logo


Apr-2013

Qatar’s LNG industry

LNG provides an economic means to transport natural gas over long distances. Resources and technology have enabled Qatar to become a leading exporter

MEGHNA BAHL and SANDEEP KUMAR
Fluor

Viewed : 4872


Article Summary

Natural gas is the most important energy source for the future. It supplies around one-fifth of the world’s energy needs, compared with one-third from oil and one-quarter from coal, and will continue to play an important role in meeting demand for energy because of its abundance coupled with its environmental soundness and multiple applications across all sectors.

Liquefied natural gas (LNG) is expected to play an increasingly important role in the natural gas industry and global energy markets in the next several years. The combination of higher natural gas prices, lower LNG costs, rising gas import demand and the desire of gas producers to monetise their gas reserves is setting the stage for increased global LNG trade.

LNG is natural gas that is stored and transported in liquid form at atmospheric pressure at a temperature of -260ºF (-160°C). In international trade, LNG is transported in specially built tanks in double-hulled ships to a receiving terminal, where it is stored in heavily insulated tanks. The LNG is then sent to a regasifier, which turns the liquid back into a gas that enters the pipeline system for distribution to customers as part of their natural gas supply.

The low density of natural gas makes it more costly to contain and transport than either oil or coal. Due to its special processing and handling requirements, the costs of moving natural gas are significantly higher than the costs of moving oil. And the relative costs of moving gas or oil by pipeline or by tanker differ substantially too. This influences regional inter-fuel competition and thus natural gas markets. Although pipeline costs increase linearly with distance, LNG — requiring liquefaction and regasification regardless of the distance travelled — has a high threshold cost but a much lower increase in costs with distance. Thus, shorter distances tend to favour pipelining, whereas longer distances favour LNG.

The market
Growth of trade in LNG is driven by increasing demand and declining domestic natural gas resources in gas-consuming countries, and by the desire of gas-producing countries to commercialise their resources.

Due to the low weight of international trade in total production, there is not a globalised natural gas market, but rather regional markets, which vary in terms of their organisation, maturity and market structures. There have been three distinct and relatively independent markets for LNG, each with its own pricing structure. Price risk is inherent in each pricing structure, although the degree of risk differs among the markets. LNG prices are benchmarked to competing fuels.

The countries of North America constitute a very integrated and mature market for natural gas. The North American natural gas market is almost self-sufficient. In the US, the competing fuel is pipeline natural gas, and the benchmark price is either a specified market in long-term contracts or the Henry Hub15 price for short-term sales. Importers and exporters involved in US LNG transactions are exposed to a significant level of risk given the high degree of price volatility in US natural gas markets.

In Europe, LNG prices are related to the prices of competing fuels such as low-sulphur residual fuel oil. However, LNG is now starting to be linked to natural gas spot and futures market prices.

In Asia, prices are linked to imported crude oil. The pricing formula typically includes a base price indexed to crude oil prices, a constant and perhaps a mechanism for the review/adjustment of the formula. Asian prices are generally higher than prices elsewhere in the world.

Market and price convergence will be possible not only if LNG trade grows sufficiently, but also if the short-term/spot market sees marked growth too. While it may seem logical that more LNG should begin to be traded under short-term conditions in the interest of economic efficiency, the noted financial capital risk of investors may compel them to maintain longer terms in an effort to reduce their risk exposure.

In 2011, global LNG trade grew by 20.7 million t/y, a growth of 9.4% compared with 2010. The main contribution to the increase of LNG flows came from Qatar, as the country was responsible for 67% of additional LNG produced in 2011. LNG consumption in Asia continued to grow strongly (+14.8%), reaching a total of 153 tonnes, which is about 63.6% of the world’s LNG trade.

Until 2014, the LNG market will grow by 2% due to the limited number of liquefaction projects going into operation during this period.

The impact of the nuclear crisis in Japan has boosted its LNG imports to 8.5 million t/y during 2011. Also, Japan has imported large volumes of spot LNG at very high prices to ensure reliability of supply. During 2012, Japan was expected to  increase its LNG spot requirements even more due to the nuclear shutdown.

China is emerging as a main growth centre in terms of investment in regasification plants. Hence, it will be importing large volumes of LNG in the future. In the next two years, China will provide five new plants with a total capacity of 14 million t/y.

LNG supply is expected to expand after 2016 due to a variety of factors:
•  Ongoing projects in Australia, which are set to add about 33 million t/y of LNG to the current supply from 2016
•  Increasingly, LNG cargoes initially meant for the US have been diverted to Asia and Europe in line with discoveries of shale gas in the US, which have turned it into a major exporter, instead of a net importer, of gas
•  In parallel, other regions in the world, including China, Australia and Europe, could tap their unconventional gas reserves
•  Development of floating LNG (FLNG) production, where offshore gas fields could be accessed at a lower cost and with a smaller environmental footprint. Some industry players such as Shell have already invested in this development. The success of FLNG could bring even more LNG supply projects online, and open up more supplies and choices for LNG buyers.


Sponsor:

Categories:

Add your rating:

Current Rating: 3


Your rate: