Lecture 12 LNG Markets Data from BP Statistical Review of World Energy 1991 to 2016 Slide 1 LNG Demand LNG demand is expected to grow from China, India and Europe in particular. Currently biggest importer is Japan. Largest supplier is Qatar. LNG attractive since it is clean burning and produces relatively low volumes of CO 2. World demand increasing by about 7% each year. Slide 2 1
2016 Status Two years of decline in 2012 and 2013 (0.9% / year). Small increases in 2014 and 2015 (2.6% and 1.5%). Decline due to global slowdown and political unrest. Start ups in 2015: QCLNG, Curtis Island, Australia, 8.5 mtpa; Donggi-Senoro, Indonesia, 2 mtpa Shutdowns in 2015: Angola due to technical problems; Egypt due to insufficient feedstock. Slide 3 Gas Movements Source: BP Statistical Review of World Energy June 2016 Slide 4 2
Growth in LNG Market Slide 5 Annual Growth Rate Assuming 7% annual growth from 1990 Slide 6 3
Annual Growth (1) Average growth has been about 7% per year. 141.5 mtpa new production under construction mainly in Australia and USA. Australia expected to be the largest LNG producer by 2018. Slide 7 Annual Growth (2) Demand is driven by: Japan (replacement of nuclear power); China (expansion); India (expansion); UK (decline of North Sea gas); Replacement of Russian gas (political/economic); Replacement of high carbon oil and coal. Slide 8 4
Liquefaction Processes LNG Producers Slide 9 LNG Producers in 2013 Qatar 106.4 billion m 3 31.5 % Australia 39.8 11.8 Malaysia 34.2 10.1 Nigeria 27.5 8.1 Indonesia 21.9 6.5 Trinidad & Tobago 17.0 5.0 Algeria 16.2 4.8 Russia 14.5 4.3 Oman 10.2 3.0 Papua New Guinea 9.7 2.9 Brunei 8.7 2.6 UAE 7.6 2.2 Norway 6.0 1.8 Peru 5.0 1.5 Equatorial Guinea 5.0 1.5 Other European 4.9 1.4 Yemen 2.0 0.6 Other Asia Pacific 0.9 0.3 USA 0.8 0.2 Total 338.3 100.0 Source: BP Statistical Review of World Energy June 2016 Slide 10 5
LNG Production by Region Slide 11 Top Eight LNG Producers Country mtpa 1990 Country mtpa 2015 Indonesia 21.2 Qatar 106.4 Algeria 14.6 Australia 39.8 Malaysia 6.6 Malaysia 34.2 Brunei 5.5 Nigeria 27.5 Australia 3.0 Indonesia 21.9 UAE 2.5 Trinidad 17.0 USA 1.1 Algeria 16.2 Libya 1.0 Russia 14.5 Total 55.5 Total 277.5 Slide 12 6
LNG Producers 1990 and 2015 1990 2015 Slide 13 North and South America Producers Slide 14 7
European Producers Slide 15 Russian Production Slide 16 8
Middle East Producers Slide 17 African Producers Slide 18 9
Asia/Pacific Producers Slide 19 Liquefaction Processes LNG Importers Slide 20 10
LNG Importers in 2015 Japan 118.0 Billion m 3 34.9 % South Korea 43.7 12.9 China 26.2 7.7 India 21.7 6.4 Taiwan 18.7 5.5 Spain 13.1 3.9 UK 12.8 3.8 Middle East 10.5 3.1 Turkey 7.5 2.2 Mexico 7.1 2.1 Brazil 7.1 2.1 France 6.6 2.0 Italy 6.0 1.8 Argentina 5.8 1.7 Other Europe 5.3 1.6 Chile 4.2 1.2 Belgium 3.8 1.1 Africa 3.8 1.1 Thailand 3.6 1.1 Singapore 3.0 0.9 Other South America 2.8 0.8 USA 2.6 0.8 Malaysia 2.2 0.7 Pakistan 1.5 0.4 Canada 0.6 0.2 Slide 21 LNG Importers by Region Slide 22 11
LNG Importers 1990 and 2015 1990 2015 Slide 23 N. & S. America Import Market Imports into the USA started to increase in 1999, and reached a peak in 2007. Since then they have decreased as shale gas production has increased. The USA has just started LNG exports from the east coast. Largest importer is Argentina at 5.8 Bm 3 /y. Main supplier is Trinidad and Tobago. Slide 24 12
North and South America Importers Slide 25 European Import Market Main increases in import into Europe are: Spain; UK (From zero as North Sea gas declines); France; Turkey; Italy (Increased from zero). Recent mild winters have reduced imports. Slide 26 13
European Importers Slide 27 Far East Import Market Far East has seen the greatest growth, from 52 (1990) to 239 (2015) Bcm/y. India commenced imports in 2004. China commenced imports in 2006. Malaysia, Singapore and Pakistan commenced imports in 2014 or 2015. Japan was importing more to compensate for shutdown of nuclear power stations. S. Korea and Taiwan also increasing imports. Slide 28 14
Far East Importers Slide 29 Liquefaction Processes Gas Dependency Slide 30 15
North America Gas Dependency Slide 31 S. & C. America Gas Dependency Slide 32 16
Europe Gas Dependency Slide 33 Eurasia Gas Dependency Slide 34 17
Middle East Gas Dependency Slide 35 Africa Gas Dependency Slide 36 18
Asia Pacific Gas Dependency Slide 37 Liquefaction Processes Market Trends Slide 38 19
Global Gas Prices US and Canada benefited from shale gas. European gas price now falling. Japanese price closely following oil price. Slide 39 Japan Energy Sources No significant indigenous energy source. Nuclear shutdown after Fukushima (2011). Slide 40 20
Effect of Fukushima Incident Slide 41 South Korea Energy Sources No significant indigenous energy source. Trying to diversify from oil and nuclear. Slide 42 21
Change in South Korea Primary Energy Total energy consumption increased by 37% in 14 years. Slide 43 USA Energy Sources 13% increase in natural gas. 17% decrease in coal and 6% decrease in oil. Slide 44 22
Change in USA Primary Energy Slide 45 USA Natural Gas Sources Slide 46 23
Liquefaction Processes European Market Slide 47 European Pipeline Gas Supply Source: www.economist.com Slide 48 24
European Gas Sources Slide 49 Reliance On LNG Slide 50 25
Reliance On Russian Gas Slide 51 UK Energy Sources Slide 52 26
Change in UK Primary Energy Slide 53 Germany Energy Sources Slide 54 27
Change in German Primary Energy Slide 55 Liquefaction Processes LNG Contracts Slide 56 28
LNG Contract Structure LNG contracts are mainly long term more than 10 years. Contracts are frequently signed before the liquefaction facility is built. The contracts make it easier for the LNG plant operator to obtain bank finance. Over the last few years, the spot market has begun to develop. Slide 57 Natural Gas Market LNG competes with pipeline gas. In 2013 pipeline gas deliveries were double LNG deliveries: 710.6 against 325.3 Bcm. Pipeline contracts normally negotiated between one buyer and one seller. LNG contracts can offer more flexibility. LNG supply and demand expected to increase significantly over the next few years. Slide 58 29
Natural Gas Market Types The global gas market divides into four different models: Gas-on-gas market; Substitute energy index; Oil-linked market; Regulated market. Slide 59 Gas-on-Gas Market Liberal market with volatile price generally not synchronised with other energy markets. Key features: Large number of suppliers and buyers; Ample storage and transport systems; Sophisticated markets with financial instruments. Examples: US, UK, Canada. Slide 60 30
Substitute Energy Index Market Gas prices linked to price of other fuels, particularly oil and coal. Key features: Limited number of suppliers but many buyers; Storage and transport systems controlled by a few organisations; Some financial markets trading gas. Examples: Europe, SE Asia. Slide 61 Oil-Linked Market Gas prices linked directly to oil prices. Country imports large volumes of gas. Key features: Limited number of suppliers and buyers; Storage and transport controlled by buyers; No significant financial markets trading gas. Examples: Japan, Korea, Taiwan. Slide 62 31
Regulated Market Controlled market with prices set by government. Key features: Usually limited number of buyers and sellers; Most infrastructure controlled by the state; No, or limited effect of market forces; Pooled prices with government taking price risk. Examples: Middle East, Russia, China. Slide 63 Index Linked Contracts Common formula for price indexing is: CP = BP + βx Where CP = Contract price BP = Base price β = gradient X = Indexation Slide 64 32
Price Index Mechanism Marker price can be oil price or a mixture of fuel prices. Japan uses Japanese Crude Cocktail. Effect of large changes in marker price do not have such a large effect on LNG price. LNG Price Marker Price Slide 65 Liquefaction Processes LNG Opportunities Slide 66 33
LNG Opportunities There are 93 gas fields with reserves exceeding 5 TCF. China and India are expected to increase LNG imports rapidly in the next few years. UK has increased imports as North Sea gas has declined. Japan has increased imports since Fukushima. USA gas production increase due to shale gas. Slide 67 LNG Conversion A 4.8 million ton per year LNG plant consumes: 7.5 billion Sm 3 of gas each year; 770 MM SCFD of gas; 6.5 TCF over 25 years. MM SCFD million standard cubic feet per day TCF trillion cubic meters. Slide 68 34
Liquefaction Processes End of Presentation Slide 69 35