Newly compiled liquefied natural gas (LNG) trade figures for 2010 support those who believe the LNG industry is entering a golden age. The International Group of Liquefied Natural Gas Importers (GIIGNL), a trade association which monitors LNG carrier voyages, reports that the world trade in LNG in 2010 reached 220.2 million tonnes, a 21.2 percent jump on levels a year earlier. LNG shipments expanded more than four times faster than the growth in global energy consumption last year.
Although the increase in LNG movements in 2010 is, to a great extent, a reflection of decisions to invest in new ships and liquefaction plants made prior to the September 2008 credit crisis, all the increased LNG shipping and production capacity that came on stream last year was welcomed enthusiastically. Most gas buyers who had signed long-term sales contracts imported their full allocations while any cargoes available on the spot market were quickly snapped up by the highest bidders. Cargoes moving under spot and short-term arrangements accounted for 19 percent of the world trade in LNG in 2010 and a 40 percent increase over the previous year.
The LNG sector had been poised for a golden era prior to September 2008. New LNG export and import projects were launched across the globe and the LNG carriers needed to service these facilities were ordered at an unprecedented rate. A major driver for many of the projects was the expected demand for LNG in the US due to the rapidly declining output of domestic natural gas.
However, when the credit crunch broke and demand for energy fell away, the LNG industry did not even have the promise of US imports to rely on because vast reserves of domestic shale gas had just been discovered across the country. Overnight, LNG sellers and ship owners were faced with the prospect of years in the wilderness due to the oversupply of both LNG production and shipping capacity until at least 2014/15.
In the event, the oversupply situation has been whittled down faster than anticipated, driven by the attractiveness of clean-burning natural gas in China and India as well as the recovering economies of Japan, Korea and Taiwan. Dwindling output of North Sea gas has also been a factor as has the rising price of oil. While the debate over the imminent arrival of "peak oil" continues to percolate, further discoveries of significant new gas reserves are steadily being recorded.
Qatari LNG production continued to rise dramatically in 2010, reaching 56.7 million tonnes, or 52 percent ahead of the previous year's level. Qatar commenced shipping LNG in December 1996 and became the world's largest LNG exporter in 2006 when it overtook Indonesia.
The Gulf nation now loads twice as much LNG as Indonesia and will achieve its planned plateau production level of 77 million tonnes per annum (mta) by the end of the year. This week Ras Laffan, Qatar's LNG port, loaded its 5,000th cargo. When production hits the 77mta mark, Qatari LNG shipments will have reached the 1,000 per annum mark which means that Ras Laffan will be despatching three loaded LNG carriers to world markets each day.
Eighteen countries now export LNG, Peru being the latest to join the club, following the start-up of projects in Russia and Yemen in 2009. Australia will be adding the greatest volume of new LNG production to the global mix over the next decade. Realisation of the ten projects currently moving ahead will mean that Australian LNG exports will be rivalling those of Qatar in volume by 2020. One-half of the new Australian projects are already either under construction or approved while decisions to proceed are expected for the remainder.
A total of 23 countries imported LNG in 2010. The 83 regasification plants in service in these countries include 10 floating/offshore vessels and structures. Amongst the countries logging notable growth in their LNG imports in 2010 were the UK, where inbound shipments of 14.2 million tonnes were 76 percent ahead of the previous year's levels, Italy 6.7 million tonnes (a growth of 209 percent), Turkey 5.6 million tonnes (39 percent), Mexico 4.3 million tonnes (56 percent), China 9.6 million tonnes (68 percent), Japan 70.9 million tonnes (nine percent), Korea 32.6 million tonnes (30 percent), Taiwan 11.2 million tonnes (25 percent) and Kuwait 2.0 million tonnes (175 percent).
The increase in Japanese, Korean and Taiwanese LNG purchases in 2010 was due to the rebounding economies in these countries. A new driver has come into play in Japan this year, namely the devastating earthquake and tsunami that hit the country in March. The resultant shutdown of several nuclear power plants means that Japan, already the world's leading LNG importer, could require as much as 80 million tonnes of the product this year.
Spain, with 20.6 million tonnes of inbound cargoes in 2010, is currently the world's No 3 LNG importer. However, the country will drop down the league table over the next few years as it is overtaken by first the UK and then China. Spain's need for LNG is being softened by increased deliveries of pipeline gas from Algeria, while in the UK, declining domestic North Sea gas production is boosting demand for LNG imports.
China is in the early phase of a major commitment to LNG. By 2017 the country will have 10 LNG receiving terminals in service along its coastline. Three of the facilities are already in operation and two more will be commissioned this year. The Chinese master plan calls for the terminals to open with capacities in the 3.0 to 3.5mta range and then to double the throughput of each facility within the space of a few years by means of an expansion phase.
The two Chinese terminals commissioning this year – at Rudong and Dalian – are amongst a host of LNG receiving facilities worldwide opening for business in 2011. This month the Gate terminal in The Netherlands, Gulf LNG in the US, Escobar in Argentina and Map Ta Phut in Thailand have received inaugural cargoes while Manzanillo in Mexico is set for its first cooldown cargo later in the year. In addition, the new Nynashamn terminal in Sweden, a small-scale facility, has now been is service for a few months.
The Netherlands, Thailand and Sweden are new LNG sector entrants and are boosting to 26 the number of LNG importing nations. Indonesia, Malaysia, Poland and Singapore are set to further swell these ranks over the next two years. The inclusion of Indonesia and Malaysia is of special interest as these countries are currently leading LNG exporters. However, because various locations distant from their export terminals are rapidly becoming gas-deficient, the two South East Asian nations are turning to the international LNG marketplace.
The world trade in LNG in 2011 will not expand as quickly as it did in 2010 as the only notable new production capacity coming on stream this year is that due to the final part of Qatar's build-up to peak production levels. Thereafter, however, a steady stream of new LNG volumes from Australia and New Guinea are set to enter the market, while the US, Canada and Russia are preparing to invest in a new round of liquefaction plants.
As both oil prices and doubts over the ability to boost oil production much above current levels increase, the LNG industry stands poised to help meet the growing demand for energy worldwide. The fact that gas burns the cleanest of the fossil fuels further supports prospects for LNG producers and ship owners as their new golden age unfolds.
Mike Corkhill for BIMCO
