The Government of Cyprus has long voiced its aspirations to develop a liquefied natural gas (LNG) plant and, according to a recent report by The Economist, LNG is rising in prominence globally.
“Squeezing and cooling gas until it becomes a liquid, and then shipping it by tanker, is inherently costlier than sending it down a pipeline. But 50 years since the first shipment left Algeria, LNG is no longer exotic, complicated or marginal,” The Economists’ latest report on this developing international gas market reads.
Whilst the global LNG trade has been in a flat spot over the past two years, with little new supply, Exxon Mobil said it had shipped its first cargo from a $19 billion project in Papua New Guinea on May 25; the first in a wave of new LNG supplies that are about to come to market.
The report notes: “Projects under way mean that, by 2018, over a third more LNG capacity will come on-stream: the equivalent of China’s current consumption of LNG and piped gas combined. By 2025, capacity could double.”
Australia is listed as having seven projects under construction, which will together supply 80 billion cubic metres (bcm) a year, which is more than Germany’s entire current consumption of gas.
It is predicted that Australia should become the largest LNG exporter after Qatar by 2016.
Although piped gas is set to grow too, LNG’s share of the world’s gas supply is likely to rise from around 15-20% now to as much as 30% if all the projects being planned come to fruition, says Dirk van Slooten of the International Gas Union (IGU), an industry body.
Some existing exporters are raising production, the report states: “Russia, which supplies just under 5% of the world LNG market from Sakhalin in the far east, aims to have 20% by 2030. Following a Kremlin decision last year to liberalise LNG exports, Total, a French energy company, and its Russian partner Novatek agreed in December to invest $27 billion in the Yamal project in the Arctic.”
As recently as 2008, America was expecting to become a large gas importer. Now, thanks to the shale-gas boom, the LNG infrastructure built for import is being re-jigged for export. The first big terminal, at Sabine Pass in Louisiana, will start shipping gas by early 2016. Four more have also been given permission to start shipments. American LNG exports could be as much as 75bcm by 2018.
Capacity in LNG shipping is rising too, with 16 new giant tankers entering the global fleet in 2013, and another 31 due for delivery this year. The IGU forecasts a “deep softening” of the cost of shipping LNG.
Along with new supply comes new demand. The number of countries with LNG import facilities is expected to rise to 50 by 2020 from 29 now. Israel, Singapore and Malaysia opened new terminals in 2013.
Some of the new demand comes in countries which used to sell gas, not consume it. Egypt has stopped exporting LNG in order to keep domestic supply plentiful and cheap. Gas consumption is rising fast in Indonesia and Algeria, once seen as dependable exporters.
The Economist quotes EY as suggesting that global LNG demand by 2030 could be almost double that of 2012. The report explains the main reason as being its growing use for power generation, chiefly in Asia, as well as the new ways of using LNG multiplying, notably in transport.
For shipping, it is cleaner than heavy fuel oil, which is increasingly running into environmental restrictions. Already, 50 Norwegian vessels use LNG with hundreds more being built that use the fuel. Poland expects that 500 or more will be plying the Baltic in the next five years. “When people are confident of price, it can move very quickly,” says Egil Rensvik, a Norwegian official in Singapore who promotes the technology in the region.
Going global
Now, investors are scrambling to put money into LNG. Having only just spent $1.7 billion on its new terminal, Singapore, which has ambitions to become a regional gas-trading hub, is already planning a second. Shell is building the world’s largest ship, the Prelude, at an estimated cost of $12 billion, to serve as a floating terminal off the Australian coast (seawater is a handy coolant in the liquefaction process).
“The beginning of a genuinely global market in LNG is a transformation similar to what happened with oil. It was also once a tightly controlled commodity traded in mainly regional markets, until the advent of the supertanker in the 1960s,” the reports notes.
The huge capital and running costs involved in LNG are described as having hampered the market’s growth in the past, what with it being bought and sold mainly on long-term contracts, broadly tied to the oil price. Though spot trades have more than doubled their share of the LNG market since 2000, to 27%, there is still no single global price: Asian LNG is costly, reflecting China’s eagerness to cut coal use; Japan has been buying LNG in record amounts to keep the power on amid the post-Fukushima nuclear shutdown; European prices are lower (a result of the dash to coal and plentiful Russian and Norwegian pipeline gas), and American LNG is cheaper still, since it produces so much and as yet exports so little.
“Some of those factors may change,” the report warns. “LNG demand could fall if Japan restarts some nuclear plants, and China’s new deal to buy 38bcm a year of pipeline gas from Russia could blunt its appetite for costly LNG from the Middle East. But Europe may want more LNG if Russian supplies are cut.”
However demand develops, technology is described as being likely to cut costs and increase supply. LNG has yet to see the attention that engineers have bestowed on other parts of the energy industry.
Already GE, an American giant, has developed new electric-powered liquefaction machines, which are far more efficient than the existing, turbine-based ones, at a tenth of the cost. Cryostar, a French company, makes small-scale liquefaction plants to turn biogas into LNG. Such projects involve only modest quantities—but if small and inconveniently located amounts of gas (either fossil or fermented) could be liquefied cheaply, it would increase competition and increase liquidity in the global LNG market.
Outside America, LNG trading is described as still being opaque and inefficient. Only Angola sells its LNG directly into the spot market. Singapore is considering a futures market and Japan has tried to start one. But experience in Europe suggests that it takes years for such exchanges to make a difference. A fully liquid global market would need not just more volume. Governments would have to liberalise their markets a lot more, and suppliers would have to bin “final destination clauses” (which hamper re-exports).
LNG may always be an odd market because of the costs and distances involved, but with each new buyer and seller it is getting more efficient, notes Andrew Morris of Poyry, a consulting firm. International energy companies will have more room for swaps and other trades. Price discovery and transparency are improving.
The biggest gainers of all will be consumers in countries dependent on single suppliers, the report concludes: “Lithuania, which is struggling to free itself from overpriced Russian pipeline gas, has bought a floating regasification terminal, the Independence, at a cost of $330m. Jaroslav Neverovic, the energy minister, says it is treated as part of his country’s pipeline grid: even if it is not used, it pays its way with bargaining power. It starts operating only in December; and Russia has already offered a 20% price cut.”
Published by: www.goldnews.com.cy
