Sea Power

The Liquefied Natural Gas (LNG) industry is growing fast. The use of ships to transport natural gas is not new, but the growth of the industry in recent years and the connection of once-distant gas markets, is globalising the LNG market. LNG can cross oceans and reach parts of the globe where pipelines cannot, making it the near-perfect answer to the rise in global gas demand.

By cooling natural gas to -163 degrees Celcius, ships are able to transport natural gas in a much denser form (approximately 600 times more dense) than in pipelines. The process involves sourcing the gas and transporting it to a liquefaction plant, where the gas is cooled and put onto a ship. Once the cargo reaches its destination, the LNG is regasified at a terminal where it can then be transported into a conventional gas pipeline network.

The technology is continually advancing. On 12 February this year, the new Teesside LNG facility received its first cargo in specially designed ships which allow for regasification onboard and connection straight from the ship to the UK gas transmission system. Industry in the North of England can now be powered by gas from anywhere in the world.

The UK is a good example of the effective co-ordination between pipelines and LNG terminals. In the gas industry, much is made of the competition between the two forms of gas transport. With LNG still growing, pipeline supply remains the dominant option but the current climate in the UK, with declining North Sea assets and the distant worry of increased reliance on Russia, calls for LNG in conjunction with piped gas as the safest option.

So while the UK enjoys increased supplies of gas from pipelines that came onstream last year — the BBL pipeline from the Netherlands and the Langeled pipeline from the Norwegian Continental Shelf — there are also two LNG terminals being built in South Wales that are expected to be receiving LNG in the next two years.

The recent rate of expansion of the global LNG industry is remarkable. Over the past five years, trade flows have increased by 29 per cent and the fleet of LNG cargoes by 75 per cent. Forecasts for future growth vary, but the International Energy Agency (IEA) believes that the share of LNG in global gas demand will double to around 11 per cent in 2010. The share is not massive, but considering that by 2010 the production of LNG could be double that of 2005, it is an impressive figure.

Gas-thirsty and resource-scarce Japan is the world’s largest importer of LNG by a large margin, importing gas from Indonesia, until recently the world’s largest LNG producer, although fast-growing Qatar now holds the mantle. South Korea, the US and Spain also import significant amounts of LNG.

European LNG consumption as a whole is set to rise. While LNG amounts to only nine per cent of European gas supply, terminal builders are not balking at the prospect of building new infrastructure. In Europe, the list of intended or planned terminals is getting longer by the month.

The US too will increase its LNG import capacity in the coming years. Look at a map of US LNG and you see a cluttered constellation of over 60 planned and existing projects (mostly planned — North America has just six LNG terminals). Problems of environmental and regulatory approval, as well as local residents’ opposition, make progress difficult though.

China and India are also significant growing markets importing LNG. Last year, China received its first LNG cargo in Guangdong and construction has also begun for another terminal at Shanghai. Growth in exports from Qatar over the last few years has been partly responsible for the explosion of the LNG industry, but beyond Qatar prospects for LNG exports are less clear. Russia holds the largest gas reserves in the world (47.8 trillion cubic feet), followed by Iran (26.7 trillion cubic feet). While Russia entered the LNG game last year with its acquisition of a controlling stake in the Sakhalin II project in east Russia from Shell, future Russian LNG projects are shrouded in doubt.

The ambitious Shtokman project in the Barents Sea has been delayed by Russia’s decision last year to withhold a 49 per cent stake in the project from the majors Statoil, Total, Chevron, Hydro and ConocoPhillips. What seemed set to be an LNG project might now remain a pipeline project for gas supplies to Europe. Some say it was a political decision to deny the US LNG supplies. If LNG is exported from Shtokman, it will not be before 2015.

Iran, too, has its difficulties. While the National Iranian Gas Company says that it can export LNG to China, India and Thailand by 2009, no projects are off the ground and the likelihood of LNG being exported before 2015 is slim. If Iran becomes a war zone, 2015 would be unthinkable.

As demand increases, so the challenges grow. Contracting costs are increasing and the LNG supply chain is tightening. As the world economy grows and more fuel is needed, the LNG industry will have to meet those challenges — both technological and geopolitical — if it is to continue to grow and connect energy markets across the world.  

Edward McAllister is Deputy Editor,

LNG Focus.