge in writing my dissertation. ii I also owe special thanks to the professors and staff at World Maritime University who made my dissertation work possible. It was with great pleasure to work with Assistant Professor Inger Battista, who provided me with valuable guidance, constructive suggestions and encouragement in both the ESSP program and in language assessment of my dissertation. I also deeply appreciate the willingness of Assistant Professor Clive Cole to help assessing my dissertation the fact that he was my writing teacher during the ESSP program. Moreover, I express my deepest gratitude to all the librarians, who were on constant lookout for publications and new articles relevant to my dissertation. Finally, I want to close my acknowledgements by showing my love and respect to my parents and to all the members of my family, who have indirectly contributed to the elaboration of this thesis by their encouragements and supports. The people cited in the Acknowledgments are not definite. I apologize if I have forgotten to mention anyone who has directly or indirectly contributed to the naissance of this thesis. I love you all. God bless you ALL iii “Liquefied naturaL gas (LNG) is expected to pLay an increasingLy iMPORTANT roLe in the naturaL gas industry and gLobaL energy Markets in the next severaL years. the coMbination of higher naturaL gas prices, Lower LNG costs, rising gas iMports deMand, and the desire of gas producers to Monetize their gas reserves is setting the stage for increased gLobaL LNG trade” Energy Information Administration. (2003, December). The global Liquefied Natural Gas Market: Status and Outlook. DOE/EIA-0637 iv ABSTRACT Title of Dissertation: The Gas Market and LNG Shipping in Transition. The Potential Impact on the Algerian Gas Industry. Degree: MSc The world gas and LNG markets are witnessing an unprecedented growth within a short period of time. Technological development has considerably reduced the costs of gas and LNG projects enabling this fuel to enter in competition with crude oil and coal. The world community exigencies also force the world industry towards gas consumption by trying to implement stiffer regulations since it is considered as an environmentally friendly fuel. Consequently, significant gas and LNG projects are now being under construction and a promising gas and LNG trade is expected in the future involving both the traditional gas suppliers to play in the LNG market and new players to inscribe their names in the list of gas and LNG suppliers and consumers. The commercial transactions of gas and LNG are also seeing transformations. The contracts are being short and flexible and the gas price mechanisms are changing. The propensity of buyers and sellers towards the gas and LNG spot market has been noticed recently and experts foresee its growth in the upcoming years, inclining to acquire the same patterns in transactions seen in the oil market. The pros and cons of this market are evaluated differently from buyers to sellers according to their interests and its evolvement will depend on many parameters and variants that may change in the short and long run. This thesis is a study of the evolution of the gas market and LNG shipping. It aims to give an in-depth analysis about the development of the gas and LNG spot market and its future by making a comparison with the oil market taking into account the likely changes in the ages and LNG market in the long run. It also aims to assess the benefits and risks for buyers and sellers in general and for the Algerian gas market in specific. Key Words: Gas, LNG, spot market, long-term contracts, short-term contracts, benefits, risks, and uncertainties v CONTENTS DECLARATION ........................................................................................................ i ACKNOWLEDGEMENTS ...................................................................................... ii ABSTRACT ................................................................................................................ v CONTENTS .............................................................................................................. vi LIST OF FIGURES .................................................................................................. xi LIST OF TABLES .................................................................................................. xiii LIST OF APPENDICES ........................................................................................ xiv LIST OF ABBREVIATIONS ................................................................................. xv CHAPTER I : INTRODUCTION ............................................................................ 1 1.1 General Overview ............................................................................................ 1 1.2 Objectives ......................................................................................................... 4 1.3 Research Methodology and Structure of the Dissertation ......................... 5 CHAPTER II : INTRODUCTION TO NATURAL GAS AND LNG Technical and Economic Development ......................................... 7 2.1 Introduction ...................................................................................................... 7 2.2 Evolution of Natural Gas through History .................................................... 8 2.3 General Overview of Natural Gas .................................................................. 9 2.3.1 Description of Natural Gas ......................................................................... 9 2.3.2 Origin and Location .................................................................................. 10 2.3.3 Processing of Conventional Natural Gas .................................................. 11 vi 2.4 LNG Fundamentals ....................................................................................... 11 2.4.1 Development of LNG ..............................................................................