Global LNG market ready to heat up - Platts
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Liquefied natural gas (LNG), long relegated to a few boutique markets, is about to go mainstream.
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Click on the map above for a larger view of US LNG terminals.
Advances that have brought the cost of the supply source down—and, at least as importantly, growing global demand that has brought the price buyers are willing to pay up—have made LNG the hot new topic in energy markets. With oil, natural gas and even coal prices at relatively high levels, the search for alternatives is taking on increased urgency.
LNG has been a mainstay fuel in some markets, notably in Asia, for decades, and even enjoyed a brief flurry of popularity in the US market during the energy crisis of the late 1970s. But most consumption has been fed by natural gas moved through pipelines to markets, even over considerable distances such as Gazprom's shipments to Europe.
A couple of fundamental changes have led to the renewed interest in LNG, which is natural gas supercooled to minus 260 degrees Fahrenheit, and reduced to 1/600th of the volume occupied in its gaseous form. One is technological improvements that have sharply reduced costs for the process of liquefying gas, shipping it via specialized tanker to a market, and then regasifying it.
"Liquefaction costs have declined 35% to 50% in the past 10 years." — Gas Technology Institute
According to the Gas Technology Institute, liquefaction costs have declined 35% to 50% in the past 10 years. Likewise, the cost of building an LNG tanker has fallen by about 45% since the mid-1980s, and regasification costs, while site-specific, have dropped as well, the US Energy Information Administration (EIA) said in a recent report on LNG. eia.doe.gov As a result, LNG can be brought into major markets such as the US at a price around $3.50/MMBtu.
For most of the 1990s, that price wasn't competitive as markets were awash in $2/MMBtu gas. But at least in the US, prices by late 2002 were solidly in the $4-plus range and rising, leading potential LNG suppliers to take a new look at the economics.
LNG demand on the global market platts.com
In 2002, according to EIA, 12 nations shipped 5.4 trillion cubic feet (Tcf) of gas, or 113 million metric tons of LNG. EIA projects a near doubling of liquefaction capacity to 9.4 Tcf, or 197 million metric tons, by 2007. And the number of suppliers is growing; in addition to traditional LNG exporters such as Indonesia and Algeria, nations including Russia, Norway and Egypt are constructing liquefaction plants.
The result will be a larger and more diverse market. Japan received 66% of global LNG imports in 1990, but the figure had dropped to 48% in 2002, EIA says. The United Kingdom, India and China are currently building their first regasification facilities to import LNG, and last year the Dominican Republic and Portugal opened terminals.
From the supplier's point of view, one of the main advantages of LNG is to monetize "stranded" gas that can't be economically produced and shipped to market via pipeline. Some of the largest international oil companies -- among them BP, ExxonMobil, ChevronTexaco, Royal Dutch/Shell and ConocoPhillips -- are also on the list of leading LNG developers.
"In 2002, 12 nations shipped 5.4 trillion cubic feet (Tcf) of gas, or 113 million metric tons of LNG." — US Energy Information Administration
John Gass, president of ChevronTexaco Global Gas, earlier this year said a global LNG market is "all but inevitable." LNG represents "the next truly global energy business opportunity," agrees Michael Stoppard, director of global LNG at Cambridge Energy Research Associates. CERA projects that as much LNG capacity will have to be constructed in the next eight years as has been built in 40 years until now, adding 140 million tons of LNG production capacity by 2012.
Why the big push? Energy demand in Asia, particularly China, has soared recently, straining oil, gas and coal markets worldwide. In the US, nearly all power generation built in the last decade has been gas-fired, and development of new domestic gas supplies has met with dwindling success. Even at current US gas prices topping $6/MMBtu, drilling appears to be barely keeping up with the need for additional supply, and the US' long reliance on Canada as the source for incremental volumes has run up against that country's own flattening of production.
As a consequence, the US is hungrily eyeing the global LNG market. CERA estimates that LNG, which currently supplies about 2% of US gas consumption, could represent 25% to 30% of the market by 2020. Even as soon as 2010, LNG could meet 8% of US gas consumption, according to EIA projections.
And the scramble to be part of that massive development is on. Forty or more LNG projects have been proposed in North America to add to the four existing terminals in the US -- Everett, Mass.; Cove Point, Md.; Elba Island, Ga.; and Lake Charles, La. Experts consider it unlikely that more than a half-dozen or so of those proposals will come to fruition, as siting issues, pipeline grid logistics, supplier preferences and other factors contribute to the winnowing process.
Other hurdles also loom. LNG projects are massive and expensive, and traditionally have been financed on the strength of long-term purchase commitments. Today's energy markets generally rely on shorter contractual obligations, and whether capital will be available for a number of new projects remains to be seen. CERA estimates the needed investment at $200 billion.
Safety also is an issue in a world troubled by terrorism. While most experts agree that LNG is not explosive and can be safely handled, "not in my back yard" opposition could thwart project development in populated areas. Already, a number of US communities have rejected the idea of hosting a terminal, raising the prospect that offshore projects might have a better chance of success.
And a number of variables could disrupt the intricate supply chain: political instability in nations with surplus gas reserves, delays in construction of the specialized tankers needed to transport LNG, an unanticipated collapse in worldwide oil and gas prices.
But a lot of smart money is betting that LNG is the next big thing. In June 2003, Federal Reserve Chairman Alan Greenspan told Congress that "if North American natural gas markets are to function with the flexibility exhibited by oil, unlimited access to the vast world reserves of gas is required. ... Access to world natural gas supplies will require a major expansion of LNG terminal import capacity."
A year later, Greenspan's opinion is more widely shared than ever.
Larry Foster, global editorial director of power, is part of Platts LNG specialists and covers the industry for various Platts publications, notably the newly launched LNG Daily.
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