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Gas demand boost as LNG accesses new markets

Advances in LNG technology and greater market flexibility are enabling gas to access new markets, expanding demand.

More flexible and lower cost transportation, delivery and trading options are expanding the area that LNG can reach at competitive prices, which is being helped along by lower gas benchmarks due to underlying oversupply. Market opportunities are being further expanded by policy that’s increasingly focused on improving city air quality by replacing dirtier fossil fuels with gas and renewables. At the same time, LNG is breaking into marine and heavy transportation markets through hubs and distribution networks. Together these factors are helping create fresh demand for gas.

A rapid expansion in LNG infrastructure is bringing gas to an increasing number of energy customers around the globe, and this is expected to account for most of the 40% gain in inter-regional gas trade between now and 2020, according to the International Energy Agency. The demand is also becoming more granular as smaller markets are accessed, with various onshore and floating delivery solutions now developed that can reduce regasification costs to $1.5–2.5/mmBtu for small-scale demand.

Worldwide, there are about 40 floating storage and regasification (FSRU) import projects in varying stages of development. These include Jordan, which received its first FSRU in May; and Pakistan, which signed a deal for an FSRU last December that should be operational in 2018. New terminals have been installed to serve isolated island regions such as Indonesia and the Caribbean, and more FSRUs may be needed in Latin America where utilization rates at existing new facilities are rising quickly. The new technology also provides greater flexibility. For example, in Turkey the Aliaga FSRU1 was brought onstream in just over six months from FID in late 2016 with 0.6 bcm/month of import capacity, highlighting the speed of deployment.

Hoegh LNG and Qatar Gas Transport Company, which operates a large fleet of LNG tankers, are evaluating countries in which they could establish a floating terminal, and are particularly interested in South America and south-east Asia. Several of Qatar’s big supply deals with Japan are expiring early in the next decade, and with output slated to expand by 30% by 2025, Qatar will need to stimulate fresh demand for its LNG. The growing number of LNG traders, including Vitol, Trafigura and BBEnergy, also helps identify fresh demand.

Many new onshore terminals have also been built, including on islands like China’s Hainan, with another proposed for Ireland - as well as in areas with a strong need to diversify energy imports, such as Lithuania and Poland. Low cost onshore options include modular design, such as Wartsila’s new LNG terminal at Tornio Manga in northern Finland, which is extending the reach of gas and displacing dirtier fossil fuels. “We began to develop modules in the ‘90s – this makes it possible to deliver capacity very rapidly to buyers,” said Juha-Pekka Sundell, senior development manager with Wartsila. The LNG terminal will serve shipping and road transportation companies, power and heat utilities, as well as other industrial and mining companies.

Advances in small-scale LNG shipping have also cut costs, by almost a half for buyers with a demand level of 50–150 mmcfd. This means smaller installations that power, for example, mines or production facilities in remote locations, with no access to pipelines, can ship in LNG rather than having to rely on expensive diesel. Using LNG can make a major difference in operating expenses and consequently in profitability and competitiveness, with local LNG users lowering the delivered price by splitting shipping costs.

Companies are already positioning themselves for anticipated demand through this small-scale distribution model. For example, in Singapore, Keppel and Pavillion signed a deal in September 2017 with Indonesia’s state utility PLN, for small scale LNG deliveries to power plants in Indonesia’s western islands. And in January 2017, AES’s Andres LNG terminal in the Dominican Republic started offering reloads to small-scale LNG carriers.

At the other end of the LNG supply chain, new mobile floating LNG production and liquefaction terminals are also being developed, the most advanced of which is planned for Australian waters. If successful, the technique could boost supply at the margin above what is expected as we move into the late 2020s. The project is being pursued by Norway’s Add Energy, and Australia’s Transborders Energy. A target field is expected by 2018 and FID is 2020. It will be able to produce 1 mmt/year of LNG from relatively small fields of 0.5-2 Tcf, which would otherwise be too expensive to develop.

Transportation boom

Shell is among the biggest global suppliers of LNG to power plants and industrial users, but the company believes the future of gas may lie elsewhere. Shell expects over half of demand to come from heavy-duty marine and road transport, rather than power generation “in the foreseeable future,” and is studying the development of a global network of LNG supply hubs linked to transport fuel distribution networks.

Other major oil and gas companies are also beginning to provide LNG as a transport fuel. Total SA, for example, recently signed a deal with a French cruise ferry, the first such ship to be powered by the fuel. Total is seeking to expand the 11 million tonnes of LNG it sold last year as it refocuses away from oil, and is planning an expansion of its network of regasification terminals, pipelines and power plants to help create new gas demand.

Looking ahead, the recent announcement of additional new supply from Qatar before 2025 means the market should remain amply supplied well into the mid-2020s. This is likely to keep prices low and continue to stimulate demand. If enough new markets can be reached, then the supply surplus may begin to erode; and if transportation demand exceeds expectations then a balance in LNG supply and demand could happen earlier than expected.

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