United Nations Conference on Trade and Development

United Nations Conference on Trade and Development MULTI-YEAR EXPERT MEETING ON COMMODITIES AND DEVELOPMENT 21-22 April 2016, Geneva Recent develop...
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United Nations Conference on Trade and Development

MULTI-YEAR EXPERT MEETING ON COMMODITIES AND DEVELOPMENT

21-22 April 2016, Geneva

Recent developments in liquid natural gas markets By Mr. Erwan Hemery, Senior Manager, Deloitte

The views expressed are those of the author and do not necessarily reflect the views of UNCTAD.

Recent developments in LNG market 21 April 2016

What is LNG?

LNG is liquefied natural gas Natural gas is converted to liquid form for ease of storage and transport First commercial plant in the 40s in the U.S. International trades using LNG tankers

LNG allows natural gas to reach locations where gas pipelines are not economic LNG is a virtual pipeline

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8th Multi-year Expert Meeting on Commodities and Development

LNG life cycle From wellhead to burner tip Natural gas is produced at the wellhead, transported via gathering pipelines, processed to remove NGLs and other impurities and then piped to a LNG liquefaction plant

Gas is pressurized and cooled to -162 °C to its liquid form, taking up less than 1/600th of the original volume

Liquefied gas is loaded onto specialized vessels aka ‘LNG tankers’

At destination, re-gasification facility converts LNG back into its gaseous form

Gas is exported via pipelines to residential, commercial and industrial customers as well as gas-fired power plants

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8th Multi-year Expert Meeting on Commodities and Development

LNG industry Key drivers Global economic growth: a slip in regional growth would flatten demand

LNG trade volumes and trading countries by year

Energy efficiency: high prices and environmental concerns have driven the adoption of higher efficiency technologies Liquefaction capacity: number of projects in Australia and US Shipping costs: decreasing cost of shipping reduce gas price differential New markets: increase in number of import terminals leading to global trade growth New end users: growing LNG demand as an alternative transport fuel

Market liquidity: LT contract-dependent market changing to gas benchmark and flexible spot market

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8th Multi-year Expert Meeting on Commodities and Development

Deloitte Marketpoint

Further information on http://www2.deloitte.com/us/lng

Recent market development An oversupplied market Demand lower than previously forecasted: •

Asia makes up 70% of the global LNG demand, EU another 15%



Slower than expected Chinese economic growth



Weak growth in EU and Japan led to slower than expected demand growth



Low oil price reducing opportunity

Deloitte Marketpoint LNG projection

Fast and significant supply increase: •

Additional liquefaction plants in Australia in the last few years



Significant capacity increases expected in the US and Australia



New capacity in East Africa (Tanzania and Mozambique)

Oversupply capacity up to 2020

Oversupplied balance is expected to remain 5

8th Multi-year Expert Meeting on Commodities and Development

Deloitte Marketpoint

LNG price Correlated with energy commodities Prices affected by LT contracts, mainly indexed to oil prices LNG market is bifurcated between LT contract and spot traded cargoes Oil and gas prices have dropped significantly impacting LNG prices Global gas and LNG price Forward curves

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8th Multi-year Expert Meeting on Commodities and Development

Small scale LNG A growing market Production

• Small scale LNG plant production • Connected to the main grid in low gas price or in gas pipeline constrained areas • Delivering fuel to road tankers or straight to the grid to meet peak demand Alabama Gas Co.’s

Storage

• Storage are located close to plant or satellite plant closer to demand • Varies from 2 to 250 days of storage depending on the end market • Bullet tanks can be purchased off-the-shelves Gasnor

Transportation

• LNG road tankers used as virtual pipelines to distribute LNG inland • Trucks can be filled at small production plant or large import terminal (break bulk) Chart

Consumption

• LNG is a potential alternative to oil-products in the transportation sector • Today used for High Horse Power applications such as on-road truck, mining truck, E&P engine, marine, and rail BC Ferries

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8th Multi-year Expert Meeting on Commodities and Development

LNG vs. CNG A trade-off Compressed Natural Gas (CNG): gas compressed and stored in CNG trailers Energy density of LNG is approximately 2.4 x greater than that of CNG

CNG similar to LNG: trailers are driven to customers, gas pressure reduced and gas ready for use Both fuels used by off-grid customers and in transportation sector

LNG vs. CNG summary table

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Physical form

Liquid produced cryogenically

Gas stored at high pressure

Temperature

-162°C

Ambient

Pressure

Atmospheric pressure

Pressurized

Density vs. one gallon of Diesel

1.7 DGE

3.8 DGE

Cost

Higher cost to process and store

Lower cost to produce and store

8th Multi-year Expert Meeting on Commodities and Development

LNG vs. CNG total cost at destination

Flare gas Solutions to avoid gas flaring Top 20 gas flaring countries Associated gas: by-product of oil extraction processes, often uneconomic to develop Flare gas: burning of associated natural gas Large quantity of gas is being flared worldwide

World Bank

Potential solutions to utilise flare gas Power

Ferus

Pioneer Energy

Fertilizer

LNG

N-flex

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Small, transportable and modular solutions exist today to capture/use associated gas:

CNG

Encana

8th Multi-year Expert Meeting on Commodities and Development



On-site power and NGLs production



CNG at the well-head



Small scale LNG plants



Fertilizer (small pilot project)

Project economic viability assessed based on alternative, local markets, and regulations

Summary A global commodity: growing number of liquefaction and regasification terminals allowing LNG to reach new markets Liquidity: players and traded volumes are gradually increasing globally LNG prices staying low: expected to stay low based on LNG S&D balance and linkage with global gas/oil prices Small scale LNG: development of break bulk from import/export terminals and small production plants – delivering gas to remote communities New technologies: development of small & modular technologies allowing the recovery and utilisation of gas in remote areas Transport fuel: LNG (and CNG) as transport fuel is growing driven by economic and environmental benefits

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8th Multi-year Expert Meeting on Commodities and Development

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