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Introduction

The LNG industry is on the cusp of major change – a group of highly motivated entrepreneurial firms, 21 in total from China, Japan, Australia, Indonesia, Norway, South America and North America, are using standardized liquefaction technology with capacities less than 3.0 million metric tons per year (mty) to develop new gas markets and go after fields too small for world-scale trains. Current liquefaction volumes at 1.0 million metric tons are small, but already another 6.0 million metric tons is under construction for commissioning during the next three years.


		Figure P-1 – Medium-scale stock index: The nine companies listed above and represented in this index are involved in 20 small- to medium-scale LNG projects. Their combined market capitalization on Jan. 8, 2008, was nearly $3.5 billion.

Public equity markets are enthused. Seven different markets in Hong Kong, Sydney, Oslo, Jakarta, London and New York offer stock of twelve of the entrepreneurial enterprises; nine can be considered pureplays, valued at $3.5 billion (see Figure P-1). If they are successful, these firms will bring in large amounts of LNG supplies as perhaps hundreds of fields less than 10 trillion cubic feet are monetized. LNG would then more closely resemble the LPG industry, where suppliers, distributors and transporters of all sizes and business models compete for a larger market.

These newcomers are highly diverse, ranging from upstart firms comprised of seasoned LNG executives to new management teams in staid enterprises. Some intend to seize first-mover advantage by taking regional markets. Others are attempting to pioneer whole new classes of technology, such as LNG floating production storage offloading (FPSO) vessels. They all share, however, the common goal of using modularized equipment, manufactured and assembled efficiently with short lead times, and standard business practices to develop projects simultaneously.

During the research, however, analysts found that management at each firm is largely unaware of others that share their goal. This report is the first to review and compile worldwide efforts to downscale LNG to monetize smaller (mid-tier) reserves and thereby open up the market. Zeus identified 34 small and medium-scale liquefaction projects under development, ranging from capacities of 50,000 mty to 2.7 million mty. Each is reviewed and analyzed. Accompanying databases of 53 small and medium-scale baseload liquefaction projects*, including 19 that are operational and 18 under construction, are provided in the appendix to the report and online at www.ZeusLibrary.com. The online databanks will be updated and expanded as new projects are announced and details learned.

*Baseload liquefaction plants are assumed to produce and distribute LNG via truck, rail, barge or ship on a continuous basis, averaging 330 days of operation per year. LNG-storage plants (peakshavers) are not included in this category.

Seventeen Key Conclusions from the Research

While the amount of operational small- and medium-scale baseload liquefaction is small currently with capacity of just more than 1.0 million metric tons per year (mty), capacity of more than 6.0 million mty is under construction at 14 sites. By the end of 2010, the industry should have capacity of some 7.0 million mty in place.
Moreover, plans for another 9.5 million mty of small- and medium-scale liquefaction has been announced. In the unlikely event that all capacity currently planned were to be built, this sector of the industry would exceed 16 million mty.
At an average capital cost of $750 per ton/year of capacity, capital spending on small- and medium-scale plants should exceed $2.0 billion per year for the next five years.
Capacities are growing larger. The capacity of the average-sized operational small- to medium-scale plant currently is just 55,000 mty; the capacity of the average-sized plant under construction is 334,000 mty; and the capacity of the average-sized plant that is on the drawing boards is 716,000 mty.
Newer plants also tend to be export-oriented. Currently, about 19% of small and medium-scale baseload plants export product. By 2011, more than half of the small and medium-scale liquefaction capacity will be exporting product, some supplying full-scale cargos to standard transoceanic LNG carriers. Sponsors of more than 90% of the proposed capacity intend to export their product.
The average-sized medium-scale export project has a capacity of 1.15 million mty. The largest proposed is about 2.6 million mty. The average-sized plant for domestic markets has a capacity of 100,000 mty, but many new units will exceed 500,000 mty.
Liquefaction for domestic trade also is growing at an incredible rate of 38% per year. This is leading to soaring demand for tanker trucks, vacuum-jacketed containers and other equipment associated with domestic distribution. Currently, an estimated 1,200 LNG tanker trucks are in operation and another 300 are on order, most in China. Next waves will also include LNG tanker rail cars and more short-haul marine vessels.
Because smaller plants tend to focus on domestic, over-the-road distribution and do not require marine loadout facilities, their cost per ton/year of capacity tends to be competitive with larger plants at $500 and 1,000 per mty.
Three small plants (less than 250,000 mty) currently are equipped with marine loadout facilities. At least one exports cargos via coastal tanker.
Two owners of domestic-oriented liquefaction plants are using their experience to move into international trade served by world-scale LNG carriers.
In 2004, investors in public equity markets in Hong Kong, Jakarta, Oslo, London and New York began to awake to the value of entrepreneurial firms investing in small- and medium-scale LNG. Nine pure-play small- to medium-scale LNG developers are currently traded with a market capitalization of $3.5 billion.
Six of the nine pure plays have gone public in the past three years. These entrepreneurial firms are intent on standardizing low-cost, modular liquefaction systems to monetize between 1,000 to 2,000 mid-tier gas fields worldwide.
Not a single major international oil company is involved in this space. Although Shell and StatoilHydro have interests in Gasnor and Pertamina has interests in Donggi-Senoro.
A weighted investment in all nine pure-plays would have earned a 23.5% rate of return in 2007.
The concept of highly standardized mass-manufactured liquefaction trains is leading to intensive investment in floating liquefaction such that the first two floating production, storage offloading vessels (LNG FPSOs) are under construction for operation early next decade. Nine regions of the world seem suited for floating liquefaction.
If the current push to tip the scale on medium-scale economics is successful, Zeus researchers predict that between 20 and 25 million metric tons of LNG will be produced by this market sector by 2015.
This technology coupled with sub-sea cryogenic pipe and single point mooring cryogenic load-out systems, will help the LNG industry disaggregate supply possibly into the hands of more than 50 suppliers exporting from as many as one hundred plants by 2025.