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LNG players are living in a time of

falling gas demand, plunging prices and
a world awash with LNG. In 2008, global
LNG trade reached 171.1 million metric
tons (MMton), which represented a 0.4%
(or 0.7 MMton) decline compared with
2007. Although in 2008, LNG imports in
Asia and Europe were stronger than 2007
by approximately 4.5%, LNG imports in
the Americas posted a massive decrease
(40.5% or 7.6 MMton). This was driven
by a substantial decline in the US.
European buyers showed the highest
growth in LNG imports in 2008, followed
by Asia, whereas the significant drop in US
imports counterbalanced the LNG trade
(Fig. 1).
These and other findings are assessed in
a recent report from EAGTS Global Energy,
headquartered in Singapore.

Healthy growth in gas demand for

residential and commercial sectors.
Ghina imported 0.4 MMton of additional LNG in 2008 compared to 2007,
which represents a nearly 14.5% year-overyear hike. The country increased its spot
purchases, particularly in the second and
third quarters to cover peak demand from
the Olympic Games.
Indian imports declined by 2.3%, primarily due to a switch by many end-users to
naphtha toward the end of 2008. This was
when oil prices plunged faster than LNG,
making naphtha a cheaper fuel for fertilizer production and povver generation than
LNG. The country was very active on the
spot LNG market, receiving over 46 cargoes in 2008, according to this analysis.
Europe. Overall in 2008, European LNG
demand grew by 1.9 MMton, chiefly
underpinned by robust demand in Spain.
That nation represented more than half
of all 2008 European LNG imports and
was the main reason that Europe was the
fastest-growing regional market last year.
Spain was the world's fastest-growing
LNG importer last year in terms of volumes
with an increase of 13.9% or 2.6 MMton,
entirely due to the strong growth in the
power generation sector.
With this increase, it consolidated
its position as the world's third-largest
importer after Japan and South Korea.
Belgium and Greece are the other European countries where imports increased,
according to FACTS' analysis.

Americas. LNG demand in the Americas dropped by 40.5% in 2008. US LNG

imports plunged in 2008 by nearly 55%,
accounting for only 7.2 MMton in 2008,
against 15.8 MMton a year ago mainly
as a result of a strong hike in domestic
natural gas production, stemming from
unconventional sources. The massive drop
in US imports was slightly countered by
the increase in Mexican imports at the
Altamira terminal and the commissioning of the Gosta Azul terminal in second
quarter 2008.
Argentina started importing LNG in the
third quarter of 2008. The country faced
gas supply shortages during the 2008 summer peak consumption period and turned
towards LNG imports to meet the demand
gap. The country imported 0.4 MMton of
LNG in 2008.
LNG supply. The only supply growth
originated from the Atlantic basin in
2008, while production from the Pacific
basin and Middle East dropped by nearly
1.5% and 0.1%, respectively. As a result, a
substantial number of Atlantic basin cargoes were diverted to Asia, for a total of
14.1 MMtonapproximately 12% of the
region's LNG supply, according to FAGTS'
estimates (
Nameplate global liquefaction capacity
is slated to grow to about 240 MMton by
the end of 2009. This forecast represents a
significant increase from its 2008 level of
about 197 MMton. The majority of new
LNG export capacity expected for 2009
startup is in the Middle East.

Asia-Pacific. Despite the global economic

recession, LNG imports into Asia increased
5.1 MMton. Demand was particularly
strong for the first three quarters of 2008
and then began to wane as decreased economic activity in importing countries led
to lower gas demand.
In 2008, Asia-Pacific's main LNG
supply sources were the Pacific basin and
the Middle East. These two regions represented 56% and 32%, respectively, of
total LNG supply to Asia-Pacific markets.
The region also increased its reliance on supplies diverted from
the Atlantic basin. Imports from
the Atlantic basin accounted for
112 117.1
O Change, %
12% of total 2008 Pacific Rim
LNG purchases.
- -10 g,
-15 ^
Japan, the world's largest 5 80
-20 I
LNG market, showed a 3.7% i 60
-25 ^
average annual growth rate in its O
2008 imports compared to 2007 i 40
40.9 42.8
levels due to several issues:
Unexpected nuclear power
plant shutdowns
Attractive LNG prices
Source:'FACTS Global Energy
compared to oil prices for the
industry sector in the first half
raa-o LNG demand growth shows regional disparities between
2007 and 2008.
of the year

Path forward. Asian LNG

demand, which only a year ago
needed a steady stream ofAdantic
basin LNG to satisfy its appetite,
now looks decidedly sluggish.
Consequently, the likelihood of
Asian cargoes seeking markets
west of Suez this year is strong.
However, the problem is
compounded by soft energy
demand in markets west of
Suez, not to mention a slew of
new LNG supply coming onto
nearly-saturated global markets
before year-end.



Demamd. According to the Asian Development Bank, Asia's economic growth will
be at its weakest since the 1998 financial
crisis as the global recession hurts exports.
As a result, FACTS believes that AsiaPacific LNG demand will drop back by
just under 5% to 112 MMton in 2009
compared with the previous year. The fall
will be chiefly led by a significant decline
in Japanese imports.
There is no shortage of LNG import
capacity to accommodate increased LNG
imports. In addition to the 68 MMton of
existing import capacity. North America
this year will commission at least three new
facilities with a combined import capacity
of over 33 MMton/yr. More capacity will
follow in 2010. US receiving terminals will
therefore be greatly under-utilized this year,
even if imports were to double from their
2008 level.
But the somewhat scant amount of
additional LNG supply coming online
over the next few years should quell any
speculation that the pendulum is swinging from a seller's to a buyer's market
again. While FAGTS' analysts do not
assume any further delays in new projects
under construction and expected online
in the 2009-2012 period, there could be
a drop-off in new capacity additions for
the 2012-2013 period.

Don't concentrate entirely on fixed

costs. This stops you from doing the right
" Examine work processes, speed and
acceleration. Look at internal processes
that do not go fast enough to generate the
reactivity that is needed, especially in a constrained economy.
Cost Ileadership. The central tactics
in achieving cost leadership, according to
Mr. Newman, have become a Shell mantra: eliminate, simplify, standardize and
automate. If you can simplify the entire
contracts and procurement process, then
you're able to standardize the methodologies. Complexity costs a company a lot of
money, thus avoid it. Simplicity can equate
to cost-effectiveness. Then, when you've
standardized, you can start to automate
some of those work processes. By automating, you can free up people to do more
value-adding work.
Reliability and plant peak performance
are vital for process plants to succeed. It
might not feel like that's an issue now
because some of our plants are underloaded in the refinery world. They could
be at only 70% utilization. However, the
plants have to be ready to run when the
upturn comes.
In addition, "the CO2 debate will not go
away. There will be carbon credits and carbon capping; there will be regulation," he
noted. So in the downturn, if you can start
to manage your energy costs and reduce
your CO2, then you're ready for the upturn
in terms of carbon emissions.

in 2012. "Maybe you've got enough confidence to defer and you can convince yourself, because you're doing it in a conscious,
calculated, quantifiable way and pushing
those costs out toward a time when you
can afford to do it," Mr. Newman suggested.
Navigating the storm. Karl Rose, chief
strategist with Shell International, was
another presenter at the company's seminar. He echoed the importance of analyzing
the best ways for dealing with volatility and
uncertainty. When formulating a sound
business plan. Shell uses scenario planning
as its main strategic tool.
He forecast that the world will see a
step change in energy use due to emerging markets hungry for products. Supplying "easy" oil and gas will struggle to keep
pace. Increasingly, energy use is expected
to be based on coal. Mr. Rose projected
that 70% to 80% of the expected energy
demand increase will be satisfied by coal.
This is going to put a tremendous stress on
global CO2 emissions.
In the short term, there are impacts
on the industry's ability to invest. "Shell
expects to keep investment levels constant
for 2009," according to Mr. Rose. This is
running about $30 billion to $32 billion,
a level unchanged from the corporation's
plans before thefinancialcrisis.

Monitors. One of Shell's important

indicators is the investment level taken by
OPEC in spare capacity. A key question
The need in a downturn is an actionis whether those producers are going to
able plan with strong leadership and a
be able to maintain their production and
commitment to carry it out. So said Paul Maintenance plan. So what are the increase it when recovery comes.
Newman, global manager for service and hardware fixes and what are the process
Also interesting will be to see how costs
implementation with Shell Global Solu- fixes that refiners need to put in now to are going to develop during this recession.
tions. Speaking recently in Barcelona, ensure that they've got the right level of "This is one of the areas where the industry
Spain, at the first of the company's three activity ready for the upturn?
will see opportunity and not only a threat
You can't do everything, you can't have within this downturn," Mr. Rose noted.
annual regional symposiums, he shared
his perspective on survival tactics for the an expensive preventive maintenance plan
"We do believe that fundamentally the
for all your assets; you have to really select energy industry has got a very, very good
present economic slowdown.
Mr. Newman, who began his career in those critical equipment items, according future ahead of itself. The world will need
the oil and gas industry as a refmery process to Mr. Newman.
a lot of energy, maybe twice as much, but
engineer, observed that "as operational folk,
To prioritize systems, he advised proces- at half of the carbon dioxide," according to
we're players, not victims." He revealed sors to feed in their corrosion allowances, Mr. Rose. Companies must be strategizing
Shell's key business concepts and a few look at the remnant life of the assethow now to compete and win in such a carbonideas about "what's important":
long is it going to runand put in some constrained environment. HIP
" Stay focused on health, safety and confidence rating based on historic data.
environment. It's a "table stake," he noted. These inputs give you an inspection interComing next month
"We can have some focused asset integrity val. "And perhaps you can start to increase
Look for the August issue of
around critical items. And if we do that, those inspection intervals," he said.
Hydrocarbon Processing, which
then we have to put some controls around
Perhaps you can take an expensive piece
features a Special Report on Fluid
it, and those controls would be around a of equipment outside of a turnaround or
Flow and Rotating Equipment.
risk assessment framework."
shutdown, and schedule it for the next one