The following provides information on the world LNG market, and particularly the impact of the Asian economic crisis on LNG importers and exporters. Sources for this report include: BP Statistical Review of World Energy 1998; CH-IV Cryogenics; IEA Natural Gas Transportation, Organization and Regulation 1994; Lexis-Nexis; Middle East Economic Survey; Oil and Gas Journal; Petroleum Economist; Platt Oilgram News, WEFA Group Asia Monthly Monitor; and World Gas Intelligence.
The liquefied natural gas (LNG) business is an industry at a crossroad. Traditionally dominated by Asian importers and exporters, the Asian economic crisis will likely create an oversupply of LNG on the world market due to decreasing energy demand in Southeast Asia and East Asia. Importantly, the Asian economic crisis impact on LNG suppliers has varied. All LNG suppliers are experiencing a softening of prices due to a decline in world LNG demand (and in part due to lower oil prices, since LNG prices are generally linked to crude oil prices). Major LNG suppliers in Southeast Asia have been more dramatically affected by the Asian economic crisis, as they must not only deal with decreasing prices, but also with the challenges facing their own economies. Consequently, LNG exporters not directly affected by the crisis (i.e. in the Middle East) are in a stronger position to compete. This situation could alter the face of the traditional LNG suppliers' market.
The Asian economic crisis has intensified the search by many LNG producers for alternative markets. it also has accelerated efforts within the industry to cut costs and provide more flexible contractual structures.
Although LNG currently represents only around 6% of world natural gas production and 25% of natural gas trade, use of the resource could expand rapidly. The success of LNG in the future depends upon LNG prices being competitive with pipeline gas (the dominant form of gas transportation today), the construction of supporting gas infrastructure such as distribution networks in new markets, and the implementation of corporate strategies that cut production costs and provide more flexible contractual structures.
As many of the world's gas fields are not located near potential customers, gas must either be piped long distances or liquefied and transported by specialized tanker. Gas can be liquefied by refrigerating it to below -161.5 Celsius. Once liquefied, natural gas is much more compact occupying only 1/600th of its gaseous volume-making it more economical to ship over long distances. LNG as an energy import option is significant in that it reduces certain countries' dependency on oil and coal imports and also helps achieve environmental goals by providing greater opportunities to utilize relatively cleaner burning natural gas. LNG will also support the growing use of combined cycle gas turbines (CCGTs) for power generation. CCGTs are considered relatively more efficient and less hazardous to the environment than many other power generation alternatives. The option of importing LNG in combination with the increasing popularity of CCGTs has expanded the potential for meeting electrification goals in the developing world, particularly in Asia. The last point is particularly significant given that the demand for power in developing Asia is expected to triple by the year 2020, even in light of the current economic crisis.
Traditionally, LNG imports have been more expensive than alternative resources, including piped natural gas. LNG is generally more costly than other energy resources due to the substantial amount of processing and expense associated with transporting LNG to the consumer. LNG must be converted from gaseous to liquid form before shipping, transported in specially designed refrigerated ships, and delivered to ports equipped with special receiving facilities. It then must be regasified and distributed to customers through pipelines, just as natural gas is usually distributed. …