The FLNG Market is Poised for Growth

Date:2014/2/21/ 14:13

File Amanda Tay
Amanda Tay

Significant Growth in FLNG Market as Export Projects Gain Traction; Natural Gas to Lead Energy Demand

There are many different views on the future of energy supplies, but strong agreement in two areas; over the next 25 years or so population growth and GDP growth in the developing economies, particularly China and India, will drive global energy demand to increase by some 50% and second; while oil’s share of the energy mix will decline, the largest growth will be in consumption of natural gas. Why? Natural gas is an outstanding fuel for power generation, gas-fired power plant has the lowest Capex, it produces less than half of the CO2 emissions of coal, it is relatively cheap and there are abundant reserves – the International Energy Agency (IEA) suggests sufficient to last 230 years at current consumption levels.
In Asia it’s not just China and India that are propelling growth; the Southeast Asian nations are also contributing to the dynamic shift. Currently, the region’s per-capita energy consumption is suppressed due to the lack of access to electricity. However, as this is addressed, demand is expected to increase by more than 80% by 2040. 
Oil, however, is a different subject. It is maintaining a high price and shows signs of an approaching peak in conventional supplies. Some would say that conventional supplies have peaked – between 2003 and 2010 it seems that the world’s top-eight international oil companies all saw a peak in production. Furthermore, between 2000 and 2012 the net growth in global oil supplies came from unconventionals, such as the United States (US) shale and Canadian oil sands, neither of which rate as cheap oil. Any restrictions in oil supplies will also serve to increase the demand for natural gas.
 
Importance of LNG
Most natural gas is used in the region of production, resulting in major pipeline networks in Europe and the US. However, many of the largest reserves are often great distances from markets and unlike oil, gas is expensive to transport as pipelines start to become economically unviable much beyond 1,000 km. In this situation liquefaction offers an alternative. By cooling the gas to -162 Celsius the gas liquefies and reduces to one six hundredth of its volume, allowing transportation in large insulated tanks on specially designed gas carrier ships.   
Liquefaction requires specially built, high-cost complex plants, often containing several parallel process ‘trains,’ accordingly LNG plants are expensive. However, the cost of alternative energy sources is increasingly making LNG an option in many markets, Japan being a leading example, where prices are in the order of $16, compared with $9 in Europe and $4 in the US.  
Some 30% of global natural gas imports are already being delivered via LNG. Supply growth in recent years has been from LNG plants in Africa, the Middle East countries of Qatar and Yemen. Considerable investment is being made in additional plants and in 2014-15 Australia should greatly add to supplies. Potential future sources of supply also include Canada, Russia, East Africa, the Eastern Mediterranean and indeed US shale gas, when political objections to natural gas exports are overcome. According to the Douglas-Westwood’s ‘World LNG Market Forecast’ over the period 2013 to 2017 $143 billion (bn) will be spent on liquefaction plants, $35bn onLNG carriers and $50bn on import facilities. The total is double that of the previous five-year period.

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