Energy Department Paper No. 12 LNG Export Opportunities for Developing Countries and The Economic Value of Natural Gas in LNG Export December 1983 World Bank Energy Department Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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Energy Department Paper No. 12
LNG Export Opportunities forDeveloping Countries andThe Economic Value of NaturalGas in LNG Export
December 1983
World Bank Energy Department
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Natural Gas and Gas Liquids
A. Definitions
Natural gas is a simple hydrocarbon that exists in associationwith oil or separately as non-associated gas. It is generally a compositeproduct. The simplist member methane (Cl) is by far the most abundant com-ponent, and is always present in a gaseous form. Both associated and non-associated gas often include a high proportion of natural gas liquids(NGLs). These NGLs include ethane (C2) and LPGs, [propane (C3), and butane(C4)], as well as pentanes and natural gasoline condensate (+5).
Terminology And Constituents of Natural Gas
METHANE
ETHANE
PROPANE LPGBUTANE
NATURALGAS PENTANES and heavier
ex well fractions also referredto as:NG
C5Pentanes plusNatural gasoline
Condensate
NON HYDROCARBONSe.g. water, carbon dioxide, etc.
B. Abbreviations
Btu - British Thermal Unit
ft3 - Cubic foot
SCF - Standard cubic foot
MCF - Thousand cubic feet (103)KMCFD - Million cubic feet per day (106)BCF - Billion cubic feet (109)TCF - Trillion cubic feet (1012)m3 - Cubic metertoe - Ton of oil equivalent
C. LNG Volumetric Equivalents
1 million tons of LNG
= 77 million ft3 (liquid)= 2.2 million m3 (liquid)= 52 BCF (gas)= 1.4 billion m3 (gas)
= 1.2 million toe= 52 trillion Btu
LNG EXPORT OPPORTUNITIES FOR DEVELOPING COUNTRIES ANDTHE ECONOMIC VALUE OF NATURAL GAS IN LNG EXPORT
Afsaneh Mashayekhi, EGY
Jensen Associates, Inc., Consultant
December 1983
Copyright (C) 1983The World Bank1818 H Street, N.W.Washington, D.C. 20433
U.S.A.
This paper is one of a series issued by the Energy Department for the
information and guidance of Bank staff. The paper may not be published orquoted as representing the views of the Bank Group, and the Bank Group doesnot accept responsibility for its accuracy or completeness.
Table of Contents
Page
I. INTRODUCTION AND SUMMARY ....................... 1
A. Introduction ............................... 1B. Summary.............................. . . .. ........ 2
II. THE EVOLUTION AND PROSPECTS OF LNG TRADE.................... 6
A. Early Projects.......................... ........ 6B. The Development of LNG Trade ................. 4.0.0 6C. LNG Demand, Supply, and Prospects..................... 8D. Pricing .................... .. ..... 0......6.............. 10
III. STRUCTURE OF LNG PROJECTS...................... * ............ . 12
A. Gas Production and Transmission........................ 13
B. Liquefaction... .. ...... .6............*.............. 14
C. Transportation............. ............ ......... 16D. Receiving /Regasification Terminal.................... 17
IV. NATURAL GAS NETBACKS......................................... 19
7a. Unit Netback Values for Scenario Ao.............. 227b. Unit Netback Values for Scenario B.................... 237c. Unit Netback Values for Scenario C................... 238. Project Net Present Values with Different
Gas Cost Assumptions...................... ....... 24
Abstract
Many developing countries are about to embark upon gas develop-ment. They face complex questions regarding optimal allocation of theirgas among competing alternatives. World Bank staff are preparing a series
of papers on the value ofnatural gas measured by netbacks in major domes-tic and export options- One of the objectives of these papers is todevelop a comparable information base and a consistent framework of analy-sis which can be used to provide a preliminary economic evaluation of al-ternative gas utilization plans.
It is hoped that these studies will be useful to project staff,as well as energy economists and policy makers who are facing complex ques-tions of strategy for gas development in developing countries. These stu-dies do not eliminate the need for site-specific analysis of the economic,financial and technical aspects of projects. They do, however, define thecircumstances under which certain options are worth further study. They
also attempt to provide a sharper focus for country specific studies and inthis way reduce the time and cost of these studies.
This paper reviews the LNG export opportunities for developingcountries and clarifies some of the issues related to economic costs andbenefits of LNG projects from the point of view of an exporting country.It identifies the major technical parameters that affect costs and analyzesfactors affecting the economic size of projects and the effect of scalingthem down. Its principal objective is to estimate, given explicit assump-tions, the netback values for gas at various stages in the LNG deliverysystem. It examines three basic scenarios of small and medium scale pro-jects as well as a multi-destination project with several small markets.It also tests the sensitivity of netbacks to the level of infrastructure,discount rates, and the price of gas delivered at the importing country.
LNG projects are highly capital intensive and require a largenatural gas reserve base. The netback values ex-pipeline estimated in thisstudy are more sensitive to the delivery price of gas, discount rates,location, and the level of infrastructure than to the size of theproject. The study also indicates that a relatively short distance multi-destination LNG project yields a netback close to that of a long-distanceproject serving only one terminal. The net present values of LNG projectsand netbacks ex-well also are significantly influenced by the costs of gasproduction and transmission.
Forthcoming papers include those on the value of gas (netback) in power,residential/commercial distribution, fertilizer, and petrochemicals uses.
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The study concludes that only a few developing countries areexpected to benefit from LNG export opportunities in the next decade. Thelong-term prospects for LNG trade in the 1990s and beyond, however, seemmore favorable. The major LNG exporters are expected to be developingcountries and the main potential demand will be from developed countriesand from a few developing countries such as Korea, Hong Kong, andSingapore.
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I. INTRODUCTION AND SUMMARY
A. Introduction
In many developing countries, following gas discovery, the im-mediate question has been whether or not it is exportable. The purpose ofthis paper is to clarify some of the issues related to economic costs andbenefits of LNG projects from the point of view of an exporting country.It does not cover many of the complex issues related to the project-specific financial and legal aspects of LNG systems. The paper alsobriefly examines LNG export opportunities for developing countries, andprovides estimates of the economic value of natural gas (netback) in selec-ted LNG projects, based on a study done by Jensen Associates for the WorldBank. I/ Netback values for gas are calculated at various stages in theconventional LNG delivery system. The 'netback', or the average value ofgas in a project, represents the gas price that would cause the projectjust to break even. It is defined as the present value of the net benefitsof the project, excluding the cost of gas used, divided by the presentvalue of gas consumed in the project.
This paper reviews three scenarios based on actual and potentialprojects to illustrate aspects of LNG trade relevant to a developing coun-try. The eleven different cases based on these scenarios cover a techni-cally and economically reasonable range of project sizes using the mostmodern available technology. They identify the major technical parametersthat affect system costs and analyze the issue of the economic size ofprojects and the effect of scaling them down. As can be seen from Table 1,the three basic scenarios simulated here are medium scale, and small scale,single destination projects and small scale multi-destination projects.
The first basic scenario (cases I through VI) is a large LNGproject with a capacity of 500 MMCFD situated about 5,000 nautical milesfrom the export market (e.g. North Africa to Europe), and served by fiveLNG tankers. The sensitivity of such a project to the level of infrastruc-ture, discount rates as well as the price of gas in the importing countryis analyzed. Scenario B (VII through IX) covers a smaller project with acapacity of 300 MMCFD. It is also 5,000 nautical miles away from the ex-port market and is served by three LNG tankers. Sensitivity to the levelof infrastructure, and the discount rate is tested. Scenario C (X and XI)is a multi-destination project with three small markets a short distancefrom the exporting country, and is served by one LNG tanker. Sensitivityto the level of infrastructure is investigated. In all of the simulationsestimates of costs and netbacks are supported by actual data on existing orpossible projects as well as by estimates provided by suppliers of LNG-related equipment.
I "The Economic Value of Natural Gas in LNG Export," Jensen Associates,Inc., October 1982.
VI 500 yes 10 100 5000 1B VII 300 yes 10 80 5000 1
VIII 300 no 10 80 5000 1IX 300 yes 5 80 5000 1
C X 300 yes 10 80 1000 3XI 300 no 10 80 1000 3
a/ Liquefaction plant input.
b/ At liquefaction plant site.
c/ Assuming that crude oil prices are $34/boe and would increase after1985 at an average real rate of 2% per year based on mid-1982 projec-tions.
d/ Nautical miles, one way.
Following this introduction and summary section, Part II discus-ses the potential supply and demand for LNG and the pricing of LNG pro-jects. Part III presents the structure of LNG projects consisting of gasproduction, transmission, liquefaction, shipping, and regasification phasesand the respective costs of each phase. Part IV describes the methodologyto estimate netbacks and presents the resulting netback values. It alsoprovides the net present value of LNG projects based on different gas inputprice assumptions. Detailed cost schedules, volume build up, and net pre-sent values are included in Appendix 1.
B. Summary
Natural gas exports from developing countries as LNG grew rapidlyfrom 112 BCF in 1970 to about 1.2 TCF in 1980. Over the next few years,trade in natural gas is expected to grow more slowly than in the 1970s.About 10 to 20 possible LNG projects in the developing countries are beingreviewed at present. There is a potential market for these exports prin-cipally in Japan and Western Europe. However, given the state of worlddemand these projects will compete with each other. In the next decade,
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only a few projects in countries that have substantial gas reserves and theadvantages of the presence of international oil companies, closeness tomarkets, and perceived political stability may be realized.
LNG projects require large proven reserves and take about adecade between the first indication of interest and their commissioning.The minimum reserves needed for an LNG project are about 3 trillion cubicfeet (TCF); projects based on reserves of 4-5 TCF benefit from economies ofscale. The certification of reserves dedicated to a project and productionlevels is a major issue. For example, one reason for the delay of theCameroon project was related to the reserve certification process, whichreduced previous estimates of proven reserves. LNG projects are highlycapital intensive and require considerable up front investments; the studyindicates that the investment required for liquefaction, shipping, andreceiving and regasification for a 300 MMCFD project is estimated at about$1.4-1.7 billion depending on the level of existing infrastructure. Thecapital cost for a larger project of about 500 MMCFD is expected to beabout $2.0-2.4 billion. This indicates substantial economies of scale.
The issues related to financing such large-scale projects arecomplex. Because of their high capital intensity and large amounts of loanfinancing and cash flow requirements, LNG projects are very sensitive toprice variations. They therefore require long-term agreements on pricesand escalation formulas as well as willingness of sellers and buyers tocommit themselves to operations at high load factors over a long period ofabout 15 to 25 years. The relatively inflexible nature of LNG trade aswell as the need for a strong, long-term relationship between exporters andimporters makes LNG projects particularly sensitive to producers' andinvestors' perceptions of political, technical, and market risks.
All the cases considered in this study provide positive economicnetbacks.1/ However, the netback values to LNG, ex-pipeline delivered atthe liquefaction plant for the 11 cases, vary widely. There is a directrelationship between lower gas prices and lower netbacks. Except in CaseVI, which uses a higher LNG price assumption as a sensitivity test, andCases III, IV, V, and IX, which use different discount rates to measuresensitivity to the opportunity cost of capital, the netback values are bet-ween $2.23 and $3.40 per MCF. These netback values calculated at the pointof gas delivery to the liquefaction plant would, based on experience in thecountries reviewed, cover costs of finding, producing, and transporting gasto the liquefaction plant, as well as the respective rent to the exportingcountry for depleting an exhaustible resource and the profit of the compa-nies involved in the project.
1/ The netback is estimated at three points: (i) entry into the lique-faction, plant (ex-pipeline), (ii) loading onto LNG carriers (ex-liquefaction, and (iii) delivery (ex-ship).
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The netback varies only to a small extent as a result of therange of plant sizes studied here (300-500 MMCFD). However, with a lique-faction plant size below 300 MMCFD, large diseconomies of scale set in.The study also indicates that a relatively short distance LNG project, inwhich one liquefaction plant serves several receiving terminals, yields anetback value close to that from a long distance project serving only oneterminal. The netback is very sensitive to the price of the gas deliveredin the importing country. The netback to gas when the gas price is basedon mid-1982 cif crude oil parity, in the sensitivity case (VI), is $4.46per MCF compared to $3.09 in Case I when the price is based on 80% of crudeoil prices.1/ Netback values are also affected by location and the levelof infrastructure at the liquefaction site.
The netback to gas delivered at the liquefaction plant (ex-pipe-line), estimated in the basic cases, excludes exploration, production andtransmission costs. When the specific cost of gas exploration, productionand transmission to the liquefaction plant is included, the netback to gasex-well can be determined. A separate study of the marginal cost of natu-ral gas in ten developing countries has been carried out and its resultsindicate a range of gas delivery costs. 2/ The sensitivity of LNG projectsto the cost of gas was investigated, assuming that the cost of natural gasdelivery to the liquefaction plant is $0.50 and $1.00 per MCF. The impactof higher gas input costs (into the liquefaction plant) on net presentvalues and consequently netbacks is very significant. In Case 1, for ex-ample, the net present value of the project falls from $2.90 billion to$1.97 billion when a natural gas delivery cost to the liquefaction plant of$1.0 per MCF is included.
The results of this study provide only a preliminary and generalimpression of the economic value of gas in LNG exports. Any specific pro-ject will have to be separately studied to allow for its specific economic,financial, and legal characteristics. In a particular case, the details ofthe quantity and quality of gas input to the liquefaction plant and actualinfrastructure costs will affect the netback value ex-pipeline to the ex-porters. Also, different debt/equity ratios and tax systems can causesignificant differences in overall project profitability. In any LNG pro-
I/ Construction of these hypothetical projects is assumed to begin in1982 and take 5 years. Operation begins in 1986 and continues for 20years. Therefore, the recent oil price fall is not expected to changethe netback values significantly since these values are based on long-term oil price projections which have not changed drastically fromprevious projections. Further, all the value-in-use studies are basedon similar price projections and will therefore remain consistent andcomparable.
2/ Estimates of these costs in several developing countries are providedin the "Marginal Cost of Natural Gas in Developing Countries: Conceptsand Applications", Energy Department Paper No. 10, World Bank, 1983.
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ject there are close links between financing arrangements, the costs ofequipment which are often purchased from the gas importing country, and thecontract price and conditions. As a result, it is often difficult to as-
certain the exact economic costs of a particular project. The situationsconsidered in this paper, however, provide general cost and benefit estim-ates which should assist countries in deciding whether a particular projectis worth studying in detail.
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II. THE EVOLUTION AND PROSPECTS OF LNG TRADE
A. Early Projects
International trade in LNG began with the trial shipments fromLouisiana to Canvey Island in 1954. 1/ Its success led to the first com-mercial base load international LNG project in 1964 between Arzew, Algeria,and the UK for about 40 BCF per year over a 15 year contract period. Thiswas followed by ventures between Algeria and France in 1965, and Alaska andJapan in 1969. Gas exports grew about tenfold between 1966 and 1980 be-cause of the mutual benefits for exporters and importers of LNG. For ex-porting countries, flared gas in Abu Dhabi and Libya, or gas which wassurplus to foreseen long-term domestic needs, could be exported as LNG togenerate foreign exchange. LNG projects provide an important option fordeveloping countries with relatively abundant unutilized natural gas re-serves.
For importing countries before 1973, imported gas prices werecheap relative to alternative energy sources. Between 1973 and 1979 LNGprices remained competitive, though they were increasingly linked to theprices of petroleum products. In countries with a serious pollution pro-blem, such as Japan, LNG also had a premium value as a clean fuel. SeveralEuropean countries had gas pipeline networks (to distribute town gas pro-duced from coal) which could be used to distribute natural gas. In someinstances, LNG imports were needed to maintain the supply of gas to exist-ing distribution networks, where not enough gas was available locally. Forother importers, LNG provided an economic way of diversifying the sourcesand types of energy, to improve the overall security of supply. For bothbuyers and sellers, LNG became a proven means of supply which was techni-cally reliable and safe and also offered the most economic means of bring-ing large volumes of gas to markets where delivery by pipeline was imprac-tical.
B. The Development of LNG Trade
Much larger LNG projects were planned in the 1970s to exploiteconomies of scale in liquefaction and to meet increasing demand (Table2). The first of this new generation of large scale projects was theBrunei exports to Japan in 1972. This contract provided for the supply ofabout 280 BCF per year over 20 years. World LNG trade increased from 112BCF in 1970 to about 1.2 TCF in 1980. Trade in LNG grew more rapidly thanthe gas export market as a whole and increased its share from 7 percent toabout 19 percent of total gas trade in 1982.
1/ The use of LNG for peak shaving began in the US in the early 1940s.The volumes involved were very small--less than 1 billion cubic metersin 1950 and 5 billion cubic meters in 1960.
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Table 2
Operational LNG Export Projects and Projects Under Construction
Contract Contract VolumeExporter Importer Initial Term in
Delivery Years MFD
Algeria b/ UK/British Gas 1964 15 110Algeria France/Gaz de France 1965 25 50Alaska Japan/Tokyo Gas/Tokyo Electric Power 1969 15 135Libya Italy/SNAM 1970 20 240Libya Spain/INAGAS 1970 15 110Algeria France/Gaz de France 1972 25 350Brunei Japan/0saka Gas/Tokyo Electric Power 1972 20 745Algeria Spain/EAGAS 1976 23 450Abu Dhabi Japan/Tokyo Electric Power 1977 20 355Indonesia Japan/0saka Gas/Kansai 1977 20 440IRdonesia Japan/COibu and Kyushu Electric Power/Nppon Steel 1978 20 630Algeria c/ USA/Distrigas 1978 20 120Algeria W/ USA/El Paso 1978 20 1000Algeria e/ USA/Distrigas 1981 20 450Algeria France/Gas de France 1982 20 530Algeria f/ Belgiun/Distrigaz 1982 20 500Malaysiag/ Japan/Tokyo Gas 1983 20 870Indonesia Japan/Nagoya/0saka/Hinji 1983 20 460Indonesia Japan/Niigata/Tokyo 1983 20 480
a/ Status as of March 1983; actual exports in 1982 were in some casesbelow the volumes indicated in this table.
b/ This project has been terminated.
c/ This project has supplied small quantities since 1971.
d/ Supplies from the El Paso project have been suspended since 1980.
e/ The Trunkline project started operating in 1983 but exports are belowcontracted volumes.
f/ Exports in 1982 were far below these volumes.
L/ Operation began in March 1983 at 400 MMCFD.
In 1983, with the implementation of projects under construction,international LNG trade has virtually stopped growing. Some of the pro-posed projects in the 1970s, such as projects from Iran to the US andJapan, and from Algeria and Nigeria to the US and Europe, have not beencarried out. Some of these have been cancelled, while others might bereactivated in their original or in a different form. Actual trade has
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remained at 1.2-1.3 TCF per year since 1980. This is generally attributedto the economic recession, widespread energy conservation, and a switchfrom energy-intensive industries to manufacturing of less energy-intensiveproducts and services in developed countries. Over the next few years, LNGtrade is expected to grow more slowly than in the 1970s. Except for theexpansion in existing projects such as the Malaysian project, no other newprojects have progressed to a stage where they can be implemented before1986.
C. LNG Demand, Supply and Prospects
Developing countries are responsible for over 95 percent of LNGexports. In the next two decades they are likely to remain the major sup-pliers of LNG. The Middle East holds over 25 percent of total world provenreserves, with Iran holding over one half of this region's reserves. With-in this region, only Abu Dhabi has an operating LNG project. In Africa,Algeria and Libya are already LNG exporters. In Latin America there are nocurrent LNG projects. There are, however, pipeline exports from Mexico,which has the largest gas reserves in the region, to USA and from Boliviato Argentina. There are large gas reserves in this region and there is agrowing regional market; Bolivia and Brazil are studying a large pipelineproject and the Mexican-USA trade is expected to grow. In Asia, Malaysiaholds the largest gas reserves, and together with Indonesia and Brunei hasoperating LNG projects.
Most of the demand for LNG will continue to come from developedcountries. A few developing countries may also begin LNG imports in thenext decade. The three major consuming areas are the USA, Japan, andWestern Europe. The USA is the world's largest consumer and is responsiblefor about 34% of world gas consumption. Though it is the largest producerof natural gas, there is great uncertainty about the effect of gas pricederegulation on its domestic supply. It also imports gas from Canada andMexico and, to a limited extent, Algeria. The USA is not expected to havean interest in additional LNG trade until the end of this decade, given thereserves within North America, the potential pipeline trade with Canada andMexico, an absence of a policy towards LNG, and uncertainty about supplyand demand. After 1990, the growth of LNG imports would depend on theirprices; a rapid increase would require changes in the USA regulatory systemand domestic gas pricing policy.
Japan has no significant gas reserves and accounts for 67 percentof world LNG imports. It is expected to remain the largest importer of LNGat least until the year 2000. Its dense urban concentrations require verytight pollution control, which puts a premium value on the clean burningcharacteristics of gas. Japan currently imports LNG from Alaska, AbuDhabi, Brunei, Indonesia, and Malaysia. The major users of LNG in Japanwill remain power utilities, which currently account for 75 percent oftotal gas use, followed by industrial and residential users. The expectedovercapacity in nuclear plants, together with the slow growth rate ofelectricity demand, could seriously reduce the derived demand for LNG.
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Western Europe has about 5 percent of total world reserves andalready imports LNG and pipeline gas from North Africa and the USSR.Between 1979 and 1982, total European gas consumption dropped by about 6percent, mainly due to a fall in power and industrial consumption. WesternEurope's gas production is expected to peak this decade. Its decline,together with rising consumption levels as the economic recovery proceeds,is expected to increase the reliance on imported gas. A major concern isto improve the security of energy supplies through diversifying sources of
supply.
Over the next few years, natural gas exports are expected to growmore slowly than the 1970s. Some of the possible LNG projects presented inTable 3 are being reviewed at present. There are, however, complexpolitical, commercial, and economic problems to be resolved in the case ofeach possible project. There is a potential market for these exportsprincipally in Japan and in Western Europe, but given the state of worlddemand, these projects will compete with each other and only a few may berealized. In the next decade gas trade will involve only about 15countries that have large gas reserves and the advantages of the presenceof international oil companies, acceptable financing, pricing, and fiscalarrangements, closeness to markets and perceived political stability.Regional trade is one prospective area of growth. Bolivian exports toArgentina, which the World Bank has assisted, and Mexican exports to theUS, are examples which may be followed by the Bolivia-Brazil, andBangladesh-India pipelines presently being studied.
Table 3
Possible Base-Load LNG Projects a/
Contract DailyExporter Importer Term Volume in
Years MMCFD
Australia Japan 20 850Bangladesh Japan/Europe - 310Cameroon Europe 20 420Canada Japan 20 400Canada USA 20 260Gulf of Guinea Europe - 500Indonesia Korea 20 210Indonesia Japan - 220Nigeria Europe 20 500Qatar Japan/Europe 20 870Thailand Japan - 250Trinidad & Tobago USA 20 600USSR Japan 20 400
a! Some of these projects have already been studied (e.g. Nigeria) whileothers are at an initial stage of study (e.g. Thailand).
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D. Pricing
One of the most important determinants of supply and demand forLNG over the next two decades, is the price of LNG in the consuming coun-tries relative to competing fuel prices. Gas pipeline and LNG export pro-jects are extremely sensitive to price variations because of their capitalintensive nature and the large amount of loan financing involved. LNGpricing has always been complicated because of the secrecy demanded bybuyers and sellers as to the contract details and escalation clauses.Prices in many cases reflect political as well as economic considera-tions. Over the years, the bases for pricing LNG have changed from thecost of service to simple and then complex escalation clauses and to index-ing based on the cost of alternative energy in the market. The history ofLNG pricing provisions and changes in these provisions has shown that it isdifficult to determine a pricing mechanism that will endure throughout atwenty year LNG contract. Consequently, most contracts have provisions toreopen price negotiations at specified intervals.
Table 4
LNG Prices E
Contract Imported Gas Priceb/($/MCF)
Algeria - Belgium 5.90Algeria - France 5.70Brunei - Japan 5.76Indonesia - Japan 5.66Malaysia - Japan 5.84Alaska - Japan 5.73Abu Dhabi - Japan 6.04
a/ CIF regasified prices for natural gas delivered into the domestictransmission pipeline of the importing country as of February 1983;these prices are expected to fall since gas price formulas are linkedto oil prices.
b/ Prices assume that 1 cubic foot is equivalent to 1000 BTU.
The main problem in determining a fixed pricing provision is that
the prices of alternatives to LNG in the market place change over time bothfrom the perspective of the buyer and the seller. It is therefore impos-sible to determine with certainty what will constitute an acceptable LNGprice in the future. A review of some recent LNG pricing agreements inTable 4 provides an indication of current prices. LNG prices are far above
pipeline gas exports. The agreed gas price for the recent Trans-Mediterra-
nean pipeline project between Algeria and Italy was $4.41 MCF. The price
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of Soviet pipeline gas imports is estimated at close to about $4. 50/MCF.Due to the fall in oil prices gas prices are also expected to have fallen.LNG projects in some cases may compete with gas pipeline projects and fu-ture LNG prices relative to the price of pipeline gas will be a major de-terminant of the share of LNG in total gas exports.
The controversy on linking LNG prices to fob or cif prices ofcrude oil, fuel oil or other petroleum product prices continues. 1/ Thisstudy has simplified the complex pricing structures by adopting two dis-tinct pricing assumptions that provide lower and upper boundaries. Theseprices are expressed in constant 1982 US dollars. They are escalated ac-cording to projections of future crude oil prices made in mid-1982. Thelower limit has been set according to 80 percent of crude oil prices. Theupper limit to LNG prices is set by crude oil prices.
1/ While exporters have argued for fob crude oil parity, presentcontracts, with Japan for example, are based on cif parity.
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III. STRUCTURE OF LNG PROJECTS
Each phase of an LNG system is described below. Capital and ope-rating cost schedules associated with each of the eleven simulations,starting from the decision to construct until the first availability of the
project after 5 years and continuing for 20 years of operation, are inclu-ded in Appendix I. 1/ Costs are presented in 1982 constant US dollars andexclude all taxes and financial charges. An LNG export project consists of
four distinct but interrelated phases:
- gas production, treatment, and transport to the liquefactionplant;
- liquefaction, storage and ship loading;
- shipping LNG in special cryogenic tankers to the receptionterminal; and
- receiving terminal, unloading, LNG storage, and regasification.
Although these activities are generally conducted by separateentities, an LNG project requires a high degree of interdependence andinteraction between suppliers and customers (Figure 1). Each phase of anLNG project is part of an integrated system stretching from the gas well tothe ultimate consumer. If any one element in the chain is not ready intime or fails for any reason, the whole project may be in jeopardy.
The project must also operate at a high load factor and over acontract period of about 15 to 25 years in order to justify the enormousinvestments required. Neither the supplier nor the customers can easilyturn elsewhere for outlets or alternative supplies of LNG of the magnitudeinvolved. Unlike oil trade, opportunities for the spot cargo trading ofbaseload LNG for conventional uses are small. There is, however, a greater
opportunity for spot cargo trading for peakshaving purposes.
1/ The 20 years include four years for building up capacity.
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AN LNG EXPORT SCHEME
Natural Gas Producatlon-well-head
Treatment/Separation
Gas Sales at Plant Gate
Compression &Refrigeration
Liquefaction
LNG fob Sales
Storage
Shipment
LNG cif Sales
Receiving Terminal/
Storage
Regasification
Natural Gas Sales
Sales to Power &Gas Utilities
A. Gas Production and Transmission
The production phase of an LNG project is basically no differentfrom a pipeline gas venture for export or domestic uses. An LNG project ishowever, more sensitive to possible variations in the gas quality and quan-tity over the life of a project since the liquefaction plant must be fullyloaded at all times. The threshold volume of recoverable reserves is im-portant because the gas liquefaction costs are greatly influenced by thesize of a project.
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Export volumes tend to be large and the reserves dedicated to anexport scheme should be sufficient to sustain production for the contractperiod, i.e. 15-25 years, with about 30 percent safety margin, particularlyif part of the supply comes from associated gas. LNG projects require veryreliable estimates of reserves and production. Reserves of about 3 TCFprovide a sufficient threshold for LNG projects with an approximate capa-city of 300 MMCFD; projects based on recoverable reserves of 4-5 TCF bene-fit from economies of scale. This is due to the replication of liquefac-tion costs and lumpy and indivisible infrastructure costs.
The gas that enters the liquefaction plant is treated and free ofmost impurities. If the gas contains a high percentage of carbon dioxide,hydrogen sulfide, nitrogen, and metal particles which can disrupt the pro-duction process, it would require additional investment in pretreatmentequipment that reduces the netback to the well-head. The gross thermalcontent of the gas for purposes of this analysis is assumed to be 1000Btu/scf. This is a very lean gas stream. In practice a higher or lowercalorific value can significantly affect the costs and benefits of the pro-ject. 1/
B. Liquefaction
The process of liquefaction requires cooling methane to aboutnegative 161 0 C at atmospheric pressure to reduce its volume to 1/600th ofgaseous methane. Each process train or liquefaction unit generally in-volves further purification and dehydration of the incoming gas followed bycompression, refrigeration and liquefaction. The liquefaction plant isoften the most expensive link in the LNG chain. For example, a 500 MMCFDliquefaction plant is estimated to cost a minimum of $800 million excludinginterest during construction at a developed site. The most costly itemswithin the plant are the liquefaction trains, and steam and power generat-ing facilities, each contributing 25 percent or more to the total cost.
1/ A rich gas with a high content of heavy hydrocarbons can be marketed intwo ways. First, the heavy gases could be extracted, fractionated andtransported by LPG carriers. This could increase the net present valueof the project cash flow and also the netback. Second the heaviergases could be liquefied with the methane and transported to theimporting country together. For some buyers this gas will have apremium value. Mixing of rich and lean gas may cause problems forother end users and require adjustment of burners.
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LIQUEFACTION PLANT COST
3
2
V,> 2 -
0
III I I I I I I I I I I I I I0 100 200 300 400 500 600 700 800 900 1,000 1,100 1,200 1,300 1,400 1,500
MMCFD CAPACITY
The 500 MMCFD plant size was chosen as a relatively standard sizeliquefaction plant. The possibility of sealing down the liquefaction plantwas investigated. The results indicate that for a plant size below 300MMCFD, costs begin to rise quite rapidly as indicated in Figure 2. Thereare significant economies of scale in the construction and operating costs
of liquefaction plants. Capital and operating costs of the liquefactionplant are crucially dependent on the availability of local infrastructureand personnel. Building facilities such as deep water ports, roads, andhousing as well as training unskilled labor and the expenses of skilledexpertise may add more than 100 percent to the cost of construction. Stor-age, marine and loading costs following liquefaction increase costs byanother $200 million for a 500 MMCFD plant and by $165 million for the 300MMCFD plant, as indicated in Table 5. Operating costs are about 5 percentof capital costs and include maintenance and labor costs as well asinternal consumption of 8-12 percent of the gas input.
-16-
Table 5
Liquefaction Plant Cost Breakdown --(in millions of US$)
500 MMCFD 300 MMCFD
Liquefaction Section 290 170Utilities and Auxilliaries 330 230Site Preparation and Building 35 30Storage 90 70Marine and Loading 110 95
Total 855 595
a/ Total capital cost figures may differ slightly from figures in thereport due to rounding; all capital and operating costs for each caseare provided in Appendix I.
C. Transportation
The current standard for new tanker designs is 130,000 cubicmeters. This standard has evolved as a compromise between significanteconomies of scale and the need for LNG carriers to be able to enterEuropean, Japanese, and American ports. 1/ The capital cost of the twomajor tanker designs, the membrane and spherical types, depends on theshipyard but a price of $150 million for a 130,000 cubic meter tanker isoften quoted for both designs. 2/ However, in order to maintain theireconomic competitiveness, some LNG shipyards may offer discounts that re-duce this cost.
The operating costs cover fuel and harbor fees as well as main-tenance, insurance and wages and are sensitive to distance. For a typicalroute of about 5000 nautical miles one way, chosen in this study as a casewhich corresponds approximately to a North African-European project, ope-rating costs constitute 7-8 percent of capital costs. The study assumeszero boil-off since current tanker design has reduced the maximum boil-off
1/ An additional factor in the design of modern tankers is safetyregulations; the US Coast Guard regulations set global standards.
2/ There are more than 60 LNG tankers in the world. The membrane designhad an early lead but recently the spherical design seems to have takenover due to its higher flexibility in quantities carried and the easeof inspection of the spherical tank.
-17-
of gas en route to 0.11 percent or less per day.1/ Improved insulation ofnew carriers and the installation of a small reliquefaction system alsoreduce boil-off.
The number of LNG tankers depends on the distance between ports,speed, tank filling rates, expected downtime, desired safety margin,andother system characteristics and the overall volume of LNG transported.The hypothetical projects simulated here were designed to allow for thesefactors and require 5 vessels in Cases I-VI, 3 vessels in Cases VII-IX, and1 vessel in Cases X-XI.
D. Receiving/Regasification Terminal
The receiving terminal and regasification plant is the simplestand least expensive phase of the LNG chain. It consists of a harbor withfacilities for off-loading tankers, LNG storage, regasification, and dis-tribution of gas. The docking facilities typically cost at least $120million and do not vary much with the size of the terminal. The port and
storage facilities may represent over half of the total costs of the re-ceiving and regasification terminal.
Table 6
Receiving Terminal Cost Breakdown(in millions of US$)
Multiple-500 MMCFD 300 MMCFD Destination
Regasification 125 75 90Utilities and Auxiliaries 90 55 70Site Preparation and Building 20 15 60Storage 100 80 240Marine and Loading 130 120 370
Total 465 345 830
a/ These figures include regasification plants/receiving terminals at allthree destinations.
1/ The boil-off is the gas vaporised by heat leakage into the LNG tank.In conventional LNG carriers, the LNG boil-off is used to supply aportion of their fuel needs.
-18-
There are two principal processes for regasification. In largeinstallations, sea water is used to raise the LNG temperature. For smalland peak shaving plants, gas burners are used. 1I A regasification facil-ity, using sea water vaporization that matches the 500 MMCFD liquefactionplant and the 130,000 cubic meter LNG carrier size, will cost about $450million. Annual operating costs include mainly maintenance costs, andwages, and represent about 3 percent of total capital costs.
1/ The capital cost of the gas vaporization process is only half that ofusing sea water, but this difference tends to be offset by the cost ofthe gas used in the gas burners.
-19-
IV. NATURAL GAS NETBACKS
A. Methodology
This part of the paper discusses the calculation of values ofnatural gas delivered to the liquefaction plant, tankers, and the regasifi-cation plant, taking as given the price of gas delivered to the importingcountry's grid. The netback is estimated based on three sets of informa-tion: volume of production (V), capital cost (I), and operating costs (0),and the price of gas (P) at the delivery point. For this purpose, the pre-sent value of all economic capital and operating costs in constant pricesis calculated excluding all financial and fiscal cost components (e.g.interest, depreciation, taxes and subsidies). Capital and operating costsare then deducted from the present value of the total revenue (also inconstant prices). The resulting present value of net benefits is dividedby the discounted volume of gas transferred at each keypoint of the projectto estimate the netback to natural gas.
The actual volume of gas transferred at each key point is limitedby the size of dedicated recoverable reserves, liquefaction plant, and thenumber of LNG carriers. The capacity build-up period from the date ofcommissioning the liquefaction plant to its reaching full capacity is fouryears. The capital and operating cost schedule, volume of gas, and pricesused in all simulations undertaken in this study, starting with the de-cision to construct the liquefaction plant until first availability of theproduct and the conclusion of the twentieth year of operation, are includedin Appendix I. Cost data are based on the data collected from several LNGcompanies. This cost information has been cross-checked and updatedthrough ongoing contact with LNG- related firms.
Agure 3UNIT NETBACK VALUES FOR A TYPICAL LNG SCHEME - CASE II
As an example of a netback calculation, in one of the simulationsbased on scenario A (Case II) presented in Figure 3, the value of gas atthe point of entry into the importing country's main transmission line (ex-vaporization) is determined by the delivered price and quantity of gas over
-20-
the 20 years of the project's operation. This is estimated by dividing thepresent value of the sum of revenues from the sale of regasified gas (PV 1is the revenue from gas sales) which is $5.2 billion (Appendix I) by thepresent value of the volume of regasified LNG delivered to the pipeline Asindicated in Figure 3 the value of gas at the point of entry into the im-porting country's transmission pipeline is $6.06/MCF.
The netback ex-ship is estimated by deducting the present valueof the capital and operating costs for the receiving terminal, storage, andregasification facilities which is $433 million (as indicated in AppendixI), from the present value of the total revenue from the sale of gas ($5.2billion) and dividing by the present value of the gas volume delivered intothe main transmission pipeline of the importing country. This results in anetback value of $5.55/MCF ex-ship at the delivery point into the receivingterminal. Algebraically,
20 20Y [(PV 1)/(1 + r)iI - [(Cl + 01)/(1 + r)i]
N i=0 i=- 5ex-ship = 20
[V1 /(1 + r)i]
i=0
where P is the price of natural gas delivered into the importing country'spipeline, V1 is the volume of gas delivered each year, C1 and 01 are res-pectively capital and operating costs related to regasification, storageand the receiving terminal, and r is the discount rate.
The netback ex-liquifaction is estimated similarly by deductingthe present value of all receiving, storage, and regasification (C1 + 01)plus shipping capital and operating costs which is $1.4 billion from thepresent value of total revenues from the sale of gas and dividing by thepresent value of the gas volume transferred into the ship. Algebraically,
20 207 [(PV 1)/(1 + r)i - Y [(C2 + 02)/(1 + r)']
Nex-liquefaction i=0 i=-5
20 [V2/(1 + r)i
i=0
-21-
where (PV1 ) is the total revenue from gas sales, (C2 + 02) is equal to (Cl+ 01) plus the capital and operating cost of shipping and V2 is the volumeof gas transferred into the ship. I/
The netback at the point of entry into the liquefaction plant(ex-pipeline) is estimated by deducting (C2 + 02) plus the liquefaction andstorage capital and operating costs which is $2.8 billion from the presentvalue of the revenues from the sale of gas and dividing by the discountedvolumes of gas delivered to the liquefaction plant (V3 ). Algebraically,
where (C3 + 03) is equal to (C2 + 02) plus the liquefaction and storagecapital and operating costs. The netback at this point as illustrated inFigure 3 is $2.59/MCF.
B. Netback
The results of netback calculations are presented in Tables 7a,7b, and 7c. The netback calculations start from the assumed value of theregasified product supplied at the perimeter of the regasification facilitywhere the gas enters the transmission system in the importing country. Thenetback at each stage is expressed by deducting the cost of each phase downto the gas delivered to the liquefaction plant. For example scenario Arepresents the standard medium-sized liquefaction plant that serves onereceiving terminal 5000 nautical miles away with 5 LNG tankers. In one ofthe simulations (Case I) the net present value of the regasified LNG is$6.06/MCF as delivered into the receiving country's pipeline. This is thepresent value of the price of gas over the project period (Figure 3). Thecost of regasifying the LNG is $0.51/MCF; shipping costs are $1.14/MCF.This leads to a netback for LNG loaded onto the ship of $4.41/MCF. 2/Deducting the liquefaction cost of $1.32 yields a netback value of $3.09per MCF for the gas delivered to the liquefaction plant. Table 7a providesthe netback values for Case I and Cases II-VI which test for sensitivity tothe level of infrastructure, discount rates, and the price of gas in theimporting country.
1/ It is assumed that there is no boil-off and that the volume of gastransferred to the ship is equal to the volume of gas delivered to thetransmission pipeline of the importing country (V1 = V2 )*
2/ The detailed cost figures and calculations are provided in Appendix I.
a! Gas at the entry point of the liquefaction plant.
With less infrastructure, as in Case II, infrastructure costsincrease and the netback ex-pipeline falls to $2.59/MCF. The sensitivityto discount rates was measured in cases III, IV, and V. The netback valueof gas supplied to the liquefaction plant varies from a low of $2.75 with a12 percent discount rate to a high of $3.83 per MCF with a 5 percent dis-count rate. The netback values are most sensitive, however, to the pricingpolicy. If gas is valued in the importing country according to its calor-ific parity with crude oil (Case VI), the netback ex-pipeline increasesfrom $3.09 to $4.46 per MCF.
The second scenario is centered on a liquefaction plant of 300MMCFD, to examine the diseconomies of scale. Due to the different produc-tion schedule, the present value of the gas stream entering the gas grid inthe importing country in Case VII for example, is somewhat lower than inCase I, at $5.98/MCF. Working back through the LNG chain, $0.65/MCF isnetted out in the regasification plant which is 27 percent more than inCase I. Shipping costs are similar since LNG carriers are used withroughly equal efficiency in both cases. Unit liquefaction costs rise to$1.38 per MCF, although the expected diseconomies of scale are moderated bya shorter construction period and a faster build-up of production. Thereis only a relatively small difference between the netbacks in Cases I andVII. Diseconomies of scale in liquefaction plants start at plant sizesless than 300 MMCFD as indicated by Figure 2. The unit netback into theliquefaction plant is $2.85 per MCF. Limited infrastructure, and thereforehigher capital costs at the liquefaction plant site, reduce the ex-pipeline
netback to $2.31 per MCF. The netback is also sensitive to the discountrate as demonstrated in Case IX.
-23-
Table 7b
Unit Netback Values for Scenario B($/MCF)
Value ReferencePoint VII VIII IX
Regasified 5.98 5.98 6.17
LNG ex-ship 5.33 5.33 5.68
LNG loaded 4.23 4.23 4.77
Gas ex-pipelinea/ 2.85 2.31 3.59
a/ Gas at the entry point of the liquefaction plant.
The third scenario illustrates the economics of a small-scalemulti-destination LNG system where LNG is carried over a short distance ofabout 1000 nautical miles to several small markets. The major differencefrom the other basic cases is that regasification costs are higher. Forthe regasification phase, even after substituting gas-fired vaporization,which is more appropriate to smaller systems, the cost is close to threetimes the vaporization costs in Case I. In the transportation phase, theshort hauls in Case X bring down the fuel cost dramatically. Since thecost per day in harbor is far below the operating cost at sea, the overalleffect is a transportation cost about one-third that of Case I. The unitnetback ex-pipeline in this case is $2.77/MCF compared to $3.09/MCF in CaseI. In Case XI, sensitivity to a limited level of infrastructure istested;, the netback value ex-pipeline falls to $2.23 per MCF.
Table 7c
Unit Netback Values for Scenario C($/MCF)
Value ReferencePoint X XI
Regasified 5.98 5.98
LNG ex-ship 4.51 4.51
LNG loaded 4.14 4.14
Gas ex-pipelinea/ 2.77 2.23
a! Gas at the entry point of the liquefaction plant.
-24-
In all the cases presented in Tables 7a, 7b, and 7c, the netbacksare positive. With current soft world oil prices LNG prices are also underpressure. The lower price assumptions in all cases except case VI, how-ever, provides a conservative view of prices over the long run. With LNGprices at 80% of crude oil prices, netbacks are likely to vary between$2.23 and $3.40 per MCF. 1/ If crude oil prices rise the Case VI priceassumption will be applicable and netbacks will increase.
C. Net Present Value of Projects
The net present value of the project used in the derivation ofthe netbacks in Tables 7a, 7b and 7c excludes the cost of gas productionand transmission. The netback ex-well can be estimated by including thecost of gas. Hence, the net present values of projects were estimated toexamine their sensitivity to gas costs.
Table 8
Project Net Present Values with Different Gas Cost Assumptions(in millions of US$)
a! Cost of gas delivered to the liquefaction plant.
As indicated in Table 8, the net present values of LNG projectsand, consequently, netbacks are very sensitive to the cost of gas deliveredat the liquefaction plant. The netbacks estimated at the liquefactionentry point have to cover the cost of finding, producing and transportingnatural gas to the plant. The net present value of projects ex-pipeline istherefore higher than the net present value ex-well. Once the gas produc-tion and transmission costs are included the net present values fall sig-nificantly as demonstrated in Table 8.
Opportunities for LNG exports are expected to be limited in the1980s. Therefore, the LNG export market should be very competitive andonly a few developing countries are expected to benefit from the LNG op-tion. Projects based on relatively low cost natural gas supplies and
1/The cases considered in this study are assumed to begin in 1982 with aconstruction period of 5 years, followed by 20 years of operating life.
-25-
higher net present values and netbacks will provide higher returns to theexporting country and companies. However, as already mentioned, the deci-sion on each potential project will depend on a variety of project-specificeconomic, financial, technical, political, and legal factors.
D 0Present value of net cash flow (106 US ) 4,032Volume of gas input (bef) 64 10 173 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183 183Unit setback no pipeline (US$/MOIBtu) 3.48
Present value of revenues (16 01$) 4,127Operating cost exc . gas (180 US$)Capital outlay (10 81$) 0 0 94 281 94 0 0 0Present value of net cash flow (10
US$) 1,374Nat present value of project @ b) (106 US$ 1,066Vet prsent 'al. of project e c) (1 0us) 758
- 40 -
ENERGY DEPARTMENT PAPER SERIES
EGY PAPER No. 1 Energy Pricing in Developing Countries: A Review ofthe Literature by DeAnne Julius (World Bank) and MetaSystems (Consultants). September 1981. 121 pages,includes classified bibliography.
Reviews literature on the theory of exhaustible resour-ces and on sectoral, national and international modelsfor energy demand. Emphasis on project selection cri-teria and on pricing policy as a tool of energy demandmanagement.
EGY PAPER No. 2 Proceedings of the South-East Asian Workshop on EnergyPolicy and Management edited by Michael Radnor and Atul
Wad (Northwestern University). September 1981. 252pages.
Contains the edited version of the lectures and discus-
sions presented at the South-East Asian Workshop onEnergy Policy and Management held in Daedeok, SouthKorea, October 27-November 1, 1980.
Topics that are addressed include: the overall problem
of energy policy and its relationship to economic de-velopment; the management of energy demand and relateddata; the role and value of models in energy planning,and the use of energy balances. Transport and ruralsectors are also discussed in terms of their relation-ship to energy planning.
EGY PAPER No. 3 Energy Pricing in Developing Countries: Lessons from
the Egypt Study by DeAnne Julius (World Bank).December 1981. 14 pages.
Study on the effects of energy price change in a devel-oping country. Provides insight into the mechanismsthrough which energy prices affect other prices in theeconomy and, therefore, the incomes of rich and poorconsumers, profitability of key industries, the balanceof payments, and the government budget.
EGY PAPER No. 4 Alternative Fuels for Use in Internal Combustion
Engines by G.D.C., Inc. (Consultant). November 1981.179 pages, includes appendices.
Presents several alternative fuels used as replacementfor conventional (gasoline and diesel) fuels in inter-nal combustion engines. These alternatives, includingLPG, natural gas, alcohol and producer gas, are deriv-able from natural resources that exist in so many de-
- 41 -
veloping countries. Also provides up-to-date informa-
tion on the newest alternative fuel option currentlyavailable and those that are being developed and tes-ted.
EGY PAPER No. 5 Bangladesh: Rural and Renewable Energy Issues andProspects by Fernando R. Manibog (World Bank). April1982. 64 pages, includes bibliography.
Analyzes subsector issues and recommends courses ofaction for energy project possibilities; identifies
renewable energy projects which could create a positive
impact in the short to medium term.
EGY PAPER No. 6 Energy Efficiency: Optimization of Electric PowerDistribution System Losses by Mohan Munasinghe (WorldBank) and Walter Scott (Consultant). July 1982. 145
pages, includes appendices.
Discusses the reasons for high existing levels of power
distribution losses in developing countries. Identi-fies areas within a power system where loss optimiza-tion would be most effective. Shows that reducing
losses is often more cost effective than building moregeneration capacity.
EGY PAPER No. 7 Guidelines for the Presentation of Energy Data in BankReport October 1982 - 13 pages (incl. 4 Annexes).Masood Ahmed (World Bank).
The growing importance of energy issues in nationaleconomic management has led to increased coverage ofthe energy sector in many types of reports. However,
there is still no clear, consistent and standardizedformat for presenting energy sector information. This
paper reviews the problem and proposes guidelines forpolicymakers and operational staff who deal with energyissues. The paper is divided into three parts: part
one sets out the basic framework for presenting aggreg-ated energy data -- "the national energy balance"; parttwo deals with the use of appropriate units and conver-
sion factors to construct such a balance from raw de-mand and supply data for the various fuels; and partthree briefly discusses special problems posed by:(i) differences in end use efficiency of variousfuels; (ii) the inclusion of wood and other noncommer-cial energy sources; and (iii) the conversion of pri-mary electricity into its fossil fuel equivalent.
- 42 -
EGY PAPER No. 8 External Financing for Energy in the Developing Coun-tries by Althea Duersten (World Bank). June 1983. 66pages, includes appendices.
Provides an overview of energy financing in the devel-oping countries. Identifies energy investment require-ments and past financing patterns. Discusses the his-toric roles of multilateral and bilateral assistanceprograms in helping to mobilize financing, particularlyfor low income oil importers and in providing economicand sector advice. Examines the role of official ex-port credit, and discusses lending by private financialinstitutions which has been the predominant source offinancing for energy projects in the middle and higherincome developing countries.
EGY PAPER No. 9 Guideline for Diesel Generating Plant Specification andBid Evaluation by C.I. Power Services Inc.(Consultant). December 1982. 210 pages, includesappendices.
Explains the characteristics and comparative advantagesand disadvantages of large low speed two-stroke dieselengines intended for electric generating plant service,and develops a bid evaluation procedure to permit com-paring of bids for both types.
EGY PAPER No. 10 Marginal Cost of Natural Gas in Developing Countries:Concepts and Application by Afsaneh Mashayekhi (WorldBank) July 1983. 21 pages, includes appendices.
Defines the concept of marginal cost and average incre-mental cost. Uses the detailed supply, demand andinvestment data to apply this concept to estimate theaverage incremental cost of natural gas supply to majormarkets in ten developing countries. Demonstrates thatthe cost of natural gas delivery to the city-gate inmany developing countries is far below the cost ofcompeting fuels.
EGY PAPER NO. II Power System Load Management Technologies by ResourceDynamics Corp. (Consultant), June 1983, 132 pages,includes appendices.
Techniques referred to as load management have begun toplay an important role in shaping the patterns of elec-tricity consumption in industrialized countries. Alongwith pricing, a variety of hardware is used to controlloads directly and save on eneregy and peak capacity.This study reviews the state-of-the-art of these socalled "hard" techniques, provides data on cost andmanufacturers of this equipment and identifies control-lable loads in developing countries.