LNG: Sailing into Uncharted Waters

A wave of both liquifaction and regasification capacities are going to come online in the next few years totalling roughly 82 mil tpy and 232 mil tpy respectively. However, following this wave are a number of factors that could obscure the future of world natural gas trade.

Most of the capacity additions are slated for this year with projects set in motion 3-5 years ago coming online. The 49.5 mil tpy additional liqufication capacity coming online this year, will be mostly in the middle east, especially with almost 39.5 mil tpy capacity attributed to new projects in Qatar [IEA, World LNG report, OGJ]. Other areas of the world like Russia's Sakhalin project, Nigeria, Australia, Yemen and Indonesia will see more production [http://www.ogj.com]


A record amount of regasification capacity is also slated to come online in the next few years to 2009. In the US alone 65 mil tpy is slated to come online this year, mostly on the US Gulf coast. Mexico and Canada will add another 25 mil tpy this year bringing North America capacity close to 90 mil tpy [IEA, World LNG report, OGJ]. Euopean capacity additions will also be similar [26 mil tpy] mostly in the UK and France. India, China and Korea are likely to add another 26 mil tpy this year. This would bring the world regasification capacity increase in 2008 to roughly 144 mil tpy.

A couple of new projects that had almost stalled showed some sign of life and will probably come to fruition. The Chevron and Angola LNG project has been approved for construction. Chevron owns 36.4% share in this project with Angola LNG Ltd with BP (13%), Total (13%) and Sonangol (36.4%) being other Angola LNG Ltd shareholders. It plans to move off-shore LNG to a reliquifaction plant in the Soyo region and will be able to handle 1 bcfd of associated gas and produce 5.2 mil tpy of LNG [OGJ]. It will also supply 125 MMbcfd to Sonangol for local consumption. First LNG is scheduled for 2012 and will be delivered to Gulf Energy's planned terminal on the Mississippi gulf coast.

In Autralia, the Woodside Energy's Pluto field project situated 100 kms of the coast of western Australia has also been approved for construction. The project involves developing the off-shore gas field with estimated reserves of over 3.5 tcf and a onshore liquifaction plant in the Pilbara region. The project will produce 5-7 mil tpy of LNG, with the first phase coming online with 4.8 mil tpy train by 2010.

We see from above that there is a growing gap between the liquifaction and regasification capacities around the world. This dearth of production capacity can be mainly attributed to a surge in raw materials cost in the past couple of years. Upstream capital costs of LNG projects have increased by almost 80% since 2002 [Cambridge Energy Associates]. The capital costs of annual capacity in an LNG project rose from $200/tonne in 2002 to $600/tonne in 2006 . The surging economies of China and India are mainly responsible for gobbling up the raw materials and labor in the last 5 years and causing the price of commodities to spike.

Other significant challenges exist to the global natural gas trade. Higher natural gas prices in countries like the US, have spurred investors to look at alternatives to natural gas like coal and considerable amount of money is flowing into new clean coal tecnologies [http://www.worldmaritimeconsultants.com]. The disfunctional pricing of natural gas in the major consuming markets has also led to uncertainty and reduced predictability for investors. Finally, the developing markets themselves are going to consume a larger share of their production, reducing the available capacity for global natural gas trade.