LNG Industry Seeks Growth despite Recession
Ford, Neil, The Middle East
Almost all liquefied natural gas (LNG) producers in the Middle East and North Africa have spent the past two years gearing up for expansion. Despite their export pipelines under the Mediterranean to the European Union, both Algeria and Libya consider gas processing as vital to their long-term economic interests, while Qatar is turning the Gulf into the world's biggest centre of LNG production. The global economic crisis might be expected to undermine these plans, yet while the downturn is likely to result in reduced overall energy consumption, its impact on the LNG industry remains uncertain.
Rather than a fall in demand, it is a supply crunch that is predicted for the LNG sector over the next few years. Although many new liquefaction trains have been planned in Australia, Nigeria and with other important producers, rising construction costs, doubts over the security of gas supplies and fears over the environmental impact of the industry have resulted in delays to most proposed projects. Production over the next few years will therefore almost certainly be substantially lower than previously expected, at the same time as cross-border gas pipeline schemes from Iran to India and Russia to China have also been delayed.
It is difficult to discern any tightening of the market in the short term. Gas prices in the world's two biggest LNG markets, Japan and South Korea, have fallen sharply over the past six months: from $20 per million British thermal units (Btu) in August to $9.15/m Btu by December. Similar falls were recorded in the fastest growing emerging markets, such as China and India, but are likely to be reversed in the longer term. According to research by British gas specialist BG Group, global LNG production is set to jump from about 175m tonnes a year (mt/y) in 2008 to 275m by 2011 but demand may outstrip supply between 2012 and 2015.
Speaking at the CWC World LNG Summit in Barcelona in December, the senior vice president of LNG at GDF Suez, JeanLuc Colonna, commented: "In principle, the short-term market should relax. In the longer term there is uncertainty about what is going to happen after 2012-2013 because we need new projects for LNG. The conditions prevailing in the coming two or three years will probably make new projects more difficult, particularly in terms of financing."
Many other delegates agreed. The vice president of US firm Sempra LNG, Octavio Simoes, commented: "We don't think there is going to be significant demand destruction. The economic downturn and other things will tend to bring that demand down some but we also think there are some factors pushing demand up such as the use of natural gas for environmental reasons. The additional supply coming online over the next couple of years will tend to keep prices at a level that will not impact demand."
It is against this uncertain backdrop that Middle Eastern producers are seeking to expand their operations. Qatar has been the world's biggest LNG producer since it overtook Indonesia in 2006 and with Djakarta keen to retain more of its gas production for domestic use, there seems no threat to the emirate's position. The government of Qatar has built its current economic boom on making the most of its huge natural gas reserves, particularly through its two giant LNG companies, Qatar LNG Company (Qatargas) and Ras Laffan LNG Company (RasGas), both of which are majority owned by Qatar Petroleum (QP).
However, current expansion plans for both projects have been somewhat delayed. Qatargas has production capacity of 9.6 mt/y at its three trains and is owned by QP (65%), Total (10%), ExxonMobil (10%), Mitsui (7.5%), and Marubeni (7.5%). Trains 4 and 5, which are currently under development, will add a further 15.6mt/y, while the company hopes to produce 42mt/y in the longer term. Additional phases of Qatargas are planned, with Shell and ConocoPhillips acting as QP's investment partners. …