LNG 101 week two: Global demand on the rise

Why is there a global demand for LNG? The answer is simple. The world needs more energy and wants clean energy, safe energy and affordable energy. The global population is predicted to rise from 7 billion to 9 billion in 2050 and the world will obviously need more energy. LNG is a safe, clean, and efficient energy source and is already part of the global energy mix.

According to the International Group of Liquefied Natural Gas Import- ers, since 2006, China, Brazil, Chile, Dubai, Kuwait, the Netherlands, Canada and Mexico all became first-time importers of LNG. These countries joined LNG consumers from Japan, South Korea and Taiwan.

In 2012, 25 different countries imported LNG. While natural gas demand has grown by about 2.7 percent per year since 2000, LNG demand has risen by about 7.6 percent per year in the same time period — almost three times faster. Since 2001, the total volume of LNG shipped has doubled to reach 496 million cubic meters, the equivalent of about 1.5 billion barrels of oil. Between 2009 and 2010 alone, world LNG trade grew by 22.6 percent.

LNG-101-Week-Two-chartThat trend is expected to continue, even though there was a downward trend in LNG trade in 2012. The International Energy Agency (IEA) forecasts a growing need for natural gas in the world’s energy mix, with the natural gas share growing from 21 percent in 2010 to 25 percent in 2035.

It is important to note that natural gas was the only fossil fuel whose share was growing. The IEA sees global natural gas demand growing at about 1.6 percent per year through 2035, more than twice the expected growth rate for oil. Other forecasters put the growth rate for gas even higher.

LNG demand growth is, however, expected to be even stronger, particularly through 2020. While a wide range of forecasts exist, a majority of industry analysts see average annual growth of around 5 percent to 6 percent per year. After 2020, demand growth is expected to continue, at a slightly slower pace — around 2 percent to 3 percent per year.

Many industry experts agree the increase in LNG demand has been driven by a strong need from Asia, currently 60 percent of the total demand, and by political pressure to guarantee energy supply security, improve energy infrastructure, and reduce the world’s carbon footprint, by replacing coal with natural gas, while economies and population grow.

In addition, the nuclear plant explosion in Fukishima in 2011 has led to rising popular opposition to nuclear power generation and more emphasis on LNG.

The impact of the Fukushima disaster on global LNG need was high-lighted as recently as last week when Lithuania announced their plans to reduce dependence on Russian gas by importing LNG could come at a higher-than-expected cost.

This was reported by the firm negotiating the country’s first LNG supply deal. Lithuanian officials had been expecting imported LNG to help lower gas prices by 20 percent to 30 percent from what the country pays for Russian gas.

When Lithuania decided to build an LNG import terminal in 2010, global LNG supply was strong and it was priced well below what Lithuania is currently paying for gas.

But LNG prices rose after the Fukushima disaster, when Japan shut down most of its nuclear reactors and had to start importing more LNG to generate power. LNG costs are expected to remain high as new Asian and South American importers compete for limited supplies.

And over the next few years, the number of LNG importers is expected to grow, as countries like Bahrain, Croatia, El Salvador, Jamaica, Pakistan, the Philippines, South Africa, and Uruguay join the ranks. Even Indonesia, once the largest LNG exporter in the world, is considering importing natural gas to meet growing domestic demand.

New export projects in Australia and the United States are scheduled to come online after 2015. The U.S. Department of Energy has approved four LNG projects to export gas to countries that don’t have a free trade agreement with the U.S.

Sabine Terminal in Louisiana received approval in 2011; in May, the Freeport LNG project in Texas was approved. Export permits for Lake Charles, La., and Cove Point, Md., were approved in August and September, respectively.

Alaska producers and the State of Alaska are also looking at exporting gas from the North Slope as LNG. Current timelines show that North Slope LNG exports would not occur before 2020.

Outside North America, some African countries may also have strong LNG export potential. Chevron recently shipped its first cargo from their Angola LNG plant. In addition to Angola, longer-term facilities are in the works in east African countries, such as Mozambique and Tanzania. Russia and Israel have also been identified as having significant gas export potential.

New technology, new markets and new sources of natural gas have impacted the current global need for LNG. What does the future hold for LNG? Every analyst/expert of the LNG markets seems to have a different answer to that question.

The answer seems to depend on their view of supply and demand. It is certainly a rapidly changing dynamic with the number of new importers and new exporters entering the market.

Our next issue will begin to focus on some of the technical aspects of LNG — specifically the LNG chain.

This is the second in a 10-part series produced by the Alaska Support Industry Alliance to educate the public about liquefied natural gas.

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Author: cbutcher

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