Investors delay commitments to LNG projects in Nigeria, others
* Natural gas price stability under threat
By Yakubu Lawal, Deputy Energy Editor (with agency reports)
CHEVRON Corp. and Royal Dutch Shell Plc are delaying construction projects from Australia to Nigeria, threatening to drive natural gas prices higher for years to come.
None of the world's biggest energy companies approved developments last year to increase production of liquefied natural gas, which helps heat homes and run power plants from Tokyo to Boston. The main reason is the cost to build LNG plants has tripled in six years, according to Bechtel Group Inc., the biggest U.S. contractor.
Natural gas prices are three times higher than during the 1990s and consumption of the fuel will outpace the 1.6 per cent yearly gain in energy demand for the next 25 years, according to the International Energy Agency. Gas is also becoming more popular because it emits 29 per cent less carbon dioxide than oil and 45 per cent less than coal burned in power stations.
But officials of Shell who spoke with The Guardian in Lagos stated that the stakeholders in the Nigeria's LNG projects are quite on track with the execution of the project.
The officials said studies on trains 6 and 7 is at advanced stage but that the Final Investment decision has not been taken pointing out that the project would be executed as soon as investment decision are taken.
The officials who spoke on the ground of anonymity however pointed out that trains 8 and 9 are merely a conceived project and cannot be realised for now.
On its parts, Chevron Nigeria official said it relinquished its 17 per cent interest in the Brass LNG to be able to concentrate on OK LNG.
Sources close to the company added that the final investment decision when taken and signed will trigger off development of the projects.
``Costs are going up and they're going up far faster than anybody expected,'' said Andy Flower, a U.K.-based consultant to the LNG industry and a former BP Plc executive. He forecasts that the world LNG shortage will last until at least 2011.
Natural gas in New York soared from an average $2 per million British thermal units in the 1990s because consumption increased, oil costs rose and domestic supplies diminished. U.S. gas production peaked in 1973, and demand since then has held steady, increasing the need for imports.
Natural gas for February delivery rose 6.7 per cent to $6.601 per million British thermal units on the New York Mercantile Exchange last week. On December 13, 2005, the futures rose to a record $15.78.
Gas may become more important than oil in the next 50 years because crude supplies are running out faster, according to the Paris-based IEA. Global oil and natural gas reserves were about the same at the end of 2005, equal to 1.2 trillion barrels of crude, according to data compiled by BP. Oil reserves are being burned almost twice as quickly as gas.
LNG sales rose about 11 per cent last year to 157 million metric tons, according to Wood Mackenzie Consultants Inc. in Edinburgh. It may jump about 66 per cent to 261 million tons in 2010 and another 87 per cent to 488 million by 2020, the group said.
Record LNG prices won't fall for ``years to come,'' said Ari Soemarno, president of Indonesia's State Energy Company, PT Pertamina, until 2005 the world's largest LNG exporter.
Prices under multiyear contracts, excluding freight and insurance, range as high as about $10 per million British thermal units in Asia, assuming $60 a barrel for oil, an element in formulas that determine LNG prices. LNG will say high, even if oil declines, because of shortages, Soemarno said.
Natural gas deposited near industrialised nations is typically transported through pipelines. The challenge is getting gas from the biggest producers -- Russia, Qatar and Iran-- to consumers world-wide who aren't linked by those networks. Now, gas that can't be transported is pumped back underground to force more crude to the surface, or burned off.
Some $37 billion goes up in smoke each year as waste, from Brazil to the Russian arctic to Nigeria.
Transporting gas on a ship requires it to be chilled to liquid at -162 Celsius (-260 Fahrenheit). The cost of building liquefaction plants has risen to as much as $600 million foreach million metric tons of annual production from about $200 million in 2000, according to San Francisco-based Bechtel.
Former Federal Reserve Chairman Alan Greenspan in June testified in Congress that LNG is ``very important for the U.S., for our national security'' and has argued for increased investment. ``We have not picked up as quickly as we need'' to increase imports, he told the Senate Foreign Relations Committee in Washington about energy security and economic risk. He declined to comment for this story.
Two of the newest and biggest LNG projects have been over budget and late. Shell's Sakhalin-2 LNG in Russia has doubled in cost to more than $20 billion. Stavenger, Norway-based Statoil ASA's Snohvit LNG plant will cost $9.5 billion, almost 50 per cent more than first anticipated in 2002.
Building LNG plants now takes four years, rather than three, because contractors are stretched, said Flower, the consultant.
``Construction and permitting of LNG plants is a lengthy process,'' BP spokesman David Nicholas said from London.
Chevron, the U.S.'s second-biggest oil company, last year abandoned its timetable for approving the Gorgon LNG project in Australia. Developing the fields, which hold $400 billion of natural gas, would cost $10 billion and increase world supplies by 7 per cent. The driller and partners Shell and Irving, Texas- based Exxon Mobil Corp. are studying ways to reduce construction costs.
"The project is large, complex and faces considerable cost challenges,'' Colin Beckett, Gorgon area manager for San Ramon, California-based Chevron said in an interview last month.
Politics and violence also hold back LNG developments. In the seas between Australia and East Timor, development of the $3.7 billion Sunrise LNG project has been stalled for more than two years as the nations resolve how to split royalties.
Shell, the world's largest non-government producer of LNG, is struggling with projects in Nigeria because of rebel attacks and in Iran, where threats of sanctions over the nation's nuclear research program restrain investment. Iran has the world's second-largest gas reserves.
'Shell has a lot of LNG projects in the pipeline,'' spokesman Wim van de Wiel said by phone from The Hague. He declined to specify why they were being held up.
