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29 Cards in this Set
- Front
- Back
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When is natural gas at its highest value? |
When it substitutes for expensive petroleum products such as diesel (for peak power generation). Other high value uses are for household uses and oil recovery. |
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Why is economically feasible to transport LNG? |
Because it's energy is 1000 times that of NH |
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Why are NG markets highly localized? |
Because NG has low energy density, which makes it uneconomic to transport it across oceans. This is also the reason why prices can be widely different across different geographical regions. |
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What are the two types of terminals? |
1) Liquefaction = export = loading = expensive 2) Regasification = import = unloading = cheap |
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LNG transportation process (4 steps) |
1) Liquefaction (cooled between -120 and -170, reduces volume for transportation) 2) Transportation (in large insulated aluminum spheres), "boil off" 3) Storage (reaches destination and is stored at receiving terminal) 4) Regasification (when gas is needed, its regasified and moved via transmission and distribution systems) |
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What is the carrier system based on? (economically speaking) |
Economies of scale
--> Cargo size increases = freight cost per ton decreases (avg cost goes down with larger size)
--> Distance increases = avg cost decreases |
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LNG process |
(1) NG extracted from gas fields, (2) transported through pipelines and cleaned of impurities, (3) cooled at liquefaction plant, (4) stored in tanks, (5) transported by LNG carriers, (6) stored at destination, (7) regasification, (8) NG distributed to final destination |
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Main potential destinations for high LNG demand? |
China, Japan, South Korea |
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Who is the largest consumer of LNG?
Who is the largest global consumer of LNG with the highest expected future growth rate? |
Japan (transportation there is a bit cheaper)
Asia Pacific, highest expected future growth rate because there is no pipeline there |
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Why is North America's LNG demand likely to decrease? |
Because of the mass amounts of shale gas; no need to import |
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What is likely to happen to European and Eurasia demand for LNG? |
Likely no changes due to their pipeline access |
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Who are the LNG supply competitors in the pacific basin?
Who's the biggest supplier?
Russia? |
Pacific basin: - Malaysia (lots to produce but don't export much due to mass consumption) - Indonesia - Australia (lots of LNG liquefaction under construction
Qatar - massive resources and started early
Russia - Late to production but have tons of resources |
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LNG terminals in Canada |
- 1 receiving LNG terminal (Canaport in NB) - No liquefaction LNG terminal - 17 proposed LNG liquefaction terminals, none under construction
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LNG terminals in US |
- 11 LNG receiving terminals, 3 liquefaction plants, 4 liquefaction LNG plants under construction expected to start by early 2015 - 44 proposed LNG plants |
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What needs to happen for LNG production to work? |
1) entire process needs to be in place to ensure transactions occur
2) Must secure a buyer for a prolonged amount of time before making a transaction |
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What are the fixed prices for LNG in $/GJ? |
About 5$/GJ |
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What happened to Japan's CIF (cost of supply at harbor) after the 2011 tsunami? |
Rapidly increased, and US henry hub prices declined |
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What is pressuring the LNG market? |
1) Fierce competition (Asia Pacific, US, Russia) 2) Oil indexed LNG prices (In Asia, changes in Oil prices directly affect LNG prices) 3) High cost of import - Japan's energy bills have unsustainable increases |
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In terms of Japan's unsustainable energy bills, what will happen if LNG prices become too high? |
They'll have to replace it, likely with nuclear energy. This will decrease their dependency/demand for LNG. |
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What type of gas is associated with the lowest marginal cost of production? Why is it so low? |
Onshore conventional gas - its the cheapest because you get oil while drilling for NG - which is usually burned and turned into flare gas.
It can be used as oil recovery |
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According to Hotelling, what is the difference between a depletable and a renewable source? |
That the opportunity cost of the depletable will include a depletion premium as well as its production cost |
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Why can't perfect competition explain the NG market? |
1) Gas is traded locally, therefore the international market responds with imports/exports 2) Oil, gas, coal aren't perfect substitutes 3) Price regulations in distribution/transportation 4) Gas being a depletable source therefore there's a "hotelling royalty" that needs to be factored in |
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According to Hotelling, how is the economic price calculated? |
Economic price = Extraction cost + royalty
**royalty portion increases at a rate of discount rate |
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How do we actually model the prices? In this model what can happen to prices? What does Hotelling believe? |
Supply = demand. In this model, prices can move upwards and downwards.
According to Hotelling, prices should only move upward |
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What does the long run supply of NG represent? |
The length of time it takes to find, produce, and bring new natural gas reserves to the market. It represents the resource base. |
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What does the short run supply of NG represent? |
The amount available in the immediate future. Limited by deliverability |
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Spot prices |
The prices of today. The market is such of buyers and sellers bidding for delivery of NG to a specific point. Common location in Alberta is AECO-C. Sold for terms between 1-30 days. |
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Future prices |
Contract to buy/sell at a future date at a pre-specified location and price. NYMEX is the primary futures market for NG. |
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Contractual prices |
Contracts between buyers and sellers over multi-year terms and specific prices. |
