International Gas Trade

The global gas trade is forecasted to increase by more than 2% per year for the next twenty years. Much of this will be within the borders of countries; however, an increasing amount will involve crossing international borders.

International Pipeline Trade

As the global demand for gas increases and supply close to markets declines, the requirement to import gas via pipelines that cross international borders increases. Crossing international borders raises the complexity and risks of pipeline investment. It has been stated that each international border crossed raises the complexity of a project by an order of magnitude. Crossborder pipelines amplify commercial risks, especially when third-party countries that are neither sellers nor final buyers of the gas are involved. These transit countries demand fees from producers or consumers, or both, in exchange for allowing pipelines to cross their territories. There are a number of large-scale international pipelines proposed and recently completed. If current gas prices continue, many of these will be economic – however the price of steel and construction may make many of these projects commercially and technically challenging.

LNG Trade

Worldwide trade in LNG has steadily increased since the first delivery of LNG from the United States to the United Kingdom in 1959. In 1964, Algeria became the site of the first commercial LNG plant, initially exporting its product to the United Kingdom.

The number of LNG producing countries steadily continues to grow, from 8 in 1996 to 15 at the beginning of 2008, with four more (Yemen, Angola, Peru, Russia) by 2012. The number of consuming countries is also growing, currently 16 countries have terminals, forcing the LNG trade to become more competitive and market driven. A recent IEA estimate calculates more than $250 billion of new investment, in all parts of the LNG chain, will be required to meet demand until 2030. This includes more than $67 billion to be spent during the period 2006–2010. It is widely predicted that global LNG trade will grow by at least 10% - 15% over the next few years.

Two distinct LNG trade regions have developed over the past few decades: the Atlantic and the Pacific regions. Until Qatar, and to a lesser extent, Oman, began to export LNG to both regions in the mid-1990s, the two regions were largely separate, with unique suppliers, pricing arrangements, project structures, and terms. There were occasional spot sales with suppliers from the Pacific region selling to the Atlantic region customers. However, long-term contracts between the regions began with Qatar and Oman selling to Europe and North America. Future plants in Australia, Indonesia (potentially exporting to western North America) and Yemen are all looking at exporting to both the Atlantic and Pacific markets, further blurring the distinction between the regions. The growth of the LNG spot market, though small in absolute terms, has proved that LNG can be economically exported from Trinidad to Japan, and from Australia to Eastern US.

Pacific region
For many decades, the Pacific region was the center of LNG innovation and activity. The Pacific trade, accounting for more than 70% of worldwide trade, includes exports to all Asian consumers. Though the Atlantic trade shows signs of growth and innovative commercial terms, the Pacific region will continue to remain the cornerstone of the industry for many years. This balancing will probably occur when N. American prices are equal to Asian LNG prices and a worldwide LNG price is developed.

Pacific region: LNG buyer profiles. The LNG trade in the Pacific region involves countries such as Japan, South Korea, Taiwan, China, and India.

• Japan. Natural gas supplies 12% of Japan’s energy requirements, and nearly 100% of all the natural gas consumed for power generation and city gas in Japan is derived from LNG imports. Japan’s dominant position in world LNG markets cannot be underestimated. The country accounts for nearly 50% of global LNG trade and 70% of Asian trade, and it has influenced the unique characteristics of the industry since the beginning.
• South Korea. The South Korean market is the second largest in the Pacific region, accounting for 15% of the world LNG trade. Since South Korea began importing LNG in 1986, gas consumption has grown by 19% annually, to a level of 18 MTA in 2002.
• Taiwan. After the Japanese and Korean buyers, Taiwan began importing LNG in 1990. In contrast with the more northern markets, Taiwan requires peak power in the summer months, since it experiences milder winters than Japan and Korea.
• China. The prospect of China entering the global LNG market has been a topic of much discussion and anticipation for more than a decade. After much speculation, it seems as if the first two terminals in the southern provinces of Guandong and Fujian will begin imports in the near future.
• India. The Indian LNG market has, like China, been anticipated for many years. India’s LNG imports began in 2004 and its growth will be determined by the pace of gas pricing reforms, construction of LNG terminals and the domestic gas grid, and the liberalization of the power industry. India’s gas demand, growing at 5% annually, twice the rate of coal or oil, is encouraging gas prices to rise and is increasingly likely to attract serious attention from LNG exporters in the years to come.

Pacific region: LNG exporter profiles. The Pacific area—including the Middle East—remains the largest LNG producing region in the world. In 2002, Indonesia, as the largest LNG producer today, accounted for 21% of all exports. By 2010, Qatar is likely to become the largest LNG exporter in the world, as its multitude of projects comes online. Other large regional producers are Malaysia, Australia, the United Arab Emirates, Oman, and Brunei.

• Indonesia. Indonesia has always been an important LNG producer, exporting its first cargo in 1977. It still is the largest LNG producer in the world, exporting LNG from two plants owned by Pertamina, the state oil and gas company. These are Arun, which ExxonMobil operates in North Sumatra island, and Bontang, which liquefies gas from Total, Unocal, and other operators in Kalimantan island. They account for more than 20% of the world’s production. (However, Qatar is on track to replace Indonesia as the top LNG exporter in the next few years.) Indonesia is facing uncertainty in maintaining its reputation as a reliable energy supplier.
• Malaysia and Brunei. Malaysia and Brunei have been producing LNG from offshore gas reserves operated by Shell in Borneo (since 1972 and 1983, respectively). Malaysia’s plant has expanded to three major units, the latest of which came online in 2003, making it one of the largest facilities in the world and producing nearly 23 MTA. Most of Malaysia’s output, and nearly all of Brunei’s output, are sold to Japan,
• Australia. Australia’s North West Shelf LNG project has been a successful partnership of six original investors owning portions of the project. The second Australian LNG project, ConocoPhillips’ Bayu-Undan, came online in late 2006. Starting as an offshore gas-recycling project, producing valuable liquids from the rich gas condensate reservoir, onshore LNG facilities were completed by 2006. Most of the single-train 3.24-MTA production is destined for Japan. Woodside’s Pluto LNG plant has been approved and under construction, and the Total / Inpex Ichthys project should be decisioned in the near future. There are a number of projects that may be built after that, including one of the CSM LNG projects in Eastern Australia or one of the many fields awaiting development off the West and NW coast. It is unlikely that the 10-MTA Gorgon project promoted by Chevron and partners Shell and ExxonMobil will begin construction anytime soon. This project, off the western coast, has been delayed for many years due to both commercial and economic reasons. The Australian government has announced its intention to increase LNG production to more than 50 MTA by 2016, taking advantage of its stable political system, large gas reserves, and proximity to Pacific markets, however, this may be dampened by environmental factors and rising costs.
• Middle East. Without a doubt, the greatest prospect for LNG growth in the world is in the Middle East. Smaller Middle East producers are not likely to add significant capacity due to growing domestic gas requirements and limited suitable reserves. Abu Dhabi’s Das Island plant, which has exported LNG since 1977, and Oman, which has recently completed a third LNG train, Qalhat LNG, are probably reaching the limit of their LNG capacities.

The future of Middle East LNG will be from Qatar, the LNG powerhouse of the world, as it adds a series of large projects to its existing Ras Laffan and QatarGas facilities. Qatar and Iran share a large liquid-rich offshore gas field known as the North Field in Qatar and South Pars in Iran. Reserves from this field reportedly exceed 900 tcf, making it the largest known nonassociated gas field in the world, with more than 9% of the world’s proven reserves. By 2007, Qatar will likely overtake Indonesia as the largest supplier of LNG in the world. Around 2012, if all the planned projects are complete, total LNG capacity in Qatar could be as high as 77 MTA, consuming 10.2 bcfd. More than one-third of all the LNG produced in the world in 2007 will be from Qatar’s North Field.

Atlantic region
The Atlantic LNG trade has developed differently than the Pacific trade. Until recently, the regions were completely separated, with no common LNG suppliers. The regions have begun to converge as some suppliers contract with buyers in both regions, and consumers from the two regions demand similar terms from their suppliers.

Atlantic region: buyer profiles. There are a number of buyers in the Atlantic region, including those in Europe, the United States, and Mexico.

• Europe. Western Europe receives natural gas from a number of key pipeline sources. These include: Russia, North Africa (mainly Algeria and Libya), the North Sea (mainly Norway, United Kingdom, Denmark, and some onshore Netherlands), and in the near future, Caspian gas into Turkey. LNG has supplemented the pipeline imports, accounting for more than 8% of European gas requirements. It was first imported into Western Europe in the mid-1970s from Algeria to France. France imported the first LNG cargoes from Algeria in the late 1960s. Today, LNG accounts for 30% of France’s gas requirements, coming mainly from Algerian and Nigerian sources. Spain is destined to become the largest LNG importer into Europe, importing LNG from Nigeria, Egypt, Oman, Libya, Trinidad, and in the future, possibly from Norway and Algeria, among others. Italy imports LNG from Algeria, Nigeria, and Qatar. Belgium and Greece import from Algeria; Turkey imports from Algeria and Nigeria; and the United Kingdom will import from Qatar, Algeria, and Nigeria. One report predicted that by 2010, Qatar LNG would generate 15% of the United Kingdom’s electricity generation requirements.
  
  
• United States. Undoubtedly, the biggest development in the Atlantic trade has been the growth of the U.S. market. From humble beginnings in the 1970s, when the U.S. imported small quantities of LNG from Algeria, the U.S. LNG trade almost disappeared due to price competition and commercial issues. Though LNG only provides 2% of U.S. gas consumption (In 2006) , the American Gas Association estimates that this proportion will grow to more than 20% by 2020. It was, at one time, predicted that the US will become the second-largest importer of LNG. However, this seems unlikely. Relatively low gas prices and the surprising ability of domestic producers to maintain supply has resulted in much lower than estimated imports of LNG. There are a number of LNG suppliers competing for the U.S. markets. These include Qatar, Trinidad, Nigeria, Indonesia, Australia, Norway, Equatorial Guinea, Angola, and others.

Locating an LNG terminal in the United States can be a lengthy and expensive process. Local communities are reluctant to allow major industrial facilities in their neighborhoods. In addition, the court system often delays environmental permits, and special interest groups continue to magnify safety concerns. Delays and costs in the United States have led some developers to consider locating facilities in neighboring countries. A number of terminals are being constructed on both the Atlantic and Pacific coasts of Northern Mexico. As Mexican demand grows—Mexico actually imports gas from the United States—the domestic power utilities will likely consume most imported LNG. The Atlantic Coast of Canada is also seen as a potential import route into the United States, and a number of facilities are being constructed along Canada’s eastern coast.

Atlantic region: LNG exporter profiles. There are a number of LNG exporter countries, including Algeria, Libya, Trinidad, Nigeria, Egypt, Alaska, Equatorial Guinea, and others.

• Algeria. In 1965, the world’s first commercial LNG plant, the Arzew LNG plant in Algeria, came online and began deliveries to the United Kingdom under a 15-year contract. In 2005, Algeria was the second largest LNG exporter after Indonesia, exporting more than 22 MTA to Europe. In addition to LNG, Algeria also is a major pipeline supplier to Western Europe via Spain and Italy, exporting more than 1 tcf per year to the European grid.
• Libya. Though Libya has been exporting LNG since 1971, its plant at Marsa El Brega has been producing only 2.3 MTA. No plans have been announced for expansion of Libya’s LNG capacity.
• Trinidad. The first new LNG plant built for the Atlantic trade in more than 20 years was the Trinidad Atlantic LNG plant, operated by partners BP, BG, Repsol, and others. The jointly operated plant has been a success story since it was first conceived in early 1990s. By 2006, Trinidad will be able to export more than 15 MTA, making it one of the world’s largest exporters.
• Nigeria. Nigerian LNG (NLNG) is a joint venture of Shell, Total, Eni, and the Nigerian National Petroleum Corporation. The first two trains came online in 1999 and 2000 producing 5.9 MTA each. Additional trains came on line in 2002, 2005 and early 2006, giving the project a current total capacity of slightly over 17 MTA. A sixth 4-MTA train is expected to begin production by late 2007. Once the sixth train is completed, NLNG is expected to have a total capacity of 21 to 22 MTA, of which 14 MTA will be sold to Europe (primarily Italy, Spain, Turkey, France and Portugal) and the remaining to the United States. At this time, NLNG will be the largest LNG supplier in the Atlantic market, and the project, with over $11 billion invested, will be the largest private capital project in Africa.
• Egypt. Egypt’s natural gas reserves are estimated at 65 tcf, expected to grow, according to government estimates, by 5 tcf/year. Most of the new discoveries are in the Mediterranean Sea and the western desert area. Two new LNG projects have come online during the past few years. The Damietta facility, developed by Eni and the Spanish utility Union-Fernosa, began production in January 2005. The first $1.3-billion, 5.5-MTA train supplies customers in Spain. BG, Petronas, and Gas de France sponsor the Idku LNG plant, which began deliveries in late 2005. Two 3.6-MTA trains at the plant supply LNG to France, the United States, and Italy.
• Equatorial Guinea. Marathon and partners have built a 3.8-MTA plant in Equatorial Guinea, off the coast of West Africa. According to their press release, the plant will “be one of the lowest cost LNG operations in the Atlantic basin with an all-in LNG operating, capital, and feedstock cost of approximately $1/MMBtu at the loading flange of the LNG plant.
• Norway. Europe’s first LNG export facility has recently been completed outside Hammerfest in Northern Norway. Statoil’s Snohvit project will process gas from the offshore Barents Sea gas field to produce 4.1 MTA of LNG for export to Europe and the United States. The plant has faced a number of technical challenges and is still running below capacity.
• Other players.Other future suppliers in the Atlantic Basin include Russia and Angola, and possibly, Venezuela, Mauritania, and Iran.