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FLNG market forecast - Part Two

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Spending shift from Middle East to Australasia

The success of the Prelude FLNG vessel is not just critical for future projects; it is also pivotal to Australia’s future domination of LNG exports as its geographical location has export advantages given its close proximity to the markets of Southeast Asia.

According to the IEA, more than two-thirds of current global investment in LNG is in Australia, where there are already three LNG export projects operating and a further seven under construction. Currently, the largest producer of LNG is Qatar, which experienced a massive 63 billion m3 expansion in capacity since early 2009 to reach 105 billion m3 in 2013. As of late 2013, Qatar represents approximately 25% of global LNG liquefaction capacity. Other significant exporters include Indonesia, Malaysia and Algeria. Russia, Yemen, Peru and Angola have joined the LNG export business in recent years. With the inclusion of LNG exporting activities by Papua New Guinea in 2014, Australasia is poised to become the second largest LNG exporter behind Qatar by 2016.

Australia’s trajectory towards becoming a leading LNG exporter is not without its challenges. The strong Australian dollar, high taxes, labour shortages and regulatory red-tape will work against the proposed LNG projects not yet in production. Its LNG exporter position is also threatened by competition from proposed projects to liquefy North American shale gas.

North America’s export potential

As a result of surging shale gas production, the US is expected to overtake Russia as the world’s largest gas producer by 2015, reach self-sufficiency by 2020 and transit from a natural gas importer to a net LNG exporter. US gas self-sufficiency has prompted Canada’s search for alternative gas markets and has explored gas exports to Asia. These developments could mean a shift in reliance on traditional oil producing countries in the Middle East and would threaten Australia’s LNG export potential.

With North America’s potential as a net LNG exporter, there has been scepticism regarding assumed lower prices. Firstly, the present price of US shale gas is due to over-production. In addition, liquefaction and shipping costs could substantially close up the arbitrage and create a convergence in prices from differing regions. Over time, could exporting from North America be uncompetitive compared to Australia through a weakening Australian dollar and increase in labour supply prompted by the slowdown in the local mining boom?

Mediterranean progress

The eastern Mediterranean is the location of exploration activity off Cyprus, Turkey and Israel and a number of major gas discoveries. It has also been inching towards FLNG with Pangea LNG leading the development of the Tamar FLNG project, located off Israel’s coast. A second development is also planned for the neighbouring Leviathan field, which is the world’s largest offshore gas discovery in the last decade. However, while the region’s development has a compelling future, it is beset by local political instability and indeed civil war in Syria.

FLNG Capex

According to the Douglas-Westwood’s ‘World FLNG Market Forecast’, the market for the construction of FLNG vessels is expected to increase from US$ 3.7 billion in the period 2007-2013 to US$ 64.4 billion during 2014-2020. All eyes are on the developments in Australasia and Asia with Shell’s Prelude FLNG and Petronas’ PFLNG 1 as the pioneer FLNG developments. Asia, which is a focus area for both floating liquefaction and regasification vessels, is expected to account for 29% of expenditure, contributing US$ 18.2 billion. Australasia accounts for the largest proportion of global Capex at 30%, driven by liquefaction projects with spend of US$ 19 billion in the period 2014 - 2020.

Given a competitive market, it is reasonable to assume that LNG will be bought from a supplier closest to the point of consumption. Indeed, factors such as geographical proximity, slowing oil production rates, technological advancement, abundant supply and unprecedented demand growth in Asia point towards a locus of FLNG development in Australian waters.

It could, however, be argued that attention should be shifted to developments in unconventional gas. However, it will be difficult for others to replicate shale gas success in the US within a decade given supply chain constraints and uncertainty over long-term production levels. While not without political issues and other impediments, the FLNG solution will, over the long-term, extend beyond the pioneer projects and beyond Australian waters.

Written by Amanda Tay, Douglas Westwood. Edited by

Part one of this article is available here: 'FLNG market forecast - Part One'

Article contents sourced from Douglas-Westwood’s reports:

The World FLNG Market Forecast 2014-2020 includes comprehensive examination, analysis and a 14 year view of FLNG expenditure, with historic data covering the period 2007-2013 and forecast data for 2014-2020.

The World LNG Market Forecast 2013-2017 details LNG trends by region and facility type, supported by analysis and insight for strategy teams within shipping companies, contractors, shipbuilders, oil & gas operators, gas utilities and financial institutions. Essential reading for companies associated with the LNG industry and potential entrants.

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