LNG Industry Cost

There are four main component that influence LNG project price.The first item is gas production cost which includes 15-20% of entire costs.
the second item is LNG plant with 30-45% of cost.
According to Gas Technology Institute (GTI) Liquefaction cost has been decreased 35 to 50 percent over the past ten years.This means that plant capital cost decreased from US$500 to less than US$200 per tone .Meanwhile an independent Consultant estimates that LNG plant would cost $1.09 per milion btu (more than $56 per ton) for a two trains,8 mtpa capacity, greenfield LNG project and US$0.97 for a expansion of this project.
Third part of LNG project price component is LNG shipping cost that contain 10-30 percent of costs.Since LNG tankers are usually dedicated to specified project there is no set market for LNG tanker like as oil tanker and charter rate is function of ship price, distance and time expended.Charter rate is very widely from US$27,000 to 150,000 per day.Today the average rate for long term contract is about US$60,000.
And finally is the regasification terminal cost.The cost is very depended to site specific as it varies from US$100 million for a small terminal to US$2 billion or higher for huge one.

Conversion Units

We need to convert data for assimilate and computation.This is very essential when you have to gather data from difference sources because there is not usually same manner in data record and publishing.You may also need the conversion tables when you want compare several things with each other.For example how many oil barrel is the specific quantity of natural gas?You can find here some conversion units that is taken from BP.

Available LNG Technologies (Liquefaction Process)?

Selection the Liquefaction Process is the Key section in the LNG plant construction.The liquefaction section usually includes 30-40% of capital cost of overall LNG plant.The technology selection is done in the early stage of LNG project and it is made in the feasibility study or Pre FEED stage. There are some liquefaction process that the best one should be chosen with respect to specified project's conditions.Here we draw your attention to available proven liquefaction process that are used or are bing applied in the current LNG plants:

1. APCI (propane pre cooled mixed refrigerant process ). Nowadays many of active LNG plants use this process.That is functional for plants up to 4.7 mtpa capacity.
2. Black & Weatch PRICO Process.This is the technology that is using by LNG plant in Algeria.Train capacity has been uprated to 1.3 mtpa.
3. Axens Liquefine Process.This is two mixed refrigerant process that is practicable up to 6 mtpa train capacity.
4. Phillips Optimise Casecade Process.This model is the updated version of procees that was used in earlier LNG plant of Alaska and is also used for the Atelantic LNG plant in Trinidad and for a under construction LNG plant in Egipt. Train capacity is up to 3.3 mtpa.
5. Shell Double Mixed Refrigrant Process(DMR).This is a double mixed refrigerant process which is bing applied in Sakhalin and Persian LNG projects.The train capacity is 4.8 and 8.1 mtpa respectively.The recent capacity is the largest under construction train capacity .

How does it estimate the LNG plant cost?

Usaully in the initial stage for construction of LNG plant, Investor that may be private or government asks professional institutions for do a feasibility study.As a matter of fact result of feasibility study would be a base of investment decision.Feasibility study covers following issues:

1. General information about the LNG and LNG industry
2. Available technologies and their cost
3. Current and outlook of LNG market including demand, supply and price
4. Project financing availability
5. Economic, Environment and social aspects survey
6. Estimation of project cost subject to above limitations
7. Project profitability indexes as IRR and NPV

Now depend on investor's required rate of retun he decides to invest or not.However when govenment is an investor he may also takes into account other social targets such as job creation, safety, incom distribution and so on that they are not measurable.

What is the current LNG trade trend?

"Nowadays LNG trade is shifting from longterm contracts toward the short and medium term.This gives a more flexibility to buyers that prefer to do not restrict themselves.Buyers also tend to participate in all the LNG value chain for reducing the risk.On the other side sellers also tend to keep an extra capacity for sales in spot market and benefit of higher price. "

This are common ideas that one can see in the LNG literatures.How much are they right?I myself examin the LNG contract period durig 20 years ago and I get to this result that LNG contract period have a tendency to reduction and the share of LNG spot market is increasing. Is this a good sign?It seems that it depends on energy market situation.When buyers are concern about the energy security so thay tend to assure supply by long term contracts.Because of this all traditional LNG contracts are based on long term with Take or Pay mechanism.On this atmosphere financiers have a more incentive for investment.More investment lead to more energy supply availability and finally lower price.So both sides benefit from long term contract.Buyers get a gain due to lower price and supply stability and sellers could finance project cost.Then why does the market trend go to short term contract?

What is the LNG chain?

LNG chain contains all activities that LNG transfers from plant to market.So all activities related to exploration,production,shipping,regasification and storage are taking into account.In order to determining the LNG cost we need to know what is the cost in each chain.Let see together for case of Iran :

1. $ 0.5 per mmbtu for exploration
2. $0.5-1 per mmbtu for liquefaction
3. $1.10 per mmbtu for shipping from Tombak (Persian Golf) to Japan
4. $0.3-0.5 per mmbtu for re-gasification and storage

Then the cost of LNG from Iran in Japan's market would be $2.40-3.10 per mmbtu.

How does the process of LNG contracts is?

LNG contract procedure includes ten main contracts .All of these contracts bring together in the one contract as a umbrella that is called Project Framework Agreement.PFA is actually basic work principals that will be extended in other agreements separately.These contracts are mainly related to shareholders,Technology,land,LNG plant and feed gas issues.This process may last a long time about at least 5 years till lead to production.However delay in reach to agreement at each stage could postpone the commencement date.Some of these agreements are prior condition to entry to next stage.However shareholders may waive some conditions to prevent of stopping.One of contracts that is commonly needed to initiate as a preequisite is Shareholder Agreement or SHA.This agreement set the relationship between shareholders and obligate them to go ahead in good faith and reimburse the damages due to act of each shareholder.SHA is also the base for establish the joint venture company.

What is the T.O.P?(Continue)

Suppose that T.O.P percentage is 90%.That means if seller could provide the pruduct and buyer could not take it he should pay 90% of worth of the product.But there is still right for buyer to take it in the certain period.For example in some LNG contracts, buyer would be able to take the cargo in the evry year of 5 successive years later.Determining of period is depend on haggling power between two sides however there are also some norms for the LNG contracts.The action of taking a cargo that the buyer has paied for it before is called "Make up" in the LNG terminology.
Sometimes default is due to seeler's act.In this circumstance buyer do not oblige to pay to seller and there is also same manner when Force Majeure is happan.Now if there are 5% seller's default and also 5% FM and the worth of cargo be 100 how much does the buyer sohoud pay?
Thers are two answers for this question:
1- (100-10)%*90%=81%
2-(100)*90%-10%=80%
Which way is right?

What is the T.O.P?

Take or Pay (T.O.P) is a LNG terminology and it indicates that buyer should to pay if he fails in take the pruduct.This mechanism allowes to sellers to facilitate financing the project via minimize the risk and secures the cash flows over the life of project. So unlike the common belief the T.O.P is not the buyer's constraint rather it benefits both sides. Without T.O.P financiers do not intent to investment because of more risk and so with decrease in energy supply buyer should bear the higher price.However T.O.P percentage has been decreased recently but they are still very important and challenging issue in LNG contracts.Anyway buyers try to move T.O.P away from LNG contracts for getting a more flexibility but it seems thay would not success due to tight energy market prospective ahead.