Future of the Global LNG Industry to 2015

The global LNG industry is at a critical juncture. High demand for natural gas as a primary fuel worldwide has boosted the need for LNG as a transporting medium for gas from exporting regions to far flung markets. However, political differences, the global credit crunch and rising construction costs are affecting LNG industry growth. With demand expected to rise rapidly till 2015, the global LNG industry will be heading towards a LNG supply crunch if the planned LNG producing plants fail to commence operations as per schedule.

Global Markets Direct’s new report “The Future of the Global LNG Industry to 2015”, provides an in-depth analysis, highlights the various concerns, shifting trends and prospects in the global LNG industry. This will support investment decisions in the LNG business globally with information on the LNG demand-supply scenario; available natural gas reserves vis-à-vis LNG producing capacities, LNG prices, LNG trade movements, profiles of major LNG companies and an analysis of the competitive scenario in major LNG markets across the globe.

The Global LNG Shortage Will Become Acute by 2015

The global LNG industry is heading towards a supply crunch by 2015. The LNG supply shortage is here to stay and will probably become acute after 2012. Assuming that all the LNG producing plants worldwide commence operations as per schedule, the demand-supply gap will stand at more than 500 Million Tonnes of LNG. The supply gap will rise sharply between 2009 and 2011 by over 40% and will keep rising till 2015.
Imbalances among the elements of the LNG value chain - liquefaction, shipping and regasification, have long been responsible for a demand-supply mismatch in the global LNG industry. With natural gas becoming the fuel of choice globally, LNG demand is set to grow. In such a scenario, low LNG production capacity growth due to delays in planned liquefaction projects affected by low capital availability will lead the global LNG industry towards an acute supply crunch by 2015.

Increases in LNG Production Capacity will Slow Due to High Construction Costs and the Postponement of Upcoming Liquefaction Projects

Rising construction costs and delays in planned liquefaction projects will slow down global LNG production growth. Planned liquefaction projects, which require high capital investment, have been hit by the rising costs of commodities, labor and materials. For example, between 2004 and 2008, steel prices went up by 300%-350% and are expected to remain high. This has led to a revision in cost and time estimates for many planned projects. In Australia, the Gorgon LNG project, which was supposed to commence operations in 2010, is now expected to be operational by 2014. Ichthys, another major project in Western Australia, which was scheduled to start in 2012 at a cost of $10 billion, would commence operations in 2014 with revised cost estimates.
Contractors and developers are hopeful that overall project costs will fall due to dip in commodity prices triggered by the current global financial meltdown. Investors remain skeptical about the extent to which new project costs will decline, leading to investment delays and liquefaction project postponements. Over the next five years, all these factors will lead to the slowest global LNG production growth since the 1970s.

Global Financial Meltdown Will Restrain LNG Industry Growth

The financial meltdown across the globe has reduced demand for primary energy sources, especially oil. If the oil prices remain low, the incentive for most countries to shift from oil to natural gas as primary fuel (mainly for power generation and domestic usage) will also come down. Unless oil prices pick up and reach the high levels of 2007 and early-mid 2008, natural gas along with LNG demand will not witness high growth. In such a scenario, investments on capital intensive LNG producing plants will also decline. Currently, the global financial crunch has already hit many liquefaction projects and with dip in LNG demand, the situation might worsen.

Global LNG Trade Movements in 2015 Will be Marked by the Rise of New Importing and Exporting Markets

Global LNG trade movements in 2015 will be balanced by trade volumes between Middle East and Africa and the US on the western hemisphere and South East Asia – Australia combined and Japan in the East.. Currently, the global LNG trade movement is highly skewed towards Japan, which happens to be the largest importer of LNG in the world.
The top five LNG exporters in the world today are Qatar, Indonesia, Malaysia, Algeria and Trinidad and Tobago – in that order, based on their long-term LNG supply commitments. By 2015, Indonesia and Algeria will be replaced by Nigeria and Australia – they will occupy second and third places. While Australia will export mainly to Japan, Nigeria’s major export volume will be to the US.
By 2015, new liquefaction terminals from Europe, South and Central America and the
Middle East and Africa will supply LNG to new regasification terminals in the US, Japan, India, China and Europe. The global regasification or LNG consuming market will comprise primarily of  the US and Asia Pacific. The Middle East and Africa will become a major LNG supplying hub along with Asia Pacific and South and Central America.

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