LNG Trade Surges

COUNTRY BRIEFING - FROM THE ECONOMIST INTELLIGENCE UNIT

Global trade in liquefied natural gas (LNG) grew by 7.8% in 2005 compared with the previous year, with Spain, France and India among the fastest growing markets, and Qatar and Australia showing the largest increases in sales, according to the annual report of the Paris-based International Group of LNG Importers (GIIGNL).

LNG entails cooling natural gas to minus 160 degrees Celsius and transporting it aboard specially fitted tankers to terminals at which it is converted back to gaseous form. It currently accounts for just over 20% of the global gas trade, with pipelines making up the remainder. Within 20 years, LNG trade is expected to outstrip pipelines, with increasing quantities sold on the spot market, rather than on the basis of long-term contracts, which are the norm today. The principal advantage of LNG is that it offers importers a wider choice of supplier, which will be enhanced as spot trading grows.

The GIIGNL report shows that LNG trade in 2005 reached a total 141.7m tonnes (which is equivalent to 176.7bn cu metres of natural gas, according to conversions taking into account the various densities of LNG at different plants). The ranking among the largest importers remained the same as in previous years, with Japan leading the field by a long margin with imports of 58.1m tonnes, 1.8% up on 2004. South Korea was in second place (22.5m tonnes), followed by Spain (17m tonnes) and the US (12.7m tonnes).

Europeup by 20%

Much of the growth in LNG sales during the year was accounted for by Europe, whose imports increased by 21% to 36m tonnes. Most of this increase was accounted for by Spain and France, which have contracts to import LNG from two newly opened plants in Egypt. Last year also saw the resumption of LNG imports by the UK, which has reactivated its Isle of Grain terminal, mothballed since the 1960s. The Asian market grew by 4.6%, owing to the arrival of India as a significant player, importing 5.7m tonnes, mainly from Qatar. North American imports declined slightly to 13.4m tonnes, but that was related mainly to the effects of Hurricane Katrina.

The rankings of top LNG suppliers also remained the same in 2005, but the pecking order has changed in recent months with the start-up of a new LNG train in Qatar, propelling the Gulf Arab state from third to top position. The largest supplier last year was Indonesia, with sales of 23.5m tonnes, followed by Malaysia (21.9m tonnes), Qatar (20.7m tonnes), Algeria (18.7m tonnes), Australia (11.4m tonnes) and Trinidad & Tobago (9.9m tonnes). Among the major suppliers, exports from Indonesia declined by 5.6%, while those from Malaysia (up 9%), Qatar (13.3%) and Australia (27%) all increased. Egypt was a new entrant to the market, with sales of 5m tonnes, following the start-up of its first plant, in Damietta, at end-2004, and two more trains at Idku in April and September 2005.

Next wave

According to the GIIGNL survey last year also saw the signing of 16 long- and medium-term sales and purchase agreements, involving the supply of 23.9m t/y of LNG from existing producers (Australia, Qatar, Malaysia, Oman and Egypt) and from new players (Russia--from Sakhalin II--Iran and Yemen). The prospective buyers are Japan, India, South Korea, Taiwan, Belgium, Spain and the US. An additional seven Heads of Agreement were signed during the year, of which six involved supplies to Japan (from Russia and Australia) and the other was a deal between Algeria and the US.

Such contracts dominate the LNG market, but spot sales are becoming increasingly common, accounting for 13% of global trade in 2005. The spot market has more than doubled since 2002, mainly as a result of rapid growth in such sales to the US, which accounted for 43% of the market in 2005, followed by Spain and South Korea.

The start-up of the two Egyptian plants has brought the number of LNG liquefaction sites in the world to 17, with a total 76 individual trains and combined capacity of 175m t/y. Average utilisation in 2005 was 81%. There are currently 51 regasification terminals in the world, including four that started up in 2005 (Isle of Grain, Gulf Gateway in the US, Hazira in India and Gwangyang in South Korea). There total send-out capacity is 477bn cu metres of natural gas per year. Over the next few years both liquefaction and regasification capacities are set to increase rapidly.

Among existing producers, the largest projects underway are in Qatar, which is aiming to reach capacity of 77m t/y by 2014. Australia has several major expansion schemes planned or underway, and Nigeria's capacity is set to exceed 20m t/y in 2007. The fourth train  of Atlantic LNG in Trinidad & Tobago came on stream at the end of 2005, bringing total capacity to 15m t/y. New producers in the next few years will include  Russia, whose first LNG plant, Sakhalin II, is scheduled to start up in late 2008, Yemen (6.9m t/y on stream by mid-2009), Norway (4.2m t/y in 2007), Peru (4.4m t/y in 2009) and Equatorial Guinea (3.4m t/y in late 2007). Iran also has major plans for LNG exports, but projects have yet to be finalised.

On the receiving side one of the most active areas of expansion is the US, where capacity is being enhanced at the four existing onshore terminals (the recently opened Gulf Gateway is offshore), and work is getting under way on four new plants, all on the east coast. Plans have been submitted for dozens more terminals on both the east and west coasts, and the US Energy Information Administration forecasts that LNG could account for 21% of total US gas supply by 2025, which would require regasification capacity of 17.5bn cu ft/d (equivalent to 180bn cu metres/y).

The UK is also gearing up for a major increase in LNG imports. Capacity at the Isle of Grain is to be increased to 10.5m t/y from 3.3m t/y at present, and work has commenced on two terminals in Wales that will eventually have a combined capacity of almost 20m t/y. The larger is South Hook, which will have two 7.5m-t/y plants, both to be supplied by Qatar. Other major projects are going ahead in China, Italy, Spain, France and Belgium.