LNG: What a Year, What a Decade!
At the start of the Global LNG Day at the European Energy Conference in Vienna, Austria, conference chair David Ledesma of energy consultancy South-Court Ltd. said interesting things were happening that were affecting the LNG business. For one, he described a “globe with two halves” - stable reduced demand in mature markets and the new markets growing in demand.
“We’ve got the new economies with their rising demand in gas, and here in Europe we really don’t know what’s going to happen; we don’t know what the demand for gas is going to be.
“Are we in for a real eurozone crisis? Are we in for another deep recession which is going to reduce demand? And that fundamentally hits right at the market of Gazprom and has an uncertainty that also comes back into our business, into the LNG business.”
He explained that on the supply side there was even more uncertainty, with two new projects coming on stream this year: the Pluto LNG Project in Australia and the Angola LNG Project in the Atlantic basin.
“It’s all going to be free, flexible LNG looking to different markets. Where’s it going to go? How’s it going to change the balance? Are we going to find that LNG supply in South America supplying Asia? Qatari energy is going to go to Asia, Northwest Europe. It’s a really interesting game that’s going to be played out in the next 1-2 years.”
According to him, everyone was also waiting for the big “Australia rush” in 2014-15, or perhaps a few years beyond that, depending upon delays.
“What final investment decisions are we going to see that’s going to bring new supply coming forward in 2017-18? It’s really important, because that’s when we’re going to need to fill in the LNG that Australia is going to bring on stream in about 4-5 years’ time.
“So it’s not only ‘what a year we’ve had’ in 2012, but ‘what a year we’re going to have every year.’”
Mr. Ledesma said not to forget what a world the natural gas industry found itself in when the Henry Hub price was running at $2.40-2.50, MBP at $8.20, Northwest European platform contracts at around $11.90, Japan term at $15-18 and spot about a dollar below that.
“So it’s a varied world of prices we’ve got,” he commented.
The featured speaker for the session, Ane de Arino Ochoa, Strategic Planning and Control Director, Repsol Gas Natural LNG – STREAM, was a bit more upbeat about global LNG than Mr. Ledesma – as long as she wasn’t speaking about Europe.
“It is true,” she said, “that LNG is in good shape. When we open the papers, it’s mostly bad news – economic crisis, recession, unemployment. Those of us who are fortunate enough to work in the LNG business, we have to admit that we are receiving good news almost every week.”
Ms. Arino Ochoa emphasized that 2011 was an incredible year, with good news to back that up: “In terms of new developments, five new projects have reached final investment decisions, four of them in Australia and one in Indonesia.”
She said those would add more than 31 million tons/year of new LNG capacity that would arrive on the market in 2015-2017 range. According to her, Australia would reach almost 88 million tons of LNG, challenging Qatar as the biggest exporter around 2017-18.
“Banks believe in LNG,” she said, explaining that although LNG projects required huge investments, first-class projects and buyers with long-term contracts were successful in securing necessary funds to develop projects.
“We also have to pay attention to news coming from America – the so-called ‘shale gas revolution’ has been a game changer in the United States market. The significant growth of unconventional gas production at competitive prices not only has destroyed the massive expected LNG demand in the US, but it has encouraged some regasification facilities’ owners to start thinking of ways to recover their investment.”
Consequently, she said, there were numerous proposals in the US with more than 70 million tons to convert LNG regasification plants into gas liquefaction facilities.
“Sabine Pass is set to become the first exporting terminal on the US East Coast,” she reported. Now, Arino Ochoa added, it came down to securing the financing and the construction permits, which should happen in the next few months.
She made mention of the delay on the final investment decision for the Shtokman LNG project, also mentioning the Jamal LNG project, a project in the Arctic region which was making progress towards an FIV.
“These, along with an expansion of Sakhalin II could bring around 4 million tons of additional global LNG to the market after 2018. Additionally, the Russians are close to a broad agreement on building a new LNG export terminal at Vladivostok which could open in 2020.”
She said the present projects, however, were the key to meeting LNG demand in Asia, and added that liquefaction capacity had been enlarged.
“LNG trade has increased around 10% in 2011 compared to 2010, but as we know not all the countries and regions have behaved in the same manner.”
Asia, she explained, had the biggest increase of 13% in demand, using 60% of the total LNG produced, as the LNG industry moved in to replace Japan’s lost nuclear capacities.
Europe’s gas demand, noted Ms. Arino Ochoa had decreased 9.5% in 2011, something which was not good news for the industry. “LNG deliveries have increased by 3.5%, which means that pipeline deliveries have decreased. And this additional 2 million tons of LNG in Europe has not been distributed evenly within the region.”
She explained that the UK had overtaken Spain as the biggest LNG importer in Europe, importing almost 18.6 million tons - almost all of that coming from Qatar.
Arino Ochoa added: “The decline in domestic production has been covered by LNG flows, efficiently and on time, but questions are being raised on the dependency of the country on one source of supply.”
Spain, she said, had lost 2.5 million tons of LNG due to lower general gas demand and gas flows from a new pipeline.
Thailand, Dubai and the Netherlands, she noted, were new LNG importers.
In terms of pricing, she said Henry Hub was weak, continuing its downward trend in 2011, down to 2.50 mm BTU, and LNG imports had declined even further
She commented: “Analysts say the price should return to above the 3 dollar level but we don’t know if that’s a desire or reality.”
According to her, there was little good news for the European market, as in the short term European consumers would not have the opportunity to compete for cheaper spot gas or LNG as it was done in the last year.
Globally, however, she pointed to some of the industry’s achievements.
“Projects are being delivered, new projects being proposed, trade is growing in the number of new participants and in the richness of the structures and flexibility schemes, new routes will be explored – there are talks of the Arctic route.
“With regards to Europe, LNG is key to our continent. It covered more than 60% of the total gas supply of Europe. Europe needs both new pipelines and new LNG to replace the decreasing indigenous production.”
Additional demand, she said, could be found in the power generation sector, as a backup to growing renewable resources, or as a substitute for nuclear power.
She concluded that price signals must be present to encourage necessary investments.