An Overview of Innovative Thinking in LNG Projects

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An Overview of Innovative Thinking in LNG Projects An Overview of Innovative Thinking in LNG Projects 2016/04/15 Source: In the current market environment, the LNG industry is faced with downward pressure on prices and fierce competition. Pricing mechanisms, marketing strategies, and engineering techniques all need to be approached through innovative thinking in order to adapt to these new conditions and thereby achieve cost reduction, improved efficiency, and sustainable development. Tokyo Electric Power Company and Chubu Electric Power Company in Japan plan to merge. The development of LNG is giving rise to new benchmark prices. According to Interfax, Leonid Mekhelson, CEO of Novatek, recently said that as the LNG market develops, new benchmark gas prices will emerge. Within the share of natural gas supply, the larger the proportion of LNG compared to pipeline gas, the greater the possibility of a new benchmark pricing model that is decoupled from oil. Novatek has begun discussions with relevant parties regarding the sales of LNG for future projects; in a market environment characterized by falling oil prices, new benchmark gas prices become even more important. McHerson pointed out that Japan, as the world’s largest LNG consumer, will see its LNG consumption exceed that of Korea Gas following the merger of Tokyo Electric Power Company and Chubu Electric Power Company; they are also considering decoupling gas prices from oil prices. McHerson believes that perhaps the most important thing at the moment is not the competition between LNG and other LNG sources, but rather the competition between natural gas and other energy sources. Although U.S. LNG will be available in the European market, when comparing its cost-effectiveness with that of Russian LNG in this market, Russian LNG remains highly competitive. The Yamal project, which is under construction, already has buyers, with the greatest demand likely coming from India and Thailand. Australia has the highest LNG costs, making it the most expensive option, and there are problems with the contracts already signed. Marketing requires greater flexibility. The Gorgon project in Western Australia is a reflection of the current state of the LNG industry: this $54 billion project has experienced a 50% budget overrun, and its commissioning date has been delayed time and again. Project operator Chevron finally sold its first shipment of LNG last week, but when the company tried to sell the remaining LNG outside those contracts, it faced low prices and fierce competition from other suppliers. As a result, Chevron was forced to compromise: it gave up on the 20–25 year contract terms it had previously insisted on, and offered shorter-term contracts to new Chinese buyers at prices lower than those charged to its main buyer, Japan. Faisal Al-Saraki, head of Faisal Energy Consulting, said at an LNG conference held in Singapore recently: “There is no need for any new projects now; the idea that the cheapest project is the viable one is wrong.” ”Producers need to change their mindset, especially by considering how to sell the LNG they produce. A analysis in Oil Intelligence Weekly this week suggests that in order to reduce costs and convert resources into money more efficiently and quickly, LNG project developers need to consider new options. For traditional Western sellers such as ExxonMobil and Chevron, if they want to resolve the conflicts over new contracts with their buyers, they need new approaches to marketing. This means they need to adapt to changes in the composition of LNG buyers; there are more buyers now, and end-users demand greater flexibility regarding pricing, destination restrictions, and transaction volumes over the contract period. Apart from cost considerations, major buyers are keen on diversifying their supply sources; for strategic reasons, they explore new resources in countries such as Mozambique and Papua New Guinea. BP and Total’s new projects also offer smaller buyers more flexible contracts with smaller volumes and shorter durations. Engineering design needs to focus on standardization and modularization; the low oil price environment is forcing LNG project developers to consider new options for project engineering and technology. For new LNG capacity projects that are in the planning or development stage, operators are now convinced that smaller, simpler projects are better than complex, large-scale ones. LNG project developers are increasingly favoring standardized designs, modular installation, and projects that require minimal land use on site. However, adapting to the redesign of each project presents cultural challenges that are no less significant than the technical ones. Former BG Group CEO Martin Shuston said that an LNG plant is essentially like a household refrigerator; simplicity, replicability, and compact design should be emphasized, offering greater flexibility compared to large-scale projects. The LNG project in Louisiana, United States, is a low-cost, medium-scale facility with an annual production capacity of 12 million tons; it features 4 modular production lines that utilize a standardized mass-production design. The liquefaction cost for this project is only $2.5 per million British thermal units, which is $1 per million British thermal units lower than that of Cheniere Energy, known as the \"pioneer of LNG in the United States\". Furthermore, driven by the new philosophy of LNG developers that \"small is beautiful,\" floating LNG technology is entering the market in a faster and cheaper manner. Of course, floating LNG projects are not a panacea, as they ultimately failed to save Australia’s Bruce project, and Woodside Corporation ceased this LNG project last week. However, floating LNG is gradually developing, especially in Africa, where it has become a solution for smaller-scale projects. Projects such as Eni’s deep-water floating \"Coral\" LNG project in Mozambique, which is expected to receive approval this year, Perenco’s company in Cameroon’s project that involves converting LNG carriers into floating units, and the floating \"Fate\" LNG project located near Equatorial Guinea, are all part of this initiative.