GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
Short Term versus Long Short Term versus Long
Term LNG SalesTerm LNG Sales
An Omani ViewpointAn Omani Viewpoint
Bilbao Bilbao -- 16th March 200516th March 2005
Adnan RajabAdnan Rajab
Vice President Marketing & ShippingVice President Marketing & Shipping
Oman LNG LLCOman LNG LLC
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
� OLNG and the LNG market in the mid-1990’s
� Challenges faced by OLNG
� OLNG’s experience with Short Term LNG sales
� An Omani view on the future of ST and LT LNG sales
Outline - Long Term versus Short Term Sales
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
OLNG at the Start
• Final Investment Decision (FID) in 1996
• Name-plate capacity : 6.6 mtpa
• By December 1998, OLNG had secured 3 Long-Term SPAs for a
total of 6.4 mtpa
(Kogas, Osaka Gas, Dabhol Power Company)
• 97% of plant capacity committed long-term
• This allocation reflected market realities in the late 90’s
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
LNG markets until the mid-90’s
� Far East dominant market for Middle Eastern Suppliers
� Clearly defined roles: upstream sponsors versus buyers
� National monopolies and regional utilities dominate markets
� Rigid contractual frameworks:
� Dedicated liquefaction and transportation capacities
� Single destination point with crude linked price
� No equity LNG
� Few spot transactions, arbitrage and diversions of cargoes
� No liquidity in LNG spot markets
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
New challenges faced by OLNGNew challenges faced by OLNG
� Collapse of DPC project in 2002 left OLNG with substantial
uncommitted capacity.
� Debottlenecking provided some 0.7 mtpa of additional capacity
� LNG market was a buyers’ market
� OLNG’s expectation was that market conditions for LT
contracts would be more attractive in 2006/2007 onwards
� OLNG decided to sell Short Term
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
Challenge turned into advantage for OLNGChallenge turned into advantage for OLNG
� OLNG has broadened its customer base :
Asean LNG, BG, BP, Coral Energy, CPC, GdF, Iberdrola, Gas
Natural, Kansai Electric, Tepco, Tohoku Electric, Tokyo Gas,
Total, Tractebel, Union Fenosa Gas
� Explored areas of co-operation with other producers
� Swaps, back-hauling, supply assistance
Pertamina, Malaysia LNG, Woodside
� OLNG seized the opportunity to align with Government
aspiration to enter the LNG shipping business:
Chartering of two vessels (Sohar LNG and Excel)
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
StrategicStrategic GeographicalGeographical Location Location
30 days
45 days 28 days
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
Strategic Geographical Location
30 days
45 days 28 days
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
Experience with Short Term Sales
In 5 years of operations
• Comprehensive geographical coverage :
– Asia Pacific
– Med Market
– US
• By end of Feb 2005, OLNG has delivered 482 cargoes of LNG
• Will deliver cargo number 500 in April 2005
• 134 cargoes sold under short- and medium contracts
• 45 cargo diversions
• 1 swap
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
60
140
120
100
80
40
20
02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Nu
mb
er
of
carg
oes
ST/MT
LT
Oman LNG LT versus ST Sales
• In 2004 about 30% of OLNG’s capacity was sold on ST and MT SPAs
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
60
140
120
100
80
40
20
Future choice LT or ST?Future choice LT or ST?
Forecast
02000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Nu
mb
er
of
carg
oes
ST/MT
LT
Available
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
Why LongWhy Long--Term? Term?
� Infrastructure
� Upstream
� Liquefaction plant
� Shipping
� Receiving facilities
� Finance
� Security of supply
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
Why ShortWhy Short--Term? Term?
� Liberalisation of gas markets
� Increased number of players
� Larger overall volumes of LNG
� Greater liquidity
� Cost of LNG has come down
� Buyers and sellers need flexibility to manage uncertainty
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
The End of LongThe End of Long--Term Contracts?Term Contracts?
Two Schools of Thought :
� YES, situation is the same for LNG today as for:
� LPG 20 years ago
� crude oil 35 years ago
� NO, short-term trades will increase in relative importance, but:
� long-term contracts still key to develop LNG projects and
� to finance LNG plants, vessels and receiving facilities
� Cost structure of LNG such that LT contracts will continue to play
a predominant role of overall LNG trade (±70% ?)
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
Existing Producers
BLNG
Libya
Algeria
Bontang
Arun
AD
Alaska
ALNG/NWS
Qatar
MLNG
Oman
Expanding Producers Existing & Expanding Markets
USAEurope
Taiwan
JapanKorea
Mexico
Existing Trade
To Japan
LNG in the midLNG in the mid--90s90s
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
LNG in 2005 +LNG in 2005 +
Existing Producers
BLNG
Libya
Algeria
Bontang
Arun
AD
Alaska
Angola
Venezuela
Snohvit
Sakhalin
Yemen
Iran
Tangguh
Peru
Bolivia
Equat. Guinea
Egypt
Gorgon
Nigeria
Darwin
New Producers
ALNG/NWS
NLNG
Qatar
MLNG
AtlanticOman
Expanding Producers Existing & Expanding Markets
USA
Europe
Taiwan
JapanKorea
China
IndiaMexico
UK
New Markets
New Trade
Existing Trade
To USA
PipelinesPotential
Pipelines
Pipelines
To Japan
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
An Omani View on the Future of LNGAn Omani View on the Future of LNG
� Movement towards integrated LNG markets
� Increased number of players, therefore larger liquidity
� Middle Eastern LNG Suppliers play key role in creating link
between markets in the Far East and markets in Europe and the US
� Numerous arbitrage opportunities because of different pricing
structure and local supply/demand balances
� Risk of greater price volatility
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
Why LNG from Oman?Why LNG from Oman?
� Geographical advantage
� Safe harbour
� Political stability
� Economic & financial stability
� Reliable technology
� Delivers what it promises
GASTECH 2005 – Bilbao – Spain 14 – 17 March 2005
