World’s commitment to LNG

Experts assure that natural gas is the only economically viable alternative to conventional fuels in heavy-duty transport and the short-term solution to environmental pollution. Among its advantages is the abundance of this resource all over the planet, which makes it readily available and easy to transport by sea, thanks partly to its reduced volume, as compared to its gaseous state, as well as the fact of being more environment-friendly.

This is why the sector is increasingly committing to replacing pipeline shipments with Liquefied Natural Gas (LNG) shipments by land or sea. This is a more competitive and safe kind of long-distance transportation, due to price differential among different markets and a lower risk of supply disruption. But gas in its liquid state (cooled at -160°C), known as Liquefied Natural Gas involves a complex process of liquefaction, storage, shipment, and regasification, which despite technological advances still has a long way to go.

Although LNG still represents 20 percent of transported gas, as compared with the 80 percent distributed via pipelines, according to BP Statistical Review of World Energy 2016, it is playing an increasingly significant role in the countries’ energy mix. As emphasized by Gas Natural Fenosa, “natural gas can play a decisive role in the EU energy mix to achieve a more decarbonized system through initiatives like cogeneration in industries and the residential sector.”

Forecasts indicate a 45 percent rise in global LNG exports between 2015 and 2021, according to the Medium Term Market Report released by the International Energy Agency (IEA), as well as the incorporation of new suppliers to compete with traditional players. “In recent years, shale gas sparked a revolution in the international trade of natural gas. The placing of new reserves will lead to a growth in the LNG market. Countries like United States will go from importing gas to exporting it. Australia is a big LNG consumer that also has great potential as an exporting country, and has plans to build several liquefaction facilities to export LNG. Another example of a major Liquefied Natural Gas consumer is Asia,” affirmed Marta Margarit, Secretary-General of Sedigas (Spanish Gas Association), but cycles are changing.

In 2015, global LNG trade reached 244.8 million tons, according to data from the IGU (International Gas Union), compared with 241 tons a year ago. “This figure makes the 2015 as the best year for LNG trade in the industry’s history and a rise above previous highs from 2011. Although new exporters did not join the market last year, several new plants sent their first cargoes, adding six million tons of new supply. Four new markets: Egypt, Jordan, Pakistan, and Poland, started importing LNG in 2015, and thus the LNG importing nations increased to 33,” stated Margarit.

Exporting capacity

The industry, however, needs a few more years to reach full development due to the current price situation. Between 2011 and 2014, global exporting capacity increased by around 35,000 million cubic meters, according to the IEA, but came to a standstill in 2015 due to instability in the market, which was under great pressure and with increasingly lower prices, even below oil prices. In Europe, low coal prices also slowed down gas demand, which acted as a substitute. As a result, “many infrastructures will be underused in the coming years, due to a drop in demand in regions like Asia and the emergence of new players,” affirmed IEA analyst Constanza Jacobo during a presentation organized by Enerclub (Spanish Energy Club) in Madrid.

Future capacity increase will mainly come from United States, Canada, and Australia, a product of investments made years ago. “Just Australia will be responsible for half of the production increase. Nowadays, it has 25 million tons from operative LNG plants, 61 million tons from plants under construction, plus another 32 planned, in addition to another 14 million tons of capacity for the expansion of existing plants,” assured Sedigas.

Regarding production, U.S., Russia, Iran, and Qatar are in the lead, but not all of them are ranked in the same position when it comes to exports. The key is not just in the reserves, but also in the LNG storage, transport, and regasification facilities. For example, Russia, the largest gas exporter worldwide (followed by Norway) maintains its hegemony through pipeline shipments, but it only exported 14,500 million cubic meters of LNG, according to BP. In this regard, Qatar far exceeded Russia by exporting the largest amount of LNG last year, something its neighbor, Iran, is unable to do, as it lacks the supply security offered by its competitors.

The United States is a special case, as it has a significant domestic demand (close to 25 percent of the total worldwide) and after the gas shale revolution, its supply grows to unrivaled levels each year. The possibility of going from importer to a net exporter made the country relax its regulations on Liquefied Natural Gas shipment, which is now transported through LNG tankers to other regions like Asia or Europe, with costlier gas prices. The first shipments from the Sabine Pass Terminal were made early this year and by now several countries have received more inexpensive gas by sea. Authorities already approved the development of four more plants, which will be operative in 2018, while another 25 projects are pending. Thus, the U.S. would have the capacity to liquefy, cool, and export 60 million tons in 2019, according to Reuters. In fact, companies like Shell, Gas Natural and Repsol are already ensuring the reception of the first U.S. shipments sent to Europe from the Gulf of Mexico.

The truth is that the old continent is preparing for the future of gas, as it has suffered like never before the difficulties of pipeline shipments. Disputes between Russia and Ukraine between 2006 and 2009 triggered generalized disruptions, which forced countries like Italy to implement emergency measures like using strategic gas reserves. Along with the alternative pipelines it plans to build, like the Trans Adriatic Pipeline or the Midcat, the European Union launched the Core LNGas hive initiative, entailing a $33 million investment in the coming years. Progress has been made in implementing more than twenty studies and pilot projects aimed at adapting infrastructures in European ports in order to offer smallscale supply services and bunkering. In addition, this plan puts Spain in a privileged position, as it is the country with the greater capacity and a larger number of facilities in the region, although countries like United Kingdom, Netherlands, and Italy also have great possibilities to develop degasification plants.

As the director of Endesa recalled, “in Europe there is only space for one or two hubs,” and thus he advised caution when it came to betting everything to the Spanish hub. In any case, the Iberian Peninsula would be the doorway for gas to enter Europe by sea from Algeria and the Atlantic Ocean, and it could receive, as it already does, LNG tankers from Latin America, USA, and Canada. European demand (15 percent) is the second in the Liquefied Natural Gas trade ranking behind Asia (73 percent), which is expected to drop after the Japanese nuclear plants become operative.

Latin America represents the third market for this fuel, where Argentina, Chile, Brazil and Mexico import and/or trade LNG. The latter two countries not only import LNG, but also re-export it to other countries in and out of the region. At the same time, producing countries in the region also emerge as important gas exporters by sea, since Latin America has 43 percent of the natural gas reserves worldwide. Trinidad and Tobago and Peru are already relevant natural gas exporters, and future developments could make other countries like Venezuela or Brazil, which have significant proven reserves increased after onshore and offshore discoveries in recent years, carve out a niche in this strategic market.

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