Dr.Colleen Taylor Sen Director LNG Resources, IGT

Page 1 of 1 Dr.Colleen Taylor Sen Director LNG Resources, IGT Dr.Colleen Taylor Sen is Director, LNG Resources, at the Institute of Gas Technology, headquartered in Des Plaines, Illinois. Prior to this, she held various positions during her 25- year service at IGT. She is responsible for all IGT s LNG-related information and educational activities, including developing and chairing courses and symposia. She is founder and managing editor of the bimonthly The LNG Observer, author of An Overview of the Global Baseload LNG Industry : Markets, Projects, Economics; and co-editor of The World LNG Source Book and Overview of the Global LNG Shipping Industry. Dr.Sen is a member of the Steering Committee of LNG 13, to be held in Seoul, Korea, in 2001. She holds a B.A. and M.A. from the University of Toronto and a Ph.D.from Columbia University. Page 1 of 12

THE SUPPLY PENETRATION OF TRADITIONAL AND EMERGING MARKETS BY LNG Colleen Taylor Sen Director, LNG Resources Institute of Gas Technology Chicago, Illinois, USA Introduction Natural gas and LNG are making an increasingly important contribution to energy supplies at a time when the energy industries worldwide are undergoing fundamental changes. Price deregulation, privatization, market liberalization, and enhanced competition make it more critical than ever for companies to lower their costs. In the LNG industry, pricing and flexibility have become paramount concerns for buyers. For the first time in more than two decades, LNG tankers have been ordered on speculation. The growth in the number of exporters and importers and the surplus capacity at many liquefaction projects has created new opportunities for spot and short-term sales, swaps, back-hauling cargoes, and other transportation innovations. Some observers believe the old chain model of the LNG industry, where upstream and downstream participants are joined in mutual dependency, will give way to a new model based on the realities of supply and demand. The Atlantic Basin has become the new focus of innovation, and the United States is leading the way with its growing imports of spot cargoes, which provided 37% of all U.S. LNG imports in 1999. This paper will review the forces driving natural gas and LNG consumption worldwide; survey LNG markets, with an emphasis on emerging markets and the spot market; and identify new trends in the LNG industry. The Growth of the LNG Industry LNG exports have climbed nearly 8%/year since 1980 and now account for a quarter of all natural gas traded internationally, compared with 5% in the mid 1970s. The international gas trade s share of total natural gas production has risen from 4% in 1970 to 19% in 1999, although most gas flows remain regional. In 1999, the global LNG trade grew 9.4% to a record 91 million tonnes (mta), equivalent to approximately 124 billion cubic meters (bcm) of natural gas. This compares with a 2.4% increase for natural gas consumption and a mere 0.2% rise for oil demand. The so-called LNG spot trade more than doubled to 4.7 bcm and accounted for 3.9% of the LNG trade, the highest proportion in history. In Asia, which accounts for three-fourths of all imports, LNG demand continues to rebound following the financial market crisis and global economic slowdown of 1997-98. In 1999 Japanese imports rose 5.1% and Korean imports nearly 24% over 1998 (Table 1). In Europe, large increases in consumption were reported for Spain, up 21.5%, and Italy, up 40.3%. U.S. imports soared 90% to a record 3.5 mta. Page 2 of 12

Table 1 LNG Importing Countries, 1999 Importing Country Million tonnes % Change over 1998 Japan 50.801 + 5.14 Korea 12.802 +23.75 France 7.404 + 0.69 Spain 5.432 + 21.51 U.S. 3.451 + 90.24 Belgium 2.927 5.61 Taiwan 3.939 + 2.45 Turkey 2.179 12.87 Italy 2.072 + 40.27 Total 91.007 + 9.35% Source: Groupe International des Importateurs du Gaz Natural Liquéfié (G.I.I.G.N.L.) The U.S. Energy Information Administration projects that over the 1997-2010 forecast period, world natural gas consumption will grow an average 3.1%/year, compared with 2.1% for overall energy consumption and 1.9% for oil. Gas consumption will more than double from 82 trillion CF (TCF) to 167 TCF and its share of energy use will be higher in every region except the Middle East and Africa. The fastest growing gas markets are Brazil, China, India, South Korea, and Turkey (Table 2). LNG imports will play an increasingly important role in Asia, Latin America, and North America. Table 2 Forecast of Natural Gas Consumption in Selected Countries and Regions 1997-2020 Trillion CF Country 1997 2005 2010 2015 2020 % Annual Change, 1997-2020 % Annual GDP Growth, 1997-2020 Brazil 0.2 0.8 1.4 1.6 2.5 11.6 4.0 China 0.7 2.4 3.9 5.9 8.6 11.2 4.1 India 0.8 1.7 2.7 3.4 4.8 7.9 3.7 South Korea 0.5 1.1 1.5 1.5 2.4 6.8 2.0 Turkey 0.3 0.5 0.6 0.7 1.0 4.8 3.1 United 22.0 23.9 27.0 29.9 31.5 1.6 1.3 States France 1.3 1.7 2.0 2.3 2.3 3.5 0.5 Japan 2.3 2.9 3.2 3.4 3.7 2.0 0.4 World Total 81.6 104.2 123.3 140.1 166.5 3.1 1.9 Source: U.S. Energy Information Administration Page 3 of 12

Natural Gas Reserves. World proved gas reserves have doubled in the past twenty years to more than 5000 trillion CF and are now almost equal to oil on an energy-equivalent basis. Most companies are producing oil and gas at rates that, with respect to their reserve bases, indicate extra years of gas production over oil. Regionally, world gas reserves are more widely distributed than oil reserves: The Middle East, for example, holds 65% of oil reserves but only 34% of gas. Unlike oil, gas cannot be developed until a market is found because of the expense of transporting it to its user. Of the top twenty-five reserves-holding countries, only seven currently export LNG, while eight more have planned or proposed projects in various stages of development. Economic Growth and Power Generation. The world economy is projected to grow 2.8%/year over 1997-2010, and the fastest growing economies will be China (6.3%), India (5.4%), South Korea (4.7%), Mexico (4.7%), Brazil (4.0%), and Turkey (4.0%). Electricity consumption is closely linked to economic growth, and natural gas is becoming the fuel of choice for new power projects. By 2020, a third of all natural gas will be used for power generation. Combined-cycle gas turbine power plants are more efficient than conventional generation technologies and can be installed much more quickly and cheaply. Natural gas is also attractive for environmental reasons, with lower SO 2, CO 2, and particulate emissions than oil or coal. Hydroelectric resources are being exhausted in countries such as Brazil and India, and it is unlikely new nuclear power plants will be built anywhere in the world. Availability of LNG Supplies. In 1999 Asia and Australia provided two-thirds of all LNG production (Table 3), although the Middle East is becoming an increasingly important supplier. Indonesia, the world s largest producer, made 32% of total sales. Algeria s exports continued to rise with the completion of the revamping of its plants. Exports from Malaysia declined, following several years of double-digit increases a fallout of the Asian economic crisis. Qatar, which became the world s ninth exporting country in 1997, saw a 63% increase in its exports, which will surpass 12 mta by 2001. Table 3 LNG Exporting Countries, 1999 Source: G.I.I.G.N.L. Exporting Country Million tonnes % Change over 1998 Indonesia 28.555 + 6.67 Algeria 19.183 + 4.22 Malaysia 14.802 + 3.67 Australia 7.254 0.34 Qatar 6.329 + 80.06 Brunei 6.088 + 5.24 Abu Dhabi 5.100 1.71 Trinidad & Tobago 1.539 U.S. 1.303 3.48 Libya 0.693 +5.80 Nigeria 0.161 Total 91.007 + 9.35 Page 4 of 12

Over the past 18 months, an unprecedented increase in supplies has been created by the launching of four new projects Nigeria LNG, Atlantic LNG, Ras Laffan LNG, and Oman LNG plus the startup of an eighth train at Indonesia s Bontang plant. Twelve countries now export LNG from projects that have a combined total of 64 trains with actual production capacity of more than 123 million tonnes/year, a third more than current consumption (Table 4) Plans have been announced for the construction of 15 more trains with around 52 mta of capacity at existing projects (Atlantic LNG, Nigeria LNG, Qatargas, Ras Laffan, Oman LNG, Malaysia LNG TIGA, and Brunei LNG) These so-called brownfield projects cost significantly less per unit of output than new, or greenfield, facilities. Debottlenecking activities are underway at the Brunei and Qatargas plants and under discussion for the third train in Abu Dhabi. Finally, as many as twenty new greenfield projects have been announced, proposed, or discussed in Angola, Egypt, Iran, Russia, Norway, and Venezuela as well as existing importing nations such as Australia, Indonesia, and the U.S. Page 5 of 12

Table 4 LNG Liquefaction/Export Plants as of Year-End 1999 Country Plant Name Companies No. of Trains Abu Dhabi Das Island Abu Dhabi Gas Liquefaction Co., Ltd.: (ADNOC 51%, BP 16.33%, Total 8.17%, Mitsui 24.5%) 1&2 3 Year First LNG Produced 1977 1994 Actual Capacity (mta) 6.0 Algeria Arzew - GL1Z Sonatrach 6 1977 7.6 Arzew - GL2Z Sonatrach 6 1981; renovation 8.5 finished 1996 Camel - GL4Z Sonatrach 3 1964; renovation 1.1 finished 1995 Skikda Gl1K Sonatrach 3 1972 3 Skikda GL2K Sonatrach 3 1978 (train 4) 3.3 1981 (trains 5-6) Australia North West Shelf North West Shelf Joint Venture (Woodside, Shell, BHP, BP, Chevron, MiMi [Mitsubishi/Mitsui], each 16.66% 3 1989; debottlenecked 1995 Expansion Plans 7.3 Preliminary work on 2-train expansion (7-8 mta) Brunei Lumut Brunei LNG (Brunei 50%, Shell 25%, Mitsubishi 25%) 4 1 1972 1974 5.4 1 train expansion (4 mta) under discussion Indonesia Arun PT Arun NGL Co. (Pertamina 55%, 1978, 1984, 12.8 Mobil 30%, JILCO 15%) 4 1986 Indonesia Bontang PT Badak NGL (Pertamina 55%, VICO 20%, TotalFina Elf 10%, JILCO 15%) A&B C&D E 1977 1983 1989 Train I (3 mta) planned F G H 1993 1998 1999 21.8 Libya Marsa el Sirte Oil Co. 3 1970 1.8 Brega Malaysia Bintulu Malaysia LNG Sdn. Bhd. (Petronas MLNG I: 3 1983 Malaysia LNG 60%, Shell 17.5%, Mitsubishi 17.5%, TIGA, 2 trains (6.8 Sarawak 5%) MLNG II:3 1994 15.4 mta) set for 2002- Malaysia LNG Dua Sdn.Bhd.(Petronas 2003. 60%, Shell 15%, Mitsubishi 15%, Sarawak 10%) Nigeria Nigeria LNG Nigeria LNG Ltd. (NNPC 49%, Shell 25.6%, Elf 15%, Agip 10.4%) Oman Oman LNG Oman govt. 51%,Shell 30%, Total 5.5%, Korea LNG 5%, rest Mitsubishi, Mitsui, Partex, Itochu Qatar Qatar Trinidad Qatar Liquefied Natural Gas (Qatargas) Ras Laffan LNG Co. Atlantic LNG Co. QGPC. 65%, Mobil 10%, Total 10%, Marubeni 7.5%, Mitsui 7.5% QGPC 63%, Mobil 25%, Itochu 4%, Nissho Iwai 3%, Korea Gas tba BP Amoco 34%, BG 26%, Repsol 20%, Cabot 10%, NGC 10% 2 1999 5.8 3 rd train under construction (3.3 mta). Trains 4 & 5 studied 1 1 2 1 1 1 April 2000 June 2000 1996 1998 May 1999 April 2000 3.3 3.3 Train 3 (3.5 mta) Under discussion 7.2 Trains 3 & 4 (7 mta) announced 2.5 2.5 Trains 3 & 4 (5-6.4 mta) planned 1 May 1999 3 Trains 2 & 3 under construction. Trains 4 & 5 under discussion U.S. Kenai Marathon, Phillips 1 1969 1.9 Total 64 123.5 Page 6 of 12

Traditional Markets in Asia Japan. Japan remains the world s largest importer of LNG, although its 55% share of total world imports in 1999 was a drop from the 65-70% share it held during the 1980s and early 1990s. Japanese imports grew 5.1% in 1999, up from the 3.9% and 2.9% increases reported in 1998 and 1997. Japan currently imports LNG from eight countries into twenty-three terminals. Two more are under construction. The Ministry of International Trade and Industry (MITI) is reviewing its energy supply and demand outlook through 2010. Its last Outlook, published in June 1998, projected 57.1-60.1 mta of LNG demand, which was somewhat lower than other agencies forecasts and reflected MITI s optimistic expectations of future construction of nuclear plants. Following a nuclear accident in September 1999 and local opposition to nuclear plant construction, MITI is expected to reduce its optimistic assumption about new nuclear plant construction. MITI has also been less positive than the electric utilities about the prospective use of coal for power generation. A committee has been set up to study how natural gas markets can be developed in Japan, how LNG can be made more competitive, and how an infrastructure could be created to distribute natural gas. The feasibility of allowing open access to Japanese terminals is also under study. For many years Japanese companies were willing to pay premium prices for LNG in return for security of supply that was based on long-term contracts with stringent offtake obligations. All the LNG from a single train or even an entire project would be dedicated to this buyer or consortium of buyers in a single country. The buyer would leave control of shipping to the seller or to intermediaries. This approach became known as the Japanese model. However, the deregulation of the energy industries is enhancing competition among fuels in Japan, and foreign companies, including Enron and Shell, are interested in acquiring an interest in pipelines and terminals. Moreover, pipelines from Russia, especially Sakhalin Island, and the construction of a national pipeline grid are being given serious consideration, although investment requirements are very high. Japan has several major contracts that end over the next 5 to 10 years, including a contract between Tokyo Electric and Tokyo Gas with Petronas that expires before 2005. Three utilities have signed a confirmation of intent to buy 1.6 mta from Malaysia Tiga starting in 2004 and are now beginning SPA negotiations. According to reports, some utilities have already succeeded in modifying the pricing formula to reduce prices when renewing existing contracts. In the new environment, buyers are also looking at such arrangements as acquiring their own ships and replacing long-term contracts with a basket of varied term arrangements. Korea. Throughout the 1990s, Korea was the world s fastest growing LNG market, and demand was projected to reach 28.5 mta by 2010. As a result of the economic crisis, in 1998 consumption dropped 7%, but in 1999 LNG imports soared 22% to nearly 13 mta, almost the same volume as before the crisis. Korea Gas Corp., until now the country s sole importer, took short- and long-term volumes from seven countries into terminals at Pyeong Taek and Inchon, which is being expanded. The country s third terminal is being built at Tong Yung. In a few years Korea Gas will surpass Tokyo Electric as the world s largest single buyer of LNG. In April 2000, the Korean Ministry of Commerce, Industry and Energy issued its long-awaited forecast of LNG supply and demand, the first since 1997. As shown in Table 5, demand will grow steadily to reach more than 20 mta by 2010, although this is lower than the 28.5 mta projected earlier. It says existing contracts are likely to be sufficient until 2003. Page 7 of 12

Table 5 Projected Korean Gas Demand 2000-2010 (1000 tonnes) Year City Gas Power 2000 Forecast 1997 Forecast 2000 8986 4820 13,806 17,788 2001 9580 6406 15,986 2003 10,770 6048 16,818 2005 12,098 6202 18,300 23,478 2010 14,917 6054 20,071 28,457 Source: Korean Ministry of Commerce, Industry, and Energy The government has announced plans to deregulate the Korean energy industries, break Korea Gas into three companies, and offer open access to pipelines and LNG terminals, although these plans have so far been impeded by opposition from labor unions and parliament. Like Japanese buyers, the Koreans are calling for a review of new pricing strategies, more contract volume flexibility, and a relaxation of take-or-pay requirements. Taiwan. Taiwan, which was not affected by the Asian economic crisis, imports 5.2 mta of LNG from Indonesia and Malaysia, nearly half of it used for power generation. The country s sole importer, Chinese Petroleum Corp., owns and operates a receiving terminal at Yung-An, which is being expanded. Taiwanese energy markets are being liberalized: There are plans to privatize CPC and Taipower, the state-owned electric utility, and foreign firms are now allowed to buy shares in local distribution companies. Government policy encourages the use of gas in new power projects, including three new IPPs with a combined LNG requirement of 1.4 mta and a 4000-MW baseload plant in northern Taiwan, both scheduled to start up in 2001. The consortium Tuntex has received government approval to build a 6-mta terminal at Tuoyuan in northern Taiwan and has signed a Memorandum of Understanding (MOU) with Australia LNG Pty Ltd. for 4 mta. Non-Traditional Markets in Asia India and China are in many ways different from traditional Asian markets. Political risk is higher, sovereign support is limited, regulations are unclear or nonexistent Enron, for example, had to write the port regulations for Dabhol and buyers have limited credit support. LNG faces competition from domestically produced coal and imported liquid fuels. Thus, Indian buyers are insisting on flexible contractual terms in such matters as takeor-pay provisions, price indexations, and periodic price reviews. Other challenges are to optimize shipping and liquefaction costs and to identify government-backed buyers. India s Petroleum Ministry recently said it would impose stringent conditions on LNG imports to discourage non-serious applicants. India. Natural gas demand is forecast to more than triple between 1996 and 2010. Domestic production is likely to remain at around 44 bcm versus projected demand of 68 bcm in 2005, 122 bcm by 2010, and 200 bcm by 2020, leaving enormous shortfalls that can be met only by imports. Overland pipelines are probably the most economic way of delivering natural gas to India, and proposals have been made to build lines from Oman, Qatar, Turkmenistan, and Iran. However, regional instability and hostilities are obstacles to their implementation. Some twenty LNG import projects have been proposed or announced for India, but only a few are likely to be implemented. The most advanced are shown in Table 6. Page 8 of 12

Table 6 Indian LNG Supply Agreements Buyer Terminal Seller Volumes Petronet Dahej Mobil/Ras Laffan (Qatar) 5 mta f.o.b. 20 years starting July 2003 Petronet Kochi Mobil/Ras Laffan (Qatar) 2.5 mta f.o.b. 20 years starting 2005 Dakshin Bharat Ennore Ras Laffan Up to 2.5 mta for 20 years Consortium Dabhol Power Dabhol Adgas Oman LNG MLNG Tiga 0.48 mta for 20 years 1.6 mta for 20 years 2.6 for 20 years Petronet LNG is a joint venture set up by the Indian government consisting of five public sector companies: India Oil Corp. Ltd., Oil & Natural Gas Corp., Bharat Petroleum Corp., National Thermal Power Co.,and Gas Authority of India Ltd. (GAIL), which will each have a 10% equity share. The remaining 50% will be allocated among financial institutions and LNG suppliers, including Gaz de France and Qatar General Petroleum Co., which intends to take an equity share in the receiving terminal and the tankers. LNG from Qatar s Ras Laffan project will be shipped to Petronet s two terminals on the west coast at Dahej (5 mta capacity), starting in July 2003, and Cochin (2.5 mta) in January 2005. The government recently decided to permit LNG imports only on an f.o.b. basis. Foreign shipowners must tie up with a domestic shipping company to respond to Petronet s shipping tender. Tamil Nadu Industrial Development Corp. (Tidco) selected the Dakshin Bharat Energy Consortium as the preferred bidder to build a 2.5-3 mta LNG import terminal and a 1875-MW gas-fired power plant at Ennore in the state of Madras on the east coast. A contract has been signed with Ras Laffan LNG. Following several years of political complications, the Dabhol power project (a partnership of Enron, GE Capital, Bechtel, and the Maharashtra State Electricity Board) is on course. The first 826 MW of capacity is now running on naphtha; LNG deliveries will begin in 2001. Long-term supply agreements have been signed with Oman LNG, Adgas, and Malaysia s MLNG Tiga. The latter agreement reportedly includes a provision that allows Enron to divert cargoes to other markets. Enron has announced plans to expand the Dabhol terminal to offload, store, and vaporize LNG for itself and third parties. Indian LNG demand is likely to be in the 10-15 mta range by 2005-2006. The ultimate potential is much larger, perhaps as high as 25 mta by 2010, provided that regulatory, financing, and bureaucratic obstacles can be overcome. China. Like India, China has an enormous appetite for natural gas for power generation and as a substitute for coal to mitigate urban pollution. China National Offshore Oil Co. (CNOOC) did a study of China s LNG potential for the State Planning Commission. It looks at the construction of three LNG terminals in the southeastern coastal provinces, notably in the Pearl River Delta, the Yangtze Delta, and in Fujian. It estimates demand for LNG could reach between zero and 4.4 mta in 2002, 3.5-7.2 mta in 2003, 5-9.7 mta in 2004, 8-12.4 mta in 2005, and 17 to perhaps 27 mta in 2010. In January 2000, the Chinese government finally approved the construction of China s first receiving terminal at Shenzhen, estimated to cost $500 million, and a 400-km pipeline in the province of Guangdong. CNOOC will have a 36% share in the terminal; local Chinese companies will have 29%; the balance will go to foreign Page 9 of 12

participants. BP Amoco, Shell, Mobil, Total and Enron are among the companies reported to be interested in participating. Startup is expected around 2005. Chinese officials are holding discussions with a number of potential suppliers and said they will pay close attention to the proved reserves of the producing country. Possible suppliers include Malaysia Tiga, an expansion of the Indonesia s Bontang plant, Oman, Yemen, Qatar, and Abu Dhabi. Pipeline imports from Siberia, Sakhalin Island, Turkmenistan, and elsewhere are another competitive option. European LNG Markets Natural gas will remain the fastest growing fuel in Europe. Its share is expected to rise from 16% in 1997 to 27% by 2010. EU gas production has been increasing, mainly in the North Sea, but this will not prevent an increased dependence on imports, which could double by 2010 and nearly triple by 2020. The bulk will continue to arrive via pipeline, mainly from Russia, Norway, and Algeria. However, there are uncertainties regarding Russian volumes: high costs of future projects; the emergence of alternative sources in the former Soviet republics, especially Turkmenistan; and competition for supplies from China and other Asian economies, which could drive prices upward. The extent to which decommissioned nuclear plants are replaced after 2020 is another factor affecting European gas demand and prices. Over the next few years, European LNG imports are projected to increase from 25 bcm (19 mta) in 1998 to 35 bcm (26 mta) in 2002 and to 38 bcm (28 mta) by 2005. Total liquefaction capacity serving the Atlantic Basin will reach 49 bcm (36 mta) in 2002, which means that volumes will be available for Europe and North and South America. The greatest market potential is in southern Europe, especially Spain, and Turkey. These countries are leading purchasers of spot cargoes and are building new terminals to accommodate new supplies. LNG Markets in the Western Hemisphere United States. In 1999 LNG imports nearly doubled in the U.S. to an estimated 164 billion CF (4.5 bcm) into two terminals: Distrigas LNG s facility at Everett, Massachusetts., and CMS Energy s facility at Lake Charles, Louisiana. Nearly 40% of U.S. imports were spot sales at an average ex-ship price of $2.28/million Btu. The U.S. is an attractive market for projects with available supplies because it can readily absorb additional volumes at a price that is transparent and competitive with other sources of gas. Individual cargoes do not need government authorizations, since terminals have two-year blanket authorizations. All but the Distrigas terminal are open-access. The terminals at Cove Point, Maryland, and Elba Island, Georgia, closed down in the late 1970s and are not now operating as import terminals, although the terminal at Cove Point has operated for several years as a peakshaving storage facility. However, plans have been announced for reopening both facilities by late 2002 or early 2003. In Puerto Rico, Enron Development Corp. and Edison Mission Energy are building a 540-MW power plant, the EcoElectrica project. The first phase will run on LPG; the second phase, scheduled to start up in 2000, will use up to 0.55 mta of LNG, which will be provided by Cabot LNG from its supplies from Trinidad. LNG consumption in the United States will continue to grow, driven by spot and short-term sales. The size of the market for the foreseeable future will be limited by the receiving capacity of the four existing U.S. terminals, which is in the 15-20 mta range but could be expanded to 30 mta. The National Petroleum Council, an advisory committee to the U.S. Secretary of Energy, forecasts that LNG will provide nearly 3% of total U.S. natural gas Page 10 of 12

supply by the year 2015, or 0.9 TCF of an estimated 31.3 TCF. Some officials have put LNG s share even higher at 4% or 5%. A receiving terminal on the West Coast, planned and then abandoned in the 1970s, is reportedly again under consideration. Brazil. Gas demand, driven by power generation, has been projected to increase from 5.0 bcm in 1996 and 5.5 bcm in 1997 to 17 bcm in 2005 and 34 bcm by 2015, two-thirds of it imported. In December 1999, Gaspetro, a subsidiary of Petrobras, the state oil and gas company, and Shell announced that they were forming a partnership with $200 million capital to import LNG into northeastern Brazil. The first stage would be construction of a receiving terminal in Suape near Recife in the State of Pernambuco and a 480-MW powerplant nearby. Total costs are estimated at $600-$700 million, including $200 million for the terminal, which will have a storage capacity of 2.2 bcm and a receiving capability of 0.7 bcm/year. Several other terminals are also under consideration at different sites. Trinidad, Nigeria, and Angola are potential sources of supply. The LNG Spot/Short-term Market The past decade has seen the emergence of an LNG spot market a term that is something of a misnomer. In the oil industry a spot sale generally denotes a single cargo, whereas in the LNG industry, where 20-year agreements are the norm, deals covering multiple cargos delivered over a 6-month period or longer may be referred to as spot. Short-term may more accurately describe this type of transaction. Individual shiploads are also bought and sold, and are more justifiably called spot cargoes. Table 7 Growth of the LNG Spot/Short-Term Market 1992-1999 (million cubic meters) Year Volumes % of LNG Exports 1992 1050 1.3 1993 1585 1.9 1994 2335 2.7 1995 3265 3.5 1996 2330 2.3 1997 1640 1.5 1998 2115 2.0 1999 4715 3.9 This market has grown from 0.75 mta and 1.3% of total exports in 1992 to 3.4 mta and 3.9% in 1999, which, as Table 7 shows, was an all-time high. The leading purchaser of spot cargoes in 1999 were Spain s Enagas, with 1685 million cu, or 36% of the total. The U.S. was a very close second with 1.66 million cu m. Italy (Snam and Edison) imported 540 million cu m, South Korea and Turkey each around 300 million cu m, Japan 150 million cu m, and France 75 million cu m. Of the short-term suppliers, Qatargas led with spot sales of 1595 million cu m, up from 950 million cu m in 1998, followed by Sonatrach of Algeria with 1330 million cu m (vs. 450 million). Other exporters were Adgas (650 million cu m), Atlantic LNG (385 million cu m), Australia s North West Shelf Project (300 million cu m), and Malaysia LNG (75 million cu m). The growth of the spot market reflects a number of factors: A growing number of buyers and sellers Page 11 of 12

The debottlenecking of older liquefaction plants in Algeria, Abu Dhabi, Indonesia, etc. Surplus capacity in new projects (Qatargas, Ras Laffan, Oman) that will be available until purchasers take full volumes An increase in the number of Middle East projects, which can ship to Asia and Europe. Lower tolls on the Suez Canal Unmet demand in new markets, such as Spain In the United States, terminal capacity availability, ease of entry, transparent pricing, and demand The integration of the European pipeline network, enabling countries to arrange swaps The availability of spare tanker capacity in the mid 1990s. Conclusions The strength of the spot market is the most obvious sign of the new market-based orientation of the LNG industry. The continued entry of new buyers and sellers is likely to accelerate the forces of change, especially during a period of market liberalization, and engender new models and arrangements. Hosted by: Bangkok RAI : 226/25 Bond Street Riviera Tower 3, Muang Thani, Managed by: Chaengwattana, Nonthaburi 11120 Thailand Tel: (+662) 9600141-3, 9600461-3, Fax: (+662) 9600140 E-mail: gasex@bkkrai.com, http:/www.ptt.or.th/gasex Page 12 of 12