Liquefied Natural Gas (LNG) has the potential to turn the natural gas market into a truly global one, thus allowing natural gas to play a full role in transforming the energy system to underpin a sustainable future. In addition, in view of the uncertainties caused by recent geopolitical developments in Europe and the Mediterranean basin, LNG can improve regional and global energy security. These objectives can only be met if governments implement enabling policies that are clear, transparent and stable over the long-term.
These are the main findings of the study on the Current status and perspectives for LNG, completed by a team of international experts working under the auspices of UNECE, released today in Geneva.
The study finds that:
- LNG represents 10% of global natural gas demand (estimated in 2012 at 3,300 bcm) and 32% of global gas trade, and is growing faster than overall gas demand.
- Because of the flexibility it offers in the delivery of gas, offering the possibility to divert flows or re-export as market conditions change, LNG is a key feature in the globalization of the gas market, especially if a global LNG pricing pattern emerges.
- LNG gives buyers many options to secure gas supply without necessarily having to commit to long term/high volume gas contracts with a specific producer.
- Spot/short-term transactions represent 30% of total LNG trade today and prospects are that the LNG market will enjoy a fair degree of liquidity by 2020.
- The current LNG price at Henry Hub (Louisiana) is less than half the price at European hubs and less than one-fourth the average price paid in Asian markets. LNG transport costs alone do not justify such differences.
- Since access to gas is not constrained by pipeline capacity availability or gas transit disputes, LNG can improve the security and diversification of supply.
- Given the size and cost of its infrastructure, LNG is ideal for small, isolated markets or markets that require negotiating leverage with a supplier.
- LNG has underpinned strong growth in gas-fired power generation in countries that changed their nuclear policies following the Fukushima accident.
- Asia represents 60% of global LNG supply and its share is expected to grow in view of rising demand from emerging economies and attractive prices for LNG. In Japan, LNG demand for power generation increased by around 30% in fiscal year 2011 after the Fukushima nuclear accident. China and India will be especially important in future LNG market dynamics
- In Europe, decreasing domestic gas production and efforts to diversify supply sources are drivers for LNG growth. LNG’s market share is forecast to move up from 15% in 2010 to 24% in 2020 according to the BP Outlook
- US shale gas deliveries grew from about 20 bcm in 2005 to an estimated 280 bcm in 2013, 40% of total US gas production. The US Department of Energy has authorized exports of 35 bcm of surplus natural gas in the form of LNG in 2016, and further projects have been submitted for approval. Overall US exports could reach around 70 bcm by the mid-2020s. LNG exports from U.S. and Canadian terminals are economically competitive in all major markets, including Europe and Asia Pacific, based on forward gas price differentials.
The study also identifies a series of challenges:
- LNG markets today remain regional because the availability of shipping does not match the fast growing LNG trade and because a fairly limited number of global operators control a substantial share of “free” LNG.
- An integrated LNG project typically takes about a decade to put into place and requires high upfront capital investment. This calls for strong commitments among partners, including financial participants and clear long-term policies.
- Is it possible to find business models suited to attract investment that are compatible with competition-seeking rules such as unbundling commercial activities from infrastructure management, or with the skepticism of authorities about long-term contracts.
- Full harmonization of traded LNG quality is unlikely, but some degree of harmonization of LNG specifications is needed to ensure it is acceptable at all LNG terminals and by a majority of end users (especially for combined cycle gas turbines).
There is a huge body of knowledge on operational issues regarding LNG that must be normalised and disseminated if LNG is to become a truly global industry. Players throughout the LNG chain, including regulators, should be encouraged to standardize and exchange information. Such efforts would improve compatibility and efficiencies and maintain safety levels throughout the industry.
Note to editors
LNG quality issues concern sulphur and mercury content, as well as calorific values. Gas interchangeability is the ability to substitute one gaseous fuel for another in a combustion application without materially changing operational safety, efficiency, performance or materially increasing air pollutant emissions. The world is split into three areas where different specifications predominate:
- the Asian market with rich gas requirement (high calorific value, high Wobbe number),
- the Atlantic Basin with preference for leaner gas, and
- the European Union harmonising specifications among its member states to accept a range of lean and rich LNG.
Liquefaction is the most capital and energy intensive component of the LNG value chain. It consists of chilling natural gas to the point where it becomes liquid, at an average temperature of –160o C (–260o F), which is an energy-intensive process: 275-400 kWh/ton LNG. This step represents more than half of the total capital investment and more than half of LNG production costs.
Regasification (or vaporization) consists of returning LNG to its regular gaseous phase at about 5º C using heat exchangers. Typically, regasification represents 10% of total investment in the LNG value chain and 8% of gas production cost. More than 75% of the world’s regasification capacity is located in five countries: Japan 30%, US, 20%, South Korea, 12%; Spain, 8%, and UK, 6%, and total regasification capacity is much higher than liquefaction capacity.
At the end of 2013, the LNG industry was operating more than 90 liquefaction trains with a production capacity close to 280 million tons per year, a fleet of more than 360 LNG tankers, and nearly 100 regasification LNG terminals.
The case of Spain
LNG contributed to development of a gas market in Spain, a country fully dependent on gas imports and with limited connections to the European gas grid. More than 60% of Spain’s annual gas demand of 34 bcm is met by LNG. The LNG terminals have ample available capacity and access is granted to third parties by a fully independent operator. The LNG terminals procure the fuel that the country’s combined cycle gas turbines need for base load generation and to support major investments in renewable energy.
Spain has been the largest EU LNG importer in Europe for many years, although UK has unloaded more quantities in recent years. More than 45,000 LNG trucks a year are loaded at the regasification terminals and sent to approximately 400 satellite plants close to industrial and residential customers’ sites around the country.
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