The future of LNG can be looked at from a global, national and Alaskan perspective.
As we have discussed in many of the previous issues, the global demand for LNG has risen very quickly. From 1990-2010, gas rose from 19 percent to 22 percent of global energy supply. LNG is the fastest growing segment within gas. In that same time period, the gas share of the global electric supply has risen from 15 percent to 24 percent.
The advantages of LNG as a fuel are more pertinent now than ever before. Japan needs new sources of power generation after shutting down most of its nuclear plants. China is anxious to reduce their coal consumption, and LNG offers a clean, reliable alternative.
Asia has made up the majority of the growth since 1990 and is projected to make up the majority of the new demand. In Europe, countries like Poland and Lithuania see LNG as a tool that allows them to reduce their dependence on Russia.
As a result, the number of countries looking to buy LNG has increased from 11 in 2000, to 27 in 2013. Analysts expect that number to increase to 42 by 2020.
With regard to the supply of LNG, Qatar has been the largest contributor over the past decade, but in this decade, it will be Australia. Other strong prospects for more production are the U.S., Canada and Africa. 40 percent of proposed liquefaction plants are in the U.S., with 17 percent in Canada and 14 percent in Australia.
If you added together the capacity of every proposed plant, there would be an over-supply of LNG on the world markets in the mid-2020s. Many of the variables in the LNG market, however, are very difficult to assess, and the prospect of less LNG supply being developed is real.
A tight market for exporters could lead to improved returns. For those looking to import LNG, other sources of energy may need to be used to fill the gap.
The United States is in a very strong position for more production. Terminals, loading docks and storage tanks that were built for the purpose of importing LNG can be reconfigured for exporting. The US has a strong pipeline infrastructure as well as a solid engineering industry.
After years of delay over permits for sale to countries that don’t have a trade agreement with the US, the Department of Energy has recently given approval for four projects in addition to Sabine Pass. Twenty-one other applications are awaiting approval from the Department of Energy. Buyers from Japan, Korea and India have already signed deals to buy US LNG.
The demand for gas and LNG that is coming from Asia gives Alaska a geographical advantage to capture this market. The opportunity is real, and it has begun to dominate the discussions in the Alaska State legislature as they begin to ask questions about the investment climate for companies who are proceeding with the Alaska LNG project as well as determining why an LNG buyer would choose to purchase LNG from Alaska.
At an August 2013 North Slope Gas & LNG Symposium held in Anchorage, legislative consultants PFC Energy pro-vided a comprehensive look at LNG that included a look at the role Alaska can play in the global market.
PFC Energy noted that:
- The companies that are involved in the Alaska LNG project have “substantial experience in LNG. As such, the question is not whether they can do an LNG project, but rather will they choose to given competing priorities and outlets for their capital.”
- “An Alaskan LNG project can be competitive with other projects seeking to supply Asian markets…” and
- “There are multiple ways to structure an LNG project and it is important to develop a structure that aligns all the different parties and project participants and meets their risk-reward appetites.”
Alaska has a role to play in the LNG market; Alaska has major companies with significant experience and expertise involved in the Alaska LNG project. The Alaskan legislature will have the opportunity to develop competitive fiscal terms for the project. Alaskan residents have the opportunity to educate themselves on LNG and the opportunity for Alaska. We hope this series has helped.