SPC Petroleum Workshop

28th November 2014

Assessing Natural Gas and Liquid Petroleum Gas (LPG) as Energy Options for Pacific Island

Countries (PICs) Pacific Region Infrastructure Facility (PRIF)

Partner agencies

• Coordinating agency – Project Coordination Office, Pacific Region Infrastructure Facility

• Implementation committee – Roberto Aiello (Senior Energy Specialist, World Bank)

– Andrew Daka (Executive Director, Pacific Power Association)

– Alan Bartmanovich (Petroleum Advisor, SPC)

Key study objectives & status

• Assess the potential for gaseous fuels (LPG, LNG, CNG) to be more widely used in 19 PICTs – Energy security

– Fuel diversity

– Potential for lower cost

• Status – Preliminary findings

– Industry workshop (28th Nov)

– SPC Petroleum and PEAG workshops

– Defining remaining work based on industry feedback

– Complete by end Jan 2015

Study approach

• Size and character of the fuel market in 19 PICTs – Power, land transport, marine transport, C&I, household, other

– HFO, Diesel, Gasoline, LPG, Kerosene, Biomass

• Potential LPG and LNG suppliers

• Key technologies and infrastructure needs

• Logistics costs and challenges

• Lessons from others

• Built-up cost analysis

• Commercial, technical, and regulatory considerations

Energy Market Overview

Sector Comparison

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

Transport Power Residential/Commercial Industry

MM

BTU

HFO Diesel Gasoline Biomass LPG Kerosene

Transport

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

MM

BTU

Diesel Gasoline LPG* Diesel/Gasoline volume missing

Land Transport • Established global industry for LNG/CNG/LPG vehicles

– Very small penetration in Pacific

• Over 500,000 registered vehicles in Pacific – Passenger vehicles over 70%

• Hub-and-spoke transport systems could form a basis of early demand

– Truck and bus fleets approx. 20% of registered vehicles

– In Fiji, almost 50,000 trucks and 1,600 buses registered

Marine Transport • LNG emerging as a promising fuel option for large

international tanker and cargo vessels

• Approx. 2,250 marine vessels registered within the islands, encompassing around 20 different classes of vessels – Fishing fleet largest in sector (30%), most in Fiji, FSM and Samoa

– Approx. 14% of ships cargo vessels, most in Fiji, FSM, RMI and Solomon Islands

• Challenges – Establishing a sufficient demand supply base

– Technical capacity to convert:

• Engines, fuel storage space, range

– Low engine turnover

Power sector

0

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

16,000,000

18,000,000

20,000,000

MM

BTU

HFO Diesel

Source: Pacific Fuel Price Monitor 2Q14 (SPC)

Power sector, cont.

• Diverse range of engines in current operation in the region – Approx. 15 engine makes and 70 engine models in operation across

the utilities

– Top six engine manufacturers

• Wartsila

• MAN

• Cummins

• Caterpillar

• Mitsubishi

LPG • Well established private sector

• Current use profile

– home/commercial cooking, heating, air conditioners, autogas (Fiji)

• Demand most intense in urban hubs

Household energy

• Energy security for PICT households very much supported by supply diversity

• Affordability and access are factors in terms of what fuels are used

• Variety of fuels also used because of personal and traditional preferences

Household energy

0

1

2

3

4

5

6

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

CookIslands

Niue Palau Tonga Tuvalu RMI Nauru Fiji Samoa Vanuatu FSM SolomonIslands

Kiriba

LPGprice(USD

/kg)

Householdaccesstocookingtype

Householdcookingbyfueltype-includingLPGprices

LPGStoves KeroseneStoves Cookingusingbiomass Cookingusingelectricity LPGpricew/otax LPGpricewithtax

Summary

• Transport sector largest fuel market – 59% diesel, 40% gasoline, 1% LPG

• Power sector a potential key entry point for LNG – 72% HFO and 28% diesel

– Concentrated areas of use in urban centres

– Skilled operators in a controllable zone

– Could be the anchor point for other users

• LPG used in household cooking, industrial, commercial, some transport

Supply chain, logistics and storage

LNG supply chain

Small scale bulk shipping

• Membrane, pressurised

• Norgas 12,000 m3

– Ship sizes 10,000 / 15,000 / 20,000 / 32,000 / 45,000 / 60,000+m3

Small scale LNG multi-gas carriers, 12,000 cbm / 5,400 tonne (Source: Norgas)

Logistics and storage

Source: BOC

Logistics and storage

Source: Cryeng, 185 kL tank

Cryeng Group Pty Ltd 8 Charles Street, St. Marys, NSW 2760, Australia Tel: +61 2 8603 5260, Fax:+61 2 8603 5266, Email: sales@cryeng.com.au, Web: www.cryeng.com.au

Page 13 of 21

5. PHOTO GALLERY

5.1 Standard cryogenic storage tanks for Air Gas: LIN, LOX, LAR, CO2

Standard tanks at Ipswich Workshops: 15kL to 60kL

4 x 500kL tanks for LIN/LOX at ASU plant, WA

250kL tank, Port Kembla

185kL LIN for Pluto LNG Plant, Karratha

310kL tanks for LIN – Cryeng Thailand, 2010

310kL tanks at Port Laem Chabang, Thailand

Figure 5.1-A: Cryogenic Storage Tanks – More than 1,000 units have been manufactured to date.

Source: Cryeng, 310 kL tank

Cryeng Group Pty Ltd 8 Charles Street, St. Marys, NSW 2760, Australia Tel: +61 2 8603 5260, Fax:+61 2 8603 5266, Email: sales@cryeng.com.au, Web: www.cryeng.com.au

Page 17 of 21

5.3 ISO Containers for LIN, LOX, LAR, CO2, LNG, Ethylene – 10barg to 23barg

Design Development: F.E.A verification. Full stainless steel construction. Structural tests to IMDG/CSC. Certified to AS 1210, ADR/RID (2009), IMDG (2008), CSC, ISO 1496-3 (1995), TC, TIR and Lloyd’s Register CCS.

ISO containers (Stainless Steel) on lease – Sydney

ISO containers built in Ipswich, QLD, 2010.

ISO containers built in Sydney, 2011 ISO containers built in Thailand, 2014

Figure 5.3: ISO Containers – 20kL Gross, 23bar

Source: Cryeng, ISO 20’ container

Cryeng Group Pty Ltd 8 Charles Street, St. Marys, NSW 2760, Australia Tel: +61 2 8603 5260, Fax:+61 2 8603 5266, Email: sales@cryeng.com.au, Web: www.cryeng.com.au

Page 18 of 21

5.4 Road Tankers for LNG and AirGas

Figure 5.4: Road Tankers – Custom Designed to customers’ specifications. Made in Sydney, 2011-2013

Source: Cryeng, road tanker

Logistics and storage

LNG Bunker mast system Source: GTT

LNG bunker barge Source: GTT

Small scale LNG availability

LNG facilities ‘nearby’ Infrastructures Australasia

42

IHS January 2014

LNG liquefaction capacity

Total demand in the Pacific might get to 0.5 - 2 MTPA

LNG markets

• Four pricing categories – Oil-linked systems (Europe, US, UK)

– Hub-based systems (Europe, Asia)

– Regulated systems

– Subsidised systems with no linkages to oil or costs (MENA, Latin America, Africa, Former Soviet Union)

LNG pricing

• Henry hub forecast – relevant for a gas linked contract

• Oil price forecast – relevant for a oil linked contract

• Supply-demand balance – relevant for spot trading

• The problem – relative pricing of LNG, Diesel, HFO always changes

Modelling basis and assumptions

Method

• Developed a snapshot bottom up cost analysis for LNG delivered to 19 PICTs – 20’ ISO LNG containers shipped from Melbourne to Kirabati & Tuvalu

– 40’ ISO LNG containers shipped from Melbourne to others

– Small scale bulk tanker from Gladstone (12,000m3) to majors

– Small scale bulk tanker from Vancouver (12,000m3) to majors

• Compared delivered prices at major ports

Baseline data

$-

$100,000,000

$200,000,000

$300,000,000

$400,000,000

$500,000,000

$600,000,000

$700,000,000

-

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000G

uam

Ne

wC

aled

on

ia

Fiji

Fren

chP

oly

nes

ia

Solo

mo

nIs

lan

ds

Am

eri

can

Sam

oa

CN

MI

Tim

or

Lest

e

Sam

oa

Pal

au

Van

uat

u

RM

I

FSM

Ton

ga

Co

ok

Isla

nd

s

Kir

iba

Nau

ru

Tuva

lu

Niu

e

Countryfuelexpenditure(USD

p.a.)

Fuelu

se(MMBTUp.a.)

Es matedfuelcosts(USDp.a.)andconsump on(MMBTUp.a.)bycountry

HFO-Power Diesel-Notusedforpower,20%(e.g.transport)

Diesel-Notusedforpower,80% Diesel-Power

ULP-alluses BaselineFuelexpenditure(NoLNG/CNG)

81% of fuel expenditure in seven countries

LNG pricing & availability

• Assumed LNG is physically supplied from: – Dandenong (Melbourne) using ISO containers @ $15/MMBTU

– Vancouver using ISO containers @$8/MMBTU

– Gladstone using small scale bulk shipping @ $15/MMBTU (FOB)

– Vancouver using small scale bulk shipping @ $8/MMBTU (FOB)

• Small volumes could be a challenge at Gladstone

LNG – Bulk ship sailing times

Darwin-Suva 17 days return Gladstone-Fiji 12 days return Gladstone-New Cal 7 days return Singapore-Fiji 25 days return Vancouver-A. Samoa 29 days return Vancouver-Fiji 28 days return Vancouver-French Pol 23 days return Vancouver-Guam 27 days return Vancouver-Solomon I. 29 days return

LNG delivered price comparison

$-

$5.00

$10.00

$15.00

$20.00

$25.00

$30.00

$35.00

$40.00

$45.00

$50.00

Fiji-ISO40' Fiji-BulkfromGladstone

Fiji-BulkfromVancouver

Tonga-ISO40' Kiriba -ISO20'

USD

LNGpricecomparisonDeliveredtosite,variousmethods

Importer'smargin@5%

Storage

Roadtransport,portcharges,trans-shipmentfees,etc

LNGbulkshippingfees

LNGISOcontainercostamor sa on

LNGISOcontainershippingfees

LNGexterminalprice

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

Guam-

ISO4

0'

Guam-

Bulkfro

mV

anco

uver

NewC

aledonia

-ISO

40'

NewC

aledonia-

Bulkfro

mG

ladst

one

Fiji-

ISO4

0'

Fiji-

Bulk

from

Gla

dstone

Fiji-

Bulk

from

Van

couve

r

French

Polyn

esia-

ISO4

0'

French

Polyn

esia-

Bulkfro

mV

anco

uver

Solo

monIs

lands-

ISO4

0'

Solo

monIs

lands-B

ulkfro

mV

anco

uver

Americ

anSa

moa

-ISO

40'

Americ

anSa

moa-

Bulkfro

mV

anco

uver

CNMI-

ISO4

0'

TimorL

este-

ISO4

0'

Sam

oa-IS

O40'

Palau

-IS

O40'

Vanuat

u-IS

O40'

RMI-

ISO4

0'

FSM

-IS

O40'

Tonga-

ISO4

0'

CookIsla

nds-IS

O40'

Kiriba

-IS

O20'

Nauru

-IS

O40'

Tuvalu

-IS

O20'

Niue-

ISO4

0'

USD

/MMBTU

Deliveredpriceoffuels(LNG,HFO,Diesel,LPG)

Importer'smargin@5%

Storage

Roadtransport,portcharges,trans-shipmentfees,etc

LNGbulkshippingfees

LNGISOcontainercostamor sa on

LNGISOcontainershippingfees

LNGexterminalprice

HFO,Retailpriceminustaxesanddu es(+/-20%)

Diesel,Retailpriceminustaxesanddu es(+/-20%)

LPGRetailpriceminustaxesanddu es(+/-20%)

Is LNG competitive?

Key issues with ISO containers: 1. Container amortised cost 2. Shipping cost

NOTE: Budget quotes received for shipping costs of ISO containers to Fiji, Tonga, Kiribati. All other ISO container shipping costs are estimated.

Is LNG competitive?

$-

$10.00

$20.00

$30.00

$40.00

$50.00

$60.00

$70.00

$80.00

$90.00

Guam-Bulkfrom

Vancouver

Fiji-Bulkfrom

Gladstone

Fiji-Bulkfrom

Vancouver

FrenchPolynesia-BulkfromVancouver

NewCaledonia-BulkfromGladstone

SolomonIslands-Bulk

fromVancouver

AmericanSamoa-Bulk

fromVancouver

Compara vepriceoffuels($/MMBTU)inselectedloca onswithes matedvariability

LNG(+/-15%)

HFO,Retailpriceminustaxesanddu es(+/-20%)

Diesel,Retailpriceminustaxesanddu es(+/-20%)

LPGRetailpriceminustaxesanddu es(+/-20%)

Actions and next steps

• Increase costs for storage

• Investigate CNG virtual pipeline

• Address the logistics ‘problem’

• Address scaling

• Look for potential LNG demand anchors in region

• Explore if capital intensity is a barrier

• Understand any gaps for private or regional government sector involvement

• Create a decision tree for new investment?

Spare slides

Power sector, cont.

• Fiji, French Polynesia, Guam and New Caledonia, significant markets in sector – HFO pricing, emissions

• Opportunities in smaller markets – Most major urban power stations in Pacific using over 10 ML of diesel

each per annum

– American Samoa, CNMI, Palau, Solomon Islands, Tonga, Vanuatu

LNG pricing structure (gas linked)

Example – Fortis BC published tariff Schedule 46

0-35,000 GJ/day

35,000-100,000 GJ/day

100,000+ GJ/day

Delivery charge (LNG facility charge + Electricity surcharge)

$3.77 $3.07 $2.34

Commodity charge ((Qty dispensed + Process Fuel Gas) x (SUMAS mthly index price + market factor))

$4.45 $4.45 $4.45

Premium for <5,000 GJ/day $0.15 $0.13 $0.13

Premium for <10 year contract $0.26 $0.22 $0.22

TOTAL for large customer, long term contract

$8.22 $7.52 $6.79

LNG – ISO cost assumptions

Inputs 20’ container 40’ container

LNG ex Melbourne/Vancouver

USD 15.00/8.00 + 1 per MMBTU

USD 15.00/8.00 + 1 per MMBTU

Container cost: 20’/40’ USD 126,000 USD 150,000

Container amortisation life 10 years 10 years

Storage amortisation life 20 years 20 years

Finance cost 8% 8%

Container round trip 2 months for larger hubs 3 months for small islands

2 months for larger hubs 3 months for small islands

LNG energy contained 469 MMBTU 938 MMBTU

LNG tonnes 9 tonnes 18 tonnes

Importers margin 5% 5%

Port capability All All but Tuvalu

LNG – ISO cost assumptions

Inputs 20’ container 40’ container

No. days storage at site 30 30

Using Fiji as an example

Storage tonnes 3,426 tonnes 3,426 tonnes

No. 300m3 tanks 25 25

No. 1,000m3 tanks 8 8

Cost of 300m3 site storage tanks and ancillaries

$675k ea $16.8m

$675k ea $16.8m

Cost of 1,000m3 site storage tanks and ancillaries

$1.35m ea $10.0m

$1.35m ea $10.0m

Civil works and other items 20% of tank cost 20% of tank cost

LNG ISO cost assumptions

Inputs 20’ container 40’ container

Using Fiji as an example

Storage tonnes 3,426 tonnes 3,426 tonnes

No. 300m3 tanks 25 25

No. 1,000m3 tanks 8 8

Cost of a 300m3 site storage tanks and ancillaries

$675k ea $16.8m

$675k ea $16.8m

Cost of a 1,000m3 site storage tanks and ancillaries

$1.35m ea $10.0m

$1.35m ea $10.0m

Civil works and other items 20% of tank cost 20% of tank cost

LNG bulk delivery cost assumptions

Item Value

LNG ex Gladstone/Vancouver, FOB USD 15.00/8.00 + 1 per MMBTU

Ship volume 12,000 m3

LNG capacity 5,400 tonnes (equal to ~307 x 40’ containers)

Dead Weight Tonnes (DWT) 10,600 tonnes

Draught 6.7m

Ship charter cost Ship fuel cost (HFO)

$1.2 million per month $0.98 million per month

Speed 16.5 knots

Port storage volume 90 days

In-country LNG road tanker cost $1.5m x 1

Importers margin 5%

LNG – Bulk, port capability

LNG pricing structure (gas linked)

Example – Fortis BC published tariff Schedule 46

0-35,000 GJ/day

35,000-100,000 GJ/day

100,000+ GJ/day

Delivery charge (LNG facility charge + Electricity surcharge)

$3.77 $3.07 $2.34

Commodity charge ((Qty dispensed + Process Fuel Gas) x (SUMAS mthly index price + market factor))

$4.45 $4.45 $4.45

Premium for <5,000 GJ/day $0.15 $0.13 $0.13

Premium for <10 year contract $0.26 $0.22 $0.22

TOTAL for large customer, long term contract

$8.22 $7.52 $6.79

LNG – ISO cost assumptions

Inputs 20’ container 40’ container

LNG ex Melbourne/Vancouver

USD 15.00/8.00 + 1 per MMBTU

USD 15.00/8.00 + 1 per MMBTU

Container cost: 20’/40’ USD 126,000 USD 150,000

Container amortisation life 10 years 10 years

Storage amortisation life 20 years 20 years

Finance cost 8% 8%

Container round trip 2 months for larger hubs 3 months for small islands

2 months for larger hubs 3 months for small islands

LNG energy contained 469 MMBTU 938 MMBTU

LNG tonnes 9 tonnes 18 tonnes

Importers margin 5% 5%

Port capability All All but Tuvalu

LNG – ISO cost assumptions

Inputs 20’ container 40’ container

No. days storage at site 30 30

Using Fiji as an example

Storage tonnes 3,426 tonnes 3,426 tonnes

No. 300m3 tanks 25 25

No. 1,000m3 tanks 8 8

Cost of 300m3 site storage tanks and ancillaries

$675k ea $16.8m

$675k ea $16.8m

Cost of 1,000m3 site storage tanks and ancillaries

$1.35m ea $10.0m

$1.35m ea $10.0m

Civil works and other items 20% of tank cost 20% of tank cost

LNG ISO cost assumptions

Inputs 20’ container 40’ container

Using Fiji as an example

Storage tonnes 3,426 tonnes 3,426 tonnes

No. 300m3 tanks 25 25

No. 1,000m3 tanks 8 8

Cost of a 300m3 site storage tanks and ancillaries

$675k ea $16.8m

$675k ea $16.8m

Cost of a 1,000m3 site storage tanks and ancillaries

$1.35m ea $10.0m

$1.35m ea $10.0m

Civil works and other items 20% of tank cost 20% of tank cost

LNG bulk delivery cost assumptions

• Membrane pressurised

• Selected Norgas 12,000 m3

– Ship sizes 10,000 / 15,000 / 20,000 / 32,000 / 45,000 / 60,000+m3

Small scale LNG multi-gas carriers, 12,000 cbm / 5,400 tonne (Source: Norgas)

LNG bulk delivery cost assumptions

Item Value

LNG ex Gladstone/Vancouver, FOB USD 15.00/8.00 + 1 per MMBTU

Ship volume 12,000 m3

LNG capacity 5,400 tonnes (equal to ~307 x 40’ containers)

Dead Weight Tonnes (DWT) 10,600 tonnes

Draught 6.7m

Ship charter cost Ship fuel cost (HFO)

$1.2 million per month $0.98 million per month

Speed 16.5 knots

Port storage volume 90 days

In-country LNG road tanker cost $1.5m x 1

Importers margin 5%

LNG – Bulk, port capability

End use technology

NGVs

Data source: NGVA Europe, Worldwide shares in vehicle market , june 2013

World NGV Recognition Level

Source: IGU, Natural Gas Facts and Figures 2014

Heavy vehicle

Source: lng.elgas.com.au

End use technology costs and considerations – light vehicle

Heavy vehicle

Source: pttplc.com

Source: www.hardstaffgroup.co.uk/

End use technology costs and considerations – heavy vehicle

• ~$80,000 extra

• Diesel as pilot fuel

• Gas use increased above idle

• Limited selection of vehicles

• Re-testing and re-certifying storage tanks (LNG, CNG, LPG)

• Lower range (?)

• Higher weight

• Less power when on dual fuel

• Different driving characteristics

• Driver can refuse to fill with LNG Mercedes Benz OC500LE Source: www.statetransit.info

End use technology costs and considerations – light vehicle

Source: pttplc.com

• Thailand >300,000 vehicles

• Concessions for – Lower import duty on refuelling hardware

– Reduced excise tax on vehicles (OEM, retrofit)

– Low interest grant to bus fleets

– 50% of road tax

End use technology costs and considerations – marine

LNG Bunkering for ships using membrane technology Source: GTT

End use technology costs and considerations – Power

End use technology costs and considerations - Power

• Fuel storage and regas at power station, AS3961-2005

• Fire safety systems

• Engines – Can be modified by OEM or After Market providers

– Could include fuel train, new head, valves, gas mixer

– Wartsila, up to 99% gas, lower efficiency

– Mitsubishi, new engines required

– Caterpillar, up to 70% gas, lower efficiency

• Operator training, new maintenance procedures

• Could install at major overhaul

Safety

Safety

• Gas is highly volatile

• Ignites if 5-15% proportion in air and finds ignition source

• Consider – Design is key to reduce risk of fire and explosion

– AS3961 is the LNG storage ‘bible’

– Fuel supply cut off mechanisms is key, not fire quenching

– Vessel design, fire and gas detectors,

– Remote automatic shutoff systems for spills & leaks

LPG – Cost assumptions