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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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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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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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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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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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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