Erin Dyer, Daniel Reinbott, Melanie Williams

In addition, delays in final investment decisions (FID) (due largely to escalating

construction costs and, in some cases, political uncertainty) mean further constraints
on future LNG supplies.4 Industry analysts appear undecided as to whether the
supply tightness (and consequent price pressure) may be eased by the proposed
development of further LNG projects, including:
• in Angola, and the Olokoka LNG project (OK LNG) in Nigeria, estimated for
start-up in 2012; and
• in Papua New Guinea, Russia, Brass LNG in Nigeria, Greater Sunrise in the
Timor Sea and Browse, Gorgon, Wheatstone and Scarborough off north-west
Australia, all estimated for start-up around 2014 to 2015.

3.4 Political risk

The geographical location of gas reserves leads to many LNG projects being situated
in areas of high political risk. The development of LNG projects in areas such as
Nigeria, Papua New Guinea, Russia and Yemen requires sponsors to manage
significant risk on LNG projects. However, the capacity to do this is not without
limits. Total and the Shell–Repsol–YPF joint venture announced suspensions of final
investment decisions in respect of their respective LNG projects in Iran, citing high
political risks and political pressure.
Another factor relevant to the high political risk of many LNG projects is
increasing resource nationalism by host governments, particularly in the context of
high commodity prices and pressure to achieve the best possible returns on the
nation’s resources. There are numerous examples, including the recent further
reopening of LNG prices under long-term contracts for LNG supply from the
Indonesian Tangguh project, and the decision of foreign sponsors to proceed with
the Sakhalin II LNG project in Russia, despite the dilution of their interests as a result
of Gazprom becoming a majority participant.
Even in seemingly low political risk environments, such as the United States and
Australia, LNG projects are affected by political considerations. The difficulty in
obtaining local approvals for LNG import terminals in certain areas of the United
States is well known and the development of further LNG projects in north-western
Australia has been hampered by the difficulty in obtaining regulatory approval for
sites for the onshore facilities.
As the natural gas market underlying LNG diversifies, so too do its interests align.
The Gas Exporting Countries Forum (GECF) is an informally structured group of the
world’s largest natural gas exporters which, between them, are estimated to control
up to 60% of global proved and provable gas reserves and approximately 50% of
current global gas exports. Indications in early 2008 were that some natural gas
exporters, notably Russia and Iran, had mooted further cooperation between the
GECF members in the areas of gas pricing, infrastructure and consumer relations.
Such cooperation was regarded by some commentators as tantamount to the
formation of a ‘gas OPEC’. Given the sensitivity surrounding LNG pricing and the
increasing roles of national oil companies and host governments in some GECF

4 For example, no new liquefaction projects were sanctioned in 2008.

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