INTELLIGENCE AGENCY
.
i
o
3
TOR: an e. Hale
LNG Competitive Price Task Crouo Council on International Economic Policy
Old Executive Office Building
Project Costs and Prices
The attached table of LNG costs and prices is beingas requested during our telephone conversation on Generally the dataide variation in estimates due to the subjective views of different estimators as to costs, volumes, inflation, interest rates, economies of scale, and transport distances. you have further questions we will try to answer them. You will note that the order of projects differs somewhat with those an the list forwarded earlier, but this change was necessary since the status of several projects has advanced while others are only tentative.
Office of Economic Research
Attachment: As stated
73
OR: iicrfc d. Colcr,
Special Assistant to the Director Dureau of L'ast-Kest Tradeepartment of Conrverce
toITG Eccr.onic Review
Attached is CIA's contribution to outline sectionJG Real Cost Analysis. Wo havo attempted to follow the structure of CIEF'g outline as exactly as possible,.with the exception of the consents on implications for financing needs which seemed to fit more appropriately as placed inf our contribution than at the later point indicated by the original outline.
Office of Economic Research
Attachment: Ao stated
73
MMUUU1DVM FOR: Richard D. Erb
Council on International
Economic Policy Old Executive Office Building
toc, Economic Review
Attached for your informationopy of CIA'3to outline sectionG Real Cost Analysis. Mo have forwarded it to Mark D. Color, Special Assistant to the Director, Bureau of East-West Trade, Department of Commerce, for integration with the Department of Coznnercc contribution to that section.
Office of Ltonoroic Research
Attachment: As stated
Contribution to CIEP LNG Economic Review Part II. D. LNG Real Cost Analysis Capital Costs Divergent Consortium Estimates
1. Comparison of the estimates of capital cost forin the USSR made by the consortium concerned with the North Star Project (Tenneco, Texas Eastern Transmission Corporation, and Brown and Root) with those made by the consortium concerned with the Yakutsk Project (El Paso Natural Gas, Occidental Petroleum Corporation, and Bechtel Corporation) raises questions concerning the probable actual level of such costs. Bothinvolve construction of gathering systems andpipelines that will traverse permafrost zones of the USSR. Both projects involve constructioniquefaction plant and related storage and port facilities capable ofillion cubic feet of gas per day. It would be reasonable to assume that the cost of the two projects would be roughly similar. Inasmuch as the length of theinch diameter pipeline from Yakutsk to the vicinity of Nakhodka isiles, one-third greater than theile length of theinch diameter North Star pipeline, it would be reasonable to expect that the capital cost of the Yakutsk Project would be greater than that of North Star. As the following table shows, however, consortium estimates do not indicate that this would be the case.
Estimated Dollar Investment In Facilities in the USSR (In Millions of US Dollars)
Horth StarProject
ate
Base Cost Cost Cost
/ / / /
Pipeline and
Gathering / g/ /
LNG Plant and
Terminal /
Total
Including freight charges.
b/ Includes additional allowance for Interest during construction, contingencies, and escalation of prices due to Inflation ater year.
cl Basic estimate adjusted by the consortium and Stanford Research Institute. rate of escalationer year, based;? coapound rate of currency inflation, allowance for contingencies, interest during2 annual escalation in pipeline and related costs, andnnual escalation in LNG plant costs.
d./ Projection0 based on continuation ofnnual increase in cost. Done for purposes of comparison with North Star. Not by consortiua.
Includes plpclaylog equlpacnt valued at atllllon. On the basis of datarobably Includesillion for the gathering system.
tf7 million for the field gathering system. The size of thishen compared with the figure for the more extensive Yakutsk field gathering systemsuggests that it must also include well costs.
Ofillion ls for the gathering system3 all Ilea for pipclaying MBlmmwat.
hi Ofillion Is for the gathering systes3 million represents escalated pipelaying equipment costs.
1/ Ofillion is for port facilities.
J/ Ofillion is for port facilities.
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nriAliJ^^mj
faHfill IDLI'JTIAL
In addition to the above dollar costs, each consortiumthat ruble costs equivalent to about SI billion would be incurred by the USSR for construction of facilities on its
2. After deducting the cost of the gathering systems and pipclaying equipment, the base year cost of the North Staris0 per mile2 dollars) compared0 per mile for the Yakutsk-Nakhodka line3scalated0 prices, these figures become4 million per mile for North Star0 per mile for Yakutsk. The base costs of the Yakutsk consortium do not appearlow in the light of other information. The highest cost reported by the Northern Natural Gas companyinch diameter pipelines laid00 per mile. Soviet publications,, indicate cost normsubles per kilometernch diameter gas pipelines (including compressor stations) over difficult terrain. Converted at the exchange rateffective sincehese costs become00 per mile. Even at an exchange rate, they would be only00 per mile. These norms, which may be equated9 prices, will, under the Soviet system, remain effective until administratively changed. The direction and
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degree ol ouch change0 is difficult to predict with any precision. However, the index of Soviet construction costs9 wasigher than it was Price changes in the USSR occur abruptly at infrequent intervals as corrective measures aro deemed necessary, rather than more gradually as in the West. Nevertheless, the above change in the Sovietcost index works out to an average annual Increase% per year. If this factor is used to inflate00 per mile range0 prices, the resultange of00 per mile, figures that are surprisingly close to the El Paso consortium's estimate of cont for the Yakutsk pipeline. If the Yakutsk pipeline costs per mile were applied to the North Star project, the cost of the North Star pipeline and field gathering system would be4 billion, rather than the2 billion. LNG Plant
3. As tho above table indicates, the Tenneco consortium's estimate of necessary capital investment in tho liquefaction plant and related facilities is aboutimes that of tho El Paso group's. Again there is evidence to support tlie belief that the Tenneco estimate may have been exceedingly cautious. Liquefaction plant, storage, and port facilities in Algeria that will have roughly half the capacity contemplated for each of the Sovietare expected to cost0 million. Doubling thiswould resultost0 million, and some economy of
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OTinniTtni -
scale should bc expected. Consequently, inflating the cost of these Algerian facilities, scheduled to bo in operation0 dollars should still resultost of less than SI billion, rather than thoillion estimated by Tenneco. More over, as the cost of constructing facilities in the Soviet Union would be incurred priorricing the facilities0 dollars results in what should be regardedaximum, ratherrobable, estimate of cost. Implication for Financing Weeds
4. The above suggests that the dollar costs of facilities in the Soviet Union for the North Star project might be in the range of S2 billion5 billion, rather thanestimated by the Tenneco consortium. The relationshipsuch capital costs for North Star and the estimated cost of the Yakutsk project seems more reasonable than that indicated by the original consortium estimates, given the more extensive gatheringnd longer pipeline required for the Yakutsk project. ne-third reduction in the cost of North Staron Soviet soil would reduce the need for Export-Import Bank and US commercial institution financing accordingly, from nearly
T? The poorer quality of Yakutsk reserves will probablya larger number of wells, andore extensive gathering system, than will be required in the Urengoy field for North Star.
illion to3 billion. Under existing guidelines, the USSR would be expected toown payment of at,0 million.
Operating Costs Divergent Consortium Estimates
5. Both groups of US firms hove indicated that. Soviet port price ofu. ft. They divide the costs differently, however, as is indicated by the following tabulation.
u. ft.
Star
and Gathering
Plant and Terminal
the gathering systems, the cost of transporting gas viaile North Star pipeline works out tou. ft.iles. This cost is aboutercent higher than the comparable costu. ft.iles viailo pipeline contemplated for the
Yakutsk project. The North Star allowanceu. ft. for the LNG plant and related terminal facilities is nearlyercent higher than the comparable estimate for Yakutsk.
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. QjUHDDlT'M-
Soviet Gas Production Costs
soviet estimates of the local cost of gas fromfield in Western Siberia, or from the Yakutsk areaSiberia are available, probably because these fieldsyet begun to produce gas in quantity, and productionnot firmly estimated. However, the cost of production atfield,iles west of Urengoy and with has been reported1 ruble Soviet technicians, however, expect this costubleu. m. as cluster drilling techniquesmore extensively. To this production cost shouldone rubleu. m. that Soviet accountingexploration costs.
Soviet Pipelining Costs
Soviet source gives the cost of transporting gas bydiameter pipelineublesu. m. perunder optimum conditionsubles under The corresponding figuresinch diameterwere givenubles. The conditions of thesurely qualify as difficult. Thus, theilometer tripinch line from urengoywould2 rublesu. m. The costgasinch lineilometersto Nakhodka would8 rublesu. m. Of
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theses amortizations operating cost wages, materials, electric power, and gas. Ruble Cost of Gas Delivered to LNG Plant
f the transport cost to production andcosts8 rubles, yields an operating costu. m.ubleu. ft. forto Murmansk,6 rublesu. m.u. ft. for gas delivered to Nakhodka. is exclusive of capital charges and replacementwhich are included in the estimates of dollar costs forprojects.) Because of the heavy weights assigned toSoviet inputs, fuel andonversion rateubleseems more appropriate for converting these rubleinto dollars than would the higher official exchangeoperating costs to the Soviets of gas delivered to theplant would thus be equivalent tofor the North Star project, andu. ft.
for the Yakutsk project. Liquefaction Costs
no Soviet data are available forprobable cost of liquefaction in the USSR. renchthat has pioneered in the LNG field,2 quotedcostsu. ft.lant5 billion cubic meters per yearillion cu.day). Of this amount,oro for internal gas consumption,
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Tff lULNIIML
or operating costs,,f the total, forcosts. (Tho estimate, assumed; % interestyear linearet yield on capital,ax on gross yield.) TEAL indicated that increasing the capacity of the plant byillion cubic meters per year0 million cu. ft. per day) would reduce unit production cost,u. ft. Doubling the capacityillion cubic meters per0 million cu. ft. per day) would reduce the costu. ft. It is evident that aeconomy of scale is achieved as the capacity of the plant increases, and the plants proposed for use in the Soviet Union areimes the size of the one used as the basis for the French cost estimate.The French company alsoeduction in total production cost if the duration of the LNG Contract is extended fronears toears, and the proposed Soviet contracts arc forears. Extrapolating from theseotal production costu. ft. seems reasonablelant with the capacity being discussed for the
2? Some further idea of the economies of scale involved isby an article in the2 issue of Gas,by Morton Litwak, Manager, Economic Evaluation Department, Air Products and Chemicals,ubsidiary of Brown and Root. Mr. Litwak indicated that doubling the capacityiquefaction plant capable ofillion cu. ft. per dayapacityillion cu. ft. per day would reduce the costu. ft.u. ft. Also, in studying the proposed Yakutsk projectechtel Corporation, one of the El Paso consortium, estimatedcosts?u. ft.lantapacityillion cu. ft. per day andu. ft.lantapacityillion cu. ft. per day.
Soviet projects. Of this amount, aboutu. ft. would be for what TEAL classified as "operatingpparently including maintenance, replacement of equipment, and labor;less than ICu. ft. would be for internalof gas; and the rest would be capital cost. If it is assumed that the costs cited by TEAL2 were current costs, and thatost extrapolation from them hence would be2 dollars, inflation ater year would result0 cost of, the figure used by the El Paso group. Total Soviet Costs
10. It seems probable that the chief elements of Sovietcostslabor, materials for maintenance (as distinct from equipment maintenance and replacement which is included in the dollar operation and maintenancend gas consumed by .the LNG plantwill remain relatively constant. On the basis of the above data, these ruble costs have been estimated as being equivalent to about ISCu.r to1 billion over the life of the North Star project. u. ft. for exploration, gas production, and pipeline operation, and ofu. ft. for labor, maintenance, and gas consumption at the LNG plant.) Coupled with the estimatedillion equivalent in ruble construction
costs, the ruble cost of the North Star project would come to
somewhat overillion.
Quantities of Gas Available.
11. There appears to be no question that the reserves of the Urengoy field in Western Siberia are more than adequate to support the contemplated deliveryillion cubic feet of gas per day to the US east coast under the North Star project. Sovietclaimsrillion torillion cu. ft. of exploredand potential reservesrillionrillion cu. ft. This would make it the largest known gas deposit in the world, capable of supporting atrojects the size of North Star. The adequacy of reserves in the Yakutsk region of Eastern Siberia to support proposed deliveriesillion cu. ft. of gas per day forears to the US west coast, and another billion cu. ft. per day to Japan, is not so certain. The present exlpored reserves in the Yakutsk area would not support suchbut Soviet technicians hope to discover more thanrillion cu. ft. Although some participation in the financing of exploration might be feasible in the short run, any agreement concerning long-term delivery of gas from the Yakutsk area to the US should await the results of that exploration and depend on dedication to the project of adequate explored reserves from specified deposits.
12. Toillion cu. ft. of gas per day to the US east coast under the North Star project,illion cu. ft. per day would have to be.loaded on board the tankers to allow for boiloff and consumption en route.
billion cu. ft. would be loaded in each year of full-scaleand over the life of the project the quantity would total nearlyillion cu. ft.
Implications of Costs for Prices and Profits
13. riceu.oviet gross earnings over the life to the North Star project would total moreillion and, if investment in the field gathering system, pipeline, liquefaction plant, ond related terminal facilitiesas estimated by the Tenneco consortium, net dollar earnings would be2 billion. If, on the other hand, capitalin these facilities should be on the orders is suggested by the El Paso consortium's estimate of costs for the Yakutsk project, net dollar earnings at the priceu. ft. would total8 billion over the life of the contract. Taking ruble invostment and ruble operating costs into account under the assumption5 billion in dollar investment would reduce net earnings toillion.1/ Taking ruble costs into account under the original assumptions of the project would reduce net earnings to1 billion. Thus, lower in-vestment costs than anticipated by the consortium would, at the prices and quantities being considered, make the North Starmuch more profitable for the USSR.
37 This figure assumes that ruble investment would be reduced in proportion to the reduction in dollary one-third.
14. Leaving ruble coots out of consideration, if investment in the facilities in the USSR should be on the orderatherillion,. priceu. ft. would, over the life of the contract, yield the Soviet Union gross earnings ofillion and net dollar earnings of3 billion, slightly more than the net dollar earnings it would realize from the. priceu. ft. with the anticipated higher capital investment andhigher capital charges. The DCF rate on the stream of net revenues derived from the lower investment would be, comparedate ofnder the original assumptions of the project. At the priceu. ftv netafter taking into account ruble costs would be5ittle more than under the original proposalillion. If further engineering studiesthat substantially lower capital investment is probable, future negotiations might reasonably seek to establish. price that wouldew cents lower than is now contemplated. In any case, it would seem that the contract should provide for some adjustment of the prices, dependinq on the actual level of investment.
Implication of Lower LNG Tanker Cost for Transport Price
s in tho case of the pipeline and liquefaction plant, the Tonneco consortium appears to have been excessively cautious in estimating the cost of LNG tankersapacity
cu. meters as high0 million each* Three tankers of this capacity now under construction in France, for use in El Paso's Algerian LNG trade, are toillion each. Not all of this difference in cost can be attributed to the fact that the North Star tankers are to be built in US yards. ubic meter capacity tankers under construction in the United States for Eascogas aro to costillion each. (De-cause of the subsidy paid by the US Maritime Administration to reduce the difference between costs in US and foreign shipyards, the selling price of these tankers woulc" bel Paso has orderedubic meter capacity tankers for construction in US yards, three of which are to costillion not including the subsidy). The average cost of tankers for El Paso's delivery of Algerian LNG (scheduled to start only two years before North Star deliveries) isillion, or if only the six tankers to be built in US yards are considered,0 million. General Dynamics Corporation recently announced that its Quincy, Massachusetts shipbuilding division has0 million order to buildankers for Durmah Oil Ltd. to use in transporting gas from Indonesia to Japan. These tankers, the first of which is to be delivered innd the last inill cost an averageillion each.
16. If tho North Star tankers should0 million each, rather0 million each, the reduction in capital charges
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would be such that the same total net revenue could be realized over the life of the contract at tho transport priceu. ft. as would be realizedriceith the higher capital investment. If operating expenses prove lower than originally anticipated, an even lower price would be possible without reduction in netmplications of Cost for the Landed Price
17. If, as suggested by the above, capital investment for facilities in the Soviet Union should prove to be in the range of S2 billion5 billion, ratherillion, and if the cost of LNG Tankers should0 million, rather0 million, the same net revenues could be realizedanded price in the rangeu. ft. as would be earnedanded priceu. ft. under the original cost assumptions of the North Star project.
- rnriinnriMTifli
3
KEMORAKDtni FOR: Albert Jankowitz, Director, Policy Division Bureau of East-West Trade Department of Commerce
Contributions to CIEP LNG Economic Review
Attached are CIA's contributions to outline sectionsecurity of Supply, andargaining Positions for Future Prices.
Office of Economic Research
Attachment: As stated
D/U
3
MEMORANDUM FOR: Richard D. Erb
Council on International
Economic Policy Old Executive Office Building
Contribution to CIEP LNG Economic Review
Attached for your informationopy of CIA'sto outline sectionsecurity of Supply, andargaining Positions for Future Prices. He have forwarded the contribution to Albert Jankowitz, Director, Policy Division, Bureau of Cast-West Trade, Department of Commerce, for integration with Department of State and Department of Comrcerce contributions to those sections.
Office of Economic Research
Attachment: As stated
CONflDCHTIAL1-
Security of Supply
1. Reserves of gas an the Urengoy field of Western Siberia are more than adequate to support delivery of 2cubic feeter cay to the US east coast asunder the North Star project. Soviet literature claimsrillion torillion cu.4 trillion cubic meters) of explored reserves and potential reservesrillionrillion cu. ft. This would make it the largest known gas deposit in the world, capable of supporting atrojects the size of North Star. The adequacy of reserves in the Yakutsk region of Eastern Siberia toproposed deliveriesillion cu. ft. of gas per day forears to both Japan and the US west coast is not so certain. The present explored reserves in the Yakutsk area would not support such deliveries, but Soviet technicians hope to discover more thanrillion cu. ft. exploration will be required, and the USSR has requested credits from US and Japanese firms to cover the cost ofsurveys and exploratory drilling in the Yakutsk fields. Any eventual contractual agreement will depend on dedication to the project of sufficient explored reserves from specified deposits.
connrrNTY1
Even where adequacy of reserves is no problem*of supply will depend on the solving of difficult technical problems that will be encountered in constructing and operating, under Arctic conditions, liquefaction plants of the size contemplated. Similarly, development of the gathering systems and long-distance pipelines in thezone of the Soviet Union will involve technology never before applied oncale. In previous attempts at permafrost pipelining, Soviet technicians experiencedwith high winds that caused pipe to vibrate and fall off of raised pilings; ground thaw that caused pipe laid on or in the ground to heave, buckle, and break; freezing and rupture of control valves; and failure of welds at pipe US technicians, however, feel confident that they have solved the problems of pipelining in permafrost through research and construction of experimental lines on the Alaska North Slope and in the Mackenzie River valley of Canada.
Deliveriesillion cu. it. of Soviet LNG per day would be equalittle less thanf estimated US demand for natural gas, and to less thanf the total energy consumption forecast for the US in that year.illion cu. ft. per day of West Siberian gas proposed for delivery under the North Star project would be equal to
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lessf estimated demand for gas on the US east coast Unless Soviet deliveries of LNG werein some one area of the east coast for whichsources of gas were not available any shortfalls in Soviet deliveries should not cause insurmountable problems. The supplyillion cu. ft. per day of Soviet LNG to the US west coast market5 probably would have even less significance in that market than would the North Star gas on the east coast, unless the west coast deliveries werein regions where gas use is relatively small.
4. Technical problems could lead to interruption of supply. This has proved to be the case with deliveries to the US from Algeria where Sonatrach, the State-owned company involved, has had more experience in operating an LNG plant than have Soviet technicians, and where geographic andconditions are not as difficult as in the Soviet Union. It seems unlikely that the USSR would deliberately delay or
r
shut off shipments, or attempt to use the leverage of its positionupDlier unless itompelling reason for doing so. In the past, the USSR has placed considerableoneputationesponsible and reliable trading partner. Nevertheless, during the recent Arab-Israeli conflict, it did reduce its deliveries of oil to Italy to enable it to compensateeduction in
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deliveries of Iraqi oil to Eastern Europe. In this instance the USSR apparently gave priority to the needs of Eastern Europe, probably primarily to those of Bulgaria which depends on Iraqi oil (obtained for the most part on Soviet account) for about half of its supply.
Soviet need for foreign exchange with which to buy technology and equipment, and the opportunity to earn sizable amounts of hard currency by exporting LNG to the US, seems powerful incentive for the USSR toeliable supplier. The USSR chronicallyeficit in its trade with hard currency countries. Over the past decade, this deficit has averaged more0 million per year. It jumped from0 million14 billionrimarily because of large-scale imports of grain, and3 it may reachillion. Contracts now being discussed with Western companies could result in further large-scale imports of equipment during the mid-to, and concomitant large-scale deficits in the Soviet balance of payments will persist until export earnings can ease the situation.
umber of years, the export of oil has been the USSR's largest single source of hard currency. 2 Soviet earnings from such exports, primarily to Western Europe, totaled0 million. However, forecasts of Soviet oil production and demandossible reduction
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in net exports during the latter half of the decade. Theof older producing regions are being depleted more rapidly than anticipated, well yields are decreasing, and the share, of water in total liquid produced is increasing. increases in oil output will have to come from deeper deposits in the older regions, from new fields in Central Asia and Western Siberia (where geological and climaticrender much of Soviet oilfield exploration andequipmentr from offshore deposits. To develop these reserves satisfactorily, the USSR needs western drill pipe, bits, special drilling tools, drilling fluids, casing, blowout preventers, special cements,insulation, large-diameter linepipe, tractors, pipe-laying equipment, valves, pumps, and compressors. To locate and develop additional reserves, the USSR needs seismicequipment, well logging equipment, computercenters for evaluating seismic and well logging data, portable drilling rigs, and offshore drilling equipment. Soviet offshore experience, thus far has been very limited, conducted primarily without use of modern offshore equipment. This situation undoubtedly has contributed to Soviet desire to develop other sources of foreign exchange, such as the export of natural gas.
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7. The Soviet natural gas industry also needs western technology and equipment, especially US technology andfor permafrost pipelining (and perhaps for permafrost drilling). Export of LNG to the US affords opportunity for earning large amounts of foreign exchange that can be used to finance imports of technology and equipment, not only to use in exploiting oil and gas reserves, but also for general industrial development as well. Soviet desire not tosuch earnings probably constitutes the best guarantee of security of supply.
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. Bargaining Positions for Future Prices
bargaining position of the US companiesbeen weakened by recent publicity about an "energy The USSR, believing that the United Statesto import the LNG, may seek greater advantage inof more technical assistance, higher prices, or aroute and port facility located more suitable fordomestic as well as export purposes. Moreover,been indications that some Soviet officials opposethe LNG to the US on the grounds that the USSR shouldits natural resources for its own future use. announced policy of attempting to achieveand self-sufficiency in energy supplyo dispel the idearolonged energy shortagethe US in the market for LNG at any price. Programsof domestic oil production, gasification ofpossible utilization of oil shale deposits willargument that imported LNG must be pricedpotential for foreign exchange earnings is probablyargument for Soviet flexibility.
. priceu.he
USSR would realize gross earnings of5 million in each year of full-scale delivery under the North Star project. Over the life of the contract
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these gross earnings would totalillion. If investment and financing as now contemplated by therecovery of the USSR's own dollar investment inon its soil, amortization of indebtedness for those facilities, and meeting charges for repair and replacement of imported equipment would reduce this amount to net dollar earnings of aboutillion. Rather than lose the prospect of dollar earnings even approaching this magnitude the USSR might make some concession on price.
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CENTRAL INTELLIGENCE AGENCY.
3
MEMORANDUM FOR: William E. Hale and Andrew Safir, Council on
International Economic Policy
LNG Competitive Price Study
The attached is in response to your memorandum of None of the estimated prices of domestic or foreign petroleum originated in this office; they werefrom US technical journals and/or company reports. In view of the present upheaval in the world oil market, price estimates for energy in the future are tenuous at best.
Office ot
E2 IKPDET CL9
Price Estimates for Energy Resources Competitive to Soviet. LNC
1. In general, most of the price estimates for domestic and foreign gas given in the table attached to your memorandum ofctober agree with information available to us. the price ofhown for Item No.oviet LNG (Northppears high when related to probableand transport costs, it does not seem unreasonable when compared with the possible price of energy fromsources in. Rapidly rising prices for oil indicate, however, that the estimates for itemndhould be changed.
SNG Naphtha: Price probably wouldillion (MM) BTU3 and could rise to as muchMBTU
During the past year the price of naphtha, which accountsf the processing costs for SNG, has increasedents per gallonents per gallon. It is anticipated that the spot prices of naphtha in Europe4 willat least. Because the US will be dependent on imported naphtha for much of its supply for SNGurther escalation of the price for SNG is certain, capital costs of plants,ess significant factor, have
E2 IMPDET CL9
also risen. The current outlook for the proposed output of SNG from naphtha in the US appears dim. If all of ther more announced plants were built they would requireillion tons of naphtha annually, almost the total amount now used in the world for the manufacture of With the current and probable long run shortage of feedstock, both domestic andew plant would have little chance of lining up supplies of naphtha, propane, or crude oil.SKG oil: Price estimate probably shouldtheMBTU for SNG from naphtha3 because of the sharply escalating prices for oil. (However, no revised price estimates have been reported to datcJ
Deletion of ItemNG handeds recommended as the source of the LNG is not specified.
Available literature suggests that, under different assumptions, price estimates other than those shown in the table could be derived for the following items:
Persion Gulf Methanol: Price estimateMDTU3 prices.
This price, based on an article in Oil and Gas Journal ofncluded an assumed raw gas value ofixed cost of capital
investment, and the cost of transporting methanol to the US cast coastOT tankers.Persian Gulf LNG: Price/ MMBTU3 prices.
The same cost and investment assumptions as above are assumed, with transport of LNG to the US east coastubic meter LNG carriers.
A list of estimated product cost for delivered LNG for projects under consideration throughout the world,S firm ins attached.
Other energy sources which should be included in the list of alternatives are IMS from North Sea gas, shale oil, shale gas, and oil from tar sands. However, this office has no estimates of price for such fuels. The Department of Interior (Bureau of Mines) is the logical agency to estimate the price of energy from oil, shale and tar sands. ecent North Sea gas contractossible US FOB price ofents/MMBTU. Transport costs to the US east coast would be considerably lower than from Murmansk, USSR.
There are indications that the USSR may bean increase in the price of natural gas for export. ecent Soviet trade delegation to the US reportedlyncrease in the price of natural gas to be delivered to the US and Japan from East Siberia. US petroleum company
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LUG PROJECTS
OPEH
SOON Oj>KRATIONAL
Haw! Nautical Mile;,
0
lant
MB7U
36
LNG Tar.Vc;
16
ort
to Foa
Spot
told
- New
0
CONTRACTED
to Cove Point
to Savannah
to Japan
oo
62
OC
0
w
.
IS
DISCUSSION
. East Coait
- Cull Coast
. But Coaat
os Angeles
. East Coast
U.S. East Coast
*
<Valley to Lo* Angeles
Valley ta Japan
Australia (olfsliom) lo LA.
* Angeles
- Japan
Gulf toAngele*
. Cos: Coaft
cporledor published
* Assumed Cost FOB LNG Plant
! JJOvs not include cos! o( jja?C slarl
Original document.
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