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7. Liquefied Natural Gas (LNG)

Figure 7-1: LNG supply chain

Source; Total

Liquid natural gas (LNG) is a good alternative to natural gas in remote locations or when the

distance between the producer and consumer is too far to justify the construction of natural

gas pipelines. However, for short distance the use of pipelines is cheaper. Typically LNG

contains 85% to 95% methane and other hydrocarbons such as ethane, propane and butane

and traces of nitrogen. It has a higher energy density than natural gas. For LNG, 1 m3 of

LNG produced 11 kilowatt-hours (kWh) of electricity.

Imports of LNG have been increasing indicating a shift in the natural gas markets from

regional markets to a global market. At the end of 2010 LNG accounted for 31% of trade in

natural gas. A huge growth for the sector as the industry only started trialling LNG deliveries

in the middle of the 1900s. The advantage of LNG over piped capacity is its flexibility. For

example, LNG cargo can be diverted en route to meet changing demand.

Figure 7-2: The transition of LNG technology

Source; Schlumberger Business Consulting; Vaclav Smil, 2010

Prices for LNG and LNG charter rates are high. The sector needs processing facilities,

import and export terminals and tankers along with infrastructure associated with the natural


gas sector, which are expensive. The production of LNG is affected by steel prices, high

engineering costs and human resource availability.

An issue for the sector is the volatility of shipping prices and supply. LNG is transported in

specially-built carriers with a capacity of 145,000 to over 200,000 m3. If a tanker is ordered

on the basis of speculative demand projections or pricing, it may not be delivered until three

to four years later. Furthermore, LNG projects are costly and it is expensive to build up an

LNG supply chain e.g. Australia’s Gorgon project cost over USD 50 billion.

Floating LNG (FLNG) projects have been receiving a lot of interest recently and over eight

are in the planning stages in the Asia Pacific region. Such projects can potentially be used to

exploit isolated offshore natural gas resources and could potentially off more flexibility, lower

lead times and lower costs than onshore projects. The first project, the Prelude, is expected

to be commissioned in the Browse basin off Australia in 2017. Once completed, it will

produce 3.6 million tonnes of LNG per year from the 85 bcm natural gas resource. Shell

approved the project in 2011 and awarded a contract to Samsung to construct the USD 3

billion facility. There are also plans for an FLNG project known as the Abadi off the coast of

Indonesia. Inpex is planning to start up the project in 2018. This facility will be able to

produce 2.5 million tonnes per year of LNG and 8,400 barrels per day of condensate. Shell

is expected to be involved in the project after Inpex announced that it had transferred a 30%

stake in a block in the Arafura Sea to the company. Phase 1 of the project has been

approved by the Indonesian government.

In May 2009 Petronas signed an agreement with the UK’s MISC Bhd and Mustang

Engineering to form a joint venture company to provide FLNG engineering solutions and

services worldwide. Under the agreement Petronas will hold a 60% stake through its’

subsidiary, PICL, and MISC and Mustang Engineering with 30% and 10% stakes

respectively. There are plans for an FLNG project, to be commissioned in 2013.

Japan and South Korea are the main importers of LNG accounting for 46% of all LNG

imports in 2010.

Figure 7-3: Market share LNG importing countries, bcm, 2010

93.5

44.4

27.5

18.7

14.9

98.6

Japan South Korea Spain United Kingdom Taiwan Other


Source; BP Statistical Review of World Energy 2011

Qatar is the main importer of LNG accounting for 25% of all LNG exports in 2010.

Figure 7-4: Market share LNG exporting countries, bcm, 2010


In the Asia Pacific region the main importers are the major economies of India, Japan, South

Korea and Taiwan, which mainly import LNG from countries within the region and Middle

East. China did not import significant amounts of LNG because of its proximity to major

natural gas producers in the CIS and reliance on coal.

Figure 7-5: Imports of LNG in the Asia Pacific, bcm, 2010

Americas (Peru, Trinidad & Tobago & US)

75.7

31.4

30.5

25.4

23.9

110.7

Qatar Indonesia Malaysia Australia Nigeria Other

India Japan South Korea Taiwan

Middle East 10.90 20.97 18.79 4.67

North Africa 0.09 0.65 0.98 0.17

Europe & CIS - 8.31 4.14 0.74

Asia Pacific - 60.99 16.19 7.36

Americas 0.66 1.00 1.31 0.51

-

10

20

30

40

50

60

70

80

90

100


Asia Pacific (Australia, Brunei, Indonesia & Malaysia)

Europe & CIS (Belgium, Norway & Russia)

Middle East (Oman, Qatar, UAE & Yemen)

North Africa (Algeria & Egypt)


In Europe the main importers are France, Spain and the United Kingdom which mainly

import LNG from the Middle East and North Africa.

Figure 7-6: Imports of LNG in the Europe, bcm, 2010


Europe (Belgium & Norway)

Middle East (Oman, Qatar & Yemen)

North Africa (Algeria, Egypt & Libya)

Sub Saharan Africa (Equatorial Guinea & Nigeria)


In the Americas (North and South & Central America) the main importers are Mexico and the

US, but imports for both countries are expected to decline as the US shale gas market

Belgium France Greece Italy Portugal Spain TurkeyUnited

Kingdom

Sub Saharan Africa 0.16 3.57 0.03 0.09 2.70 7.82 1.26 0.40

Middle East 5.80 2.51 - 6.18 0.08 5.89 1.92 14.15

North Africa 0.17 7.00 1.06 2.33 - 8.04 4.14 1.37

Europe 0.09 0.51 0.16 0.05 1.72 0.34 0.94

Americas 0.21 0.35 0.08 0.32 0.18 4.07 0.26 1.81

-

5

10

15

20

25

30


develops further and LNG terminals in the Gulf of Mexico are converted from import to

export terminals.

Figure 7-7: Imports of LNG in the Americas, bcm, 2010


Asia Pacific (Indonesia)

Europe (Belgium & Norway)

Middle East (Qatar, UAE & Yemen)

North Africa (Algeria & Egypt)

Sub Saharan Africa (Equatorial Guinea & Nigeria)


In the Middle East there are only two major importers of LNG, Kuwait and the UAE.

Argentina Brazil Canada ChileDominican Republic

MexicoPuerto Rico

United States

Sub Saharan Africa - 0.97 - 1.50 - 2.23 - 1.18

North Africa - - - 0.72 - 0.16 - 2.07

Middle East 0.15 0.63 0.25 0.33 - 1.20 - 2.39

Europe - 0.08 0.08 - - - - 0.76

Asia Pacific - - - - - 1.87 - -

Americas 1.63 1.10 1.67 0.52 0.82 0.26 0.77 5.83

-

2

4

6

8

10

12

14


Figure 7-8: Imports of LNG in the Middle East, bcm, 2010

Americas (Peru & US)

Asia Pacific (Indonesia & Malaysia)

Europe (Norway)

Middle East (Oman, Qatar, UAE & Yemen)

North Africa (Algeria, Egypt & Libya)

Sub Saharan Africa (Nigeria)


LNG trade is expected to grow by 12% and 18% in 2011, with two thirds of growth due to

Qatar supplies with Yemen and Peru as major exports. Imports from Indonesia are expected

to have declined by 15%. Growth markets include traditional markets including Japan, South

Korea, UK, Belgium and France along with emerging markets of China and India.

Several LNG import/export terminals were commissioned or expected to be commissioned in

2011. The Chinese projects are expected to collectively add 8.5 million tonnes of new

capacity.

Table 7-1: LNG terminals due to be commissioned in 2011

Country Import/Export

terminal

Capacity,

million

tonnes

Type Status Start-up

Kuwait United Arab Emirates

Sub Saharan Africa 0.91

North Africa 0.70 0.00

Middle East 0.43 0.16

Europe 0.09 0.00

Asia Pacific 3.01 0.16

Americas 0.42 0.00

0

1

2

3

4

5

6


Argentina Escobar 2 Import Operational May 2011

China Dalian 8.5 Import Under

construction

Q3 2011

Fujian

Expansion

Phase 2

Import Operational May 2011

Rudong Import Operational May 2011

India Dabhol 5 Import Operational Q4 2011

Italy Offshore

Livorno

4.1 Import Operational Q4 2011

Mexico Manzanillo 4 Import Operational Q4 2011

Netherlands Gate 9 Export Operational September

2011

Thailand Map Ta Phut 5 Import Under

construction

Q4 2011

USA Golden Pass 15.6 Import Operational March 2011

Source; Ordinary General Meeting CEDIGAZ, Rueil Malmaison, 24 June 2011

Over the longer term Cedigaz expects that world trade in LNG will increase on average 6%

annually from 296 bcm in 2010 to over 560 bcm in 2020 driven by strong growth demand in

India and China; limited growth but consistent demand in existing markets of Japan and

South Korea and a large growth from newer entrants e.g. Singapore, Thailand and Vietnam.

An additional demand of 20 million tonnes is expected to be created following the Fukushima

accident. In Europe LNG is expected to enable the integration of intermittent renewables and

provide flexibility. Fast growing markets include Argentina, Brazil, Chile, Kuwait and the

United Arab Emirates and new entrants include Bangladesh, Croatia, El Salvador, Germany,

Hong Kong, Jamaica, Lithuania, Pakistan, Philippines, Singapore, Uruguay and Vietnam.

Major new entrants into the market are expected to be Indonesia, Malaysia, Poland,

Singapore and Vietnam.


Figure 7-9: LNG demand by region, bcm, 2009 to 2020


This is reflected by the degasification (LNG to natural gas) capacity under construction and

likely to be commissioned over the next four years. Major regassification projects have been

recently commissioned or are in the pipeline e.g. Pascaqoula in the US, Dunkirk in France

due to be commissioned in 2015 and terminals are planned in Croatia and Poland. Many

degasification projects have been approved and constructed before long-term LNG contracts

have been signed.

Figure 7-10: Regasification projects under construction and likely to be commissioned, million

tonnes, 2011 to 2015

Emerging Markets of Latin America & Asia (left) and Industrialised Markets in the Atlantic

Basin (right)

0

100

200

300

400

500

600

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Asia North America Europe Latin America & Middle East



On the supply side, Australia and Qatar are expected to be the two biggest producers of

LNG. Australia may overtake the Qatar in the longer term as an extra 30 million tonnes of

capacity from the Curtis Gladstone, Gorgon and Queensland LNG plants to liquefy

Australian gas is due to come online by 2016.

Figure 7-11: Liquefaction capacity in Australia, million tonnes, 2007 to 2020


The LNG market is one area where natural supply constraints are expected not due to a

shortage of gas supplies but a shortage of liquefaction capacity to convert natural gas to

LNG, but not for re-gasification of LNG to natural gas. A supply shortage of LNG may occur

after 2015 following the end of a supply glut due to increased demand for Japan and other

0

20

40

60

80

100

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Operational and under construction Planned

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7. Liquefied Natural Gas (LNG) - Fleming.oilgas.flemingeurope.com/webdata/4501/Pages from NRG Expert Glob… · 7. Liquefied Natural Gas (LNG) Figure 7-1: LNG supply chain ... Floating