Global LNG market grows, new markets emerge

Gas flaring in the Niger Delta

The global liquefied natural gas (LNG) market continues to expand and transform as the volume of LNG traded globally keeps rising and new and existing players enter the market or expand LNG activity.

In 2010, the volume of LNG traded globally hit 223.8 million tones/annum (MMtpa), the International Gas Union’s (IGU) World LNG Report 2010 noted, a 41 MMtpa increase from 2009 and the largest year-on-year growth experienced by the industry, thanks to newly-commissioned liquefaction trains and the ramp-up in output from trains commissioned in 2009. When compared to the 143 MMtpa of LNG traded in 2005, the market has grown by over 50 percent over the past five years.

The year 2010 started with an LNG market facing record supply growth, driven mostly by Qatar, and a weak demand environment due to the aftermath of the economic crisis and the U.S. shale gas boom, according to the IGU report. However, demand recovered impressively, as did LNG imports, with most countries importing more LNG in 2010 than in the pre-crisis year of 2008.

The structure of LNG trading is evolving from a market focused on long-term arrangements between buyers and sellers to a market with more spot LNG trading, according to the report. Spot LNG trading has grown steadily since the 1990s and has experienced more rapid growth during the last five years. Up until 2005, spot trading accounted for only 10 percent of total LNG traded; since that time, spot trading has grown to more than a fifth of the market, or 47 mmtpa last year.

In 2005, 11 countries were active spot LNG exporters and 12 countries were spot cargo importers. By end 2010, these numbers have since increased to 16 and 22 respectively. “The appetite to buy LNG on a spot basis has increased significantly as the list of spot buyers has nearly doubled, whereas the list of spot sellers has increased, albeit at a slower pace,” the report said.

The LNG trade also has spread in terms of geography, In 2005, 13 countries exported LNG, including Algeria, Australia, Brunei, Egypt, Indonesia, Libya, Malaysia, Nigeria, Oman, Qatar, Trinidad & Tobago, the United Arab Emirates (UAE) and the U.S. From 2006 through 2010, Equatorial Guinea, Norway, Peru, Russia and Yemen also began exporting LNG.

During that time period, Argentina, Brazil, Canada, Chile, China, Kuwait, Mexico, and the UAE begin importing LNG, joining 15 existing importers that included Belgium, Dominican Republic, France, Greece, India, Italy, Japan, Portugal, Puerto Rico, South Korea, Spain, Taiwan, Turkey, the UK and the U.S.

The growth in the global LNG industry is being fueled by Southeast Asia’s growing economies and the Japanese earthquake and tsunami, which knocked offline nuclear power facilities in the country. The role of nuclear power is now being questioned by other countries; earlier this year, Germany announced it would shut down all of its 17 nuclear power plants by 2020. A decline in nuclear power generation would likely create long-term demand for gas.

Challenges remain in getting stranded supplies to markets, including accessing resources held by nations that limit participants in the oil and gas sector. Rising LNG development costs also present a challenge, meaning that the low hanging fruit has been picked and the ladder to the next level is becoming more expensive, said Peter Cleary, VP of corporate strategy and development for Santos Ltd., at the Asian Oil and Gas Conference on June 7.

Latin America is a key growth area for LNG as gas consumption increases in cities across the region, with countries such as Brazil, Chile, Jamaica, Mexico and Uruguay planning new terminals. “The region is a key area for floating regasification vessels as they can be used to elevate season demand shortages,” said Douglas-Westwood analyst Lucy Miller. LNG also is being exported from South America. In 2010, Peru commissioned its first liquefaction plant, making it the 18th country to have liquefaction capacity to export LNG and the second LNG exporter in South America, IGU noted.

Growing gas demand in the Middle East, which is expected to account for about 20 MMtpa of LNG demand by 2020, will create a new market for LNG imports. Emerging LNG markets such as Dubai and Kuwait, which recently started importing LNG, and summer demand to power air conditioning are boosting LNG imports into the Middle East. Importing LNG for consumption is allowing Kuwait to allocate more liquefied petroleum gas for export. Dubai’s domestic gas consumption also creating demand for LNG in that country; so far, Dubai has imported 26 Bcf, or less than 1 Bcf/d total since November 2010.

Bahrain, Israel and Lebanon also are considering construction of LNG import facilities. Qatar remains the world’s largest LNG exporter at present, though a moratorium on further development of Qatar’s North Field means that no new LNG capacity is likely to come online before the end of the decade.

Indonesia is developing a series of LNG import terminals along its coast to satisfy domestic demand, said Miller. However, the country, which is a major exporter of LNG, has new LNG export terminals projects in development which target other Asia countries, such as the Donggi-Senoro and Abadi FLNG projects. Indonesia also has coalbed methane reserves which it believes can eventually be used for gas export, though this is many years ago, Miller said. Eastern Europe is another emerging LNG market, with construction underway on an import terminal in Poland, with others planned along the Baltic Coast and a few terminals planned for the Black Sea coast.

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