Ports and World Trade: Bulk Ports (Export and Import) and Port located facilities

In a previous InfraRead article titled "Port Developments in AsiaPac: A platform for regional growth and global trade", we provided an overview of the various approaches to procuring port infrastructure and port services in the Asia Pacific (for both government-owned and private ports). In the context, we considered both whole-of-port and specific infrastructure development (both land side and marine side).

In this second article in a series of InfraRead articles on ports, we consider various kinds of bulk ports (Ports) and port infrastructure broadly at ports. The purpose of this article is to provide an overview of the arrangements that exist upstream and downstream of Ports, that affect the arrangements at Ports for the use of those Ports and the use of facilities and infrastructure (Port Terminals) for bulk. To provide context, we consider three bulk resource commodities that are highly dependent on Ports and Port Terminals: Coal (thermal and metallurgical); iron ore; and liquefied natural gas (LNG). In future InfraRead articles, we will consider other commodities.

Background

As a general statement, ports and port terminals around the world may be categorised as follows (by reference to category of cargo):¹ 

• Bulk Ports and Ports Terminals, comprising dry bulk terminals and liquid bulk terminals – the subject of this article covers dry bulk terminals for coal and iron ore, and liquid bulk terminals for LNG;
• Container Ports and Container Terminals;
• General Cargo and Multipurpose Ports and Terminals; and
• Ro-Ro²  Terminals.

In addition, there are fishery ports and inland ports and terminals. Some ports are dedicated to one cargo or category of cargo. For example, Port Hedland in Western Australia's Pilbara Region is a dedicated iron ore port, and the Port Terminals within Port Hedland is each dedicated to iron ore.

As a general statement, each Port Terminal is made up of dry and wet infrastructure (critically the jetties and berths and the berthing pockets) and the superstructure of, or on which the Port Terminals are located, the equipment used at the Port Terminal, critically for loading (at the Port of loading) and unloading equipment (at the Port of unloading) and those operating the Port Terminal.

The configuration of Ports and Port Terminals is a function of the capital applied to develop them. The efficiency of the Ports and Port Terminals is a function of the turnaround times for loading and unloading: at its most simple, Ports and Port Terminals want to have sufficient capacity to avoid bottlenecks in capacity availability such that efficient loading and unloading is achieved to optimise the use of the Port and the Port Terminal. As might be expected, there is a direct link between capital and operating expenditure. These are not static dynamics, they are relevant to both new and existing Ports and Port Terminals. We will consider these matters in future InfraRead articles.

Coal, Iron Ore and LNG Ports

In the context of world trade

In terms of the number of tonnes transported, maritime transportation moves the greatest number of tonnes globally, and as such may be regarded as the most important mode of transport. ³

Iron ore may be regarded as the most important dry bulk commodity for the purposes of world trade, accounting for approximately 20 per cent to 22 per cent by mass of world dry bulk maritime trade. Coal remains key to world trade, ⁴ although the mass of thermal coal (used for power generation) transported may reduce over time. However, the use of metallurgical coal (used in steel making) will not follow the same trend. The quantities of LNG produced and transported have increased remarkably over the last 20 years or so as the number of LNG projects have increased around the world. While the rate of increase may slow, the upward trend in LNG production and export will continue.⁵ These three commodities are, and will likely remain key to world trade for the foreseeable future, iron ore and LNG in particular.

In this context, Ports and Port Terminals, and their capacity, is key to world trade. Port Terminals for coal, iron ore and LNG are at the end of a production and haulage/transportation chain in the country of export. The transport chain comprises capital-intensive infrastructure, whether owned by the Producers of the commodities or accessed by them. The transportation chain delivers the commodities to the Port and the Port Terminal for loading onto a carrier. ⁶

Once that carrier arrives at the country of import, the commodity needs to be unloaded at Port at a Port Terminal (using port facilities and infrastructure), and then delivered to the point of ultimate use within the country of import. As with the country of export, the Port and the Port Terminal at the Port of unloading comprise capital intensive infrastructure, and delivery to the point of ultimate use is likely to require rail (for coal and iron ore) and pipeline (for regasified LNG) infrastructure.

Demand for Ports and Port Terminals as a function of commodity prices

The development of bulk Ports and Port Terminals is a function of the world market for commodities being stockpiled and loaded and unloaded (and stockpiled and stored and loaded and unloaded (in the case of coal and iron ore) and stored and used for the production and regasification (in the case of LNG). Critical to the development of Ports and Port Terminals is the demand for each commodity and how demand is reflected in the prices realisable for on sale.

In coal, iron ore and LNG, there is no long term price certainty. To a greater or lesser extent, the length of, and the basis for pricing under sale and purchase agreements for each of these commodities is not certain (Sales Contracts). The prices for all three will fluctuate over time. As such, if a Producer of any of these commodities contracts for Port use or Port facilities or infrastructure use or to develop a Port or facilities and infrastructure at a Port, the Producer will have reached a conclusion as to where it sits on the cost curve for production, the market for its production, and as such, the project revenue stream from the sale of the commodity.

Ports

Port activities and functions

The activities undertaken on the land side and marine side within a Port can generally be categorised as: Governance, Infrastructure and Operations. In the context of bulk Ports, the Governance functions are activities that tend to be undertaken by the government authorities rather than users of the Port. Infrastructure (development and maintenance) activities may be undertaken by the ultimate owner of the Port, but tend to be undertaken by users or by contractors with which they contract. Finally, Operational Functions, tend to be undertaken by owners and operators of infrastructure on land side, and on marine side tend to be supplied by contractors operating within the Port, including providers of pilotage and towage services.

Port models:

In general terms, there are four port models:

1. Private service model: the whole port is owned and operated entirely by the private sector;⁷
2. Public service model (public service port): the port is owned and operated entirely by the host government or a government entity;⁸
3. Service port model or labour model (tool port): the port (equipment and land) is owned by the host government or a government entity, and is either operated by government, or the government contracts with the private sector to operate all or part of the port; and
4. Landlord model: the port (whether publicly or privately owned) leases land within the precincts of the port to the private sector to undertake activities within the port, and the private sector invests capital to allow it to undertake those activities (effectively each private sector entity is granted a concession, which may or may not be exclusive).

Location of Ports and Infrastructure Ports and Port Terminal

Bulk Ports are generally located as near as possible to the source of the resource commodity, subject to the characteristics of the Port itself (and the vicinity of the Port, including considerations of climate (for example, if the Port is subject to weather conditions that will affect landside or marine side operations), silting of the Port (and its vicinity), tidal range at the Port, draught of the channels within Port leading to the berth and the depth at the berthing pocket itself. These characteristics are relevant to carriers used to load, to transport and to unload, and to operations at the Port of loading and Port of unloading. The carriers used for coal, iron ore and LNG carriage are specialised, in particular the carriers need to be compatible with both the Port of loading and the Port of unloading and the Port Terminals at each of them.

In addition to addressing compatibility for coal and iron ore, stockpiling is likely to be required at the Port of loading. To allow stockpiling, land must be available on land side at the Port. Coal and iron ore in stockpile needs to be handled into, and out from, stockpile, and this will require handling equipment and infrastructure (stockpiling and reclamation), either separate from or integrated with the infrastructure for loading, and are likely to comprise conveyor systems. Coal and iron ore may be blended at Port, and this is likely to take place using designated stockpiling and reclamation plans to achieve the required specification of blended coal. (Note that coal and iron ore, or other similar dry bulk such as bauxite, are not processed at Port, although some producers regard blending as processing.)

In the more congested coal and iron Ports around the world, congestion is managed at least to some extent by provisions that manage delivery of coal and iron ore into unloading facilities from trains and into stockpile. For this reason, coal and iron ore Port Terminals comprise rail sidings and unloading facilities, at which coal and iron ore delivered from mines is unloaded. At the Port of unloading, equipment and infrastructure to unload, stockpile, reclaim, and to load trains will be required, unless the coal is delivered to the ultimate user at Port (power station for thermal coal, steel mill for metallurgical coal, or steel mill for iron ore).

For LNG production and loading, natural gas processing, liquefaction, storage and loading facilities are required. These facilities are located within the precincts of the Port of loading. Upstream of LNG production and loading facilities are connection points to which natural gas is delivered from wells and gathering systems. LNG facilities can be shore-based or floating. Unlike coal and iron ore Port Terminals (which allow products to be stored in stockpile), LNG facilities have comparatively limited storage capacity: once produced LNG is stored and handled using cryogenic steel, which is expensive. As a consequence of the cost of storage facilities, the scheduling of LNG carriers and their timely arrival and loading, are key both to Port operations and LNG facilities' operation: if LNG is not taken by a carrier and storage is utilised fully, the production of LNG will have to be turned down. For this reason, the arrangements for LNG carriers are prescriptive and regimented in detail in LNG sale and purchase agreements. While the underlying agreements for the sale and purchase of LNG contain provisions addressing liability for delay in loading (caused by the LNG facilities and the LNG carrier), the amounts payable under these provisions tend to provide for liquidated damages based on demurrage, rather than allowing recovery of the consequences of delay.⁹

At the Port of unloading, facilities for unloading of LNG, storage of LNG and regasification and send-out (of regasified LNG), and delivery to the ultimate user or into the transmission system for natural gas is required. Regasification and storage facilities at the Port of unloading can be shore-based or floating. Increasingly, floating storage and regasification units (FSRUs) are being used.

In a future InfraRead article, Michael Harrison, Dan Reinbott, Peter Vaughan and Matt Wood will provide an overview of shore-based and floating regasification.

At each loading and unloading Port, operators of the Port and the Port Terminal will retain the right to refuse to allow a carrier to come to berth to load (or to unload) if it is not on time, and to move away from berth if the carrier is not able to load (or unload) in a timely manner.

Summary of infrastructure at Port

Underlying Contracts:

Producers and provision of delivery services¹⁰

In the case of:

1. coal and iron ore, some Producers own and operate the delivery systems from the mine to the Port, others use existing delivery systems owned and operated by others;
2. LNG, most Producers own and operate the delivery systems from the field (whether reservoir or coal seam methane) to the Port, others use existing delivery systems owned and operated by third parties (for example, in the United States of America) to deliver feed-gas to LNG production and storage facilities (in each case a Transportation System).

In the case of coal and iron ore, if there is an existing Transportation System in the form of a rail network, the Producer will seek to use that existing Transportation System. For these purposes, the Producer will seek to contract with the third party owner operator of the existing Transportation System for the provision of transportation services using above rail and below rail assets to deliver coal or iron ore to the Port.

In the case of LNG, in the last ten years or so more Producers, particularly in the case of newly developed projects, have used existing pipeline systems to deliver feed-gas to processing and liquefaction and storage facilities (frequently tolling that feed-gas through those facilities in the case of the United States of America) or from new fields to use existing processing and liquefaction facilities in which there is spare capacity as the fields from which natural gas was originally derived, deplete over time and new fields are developed to make use of the spare capacity.

In a future InfraRead article Michael Harrison, Dan Reinbott, Peter Vaughan and Matt Wood will outline the basis of LNG tolling projects and financing the development of processing and liquefaction facilities.

The coal industry in Australia provides a good example of third party owner operator of above rail and below rail assets and infrastructure providing delivery services to coal Producers to deliver coal from mine to Port. One third party owner may own and operate the above rail assets, and another third party may own and operate the below rail assets, or a third party may own and operate both the above and below rail assets and infrastructure. If the above and below rail assets and infrastructure are owned by different third parties, it may be that the coal Producer can contract separately with the owner operator of each of the above rail assets and below rail assets and infrastructure or that it will contract with the owner operator of the above rail asserts for the provision of a bundled service, in which case the above rail owner operator will contract with the below rail owner operator for access to the below rail assets and infrastructure so as to be able to provide the above rail services. If a Producer has a choice, it tends to prefer to contract separately (with the above rail and below rail owner operators) rather than for a bundled service.

Third Party Access

Background

Given the nature of below rail assets and infrastructure, the terms of access (and pricing) may be regulated to ensure that monopoly rents cannot be charged by the owner operator. In contrast, the terms of contracts for above rail services using below rail assets and infrastructure are unlikely to be regulated. If a third party owns and operates both the above and below rail assets, there is an argument for regulation of the bundled service.

The iron ore industry in Australia provides good examples of Transportation Systems owned and operated by iron ore Producers or infrastructure owning and operating companies that they have set up. The Big Three iron ore Producers in Australia (BHP Ltd, Rio Tinto Ltd and Fortescue Metals), each own and operate (or control) above rail and below rail assets and infrastructure delivering iron ore from mine site to Port. Each of the Big Three controls the delivery of its iron ore to Port, and Rio Tinto owns the Port into which it makes delivery. In seeking to maintain the integrity of an integrated mining, blending and port production process, BHP and Rio Tinto each sought to avoid its below rail assets being subject to a third party access regime.¹¹  The ability of third parties to seek a declaration that privately owned infrastructure should be subject to negotiated access continues to be a contentious issue, even though now long established.

Other than in the United States of America, LNG production projects tend to follow norms globally, with wells, gathering, collection and delivery systems operated on an integrated basis with processing and specialised, purpose-built liquefaction facilities (typically in remote locations not comprising part of the broader port scheme).¹²  In this context, the production of LNG may be regarded as part of an integrated process. There are examples of regulatory regimes globally that contemplate access to Transportation Systems (and in some circumstances processing facilities), but not liquefaction facilities. As noted above, tolling projects have become increasingly prevalent over the last ten years, but this is on the basis of a negotiated tolling agreement for liquefaction rather than a regulated third party access regime. While liquefaction is not subject to a third party access regime the use of the existing gas pipeline transportation system across the United States is regulated to allow third party access.

In contrast to liquefaction facilities, the application of third party access regimes to LNG regasification facilities is far more developed and widely implemented. This is particularly the case in Europe and also in some Asia Pacific nations, where mature competition regulations, deregulated gas markets and multiple downstream gas utilities seek to access "natural monopoly" infrastructure. In contrast to liquefaction projects, tolling models have become the norm for regasification facilities in recent years.

Third Party Access regimes

If infrastructure upstream of the applicable Port (ie, before delivery to that Port) is subject to a third party access regime, the issue for any Producer that is not an owner operator of that infrastructure will be the terms upon which access to the infrastructure may be obtained, including timely delivery to the Port. The terms of access can be regulated under an open access regime (under which a Producer can access the infrastructure on the same terms at the rest of the industry) or under a negotiated access regime where the terms have to be negotiated and if the person seeking access is not able to reach agreement with the owner operator of the infrastructure, the person seeking access may refer the terms of access for determination by an arbitrator. As third party access regimes become more mature, with many jurisdictions regulating open access, reference to arbitration become less frequent.

In a future InfraRead article Michael Harrison, Richard Guit, Dan Reinbott and Justin Jones will provide an overview of third party access regimes applicable to rail and to port infrastructure (including marine side, critically access to channels and the cost of that access).

Producers and provision of Port services and Port Terminal services

As noted above, coal and iron ore are likely to require stockpiling and reclamation at Port. Each Producer will have (in the case of iron ore) and is likely have (in the case of coal) dedicated facilities at Port for this purpose. It may be that a Producer will undertake these activities with its own personnel and equipment and facilities (most likely) or retain contractors to provide these services (possibly contractors procured by the Port). In the case of Producers at dedicated Ports or having dedicated facilities at Port, they have integrated systems for stockpiling and reclamation and loading. In the case of producers that have to share infrastructure with other Producers, typically, coal loading infrastructure (from stockpile and reclamation on to carrier) the Producer may contract with a third party to provide services to it and to other Producers (more likely with coal than with iron ore).

In relation to coal loading infrastructure, at some Ports Producers combine to develop infrastructure companies (typically, in which each Producer owns shares) to own and to operate infrastructure to coal loading services to each Producer so as to enable coal to be loaded on to carriers. This approach avoids unnecessary duplication of coal loading infrastructure, allows the Producers together to achieve economies of scale and as such lower unit cost, along with increased operational efficiency (while preserving operational integrity) of the Port. Project finance can be used to develop coal loading infrastructure because each Producer will contract over the longer term for the provision to it of coal loading services.

The basis upon which Producers combine is likely to require consideration and in some cases authorisation from an anti-trust law perspective because of the impact on competition of supply side competitors combining. In the context of the major Australian coal ports, the arrangements in respect of the coal loading infrastructure, and the basis upon which each Producer contracts for coal loading services has the authorisation of the competition authority.

In a future InfraRead Ports article Michael Harrison and Richard Guit will consider these arrangements in detail, with the integrated arrangements to ensure effective management of capacity of infrastructure from mine to port, the structures used and the financing arrangements. In relation to iron ore, most Producers have dedicated infrastructure connecting to dedicated loading facilities at Port.

The ability to project finance Port assets and infrastructure at Port (rather than the Transportation System to Port) will depend, in part, on the tenure of the Producer at the Port: if the Producer or its infrastructure company own the Port or have a long-term lease at Port, project financing will be more straightforward. Note also that if dedicated facilities are to be developed, the Port may require a works agreement between the Port and Producer/Seller to govern the basis of development.

In LNG projects, key LNG infrastructure facilities:

1. at the loading port are the connections from the upstream, the processing, liquefaction facilities and storage tanks, and the jetty and berthing facilities to allow loading of the LNG;
2. at the unloading port are the jetty and berthing facilities, the unloading facilities, the LNG storage tanks and regasification facilities (which may be land-based or floating), and the natural gas send-out (including any pipeline) to the ultimate user or to the main trunk-line gas transmission system.¹⁴

There are some circumstances in which coal or iron ore may not be loaded directly onto carriers, rather the product is transshipped (typically using barges) from the Port of loading to the carrier at a loading point within or outside the Port. This is done in circumstances in which the depth of the Port is not sufficient to allow carriers to enter and to leave the Port or a particular part of the Port.

There are some (although few) circumstances in which LNG is loaded at a Port of loading, unloaded at a transshipment point at an intermediate Port and then reloaded to be transported to its final destination. This has not been common historically, however as the liquidity of global LNG trade increases and new markets for LNG emerge, some regasification terminals are starting to offer storage and reload services, effectively "break bulk". LNG trucking services have also emerged as an alternative to transport LNG to end users "off-grid", as opposed to transportation of regasified LNG by pipeline.

The Producer/Seller may have use of a Dedicated Facility, and in the case of iron ore is likely to do so. The Dedicated Facility may have been developed by the Port (in which case the terms of use will be governed by a Port Services or Port Use Agreement) or more likely the Port will have leased land at Port to allow the Producer/Seller to develop the Dedicated Facility. The terms of any lease of land at Port for this purpose is likely to be on standard form with limited or no ability to negotiate with the Port: the expectation of the Port will be that the Producer/Seller will take all risks, and that the Port will not have any liability other than in limited circumstances. The lease will provide for exclusive possession of the land at Port leased to the Producer/Seller. Also, the lease will provide for the payment of rent. The amount of the rent will be a function of a number of things, including demand for the land at Port and that other port charges payable by the Producer/Seller, in particular the cargo/wharfage charges (harbour or Port dues).

In the ordinary course, "Port Charges" is a term used to describe all charges, fees and imposts for access to, and use of a Port and the provision of port and marine services provided by the Port and the Port Terminal, on land side and marine side. If a Producer/Seller has exclusive use of port infrastructure, it is likely that the Port will seek to impose a minimum through-put cargo/wharfage charging regime on the Producer/Seller so that Producer/Seller (in the case of the Port of loading) or on the Buyer (in the case of the Port of unloading) as that the user of the Port takes risk of demand for the commodity to be moved through the Port. In the ordinary course, Port Charges are paid in advance.¹⁵ 

Buyers and Sellers of Products

It will be clear from what is stated above that Producers (as Sellers) are selling coal, iron ore or LNG (directly or indirectly¹⁶) to Buyers of those products. Those Buyers may be the ultimate consumers of those products or they may trade those products. Those Sales Contracts may be under term contracts¹⁷  or spot contracts.¹⁸  Irrespective of whether a Sale Contract is term or spot, among other things, the Sale Contract will deal with the party responsible for arranging transportation of the product from the loading port to the unloading port, compatibility of the carrier used to transport the product with the applicable Port and the Port Terminal at that Port, the schedule of the carrier (critically, arrival and loading days or unloading days), and liability of each of Seller and Buyer under the Sale Contract, including the responsibilities of each party for incidents within the Port and at the Port Terminal.¹⁹

If the Seller is responsible for arranging transportation under a Sales Contract (to deliver the product to unloading port), the Seller will contract with a transportation company for the charter of a carrier (unless the Seller owns its own carrier/s) to transport the product. In addition, the Seller will have to contract with the Port and Port Terminal at the loading port for access and use of the Port and the Port Terminal, and with the Port at the unloading port to allow it access to the Port. (If the Seller owns and operates the Port of loading or the Port Terminal at the Port of loading, it will not have to contract with that Port or that Port Terminal.)

If the Buyer is responsible for arranging transportation (to take delivery of the product at the loading port to allow it to deliver the product to an unloading port), the Buyer will have to contract with a transportation company for the charter of a carrier (unless the Buyer owns its own carriers) to transport the product. In addition, the Buyer will have to contract with the Port of loading and at the Port of unloading for access and use of the Port and with the Port Terminal at the Port of unloading to allow use of the Port Terminal. (If the Buyer owns and operates the Port of unloading or the Port Terminal at the Port of unloading, it will not have to contract with that Port or that Port Terminal.)

All Sales Contracts will address specification and sampling by reference to that which may be rejected by the Buyer and by reference to which price will be determined. It is important for these provisions to be understood and reflected in the contractual arrangements with the transportation company providing the carrier, and the contractual arrangements with the Port Terminal owner operator at the Port of loading and the Port of unloading.

Sellers and Port and Port Terminals

As will be clear from the above, Sellers of products will contract with the Port and the Port Terminal (unless the Seller owns and operates the Port or the Port Terminal, or both of them). The contractual arrangements with the Port are likely to be standard form with no basis (or very little basis) for negotiation. Among other things,²⁰  these contractual arrangements will specify the Port charges and fees and wharfage charges²¹ to be paid by the Seller in respect of the export of the product, and, often, the responsibility of the Seller for acts and omissions of any agent or contractor of the Seller, which includes its carrier if Seller is arranging transportation from the Port of loading to the Port of unloading, and which includes Buyer (and, possibly, its carrier) if the Buyer is arranging transportation from the Port of loading.

Under these contractual arrangements, in any event, the Seller will be responsible for the payment of the land side charges and fees at the Port of loading.

If the delivery point (for the coal, iron or LNG) under the Sales Contract is:

1. at the Port of loading, the Buyer will be responsible for the marine side port charges and fees at both the Port of loading and Port of unloading, and for procuring terminal access and services at the Port Terminal and landside charges and fees at the Port of unloading; and
2. at the Port of unloading, the Seller will be responsible also for marine side port charges and fees at both the Port of loading port and the Port of unloading, but the Buyer will responsible at its cost to procure terminal access and services at the Port Terminal at the Port of unloading and for landside charges and fees at the Port of unloading.

Carriers and Ports

It is usual for carriers accessing and using any Port to have to comply with the conditions of use (COU) of that Port. COUs tend to deal with similar subject matter.²²  One of the matters that any COU should address is liability of the carrier (and entities with interests in the carrier) for incidents²³  within the Port and at the Port Terminal.

In a future InfraRead Ports article Michael Harrison, Richard Guit and Dan Reinbott will provide more detail on COUs from around the world, and the spread of structures that are used to address liability, including structures that are used to ensure that users of a Port have direct obligations to, and direct rights and remedies against, other Port users.

It is likely that to the extent permitted by law, each Port will seek to exclude and to limit liability for acts and omissions of that Port, including arising from acts and omissions of those for whom the Port is vicariously liable. It is likely that Ports will seek to back-to-back any prospective liability with its insurances.

It is important to understand the law of the jurisdiction in which a Port is located, in particular whether a cap on liability may arise as a matter of law in that jurisdiction.

In a future InfraRead Ports article Michael Harrison and Richard Guit will consider the liabilities that may arise within a Port and at Port Facilities, and how law of the applicable jurisdiction and the expectations of insurers interplay. This basis of liability will be of concern to those with interests in the carrier and the insurers of the carrier, in particular Protection & Indemnity Clubs in respect of the insured for liability to third parties.

Each carrier will have to contract with the provider of pilotage and towage services within the Port of loading and unloading. The cost incurred by the carrier for the provision of these services will be reflected in the underlying contract of carriage and Sale Contract as a pass through.

Buyer and Port and Port Terminals

If a Buyer is responsible for arranging transportation, the Buyer will have to contract for access to and use of the Port at which the product is to be loaded, and with the Port of unloading and the Port Terminal at the Port of unloading.

In the case of coal, the Port Terminal at the Port of unloading will comprise a berthing jetty and pocket, a shore-based unloading facility, critically coal unloading facilities.

In the case of iron ore, the Port Terminal at the Port of unloading will comprise a berthing jetty and pocket, a shore-based unloading facility, critically iron ore unloading facilities, and likely stockpiling and reclamation facilities. In addition, the unloaded iron ore will have to be transported to deliver to the point of use.

In the case of LNG, the Port Terminal at the unloading port will comprise a berthing jetty and pocket, a shore-based or floating regasification and storage facility (including send-out facilities). In addition, the regasified LNG will have to be transported from the send out facilities by gas pipeline (or truck) to deliver to the point of use.

If the Buyer does not own and operate the regasification and storage facility, it will have to contract for regasification, storage and send-out services under contractual arrangements with the owner and operator of that facility (and possibly other users of it). Under these contractual arrangements (often called terminal use agreements) the Buyer will contract for capacity in the facility, and services to be provided, by the owner operator. As with other facilities and infrastructure, Buyers sometimes combine to develop the facility using a company in which the Buyers hold shares, with the company owning and operating the facility, and providing services. Under the terminal use agreement it is likely that other services will be provided to the Buyer, including for imbalance and for treatment of regasified LNG, in the ordinary course, blending,²⁴  inerting²⁵  or spiking services.²⁶

If the regasification and storage facility is floating (eg, FSRU) it is likely that the Buyer will charter the FSRU under a long term charterparty with the owner operator of the FSRU. Under the charterparty the Buyer will contract for exclusive use (and quiet enjoyment of the FSRU), reserving the capacity in it, and paying for the availability of the capacity in the FSRU, and the provision of receipt, regasification, storage and send-out services.

In a future InfraRead Ports article Michael Harrison, Dan Reinbott, Peter Vaughan and Richard Shi will provide an overview of the contracts particular to the LNG industry at Ports.

Conclusion

As world trade in bulk commodities continues to grow, countries exporting bulk commodities are likely to achieve ever higher levels of utilisation from existing infrastructure at, and in the vicinity of Ports, and from transportation systems from mine or field to Ports and from existing production facilities at Ports. In some areas of the world this has already occurred. The benefits are clear.

In the case of coal and iron ore, rail infrastructure and dedicated facilities at Port will continue to be augmented and developed, with greater quantities of commodities projected to pass over existing (and augmented) transportation systems and through existing Ports (including innovative operations as port, land and marine side).²⁷  While the demand for thermal coal may decline over time, the demand for metallurgical coal and the demand for iron ore will continue to increase.

In the case of LNG, new projects (production and regasification) continue to be developed, sometimes sharing existing Ports and infrastructure. This continued development is driven by projected demand for LNG, with Producers seeking to monetise reserves in line with that projected demand. This is a key driver for both new and existing projects. In respect of existing projects, where upstream reserves are depleted, or depleting and coming off plateau production levels, existing liquefaction facilities (located at existing Ports) are seeking to toll feedgas to produce LNG, and fields are moving into production as a result (including some fields that might not be viable if they had to develop new liquefaction and port facilities).
In this context, it is contemplated that third party access both regulated and unregulated will continue to be used to allow efficient use of existing Ports and infrastructure to, and at, Port. Governments (and their regulators) increasingly are seeing the economic benefits of access to existing infrastructure, subject to preservation of the integrity of the operations of existing users and the owner operators charging for access such that the person to whom access is provided does not get subsidised, and as such pays appropriate charges.

Consistent with these dynamics, the next two InfraRead publications relating to Ports will consider third party access regimes and tolling projects.

1. In broad terms, the following are the main categories of cargo: (a) agricultural products and livestock; (b) other food products and fodder; (c) solid fuels, including coal; (d) petroleum products, including LNG; (e) metal and ore for use as feedstock, including scrap metal and iron ore; (f) finished metal products, including iron, steel and non-ferrous metals; (h) raw materials, including for construction; (i) chemical products, including fertilisers; and (j) equipment and machinery, including vehicles.

2. Roll-on-Roll Off terminals.

3. The other modes of transport are inland water, rail, road, air and pipeline.

4. Global sales of exported coal were estimated to be US$120 billion in 2018.

5. Global LNG trade increased by 24 MT (8.3%) in 2018 with 313.8 MT of LNG being imported globally. This is more than three times the level of Global LNG trade in 2000. On the production/supply side, global liquefaction capacity increased by 41 MTPA in 2018, with total liquefaction (nameplate) capacity now standing at 406 MTPA globally. Around 25 MTPA of new liquefaction capacity is expected to come on line in 2019 ("The LNG Industry", GIINGL Annual Report 2019).

6. Each Port Terminal has different requirements for facilities and infrastructure and equipment because the physical and chemical characteristics of each commodity are different: for example, iron ore density limits the height of stockpiling of iron ore, because of the load bearing capacity of the superstructure, blending activity may be required at Port, requiring space to stockpile and blend; the volatility of coal will tend to limit the height of stockpiling (to manage the risk of spontaneous combustion arising as coal absorbs oxygen) and dust management will be important within the Port and at the Port Terminal; and LNG is a cryogenic cargo (with a temperature of around minus 160 degrees Celsius) requiring specific technology and materials able to handle the LNG.

7. A private service model places market risk of port patronage and use (and actually or prospectively market power because of barriers to entry for competitors) with the private sector, but the host government will want to be assured that it is able to achieve the benefits of the multiplier effect within the broader economy. It is reasonable to assume that the private sector will be concerned to achieve improved efficiency across all activities, and that it is likely to contract to achieve this, including to develop port capacity.

8. It is fair to say that even in public service ports and service ports some activities will be undertaken by the private sector, not necessarily under term contracts, but as contractors of the host government. The public service ports and service ports models do not preclude the government from involving the private sector in the development of some infrastructure on a piecemeal basis, but may not allow the host government to achieve efficiency levels that in the case of transhipment ports will attract increased trades.

9. Liquidated damage provisions in contracts provide for the payment of a stated amount by one party to another party if a stated event occurs or does not occur, for example if there is a delay in loading or unloading LNG. Although, note that in the case of prolonged delay (e.g., 48 or 72 hours after the end of the scheduled loading/unloading window), the Buyer/Seller will typically have the right to treat the delay as a failure to deliver/take, which will result in liability, sometimes of a liquidated amount. In this case, damages may be based on demurrage to compensate for opportunity cost of charterer vessel and/or compensation may be payable by the Port to other users whose vessels might be delayed as a result.

10. We have chosen a suitably generic term to refer to transportation by rail to the rail siding at the Port at which the coal or iron ore is unloaded for stockpiling and to refer to the feed-gas system used to deliver feed-gas to the LNG facilities.

11. The third party access regimes applicable around the world will be considered in a subsequent InfraRead article.

12. While there may be different ownership of different elements of a LNG production project, there will be commonality of operatorship in the ordinary course. In relation to purpose-built new liquefaction facilities, the Port infrastructure will be funded by a greenfield development project.

13. Some Producers have developed above and below rail and port infrastructure assets in companies owned or controlled by them, typically to allow project financing of the infrastructure assets, and to allow possible sale of that company to a third party.

14. In addition to the traditional LNG regasification facilities described, other facilities and services may include LNG trucking (at loading or unloading port), break-bulk and LNG bunkering.

15. Depending on the Port, the Port charges may include customs, immigration and quarantine clearance charges (normally payable to a government agency or an agent of it), navigation aid charges (recognising the capital and operational cost of any navigation aid), security charges (recognising the need of the Port and Port Terminal to comply with duties and obligations in respect of the security at the Port and Port Terminal), berthing and jetty services (recognising the capital and operating costs of providing access to and use berthing and jetty facilities), stevedoring services (recognising the capital and operating cost of the provision of loading and unloading services by any stevedore), stockpiling (and storage and warehousing) and reclamation services (recognising the capital and operating costs of the stockpiling and reclamation services), cargo/wharfage charges, sometimes referred to as harbour or port dues, levied by a Port in respect of products moved through that Port on a per unit basis.

16. Coal, iron ore and LNG are often marketed and sold by related companies of Producers, often through centres of marketing excellence such as Singapore.

17. A term contract is a contract for a stated period of time. The length of the term will depend on a number of factors, but each of coal, iron ore and LNG industries have reasonably standard form contracts.

18. A spot contract is a contract for a stated cargo or for a stated number of cargoes of the applicable product. Again, the spot contracts are standard form contracts.

19. These are not the only important terms under Sales Contracts, but from the perspective of the issues that arise at Port they are key.

20. These are not the only important terms under contracts with Ports, but from the perspective of the issues that arise at Port they are key.

21. The amount of port fees and wharfage can be regulated.

22. The subject matter is capable of being characterised as: (1) operational matters - business as usual, including health and safety, and the environment;(2) operational matters business not as usual (including specific incident response and detention of carriers); and (3) liability (including obligations to insure).

23. Incidents will be defined on a port by port basis, but as a general statement, they will tend to include among other things: allision and collision, grounding, wreck removal, and contamination and pollution.

24. Blending involves mixing lower heating value natural gas with higher heating value natural gas.

25. Inerting involves the use of nitrogen to reduce the heating value or the Wobbe index of natural gas to allow the gas to be accepted into the mainline trunk gas transmission system within the country in which the LNG is unloaded.

26. Spiking involves increasing the heating value of natural gas by using propane or butane.

27. The largest export bulk ports in the world are coal and iron ore ports. For example, on Australia's East Coast, the major coal producing states of New South Wales and Queensland export approximately 200 million tonnes of coal, and 250 million tonnes of coal respectively from key Ports at Kembla and Newcastle (in NSW) and Abbott Point, Hay Point, Dalrymple Bay and Gladstone (in Queensland). On Australia's West Coast, Port Hedland in Western Australia, from which BHP Billiton Ltd, Fortescue Metals Group Ltd and Roy Hill Holdings Pty Ltd export iron ore, close to 500 million tonnes of iron ore a year is exported. Again in Western Australia, Rio Tinto Ltd exports iron ore from four dedicated Port Terminals at two Ports (Dampier and Cape Lambert) with a total capacity of approximately 350 million tonnes a year. In all, from Australia's bulk ports close to 900 million tonnes of iron ore a year is exported. Together iron ore and coal are Australia's first and second largest exports in quantity and value.