This work analyses the current and future markets of Liquefied natural gas. Liquefied natural gas (LNG) is natural gas that has been processed or converted into a liquid form (a process known as liquefaction of natural gas) for the flexibility and convenience of transportation of natural gas, especially over long distances. Natural gas is compressed to about -260oF, providing a smooth, inert and non-toxic liquid that can be shipped to areas which require more natural gas from areas with high availability of the natural resource, and converted back into natural gas upon delivery (a process known as regasification).
Liquefaction enables natural gas to fill–up–to 1/600th of storage space in its liquid form, which ensures that natural gas is reduced 600 times, making it far easier for transportation and storage, when pipeline transportation is not practicable. Experts estimate that the LNG market would appreciate or increase in significance as world energy demand rises.
Natural gas has almost 50% lower emission of pollutants (CO2, NOx, SOx, particulates, among others) as compared to coal, can be used for a multitude of different usages and applications as a functional source of energy and is progressively available.
Contents
List of Abbreviations
Introduction
Overview of the LNG market trend at the global and regional level
The approach towards the market upsurge of LNG
Conclusion
Recommendations and strategies for the LNG sub–sector
Reference
List of Abbreviations
bcm – Billion Cubic Meter
BP – British Petroleum Plc
CAGR – Compound Annual Growth Rate
CMI – Coherent Market Insight
CO2 – Carbon dioxide
EFET – European Federation of Energy Traders
HH – Henry Hub
ICIS – Independent Commodity Intelligence Services
IEA – International Energy Agency
IGU – International Gas Union
LNG – Liquefied Natural Gas
NOx – Nitrogen Oxides
OECD – Organisation of Economic Corporation and Development
tcf – Trillion Cubic Feet
SOx – Sulphur Oxides
USA – United States of America
Introduction
Liquefied natural gas (LNG) is natural gas that has been processed or converted into a liquid form (a process known as liquefaction of natural gas) for the flexibility and convenience of transportation of natural gas, especially over long distances. Natural gas is compressed to about -260oF, providing a smooth, inert and non-toxic liquid that can be shipped to areas which require more natural gas from areas with high availability of the natural resource, and converted back into natural gas upon delivery (a process known as regasification) (Smil 2015).
Liquefaction enables natural gas to fill–up–to 1/600th of storage space in its liquid form, which ensures that natural gas is reduced 600 times, making it far easier for transportation and storage, when pipeline transportation is not practicable. Experts estimate that the LNG market would appreciate or increase in significance as world energy demand rises (Smil 2015).
Natural gas has almost 50% lower emission of pollutants (CO2, NOX, SOx, particulates, among others) as compared to coal (Rotman 2009), can be used for a multitude of different usages and applications as a functional source of energy (Osorio–Tejada et al. 2017) and is progressively available (Leather et al. 2013; Weijermars 2012).
Globally, every economy frowns upon “dirty” energy. The mechanism or approach by which natural gas contends or pit itself against conventional or traditional fuels (sources) is the outlook of “clean” and “efficiency”. In another sense, when there is growth in the global economy, there is the possibility for fuel pollutants to increase by at least 3% (Economides and Wood 2009). In spite of the fact that there have been projections that, by 2030, there would be a drastic decline of emissions in OECD countries, there would not be many differences with regards to the decrease on the global scale (ExxonMobil 2010).
Furthermore, there are calls or appeals for less polluting or emitting energy sources around the globe. This has been the reason why there is a global crave for an energy source that will serve as a substitute fuel (energy) over conventional fuels including diesel and petrol (Astbury 2008), and natural gas—been in the state of LNG provides what the world wants (Kumar et al. 2011). These scholars further gave reasons to the fact that LNG is non-toxic, clean and green (eco – friendly).
In addition, there are global calls for cleaner fuels or energy, as well as other factors like competitive or favourable pricing for LNG, increase or expansion in the export and import of LNG, cheaper cost of LNG and the crave for natural gas producers to cash – in on their natural gas reserves for a stronger global market for LNG (IEA 2003). Also, there are tons of untapped natural gas resources that are waiting to be liquefied. It is on these assertions that, the study seeks to review the current and future market for LNG (Economides and Wood 2009).
Overview of the LNG market trends at the global and regional levels
There is a transformation in the natural gas market from the local or regional market to the global market, and this is attributed to the rise in diversity and competition existing among the suppliers and consumers. LNG serves as a driving force that can enhance or advance the competition and integration of the market in the world’s international natural gas market (EFET 2017).
There is an expansion in the market for LNG globally, and this has been supported by investment decisions among the developed economies. For instance, the USA and China have influenced the dynamics of the LNG market and this is attributed to their size and impressive growth potential. According to reports by ICIS (2018) and IEA (2017b), between 2017 and 2018, China was recorded as the second-largest importer of LNG, after Japan. Apart from that, the USA is also expanding or increasing its significance on the supply side of LNG, and have become an essential supplier of LNG, thereby becoming the 4th biggest producer of LNG globally in 2018 after Qatar, Australia and Malaysia as illustrated in Figure–1 below.
Figure – 1: 2017 and 2018 LNG exporters and importers ( ICIS 2018)
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Moreover, China was also able to upscale (position) itself as a key importer of LNG globally, and this has strengthened Asia’s dominance when it comes to the demand side for LNG. However, the rise in LNG production from the US has also transformed the landscape on the production side, as it increases the world’s natural gas production under a wide range or array of LNG producers as illustrated in Figure–2 below.
Figure – 2: 2015–2017 and 2022 forecast on the supply and demand of LNG (ICIS 2018).
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The demand for LNG on the side of Asia was mostly propelled by South Korea and Japan, as it requires different natural gas supplier choices, which was also aided by the shutdown of nuclear power plants. The increase in the use of gas–fired power generation plants has increased the demand for natural gas, followed by a significant upsurge in the spot price of LNG, trade flows and contractual long–term obligations. For instance, China was able to increase the importation of natural gas, and this played a significant role in enabling the country to reduce its dependence on coal for the power generation and heating for both industrial (commercial) and residential users.
Moreover, when it comes to the liquefaction capacity, two waves of liquefaction have been able to shape the supply side of the LNG, and this has expanded the overall capacity of LNG, and also changed its composition as illustrated in Figure–3 below. As shown in the graph, Qatar has been the largest supplier of LNG in the mid–2000s, after its first waves of liquefaction projects. However, between 2002 and 2012, the overall capacity expanded from 180 bcm to 382 bcm, with Qatar still leading the surge with a share of 40% (IEA, 2016; International Gas Union, 2017).
Figure – 3: LNG export capacity (ICIS 2018).
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As presented in the graph, it can also be deduced that Qatar dominates as the main supplier of LNG, with a volume of approximately 105 bcm. The capacity for liquidation expansion has been estimated at 35% and 40% for 2016 and 2022 respectively, and this will be led by Australia and the USA. On this note, Australia, Qatar and the USA will be regarded as the main exporters of LNG with a consolidated market share of approximately 50% by 2020.
Figure–4: Global LNG market share by region (CMI 2016).
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Also, as per the Global Natural Gas Market Report (2016), by application (transportation, mining and industrial, power generation and others)., the global LNG market was estimated at US$ 7.23 billion in 2016 and is reckoned to hit US$ 21.27 billion by 2025, with a CAGR of 12.8% during the projected time–frame (2017–2025). In 2016, the worldwide LNG market was estimated at US$ 7.23 billion and a CAGR of 12.8% in sales volume over the projected time–frame (2017–2025) is anticipated. In 2016, Asia Pacific achieved the highest 38% revenue share in the global LNG market (as shown in Figure–4 above), and the region is expected to continue its dominance over the determined timeframe. In 2016, the Middle East emerged as the second biggest income share in the global LNG market and is supposed or rated to hold its status over the estimated timeframe (CMI 2017).
For the past decade (from 2010 to 2019), the requirement for natural gas has expanded globally, with an average growth rate of 2.8% per annum (BP, 2020a). Natural gas’ share of demand primary energy sources has increased by 28%. Also, it has been predicted that, by the end of 2030, the global demand for primary energy sources will expand by 41%, with an average growth rate of 2.1% per annum (BP, 2020). By this assessment, it was surmised that over 58% of the estimated rise in energy demand will come from power production. In this sense, the share for non-fossil fuels and natural gas is anticipated to increase at the expense of crude oil and coal. As illustrated in Table–1, it can be seen that, among the fossil fields, the consumption of natural gas has been estimated to develop faster, with a growth rate of 2.1% annually.
Table – 1: An approximated average growth of natural gas (BP 2011b; IEA 2011).
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As illustrated in Table–1 above, the approximated growth rate for gas is higher as compared to the average annual growth rate of 1.8% during 2008 – 2035 (IEA 2011). It can further be seen from the table that, all non-OECD countries are going to impart 80% of the increment in the demand for natural gas (BP, 2011b). Furthermore, by 2030 it is expected that natural gas, oil and coal will be able to move towards or command a market share of about 26% of each of the primary energy demand, whiles the remaining 22% will be divided proportionately among the main non-fossil fuels including nuclear, hydro and renewable energies (BP, 2011b). It was also predicted by IEA (2011) that, the market share of primary energy consumption, including coal, oil and natural gas will increase by 22%, 27% and 25% respectively. The main factor that contributes to the increase in the growth of natural gas consumptions is attributed to the rise in its use for electricity and industrial activities (as illustrated in Table–2).
Table – 2: Approximated average growth (BP 2011b; IEA 2011)
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It is expected that part of the rise in the consumption will be achieved by an increased in the supply of LNG, which have been estimated to increase at a level of 4.4% annually between the period of 2010 to 2030. However, when the growth targeted is achieved, BP (2011b) predicted that the shares of the LNG in the supply of gas globally will increase from 9% from 2010 to 15% in 2030.
The approach towards the market upsurge of LNG
In the LNG market, the pricing mechanisms have evolved as a result of fixed price to oil indexation as well as multiformity with gas-to-gas competitiveness and hybrid pricing mechanism. There has been a late reform or reorientation in the Asian Pacific market, due to an upsurge in the tally of countries turning to the importation of LNG. This increment in the importation of LNG started in emerging South–East Asian countries including Thailand (in 2001), India (in 2005), China (in 2006), Indonesia (in 2012), Singapore (in 2013), Malaysia (in 2013) and Pakistan (in 2015).
The expansion of the LNG market in the Asia Pacific region is very significant for the established or conventional LNG importers, as this can create a framework for a competitive environment, and enhance the market liquidity within the region for the importers and exporters. This can also create an additional market outlet as the new importers can diversify their destination by the traditional importers. Also, there are other factors relevant to facilitate the advancement of the Asian LNG market. This is because; emerging markets need a long-term agreement to pave way for the supply of the LNG in natural gas exporting countries. This will enable producers to look for secure returns on their considerable infrastructure investment. There is a need for natural gas to be competitive within the energy mix of most developing economies where the natural gas is ceded or relinquished. This will ensure that the emerging consumers or importers increase their market shares against any present source of supply like coal, crude oil and gas supplied domestically.
Moreover, the pricing mechanisms of LNG influence the producers of LNG to willingly invest in projects that will be able to produce more LNG. For instance, the revolution of the shale gas in the USA has reoriented or refined the world’s natural gas market, as it has lowered the HH gas price and enhanced the competitiveness of the energy-intensive sectors of the country. Apart from that, it has changed the expectation of the global flow of LNG. With the presence of these elements, it has affected the long–term contract price renewal and the pricing mechanism in Asia.
Conclusion
Therefore, globally, the demand for LNG would not reduce, but would significantly improve, judging by the number of LNG projects around the world (Kumar et al. 2011). Also, due to Iran's difficulties in commercialising its LNG prospects, the Middle East – the largest suppliers of LNG are yet to meet their full potential (Lin et al. 2010). North America, Europe and Eurasia- will, however, elevate their consumption of natural gas in the face of rising environmental anxieties (Kumar et al. 2011). Russia does have the potential of becoming a major producer of LNG and is already undertaking massive LNG developments (Kumar et al. 2011). Although Asia is arguably the leading consumer of LNG, its consumption may well increase as China and India are fast-growing economies (Economides and Wood 2009). Indeed, even now the pricing of LNG is heavily impacted by China and India's supplies (Lin et al. 2010). Thus, Asia and the Middle East might decide the potential demand for LNG.
Recommendations and strategies for the LNG sub-sector
The following recommendations are made based on the above discussions:
- There is a need for programs that will be able to promote and nurture the gas market development to relatively reform the maturity of the market
- Through multilateral agreements, there is the need for a regulatory framework that will be able to harmonize all technical standards in the gas sector globally.
- There is a need for institutions operating in the gas industry to coordinate effectively to promote their “gas” causes.
- There is a need for a formal program that will be able to boost the cross-border connectivity and trading within the regions and achieve regional gas market integration.
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- Quote paper
- Mohammed Issah (Author), 2021, Liquefied Natural Gas (LNG). A Review of Future and Current Markets, Munich, GRIN Verlag, https://www.grin.com/document/994046
