The last few years have been difficult for the LNG industry. The global recession dampened gas demand in the core consumer countries while a number of important liquefaction projects came onstream resulting in a supply surplus. But now a recovery in LNG demand, led by Asian consumers, is underway. China, in particular, has seen its LNG demand grow from 1 billion m3 in 2006 to 13 billion m3 in 2010 and is expected to reach 22 billion m3 by 2015. LNG imports to Western European and Latin American countries also increased during 2010.
On the supply side, 2010 saw the start up of new Qatari liquefaction trains and the commencement of major construction work on new exporting facilities in Australia and Papua New Guinea.
Douglas-Westwood’s new LNG Market report examines new prospects for liquefaction and regasification (import) terminals and LNG carriers and presents market forecasts for activity in the sector over the 2011 - 2015 period.
A shift in geographic focus
During the 2006 - 2010 period, much of the construction activity was focused on the Middle East. The next five years will see a shift in focus east to Asia and Australasia.
Asia is set to be the main focus of LNG import terminal construction activity over the next five years. This is likely to include capacity additions in established importers such as Japan and South Korea as well as new terminals in gas hungry countries such as Bangladesh, Indonesia and Thailand.
The devastation caused by the subsea earthquake and tsunami this year has severely disrupted demand and energy supplies to Japan and caused spot rates for LNG carriers to increase. An additional 7 - 12 billion m3 of gas per year may be required.
While much of the future LNG growth will be driven by demand from Asian countries, smaller emerging markets should not be overlooked.
The current unrest may cause delays to various LNG projects in the Middle East region, however it may also encourage governments to develop more secure gas supply options.
Australia is currently the only country in the region with operational LNG facilities, which are located in Darwin and Karratha (North West Shelf). There are a large number of prospective new LNG liquefaction plants scheduled to be built in this country, with most falling into the 2015 - 2017 period.
Papua New Guinea is expected to see its first liquefaction plant come onstream over the 2011 - 2015 period.
A number of interesting trends can be seen from these Australasian projects:
- Growing use of unconventional gas sources as feed gas; coalbed methane (or coal seam gas) is natural gas derived from coal beds.
- Increasing modularisation of construction: remote sites, coupled with an expensive local labour market have led to massive cost increases in recent years.
- FLNG liquefaction for stranded gas fields: Australasia is currently the only region in the world with an approved FLNG liquefaction project.
- FLNG liquefaction for onshore fields: Papua New Guinea is extremely mountainous and suffers from security issues, which make the construction of numerous onshore terminals difficult and expensive.
Floating regasification terminals are the most advanced of the FLNG developments and there are currently 10 such facilities in operation worldwide.
Floating regasification terminals are proving popular with LNG developers for the following reasons:
- Shorter lead times. The construction times for floating regasification terminals are considerably shorter than for onshore terminals.
- Temporary fixtures. Floating regasification vessels can be used as temporary terminals, either as an initial phase before the start-up of an onshore terminal or for periods of peak demand.
- Cost. For small to medium sized volumes, floating terminals are often cheaper than the equivalent onshore development.
Reduced gas demand combined with the massive fleet expansion in 2007 - 2009 led to an oversupply of carriers between 2008 and 2010, which led to a slowdown in carrier orders during that period. Since the lead time for these vessels is around three years, expenditure attributed to 2011 and 2012 deliveries is therefore expected to be lower than in previous years.
From 2013, newbuild deliveries are expected to begin to increase again. Recent orders from companies such as Golar and Sovcomflot show that shipowners are expecting LNG carrier demand to increase from 2014/2015 onwards as additional liquefaction capacity comes onstream.
Recent years have seen a move away from the use of ‘black’ hydrocarbons towards the use of gas for power generation. According to the IEA, annual growth in natural gas usage will average 1.7% from 2009 to 2030.
The use of LNG technology will play a key role in meeting this growing gas demand.
A lower level of expenditure on new LNG facilities is expected over the short-term relative to pre-2009 levels. However, overall global Capex on LNG facilities for the 2011 - 2015 period is expected to total over US$ 93 billion.
Over the next five years, Asia is expected to remain the largest region for LNG construction activity, accounting for 40% of total global Capex. However, the region’s dominance over LNG expenditure will likely be rivalled by Australasia.
The completion of major import projects is likely to see North America’s share of total global Capex drop to 5%.
Author: Lucy Miller, Douglas Westwood Ltd, UK
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