As the globalization of the natural gas business continues, Dubai is opening its backyard to what it hopes will be the world’s liquefied natural gas (LNG) storage depot and a balancing point between the Atlantic and Pacific basins. It’s the kind of project that wouldn’t stand a chance in New England.
“In the part of the world where I work, it’s actually ‘why-nimby — ‘why not in my backyard,'” said Tilak Doshi, Dubai Multi Commodities Centre (DMCC) director for energy. In Dubai, where development aspirations rise as high as the mercury, and then some, Doshi told attendees at World Trade Group’s LNG North America Summit 2007 in Houston Tuesday that the backers of the Dubai LNG Storage Hub want to build “as large a facility as possible” with a customer base as diverse as possible.
The project is a joint venture of DMCC and LNG Impel, which is involved in LNG marketing and trading, shipping and upstream and downstream infrastructure. Dubai is already a major oil transshipment and trading center. The hub is to be based at Dubai’s Techno Park, in the heart of the Middle East, which has emerged as the pivot point of the Atlantic and Pacific basins. Last year there were 30 spot cargoes from the Atlantic Basin delivered to Asia, up from 10 in 2005, Doshi said.
Further making the case for Dubai as the right location for an LNG hub, Doshi said supply from Qatar, Oman, Abu Dhabi, Iran and Yemen are 1.5 days away or less. Supply from Australia, Indonesia, Malaysia, Egypt and Algeria can arrive in Dubai within 10 days. And from Dubai, European and Asian markets are all accessible within 14 days.
A memorandum of understanding was signed by DMCC and LNG Impel for the project in June 2006 and the partners are in negotiations now with prospective baseload clients who would likely also be equity partners, Doshi said. Hopes are to begin construction early next year to have the first phase of the facility operational in 2011 and completed in 2013. Storage tanks would be the largest practical, Doshi said — 200,000 cubic meters — and there would be nine to 15 of them storing 40-65 Bcf. The first jetty would have two berths and accommodate 400-500 cargoes/year.
That’s a lot of storage, but Doshi said it should be welcomed by the industry, which during the 2006-2007 season made do using 11-15 LNG tankers for floating seasonal storage. “Storage of LNG is already happening,” he said. “Ship storage is not something that you want to do if you have a choice.”
To preserve fairness and open access, Doshi said the Dubai Hub would operate as a stand-alone facility and would assume business practices akin to those of storage operations in the United States and Europe. Doshi said he sees the infrastructure and services offered evolving in three phases as the project develops.
In the first phase, long-term firm storage would be the primary offering, followed by short-term park and loan services, LNG blending to meet Btu requirements, and services to aid in force majeure situations.
The second phase would see the addition of call and put options, forwards and futures contracts. With the further development of trading at the hub, Doshi said weather and shipping derivatives would be likely to come in the third phase. Customer inventory would be measured in energy units rather than by volume. The hub would be a point at which LNG would be blended “hot” to serve Asian markets or with a lower Btu content for U.S. markets, for instance.
Doshi told attendees that the global LNG market will evolve similarly to the development of the world’s oil market, only not as liquid. He said the hub in Dubai would become the world’s third LNG pricing point, joining the Henry Hub in Louisiana and the UK National Balancing Point.
The hub would be complementary to the world’s regasification terminals, which currently have excess capacity, Doshi said. Benefits would accrue to buyers and sellers, primarily in the form of greater flexibility. They would be released “from being tied to strict and inflexible supply schedules over long periods of time,” he said. The hub also would allow for seasonal and locational arbitrage, and it would support derivatives trading as a spot market emerges around the storage facility.
Doshi said spot cargoes are growing in frequency on the world LNG stage. While they were 10% of global LNG trade in 2005, he said they will grow to 30% of total trade within a decade.
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