the evolution of lng transportation: towards what industrial paradigm?

THE EVOLUTION OF LNG TRANSPORTATION: THE EVOLUTION OF LNG TRANSPORTATION: TOWARDS WHAT INDUSTRIAL PARADIGM?TOWARDS WHAT INDUSTRIAL PARADIGM?

SIET - VIII Riunione Scientifica “SIET - VIII Riunione Scientifica “I trasporti ed il mercato I trasporti ed il mercato globaleglobale””

Trieste, 29 giugno - 1 luglio 2006Trieste, 29 giugno - 1 luglio 2006

Liliya V. Chernyavs’kaLiliya V. Chernyavs’[email protected]@economia.unige.it

Pierre CarriouPierre [email protected] [email protected]

I. Aim of the researchII. Factors on the base of recent radical changes;III. Impact on the market structure;IV. Towards new industrial paradigm in LNG

transportation; V. Critical issues;VI. Final considerations


AIM OF THE RESEARCHAIM OF THE RESEARCH

1. To identify possible new industrial paradigm for the maritime leg of the LNG transport sector;

2. To outline the set of factors on the base of the recent radical changes occurred through the LNG industry and to suggest possible classification of these factors with respect of their nature and influence;

3. To highlight the critical issues of the new model and its influence on the development of global natural gas market.

ANALYSIS OF NATURAL GAS DEMAND (1/2)ANALYSIS OF NATURAL GAS DEMAND (1/2)The rate of growth of the primary energy demand of

the world was about 1,7%/year1,7%/year from ’70s till nowadays and will continue to rise;

The consumption of natural gas has been doubled during last 20 years reaching 2.1902.190 Mtoe in 2002;

The rate of the growth of natural gas demand is expected to be 2,3%/ year2,3%/ year;

The contribution of gas to the world energy balance will increase from 21%21% in 2002 to 25%25% in 2030;

The composition of the sectorial consumption of gas will change significantly;

The present great consumers will continue to expand their demand keeping the first positions in the world rank-list. New consumers will appear;

KEY FACTORS FOR NATURAL GAS DEMAND GROWTH (2/2)KEY FACTORS FOR NATURAL GAS DEMAND GROWTH (2/2)

Non binding usage of natural gas;Convergence “gas-electricity”;Impact of the technological innovation on the costs of

natural gas production and consumption ;Security of supply issues;Liberalisation of the natural gas market;The price of gas on the final market in comparison with

other fuels;Environmental issues;Macroeconomic trends.

NATURAL GAS SUPPLY: BRIEF DESCRIPTION AND NATURAL GAS SUPPLY: BRIEF DESCRIPTION AND RECENT TRENDS (1/2)RECENT TRENDS (1/2)

Largely diffused all over the world, but its geographical distribution is not homogeneous;

The resources are concentrated in some regions of the world and in the future the concentration will increase due to the depletion of the existing production areas;

Nowadays the R/P ratio for natural gas is about 6767 years;

The importance of the shelf and deep-water resources is growing;

The weight of the stranded resources is increasing;While the conventional natural gas resources are

decreasing, the unconventional ones become a more important source of natural gas for the future;

NATURAL GAS SUPPLY: BRIEF DESCRIPTION AND NATURAL GAS SUPPLY: BRIEF DESCRIPTION AND RECENT TRENDS (RECENT TRENDS (22/2)/2)

Last years the rate of growth in natural gas production was about 2,6%/year2,6%/year. The future rate will be about 2%/year2%/year. The production will double from 2.5142.514 Bcm at 20002000 to 4.3144.314 Bcm at 20202020;;

The efficiency of the exploration and production is higher than 10 years ago and will continue to increase;

The present production areas are under the process of depletion;

The cost of production in the new areas will be higher; The new production districts will be more distant from

the consumption centres than they are now; The production from off-shore and stranded structures

will grow.

THE IMPORTANCE OF NATURAL GAS THE IMPORTANCE OF NATURAL GAS TRANSPORTATION WILL INCREASETRANSPORTATION WILL INCREASE

MOST IMPORTANT DEMAND SIDE FACTORS FOR LNG MOST IMPORTANT DEMAND SIDE FACTORS FOR LNG TRASPORTATIONTRASPORTATION

Growth in natural gas demand (Convergence “gas-electricity”);

The security of supply issues (push towards diversification);

Liberalisation of the natural gas market: Number of the operators entering the market is growing; New “big” operators are appearing (large electricity

consumers); Fragmentation of the natural gas demand and instability

of the market shares of the traditional operators and newcomers;

Difficulty to foresee the off-take volumes;

MOST IMPORTANT SUPPLY SIDE FACTORS FOR LNG MOST IMPORTANT SUPPLY SIDE FACTORS FOR LNG TRASPORTATIONTRASPORTATION

Two opposite trends: consolidation of the resources and increasing of the sources of supply;

Impact of the technological innovation on the LNG supply chain;

Surplus of LNG emerge at the liquefaction plants;Lack of capacity and technological/infrastructural limits

in regasification facilities.

CHANGES IN MARKET STRUCTURECHANGES IN MARKET STRUCTURE

Globalisation of the natural gas markets; New price formation mechanisms and new pricing

formulas; Changes in the contractual structure and terms (from

classic ToP contract to “master plan” contract => from 0 to N levels of freedom);

Growth in the spot transactions; Some remaining peculiarities of the regional markets; Changes are accruing primary at the LNG segment of

the natural gas market, to be then also introduced into pipeline transportation.

TOWARDS NEW INDUSTRIAL PARADIGM: TOWARDS NEW INDUSTRIAL PARADIGM: MORE FLEXIBILITY AND LESS RISKSMORE FLEXIBILITY AND LESS RISKS

Impact of the technological innovation on the maritime leg of gas transportation: Increase in the capacity of LNG carriers (125.000125.000 =>

216.000216.000); New systems of propulsion; Lower prices of ships; As a consequence, decrease in the transportation costs; Number of operators entering the market is growing;

Fleet growth: 1996=93 (9.821 cm)1996=93 (9.821 cm) => 2005=189 2005=189 (22.428 cm)(22.428 cm);

Weakening of the links with specific projects; Strong increasing of the importance of the spot

transactions; Entrance of new ship operators/owners (new

downstream operators, independent shippers).

NEW PATTERNS OF LNG TANKERS OPERATIONNEW PATTERNS OF LNG TANKERS OPERATION

Push towards concentration and co-operation; Need for experience of operation on the markets

with high volatility and seasonal nature.

Role of the new large capacity LNG ships (long-term charter);

Role of the old ships (long-term charter with some spot trading; for small old ships – spot trading);

Optimal fleet portfolio in order to minimise operational and financial risks.

CRITICAL ISSUES TO BE TAKEN INTO ACCOUNT (1/2)CRITICAL ISSUES TO BE TAKEN INTO ACCOUNT (1/2)

Limitations related to the on-shore infrastructures (liquefaction and receiving terminals) and new requirements from technological and operational sides;

Increasing of the operational and financial risks (it is necessary to be careful to guarantee the pay-back of the vessel => nowadays it is impossible to have a “full merchant” carrier);

Problems with financing projects without “dedicated contracts”;

Price volatility on the final markets and time charter volatility;

Capacity over-supply;

CRITICAL ISSUES TO BE TAKEN INTO ACCOUNT (2/2)CRITICAL ISSUES TO BE TAKEN INTO ACCOUNT (2/2) Continue process of concentration in ship building and

possible saturation of the existing capacities; Problems related to security (growth in traffic =>

growth in number of incidents); Very slow process of standards updating => could

slow the new technologies introduction; Possible changes in regulation; Competition from the pipeline transport and, in future,

from GTL terminals; As a consequence => growing complexity of the

market structure and increasing in transition costs.

FINAL CONSIDERATIONSFINAL CONSIDERATIONS Natural gas sector will be an extremely fast growing industry in next three decades; Technological innovation is the key factor in the transportation cost decreasing; Market structure will continue to change acquiring global dimension; New organisational pattern still has no definitive structure; Role of traditional operators as carriers will continue to decrease; In order to min. risks and max. flexibility, operators will optimise fleet structure and fleet capacities; Push towards concentration and cooperative behaviour will appear; LNG transportation will be an extremely risky business over next decade; Any serious accident could have a dramatic impact on industry development.

Domanda dell'energia primaria, Mtoe

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FUTURE NATURAL GAS DEMAND BY AREAFUTURE NATURAL GAS DEMAND BY AREA

the evolution of lng transportation: towards what industrial paradigm?

Documents

growth of natural gas

natural gas demand growth

future natural gas supply

analysis of natural

sectorial consumption

yearthe contribution

lng industry

recent trends