Despite all the travails in the global financial markets over the last three years, LNG today is an increasingly important part of the global energy mix, a clean and cost-effective energy source that can compete on both price and supply.
The figures bear this out with energy industry analysts, Douglas Westwood, predicting that LNG will reach a 10 year global investment high of US$ 26 billion by 2015 with a total spend of US$ 93 billion over the next four years. Furthermore, this figure is only likely to rise with increased demand for global gas, recovering LNG demand in Asia, and doubts over the future of nuclear energy following the Fukushima nuclear disaster in Japan.
Yet, while the Asia Pacific region has traditionally tended to dominate LNG trade, primarily due to its proximity to the consumers of Japan, Korea and China, a fast growing region of the world that is gaining considerable market attention is the Middle East.
Qatar: the world’s largest LNG producer
Qatar today is a key driving force in the LNG market and became the world’s largest LNG producer with the completion of Train 7 of the Qatargas 4 (QG4) project in Ras Laffan Industrial City. Today, all 14 LNG trains in the country are now in full production.
With its modest local demand for natural gas and a population of under 1 million, the focus in Qatar is LNG exports. The BP annual Statistical Review of World Energy 2011, for example, found a 10.1% increase in global natural gas trade in 2010 and a 22.6% increase in LNG shipments, with much of this driven by a 53.2% increase in Qatari shipments to countries that are continuing to increase their imports, such as South Korea, the UK and Japan.
The company aims to double its annual LNG supplies to Asia from 11 million t currently to more than 20 million t. The country’s huge natural gas reserves and low production costs give Qatar the tools they need to not only meet these ambitious targets but even surpass them. The North Field, the world’s biggest gas field, is estimated to hold 907.3 trillion ft3 of gas reserves, which will last them for the next 100 years.
So how does this growth translate into current supply chain opportunities and a bolstering of LNG infrastructure?
With 14 trains now operating as previously mentioned, infrastructure projects are likely to revolve around maintenance and repair contracts. WorleyParsons, for example, won a US$ 100 million contract for the RasGas LNG plant in 2009, and with such a relentless focus on exports, there are likely to be many other supply chain opportunities.
Alongside Qatar, Egypt, Oman, Algeria, Yemen, the UAE and (prior to its revolution) Libya, are today the only exporters of LNG within the Middle East and North Africa with the rest of the region building up its LNG receiving capabilities.
On the exporting side, Oman, for example, produces LNG from three trains, which have the capacity to produce 10 million tpy.
The United Arab Emirates (UAE) is another country that has invested in the LNG export route with up to 90% of its LNG going to Japan. Today, Abu Dhabi Gas Liquefaction Co. operates the country’s only export facility on Das Island with a capacity of 278 billion ft3 with new projects that are currently at the FEED stage, including a proposed new LNG loading jetty for the facility. Other projects on Das Island include a proposal to replace LNG trains 1 and 2 with a 3.2 million tpy unit.
Any plans for further exporting facilities in the UAE, however, are likely to be tempered by the fact that the majority of gas in the country is used for domestic consumption, particularly with increased demand from Dubai.
Significant LNG exporting projects are also taking place in Algeria. The US$ 4.5 billion Gassi Touil LNG plant, for example, is likely to go onstream in 2012 and is seeing the construction of surface installations to process 777 million ft3/d of raw gas, and the construction of infrastructure to transport 630 million ft3/d of processed gas. The rebuilding of the Skikda LNG Plant, following the 2004 explosion, is also nearing completion with the extra capacity likely to lead to an increase in exports to the US and Northern Europe.
The focus on imports
While Qatar remains by far the region’s dominant player in LNG exporting, the continued growth in energy demand in the region is seeing a number of countries improve their import facilities, both as a means of satisfying domestic demand and revising their current energy mix.
In Bahrain for example, eight international companies are currently competing to build a facility for importing up to 800 million ft3/d of LNG into Bahrain.
In addition, there are other Middle Eastern countries that are making their first tentative forays into LNG.
For example, plans are underway for the construction of an LNG import terminal in Lebanon as part of a major overhaul of the country’s energy sector where, according to the Energy Ministry, one quarter of the country’s electricity is lost to theft.
Furthermore, Lebanon’s neighbour, Israel, might also have the opportunity to take the export route.
The case of Iran
One country that is likely to have a significant impact on the LNG market over the coming years, although questions and uncertainties clearly remain in regard to both financing and the threat of sanctions, is Iran.
For example, an LNG liquefaction project has been earmarked for the South Pars offshore field with ambitions to build two trains with a capacity of 5 million tpy and three LNG tanks.
US$ 450 million has been allocated to the plant with the project having made considerable progress, despite sanctions and financing problems.
An export LNG terminal is also being built between the southern Iranian port towns of Assaluyeh and Kangan with hopes that they might be able to start exporting LNG by the end of 2012.
While domestic banks have helped with financing, the long term outlook and current sanctions ensure that Iran’s LNG sector remains very much a work in progress. However, with 16% of global gas reserves and the giant South Pars development, Iran will definitely be a country worth tracking over the coming years.
The future: opportunities and threats
So what is the future for LNG in the Middle East? Clearly, as Qatar has shown, there is huge export potential for LNG if the right infrastructure is put in place and the gas reserves are there, particularly with exporting to Asia Pacific.
There are likely to be challenges to LNG’s pre-eminence over the coming years, however, particularly through the advent of shale gas, not just in North America but in Europe as well.
Renewed fears of a global economic downturn, especially at a time when new LNG capacity is coming onstream, also brings cause for concern with a potential tightening of the market and a reduction in LNG spot prices.
However, aligned with this, are the huge opportunities and continued growth in energy demand in Asia, which it is hoped will offset reduced sales in North America.
Industry consultants, Wood Mackenzie, said that it expects that approximately 150 million t of new LNG capacity will need to be sanctioned over the next 10 years to meet growing demand for gas.
What is clear is that LNG is central to the energy debate in the world today with the Middle East and, in particular, Qatar, likely to be a key region for many years to come.
Author: Terry Willis, The EIC
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