3.6.1 INTRODUCTION TO THE MARKET
a) Henry Hub: Henry Hub pipe line is New York Mercantile Exchange natural gas futures price-point. It consists of 14 interconnected pipelines and also a salt cavern for storage. It is a distribution hub owned by Sabina Pipeline LLC in Erath, Louisiana on the natural gas pipeline system. It connects four intrastate and nine interstate pipelines with it and has transportation capacity of 1.8 billion cubic feet per day. It acts as a delivery point for future contracts of New York Mercantile Exchange (NYMEX). NYMEX Henry Hub delivery order contracts began trading in 1990, delivered in the future is a possible 18 months. Henry Hub settlement price is used as a benchmark for the entire North American natural gas market.
b) National Balancing Point (NBP): It is a virtual trading location used for natural gas trading in UK for exchange, sale and purchase of natural gas. It acts as pricing point as well as delivery point for future contacts of natural gas for Intercontinental Exchange (ICE).
c) Title Transfer Facility (TTF): TTF is virtual trading point of natural gas for the Netherlands. TTF is operated by independent subsidiaries of Gasunie, gas transport services BV, physical short-term gas and gas futures contract is trading at APX-ENDEX. Which handles natural gas future contracts and physical short term contracts. At TTF natural gas is traded at Euros per Megawatt-Hour.
3.6.2 MODE OF TRADING
Natural gas is traded either in gas form through pipelines or in the form of LNG.
Liquefied Natural Gas (LNG):- Liquefied Natural Gas (LNG) is a liquid mixture obtained by refrigerating natural gas to -162°C under atmospheric pressure. The economic value for storage and transportation of LNG is high because one cubic meter of LNG generally can contain 620 standard cubic meters of natural gas.
Other favorable characteristics that make natural gas a superior fuel when compared to oil and coal are the low carbon emissions and high calorific value. LNG forms an important part of the natural gas trade. At present, it consists of around 15% of natural gas trade, but this trend is soon going to change, as more countries are turning towards LNG trade to secure their energy requirements.
Trade involving LNG is widely expanding and optimization of value is being sought by all parties involved. In due course of time many more speculative participants have emerged, who are willing to invest large sums of capital on the industry’s future needs.
LNG has a value chain which is as follows:
There are five main basic components a) Exploration and Production.
b) LNG liquefaction.
c) Transportation.
d) LNG regasification.
e) Storage.
Figure 3-2LNG value chain
LNG can also be transported through road and railway carriages
Figure 3-3 transportation through road and railway
LNG Economics: The typical size of investment for setting up a LNG import & export facility, with a capacity of 5 mmtpa is $2.5 to 3 billion for the gas treatment & liquefaction plant and
$500 million for an import terminal and regasification plant. Though it is also very important that all the elements of the chain i.e gas production, liquefaction, transportation and end consumer) are tied up simultaneously, in order to ensure the bankability of the project.
Typical Capital Costs of 2.5 MMTPA LNG Project
Figure 3-4 Typical Capital Costs of 2.5 MMTPA LNG Project
Trading through pipelines
Pipelines are the best economical and cost effective way to transport the natural gas.In the recent era 70% of the natural gas is being transported through pipeline and remaining 30% is in the form of LNG. There are mainly three types of pipeline system.
a) Cross border pipeline system.
b) Cross country pipeline system.
c) Distribution pipeline system.
Overview of LNG trading
Global LNG flows fell by 1.6% from 241.5 MT in 2011 to 237.7 MT in 2012.This was mainly because of supply issues in Southeast Asia and domestic and political challenges in MENA.
Qatar and Nigeria were able to cover up production to offset for these losses. For the demand the growth in Japanese demand (+8.5 MT at 2011) was offset by cargoes diverted away from the United Kingdom. Although in Europe, LNG consumption fell since pipeline gas was more affordable.
Only 3.73 MTPA of effective capacity was added in 2012 .The Marsa el Braga asset in Libya failed to supply a single cargo due to civil war occurred in 2011, now it is assumed to be de- commissioned. Angola will be joining in the list of LNG exporters in 2013.The number and geographic reach of countries that have started importing LNG over the past four years has grown rapidly. From 2008 to 2012, Canada, Brazil, Chile, Kuwait, Indonesia, Thailand, and the UAE have begun importing LNG joining the existing 18 importers. Thus far in 2013, Singapore and Israel began receiving commercial cargoes and Malaysia has received a commissioning cargo. These countries were not considered to be potential LNG importers a decade ago – and the United States has shown a slow LNG imports by now. These changes reflect the flexibility of the LNG chain.
Variations in regional demand patterns and the participation of so many new importers created a large curve in import in 2012 relative to 2011. Seven countries like (UK, Italy, France, US,
India, Turkey, Brazil, China, and South Korea) noticed imports increase by 1.0 MT. Even observing an increase in interregional trade, still there is no “Global” LNG market with a single price pattern.