Behind the world LNG challenges … Europe, Middle East and Asia. (QCIP Limited – LNG World Report). This report provides an overview of global liquefied natural gas (LNG) trade as it currently exists and examines the potential for future growth in this market. In addition, the report examines the prospects for Canada’s entry into this market and the factors behind this potential entry.
World trade in LNG has more than tripled over the last 20 years, growing from 8.5 Bcf/d (billions of cubic feet per day) in 1994 to nearly 32 Bcf/d in 2013. Although growth has stalled in recent years, it is anticipated this market will resume its rapid expansion as improved natural gas production technology means more gas reserves worldwide are available for development and demand for energy, particularly from less-emitting sources, is expected to grow. Canada is endowed with large unconventional gas resources, and with growing competition in North America, Canada’s natural gas producers are examining global opportunities as they develop their plans to exploit these resources. Current LNG consumers are mainly found among the energy-hungry economies of Asia, as well is in a number of the more developed Western European countries. Some LNG is also imported into North and South America.
The Pacific Basin, which includes the economies of Asia, comprises the largest consuming region. It is also expected to exhibit the highest future growth rate, given the underlying strong economic growth of the countries in this region and their burgeoning demand for energy. Competition for these growing markets will be fierce. An examination of all the gas liquefaction projects worldwide that are under construction or in the proposal stage shows there exists the potential to substantially increase worldwide liquefaction capacity within the next decade. In particular Australia, the United States and, to a lesser extent, Nigeria could emerge as significant LNG suppliers with Australia challenging Qatar as the world’s largest LNG exporter.
Europe’s net LNG imports surged in 2015, climbing 15.8 per cent on-year to reach 37.6 million tonnes (mt), due to a combination of increased regional demand for gas, declining local gas production and a fall in the number of reload cargoes at European import terminals. Another determinant was the dramatic slowdown in what was once rapidly growing demand for LNG in Asia. LNG follows the path of least resistance and, with Asian storage tanks now full, gas sellers have turned to European terminals as destinations for more of their cargoes.
In the face of weak global gas demand European LNG prices are at the same low levels as those in Asia and not much different to the cost of pipeline deliveries. The purchase of additional LNG cargoes is enabling European utilities to lessen their dependence on piped gas deemed to be geopolitically sensitive, notably from Russia. Qatar and Nigeria are the leading examples of exporters reorienting their cargo flows because they no longer command the premium Asian buyers paid for additional LNG cargoes following the Japanese tsunami in March 2011. When shipping costs are factored in, Europe is now a more attractive LNG market than it has been for several years. According to figures published by the International Group of Liquefied Natural Gas Importers (GIIGNL), Qatar shipped 21.1mt of LNG to Europe in 2015, 20 per cent more than a year earlier. Nigerian exports to the region were 5.45mt, 26 per cent ahead of 2014.
In terms of increased import volumes, the UK, Spain, Italy and Belgium were Europe’s big winners in 2015. The UK remained the region’s top LNG buyer, its 10.08mt in net imports 20 per cent up on the previous year. Qatar supplied the UK with 96 per cent of its LNG in 2015 and most of the emirate’s cargoes were discharged at South Hook LNG terminal in South Wales, in which Qatar Petroleum holds a controlling stake.
Net Spanish LNG imports last year totalled 8.8mt, an 11.7 per cent on-year increase resulting from a widespread drought that reduced hydroelectric output. Huelva, Barcelona and Sagunto are the busiest of Spain’s six receiving terminals. France is Europe’s fourth-largest LNG importer, by the smallest of margins over Italy. France’s 4.35mt of imports in 2015 were down 4.5 per cent on-year, whereas Italy’s 4.32mt represented a 32 per cent increase. The busiest of Italy’s three import facilities is the RasGas-controlled offshore Adriatic LNG terminal. France’s lower imports in 2015 are attributed to higher purchases of Norwegian piped gas and increased storage drawdowns. However, inbound French LNG is set for a boost with the opening of the country’s fourth receiving terminal, the EDF-operated Dunkirk facility near the Belgian border, this coming June.
Dunkirk has the capacity to process 9.4 mta of LNG, which is enough, through its links to the gas grids of France and Belgium, to meet about 20 per cent of the two countries’ annual gas consumption. The terminal also has the ability to reload cargoes and possible LNG bunkering and tank truck loading roles are being investigated. French state utility EDF holds 60 per cent of Dunkirk’s capacity rights and its recent purchase contracts include two deals with Cheniere Energy for output from the recently commissioned Sabine Pass liquefaction complex. Under the first, Dunkirk will receive 26 Sabine Pass cargoes between 2016 and 2018 and the second covers the purchase of up to 24 LNG cargoes over the 2017-2018 period. Dunkirk is also the most likely destination for the latter tranche, or at least the bulk of it. France’s other terminals, all operated by the Engie affiliate Elengy, are Montoir at St Nazaire and Fos Tonkin and Fos Cavaou, both in the industrial port of Fos, close to Marseilles. Built to handle Medmax ships of up to 75,000m3 carrying cargoes from Algeria, Fos Tonkin has been in service since 1972 and Elengy is set to make a decision on the facility’s post-2020 future by 2017.
Greece began importing LNG in February 2000, at its Revithoussa terminal on a small island west of Athens that in 2015 handled 0.45mt, an 18.4 per cent increase on-year. DEPA, Greece’s state-owned gas utility, is upgrading Revithoussa through the provision of a third in-ground tank to boost the terminal’s storage capacity by 73 per cent. Additional modifications, due for completion by the end of 2016, will permit the berthing of vessels of up to 266,000m3 and increase the terminal’s regas capacity by 40 per cent, to 4.7 mta.
Greece, like Turkey, depends on imports for virtually all its gas, some two-thirds of which comes from Russia by pipeline via Bulgaria and Turkey. Greece is keen to reduce this dependence through increased purchases of LNG. In addition to the Revithoussa expansion two FSRU-based terminals have been proposed, in Thrace in northeastern Greece, to broaden gas supply choices for the country and its neighbors in southeastern Europe. The Copelouzos Group has put forward a 1.9 mta project for Alexandroupolis close to the Turkish border whereas DEPA is promoting Aegean LNG, based on a 2.6 mta FSRU in the port of Kavala.
QENERGY has started importing LNG in 2010, Currently, QCIP starts playing a very sustainable supply rope at the Mediterranean region. Croatia is another Mediterranean EU Member State looking to ease reliance on Russian pipeline gas and fast-track LNG imports using an FSRU. EU subsidies are being mooted for the proposed floater as part of a drive to serve customers in central Europe.
The Turkish potential
Cargo purchases by Turkey, Europe’s third-largest LNG importer, totaled 5.35mt in 2015, a 1.8 per cent drop on the previous year. Qatar, Algeria and Nigeria are the country’s principal suppliers and Norway and Trinidad provide occasional shipments. Turkey is one of the world’s fastest-growing power markets and uses gas for more than 50 per cent of its electricity generation. It relies on imports to meet virtually all its gas needs, of which Russian pipeline deliveries account for nearly 60 per cent of the volume it buys from other nations.
Political tensions between the two countries have increased in recent months, prompting Turkish interest in diversifying energy sources and boosting LNG imports through its Aliaga and Marmara receiving terminals. In December 2015 Turkey and Qatar reached preliminary agreements on the possible development of a third terminal and the sale of LNG under a new term contract. Turkey is also looking to the US as a possible future source of LNG.
Besides Europe’s Big Five importers, six European Union (EU) nations each received under 2mt of LNG in 2015. Belgium’s Fluxys facility in Zeebrugge was the busiest of the facilities handling smaller volumes, accommodating net imports of 1.9mt, some 89.7 per cent more than the previous year. Zeebrugge supplements its regasification activities with cargo reloads and road tanker loadings. Last year Fluxys re-exported 0.83mt of LNG using both conventional-sized and small coastal LNG carriers and its LNG tank-truck consignments are now approaching 2,000 annually. The range of operations at the terminal is set to widen again.
Fluxys has won a 20-year contract to tranship up to 8 mta of Yamal LNG, from Yamal’s fleet of dedicated icebreaking LNGCs to conventional gas ships for onward distribution to the final customer. A fifth in-ground storage tank, of 180,000m3, is being built at Zeebrugge to assist with this work. Fluxys is also constructing a multipurpose second jetty, for commissioning this year, to accommodate both LNG cargo discharges and loadings as well as ships in the size range 2,000-217,000m3. The smaller gas vessels utilising the terminal will include a 5,100m3 tanker which is set to be the industry’s first purpose-built LNG bunker vessel on delivery to NYK/Engie later in 2016. The neighbouring Gate terminal at Rotterdam in the Netherlands recorded net imports of 0.63mt in 2015, up by 50 per cent on the previous year. Amongst the factors boosting Benelux interest in LNG purchases is the falling output from the Dutch Groningen gas field.
Gate is seeking to enhance its hub role, as is being done at Zeebrugge. A breakbulk facility is being built adjacent to its main terminal to facilitate the distribution of smaller volumes of LNG around Europe’s busiest port and its hinterlands. Like Zeebrugge, Gate will also have its own LNG bunker vessel. The 6,500m3 gas tanker being built for Shell and 2017 delivery will load at the Gate breakbulk facility and fuel LNG-powered vessels in Rotterdam and the surrounding area.
The Baltic Sea is also poised for a major increase in LNG carrier traffic, although the emphasis will be on smaller vessels. Lithuania and Sweden recently became the first two Baltic countries to import LNG. Sweden’s breakthrough is a great advertisement for small-scale LNG. Between them, the Scandinavian nation’s two coastal distribution terminals, at Nynäshamn and Lysekil, received 290,000 tonnes of LNG in 2015, not far short of the 320,000 tonnes that neighbouring Lithuania imported via its 170,000m3 FSRU.
Poland is set to become the third Baltic Sea LNG importer when its 3.7 mta Swinoujscie terminal opens for business this summer. Elsewhere, Gazprom is set to take delivery of an FSRU in 2017 that will bring LNG to the Russian enclave of Kaliningrad. Finland, meanwhile, has three small-scale receiving terminals under construction, at Pori, Tornio and Hamina, for commissioning in 2016, 2017 and 2018. Booming Demand From Various End User Sectors Such as Power, Fertilizers, Industrial and City Gas Distribution to Drive Demand for LNG in India Through 2025
ASIA – The Indian LNG Market
According to TechSci Research report, demand for RLNG in India is forecast to increase at a CAGR of 21.6% during 2016-2025, due to increasing LNG terminal projects and cost-effectiveness of the fuel compared to other alternative fuels. Moreover, lack of cross country pipeline for natural gas till 2018, makes LNG a commercially viable fuel for various end user applications in India.
Power sector is the leading end user of natural gas in India and consumes nearly one-third of the total natural gas produced in the country. Moreover, government is increasing its focus on gas based power projects due to their high efficiency, low gestation period, lower carbon emissions and requirement for less water and land compared to other fuel based power plants. Various other policies such as Gas Allocation Policy have been implemented to encourage use of gas in different end user segments. Other policies that are expected to have a positive impact on the country’s LNG market include E-bid RLNG that would help smoothen supply of imported spot RLNG to power plants and fertilizer industries.
Sources: QGN, CAYE Global News, Reuters, Dr. Theodore Theodoropoulos ”The Secret World of Energy”, ed. 2011, Cheniere Energy, Global Energy Outlook 2011, QCIP Limited – LNG World Report/July 2016, Energy World Report 2015, BBC Energy News, Bloomberg Commodities.