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India’s Energy ChallengeJune 28 & 29, 2006,

Hilton Americas, Houston

Panel Session 3B

LNG/GTL

Amos Avidan

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Natural Gas - LNG/GTL

• Running out of natural gas?

– Global supply and demand

– India gas market

– Sustainable development

• The Boom in LNG Construction

– How long will it Last?

– Cost, Schedule, Quality and Certainty of Outcome

• Will GTL follow LNG?

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World primary energy consumption

BP Statistical Survey 2005

Oil

Natural Gas

NuclearhydroCoal

More of the Same…

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Reserves/Production ratios are steady- The role of technology

Natural GasOIL

BP Statistical Survey 2005year

R/P

ye

ars

Consumption, m bbl/d Consumption, bcf/d

80

63

140

259

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Natural Gas in India• Consumption up 12% to 1.3 Tcf in 2005

– Production from Mumbai High– Reliance discovery of KG in 2002

• LNG and pipelines needed to support high growth:– HBJ pipeline capacity and others– LNG terminals at Dahej, Hazira, Dahbol, others– Dahej price is fixed till 2008 ($4.87)– High spot prices curtail

shipments to Hazira

• Import gas pipelines?

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Global Warming Concerns

• Global climate is complex but there is scientific consensus that human activity is causing global warming– CO2 increased from 280 to 370 ppm in the past 200 years

• It’s hard to balance economic growth with CO2 reduction– new technologies can help

• Major CO2 emitters are not bound by Kyoto, but some form of CO2 controls will likely happen

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The Future1. Ecological

disaster?

2. The Fun Future – techno fix?

3. The Ecotopian Solution?

The Future According to Robert Crumb, 1998

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Liquefied Natural Gas

• High LNG demand to continue

– Ample and cost-effective, but remote gas reserves

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0

100

200

300

400

500

600

700

65-70 70-75 75-80 80-85 85-90 90-95 06-1095-00 01-05

$US / ton per annum of capacity

But LNG Construction Costs are Increasing

Range of recent proposals and bids

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Why the increase?

• High cost escalation in the past 3 years

• More complex plants in difficult locations

• Execution problems on some projects

• Several projects being delayed or questioned

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Cost Escalation

• Record high prices for commodities, volatility

• Higher shop loads lead to:

– Quality concerns

– Higher contingencies

– Shorter validity periodsTypical Price increases

from 2003 to 2006

Compressors: 35% Line pipe: 70%

Pumps: 55% Switchgear: 20%

Exchangers: 42% Structural steel: 52%

Columns 52%

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Shop Loads and Lead Times

• Early commitment needed

• Typical Lead times, weeks:

20042005

Air coolers 37 53

Motors 22 45

Columns 38 45

Vessels 40 53

Reactors 38 70

Pumps 25 33

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People Issues Facing the E&C Industry

• Aging workforce

• Retaining talent

• High recruitment

• Salaries are rising

• Training is more critical

• Globalization

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Feasibility FEED EPC

Benefits to the owner:Benefits to the owner: Market advantage Lock up scarce EPC resources Highest NPV Competitive EPC cost Certainty of Outcome

A Negotiated EPC Model

Shorter schedule

Open-book FEED

LSTK or cost plus EPC

Experienced team

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Jamnagar Project Example

• Phase I: 450 TBPD, Integrated Refinery and Petrochemical plant

• Over $4 Billion

• 44 Process Units

• Bechtel Involvement from Project Conception through Operation

• Less than 4 Years to “Oil in”

Reliance Industries Limited

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What About GTL?

• Gas-To-Liquids can produce quality fuels, but at a high cost

• 2006 – Startup of Oryx GTL in Qatar (34 TBD at a cost of over $30,000/bbl)

• Cost of the proposed 140 TBD Pearl GTL project in Qatar could be over $50,000/bbl

• Proposed niche GTL projects:

– Qatar (resource driven)

– Nigeria, Algeria, Russia – stop flaring, enable oil production

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Thank You