International Gas Union (IGU)News, views and knowledge on gas – worldwideWORLD LNG REPORT 2010 March 2010 | International Gas Union Publication 1 March 2010 ar h rch Inter a International s Unio Pub tern Publication
2 IGU World LNG Report -2010Message From The President Of The International Gas UnionT he past few years have indeed been transformational for the LNG industry, and 2010 was an equally eventful year. With LNGvolume having doubled between 2006 and 2010, LNG has becomean increasingly important medium for transporting natural gas acrossborders. Countries which used to be small LNG importers have nowemerged as major buyers, while several others have now joined thelist of LNG importers. Latin America, the Middle East and SoutheastAsia will all become importers by the end of 2011.To accommodate this increasingly complex web of buyers and sellers,the structure of the LNG trade is evolving. While long-term contractswill continue to underpin new investments, they are being increasinglysupplemented by a growing short-term and spot trade, made possiblein part by destination ﬂexibility in LNG contracts. More than a ﬁfthof the world’s LNG trade in 2010 was in the short-term market, and the volume is expected to growfurther in the next few years. Evidently, more companies are now constructing regasiﬁcation terminalswithout ﬁrst securing long-term supply contracts - such is the new landscape of the LNG market.The backdrop for these changes is robust demand, where in developed and emerging markets,natural gas has now become the fuel of choice to supply electricity, provide heating and cooling, andsupport economic growth. Defying earlier forecasts of a possible glut in supply due to the economiccrisis, a strong demand was experienced in both OECD and non-OECD markets. OECD countriesconsumed 90 bcm more LNG in 2010 than in 2009, with several countries exceeding the consumptionlevels of 2008. In the BRIC countries demand grew by 100 bcm, well above 2008 levels. In a carbon-constrained world, natural gas is a fuel whose awareness and attractions have continued to grow, andthe fundamentals for this industry are as strong as ever.The boom in demand has been matched by an equally sharp increase in supply. Although growthin supply was contributed by several countries, Qatar’s completion of its 77 MMtpa capacity in early2011 stands out. Australia is also fast joining the LNG big league with the number of new FIDs recentlyannounced. An equally important development is the dramatic growth in unconventional gas in theUnited States, which is set to alter the global energy scene. In 2010, shale gas had accounted for 20%of the nation’s domestic gas output and that share is expected to grow further. Large regasiﬁcationterminals, built over the last few years, now stand almost idle as Henry Hub has remained disconnectedfrom the rest of the world.Against this background, the world has been paying close attention to the human tragedy which hadunfolded in Japan as a result of that country’s worst ever earthquake and tsunami. The multiple-layered shock which had rocked Japan’s nuclear power will also serve to support natural gas demandeven further. Meanwhile, recent changes in the Governments of some of the countries in the MiddleEast are expected to reshape the region’s political and economic environment. So far, although the
IGU World LNG Report -2010 3supply shock has not been very signiﬁcant, the alacrity at which events have unfolded is a prudentreminder of how volatile the current state of the world’s oil and natural gas industry is.At a time when the LNG business is changing very rapidly, the International Gas Union under theMalaysian Presidency is very pleased to publish our ﬁrst annual World LNG Report. This report aimsto serve as a reference for veterans and newcomers in the LNG industry, and we trust that thisdocument will also inspire discussion on how our industry will continue to change and evolve in theyears to come. Solid facts and information are the basis for any sound commercial decision, and wehope that this report will provide plenty of both.Finally, I would like to thank PFC Energy and the Task Force for Programmed Group Committeefor LNG (PGC D) for preparing and making this IGU document a reality. Our special thanks also toPETRONAS for helping to sponsor the publication of this inaugural report.Thank you.
4 IGU World LNG Report -20102. State of the LNG Industry at the End of 2010 During 2010 . . . ß LNG volumes grew by a record 41 million tonnes per annum (MMtpa), or 22%, reaching nearly 224 MMtpa. This growth was driven by newly-commissioned liquefaction trains as well as the ramp-up in output from trains commissioned in 2009. When compared to the 143 MMtpa of LNG traded in 2005, the market has grown by more than 50% over the past five years. ß The LNG market became even more flexible with spot volumes growing to 47 MMtpa, over one- fifth of the LNG trade. By comparison, the spot market made up only 10% of trade in 2005, with a majority of spot and short-term transactions coming from the Atlantic Basin. ß Four liquefaction trains located in Peru (1 train), Qatar (2 trains) and Yemen (1 train) were commissioned, bringing the total number of operational liquefaction trains to 94. Specifically, the start-up of the Peru LNG facility made Peru the second LNG exporter in South America, and bringing the total number of countries exporting LNG to 18. ß Newly-commissioned liquefaction trains as well as the completion of debottlenecking at Malaysia LNG Dua’s plant increased global liquefaction capacity by 24 MMtpa, or almost 10%, to 271 MMtpa at year-end. Since 2005, capacity has risen by 100 MMtpa from 171 MMtpa. ß One project – Queensland Curtis – made a final investment decision (FID) in 2010, while two others – Gladstone LNG and Donggi Senoro LNG – achieved FID in January 2011. ß Five new LNG receiving terminals began operations, bringing the total to 83. Commissioning of the Mina Jabel Ali floating regasification terminal in Dubai brought the total number of LNG importing countries to 23. ß The combination of newly-online receiving terminals and expansion projects at existing facilities increased global regasification capacity by 41 MMtpa to 572 MMtpa, a 71% increase over 2005. ß The LNG carrier fleet grew to 360 ships, up from 195 ships at end-2005. The combined capacity of the 2010 fleet totaled 53 million cubic metres. ß The US gas market continued to experience a profound transformation, driven in large part by a boom in shale gas production. As a result, LNG volumes previously destined for the US market have been re-directed to other markets. ß The success of shale gas in the United States sparked enormous interest in other countries that are believed to have significant deposits. These countries hope to increase their shale gas production and lessen their need for LNG imports. In most places, however, that process will take many years to materialise.Key:MMt = million tonnes MMtpa = million tonnes per annum cm = cubic metresmcm = thousand cubic metres MMcm = million cubic metres bcm = billion cubic metresMMBtu = million British thermal units
IGU World LNG Report -2010 53. LNG Imports and ExportsTraded LNG volumes doubled over the last decade with several new countries joining the LNGmarket.At the start of 2010, the LNG market was faced with the prospect of record supply growth, driven mostlyby Qatar, and a weak demand environment in the aftermath of the economic crisis and the shale gasboom in the United States. Yet demand recovered impressively, and so did LNG imports: in fact, mostcountries imported more LNG in 2010 than in the pre-crisis year of 2008. As a result of strong demandand high oil prices, LNG prices remained high. 3.1. OVERVIEW In 2010, the volume of LNG traded reached 223.8 MMtpa, representing a 41 MMtpa increase from 2009. This is the largest year-on-year growth the industry has ever experienced, with 2006 realizing the next highest growth at 16 MMtpa. For the five years leading up to 2010 (2005-2009), the LNG trade grew by an average 7% per annum, compared to a 22% jump in 2010. The LNG trade has not only grown in volume, but in geographic reach as well. In 2005, there were 13 countries exporting LNG: Algeria, Australia, Brunei, Egypt, Indonesia, Libya, Malaysia, Nigeria, Oman, Qatar, Trinidad & Tobago, United Arab Emirates (UAE) and the United States (US). During the past five years (2006-2010), five additional countries began to export LNG: Equatorial Guinea, Norway, Peru, Russia and Yemen; this list excludes countries that re-export foreign-sourced LNG. Over the same period, eight countries – Argentina, Brazil, Canada, Chile, China, Kuwait, Mexico, and the UAE – began importing LNG, adding to the existing 15 importers which include Belgium, Dominican Republic, France, Greece, India, Italy, Japan, Portugal, Puerto Rico, South Korea, Spain, Taiwan, Turkey, the United Kingdom (UK) and the US. 3.2. LNG TRADE VOLUMES FIGURE 1: LNG TRADE VOLUMES, 1980-2010 250 25 Volume of LNG Trade No. of LNG Exporting Countries (right axis) 200 20 No. of LNG Importing Countries (right axis) No. of Countries 150 15 mmtpa 100 10 50 5 0 0 1982 1986 1990 1994 1996 2000 2004 2008 1980 1984 1988 1992 1998 2002 2006 2010 Sources: Cedigaz, Waterborne LNG Reports, US Energy Information Agency (EIA), US Department of Energy (DOE), PFC Energy
6 IGU World LNG Report -2010The volume of LNG traded worldwide as well as the number of countries involved in the import andexport of LNG, has continued to grow, especially during the last decade. During 2006 to 2010, thetrade grew by 81 MMtpa – 78% of this incremental LNG came from previously existing LNG exportingcountries, the other 22% from countries that began LNG exports during the period. On the demandside, 72% of the 81 MMtpa of incremental LNG was consumed by previously existing LNG importingcountries; the other 28% was consumed by countries that started importing during the period.3.3. LNG EXPORTS BY COUNTRYBy the end of 2010, 18 countries were exporting their natural gas as LNG. In addition, four countries –Belgium, Mexico, Spain and the US – were re-exporting LNG imported from another source.Qatar is by far the largest LNG exporter. In 2010, the country supplied 57.5 MMtpa of LNG to themarket – more than one quarter (26%) of global supply – and its LNG exports will continue to grow asthe mega-trains realise full-year production. Pacific Basin countries, namely Indonesia, Malaysia andAustralia, are the next largest exporters and together accounted for 29% of the world’s LNG supply in2010.TABLE 1: LNG EXPORTS BY COUNTRY, 2010 Exporter MMtpa Qatar 57.5 FIGURE 2: LNG EXPORTS BY COUNTRY, 2010 Indonesia 23.6 Nigeria, 8% Trinidad, 7% Malaysia 23.1 Australia 19.1 Australia, 9% Algeria, 6% Nigeria 18.1 Trinidad 15.2 Russia, 5% Algeria 14.3 Russia 10.6 Oman, 4% Oman 8.7 Malaysia, 10% Egypt, 3% Egypt 7.1 Brunei 6.7 Brunei, 3% UAE 5.8 Indonesia, 11% UAE, 3% Yemen 4.3 Yemen, 2% Eq Equatorial Guinea 4.1 Guinea, 2% Norway 3.5 Qatar, 26% Norway, 2% Peru 1.3 Peru, 1% Libya, 0.1% US, 0.3% US 0.6 Libya 0.2 Total Exports 223.8Sources: Waterborne LNG Reports, US DOE, PFC EnergyIn 2005, Indonesia was the world’s largest exporter, a position the country had held since 1984.However, by 2006, Qatar overtook Indonesia as the largest LNG supplier in the market. In fact, since2005, Qatar’s LNG output has increased by over 150%.
IGU World LNG Report -2010 7FIGURE 3: LNG EXPORTS BY COUNTRY IN 2005 AND 2010 60 200% 2005 % Growth in Exports 50 2010 150% % Growth in Exports, 2010 vs. 2005 (right axis) 40 100%mmtpa 30 50% 20 0% 10 -50% 0 -100% Indonesia Nigeria Norway Guinea Brunei Oman Australia Libya Qatar Egypt Peru Trinidad Malaysia Algeria US UAE Yemen Russia EqSources: Waterborne LNG Reports, US DOE, PFC EnergyIn addition to the unprecedented growth from Qatar over the last decade, the entrance and growth ofLNG exports from non-traditional LNG exporters has meant a significant diversification of the LNGsupplier base over the last decade. The graph below shows how countries’ shares of LNG exportshave transformed as new players entered.FIGURE 4: SHARE OF GLOBAL LNG EXPORTS BY COUNTRY, 1990-2010 100% Peru Yemen Russia 80% Norway Eq Guinea Egypt 60% Oman% Share Nigeria Trinidad 40% Qatar Libya US 20% UAE Australia Brunei 0% Malaysia Algeria 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 IndonesiaSources: Cedigaz, Waterborne LNG Reports, US DOE, PFC EnergyAt the regional level, changes in the LNG supplier base have brought about two noteworthy shifts: in2006, the Middle East and North Africa region (MENA) overtook the Asia-Pacific as the largest LNGexporting region; and in 2007, Europe became the sixth region to export LNG.
8 IGU World LNG Report -2010FIGURE 5: LNG EXPORTS BY REGION, 1990-2010 250 200 Europe Africa 150 S. Americammtpa N. America 100 MENA Asia-Pacific 50 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010Sources: Cedigaz, Waterborne LNG Reports, US DOE, PFC Energy3.4. LNG IMPORTS BY COUNTRYJapan has traditionally been the largest consumer of LNG and remains so today with an annualconsumption of 71 MMtpa of LNG in 2010, followed by South Korea at 34 MMtpa. Together, these twocountries account for just less than half (47%) of the world’s LNG consumption.TABLE 2: LNG IMPORTS BY COUNTRY, 2010 Importer MMtpa Japan 70.6 FIGURE 6: LNG IMPORTS BY COUNTRY, 2010 S Korea 34.1 France, 5% China, 4% Taiwan, 5% India, 4% Spain 20.5 UK 14.2 US, 4% Taiwan 11.6 Italy, 3% UK, 6% France 10.5 Turkey, 3% China 9.5 Belgium, 2% India 9.3 Mexico, 2% Spain, 9% Chile, 1% US 8.5 Portugal, 1% Italy 6.7 Kuwait, 1% Turkey 5.9 South Brazil, 1% Belgium 4.5 Korea, 15% Canada, 1% Mexico 4.4 Argentina, 1% Chile 2.3 Greece, Japan, 32% Portugal 2.2 0.4% Kuwait 2.1 D. Republic Puerto 0.3% Brazil 2.0 Rico, 0.3% UAE, 0.1% Canada 1.5 Argentina 1.3 Greece 0.9 Dominican Rep. 0.6 Puerto Rico 0.6 UAE 0.1 Total Imports 223.8Sources: Waterborne LNG Reports, US DOE, PFC Energy
IGU World LNG Report -2010 9FIGURE 7: LNG IMPORTS BY COUNTRY IN 2005 AND 2010 80 250% 2005 70 2010 200% % Growth in Imports 60 % Growth in Imports, 2010 vs.2005 (right axis) 150% 50 mmtpa 40 100% 30 50% 20 0% 10 0 -50% Kuwait Argentina China Chile Canada US Brazil India UAE Mexico Turkey Taiwan Japan Portugal Belgium Dom Rep Spain Italy Greece UK* France S Korea Puerto Rico *Growth in UK imports in 2010 vs 2005 far exceeded 250%Sources: Waterborne LNG Reports, US DOE, PFC EnergyAs shown in the figure above, all LNG importing countries saw their LNG imports increase betweenend-2005 and 2010, except for the US, which was due to the unanticipated additional domestic supplyfrom unconventional gas, in particular shale gas.In developed and emerging markets, gas is increasingly a fuel of choice to supply electricity, provideheating and cooling, and support economic growth. During the last five years (2006-2010), eight newcountries began to import LNG to meet domestic needs: Argentina, Brazil, Canada, Chile, China,Kuwait, Mexico and the UAE. Notably, three of these countries are located in South America and twoin the Middle East – two regions which were not importing LNG and not considered to be significantpotential LNG markets even six years ago. In the near-term, Southeast Asia is also expected tobecome a LNG importer with the startup of Thailand’s first receiving terminal in 2011.FIGURE 8: SHARE OF GLOBAL LNG IMPORTS BY COUNTRY, 1990-2010 UAE 100% Chile Brazil Kuwait Canada 80% Argentina Mexico China 60% UK % Share India Dom Rep Puerto Rico 40% Portugal Greece Turkey Italy 20% Taiwan US Belgium 0% Spain France 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 S Korea JapanSources: Cedigaz, Waterborne LNG Reports, US DOE, PFC Energy
10 IGU World LNG Report -2010 3.5. LNG INTERREGIONAL TRADE In 2010, 60% of the world’s LNG was consumed by the Asia-Pacific region. During the year, Asian countries consumed 135.1 MMtpa of LNG, of which a majority (60%) was sourced from within the region, while 40% was imported from other regions. TABLE 3: LNG TRADE BETWEEN REGIONS, 2010, MMTPA Importing Region 1 Europe Asia-Pacific Middle East N. America S. America Total Exporting Region Africa 12.2 5.3 0.3 2.6 1.9 22.2 Asia-Pacific - 81.4 0.3 1.6 - 83.0 Europe 2.4 0.3 0.1 0.6 0.1 3.5 MENA 45.4 45.4 1.3 4.5 1.3 98.0 N. America 0.2 0.9 - (0.5) 0.1 0.6 S. America 5.3 1.7 0.3 6.2 2.8 16.5 Total 65.5 135.1 2.2 14.9 6.1 223.8 Sources: Waterborne LNG Reports, EIA, DOE, PFC Energy TABLE 4: LNG TRADE VOLUMES BETWEEN COUNTRIES, 2009, MMTPA Argentina Dom Rep Importer Portugal Belgium Canada Greece Taiwan Mexico France Turkey Kuwait Japan Korea China Spain Brazil Total Chile India Italy US* UK Exporter Algeria - - - - - - - 5.82 0.39 0.12 0.96 - 0.06 - - 0.09 3.99 - 3.16 - 1.27 15.9 Australia - - - - - 3.48 - 0.06 - 0.81 - 12.33 1.13 0.06 - - - 0.38 - - 0.06 18.3 Belgium - - - - - 0.06 - - - - - - - 0.06 - - 0.06 - - - - 0.2 Brunei - - - - - - - - - - - 6.17 0.55 - - - - - - - - 6.7 Egypt 0.12 0.07 - 0.06 - 0.06 - 1.20 0.18 0.12 0.06 0.24 0.33 - 0.31 - 3.32 0.06 0.06 - 0.38 9.9 Eq. Guinea - - - - 0.25 0.13 - 0.06 - 0.19 - 1.07 1.30 - - 0.07 - 0.58 - - - 3.6 Indonesia - - - - - 0.46 - - - 0.06 - 12.56 3.12 - 0.06 - - 2.80 - - - 19.1 Libya - - - - - - - - - - - - - - - - 0.55 - - - - 0.5 Malaysia - - - - - 0.81 - - - 0.19 - 12.84 5.87 0.07 - - - 2.83 - - - 22.6 Nigeria - 0.07 0.06 - - 0.06 - 1.76 - 0.24 - 0.53 0.25 - 1.95 1.59 3.33 0.87 0.79 - - 11.8 Norway - 0.13 - - - - - 0.33 - - - - - - 0.06 - 1.02 - - - 0.17 2.3 Oman - - - - - 0.06 - - - 0.18 - 2.58 4.06 0.06 - - 0.98 0.19 0.06 - - 8.2 Qatar - 4.52 - 0.09 0.06 0.40 - 0.13 - 6.53 1.30 7.93 6.68 - 0.09 - 3.39 1.22 0.32 - 4.12 37.0 Russia - - - - - 0.19 - - - 0.51 - 2.84 1.02 0.31 - - - 0.12 - - - 5.0 Trinidad 0.59 0.12 0.44 0.71 0.18 0.06 0.42 0.54 0.03 0.51 - 0.10 0.75 0.11 0.06 0.30 3.31 0.07 0.06 - 1.68 15.5 UAE - - - - - - - - - 0.13 - 5.14 - - - 0.06 - - - - - 5.3 US - - - - - - - - - - - 0.55 - - - - - - - - - 0.6 Yemen - - - - - - - - - - - - 0.20 - 0.06 - 0.07 - - - - 0.3 Re-exports - -0.24 - - - - - - - - - - - - - - - - - - - -0.3 Total 0.7 4.7 0.5 0.9 0.5 5.8 0.4 9.9 0.6 9.6 2.3 64.9 25.3 0.7 2.6 2.1 20.0 9.1 4.5 7.7 10.0 187 *Includes Puerto Rico Sources: Waterborne LNG Reports, US DOE, PFC Energy1 Export volumes for N. America and Europe include re-exported cargoes, which are subtracted from the region’s imports.
12 IGU World LNG Report -2010 3.6. LNG SPOT MARKET2 The structure of the LNG trade is evolving. Traditionally, LNG has been delivered under long-term arrangements between buyers and sellers and was only marginally traded on a spot basis. But since the 1990s, spot LNG trading has grown steadily, with more rapid growth during the last five years. Up till 2005, the spot trade accounted for only 10% of total LNG traded, but has since grown to more than a fifth (21% or 47 MMtpa) in 2010. FIGURE 9: VOLUME OF SPOT LNG TRADE AND SHARE OF TOTAL LNG TRADE, 1995-2010 50 25% Spot LNG 40 20% % of Total LNG Trade (right axis) % Share 30 15% mmtpa 20 10% 10 5% 0 0% 2000 2001 2002 2003 2004 2005 2006 1995 1996 1997 1998 1999 2007 2008 2009 2010 Sources: Cedigaz, Waterborne LNG Reports, US DOE, PFC Energy In 2005, 11 countries were active spot LNG exporters and 12 countries were spot cargo importers. However, by end 2010, these numbers have since increased to 16 and 22, respectively. The appetite to buy LNG on a spot basis has increased significantly as the list of spot buyers has nearly doubled, whereas the list of spot sellers has increased, albeit at a slower pace. FIGURE 10: NUMBER SPOT CARGOES TRADED AND EXPORTERS AND IMPORTERS OF SPOT LNG, 1995-2010 1,000 25 No. of Spot Caroges Traded 800 No. of Countries Exporting Spot LNG (right axis) 20 No. of Countries Importing Spot LNG (right axis) No. of Countries No. of Cargoes 600 15 400 10 200 5 0 0 1995 1996 1999 2000 2001 2004 2005 2008 2009 2010 1997 1998 2002 2003 2006 2007 Sources: Waterborne LNG Reports, US DOE, PFC Energy2 Spot and short-term trade (hereafter referred to as spot) is defined as any transition that is not supported by a contract with a duration of morethan four years. Spot trade figures also include cargoes that are over and above contracted volumes. For example, if a company has a 5MMtpa long-term contract with a supplier but in one year imports 6 MMtpa from that supplier, that additional 1 MMtpa is considered spot.
IGU World LNG Report -2010 13Looking Ahead. . .• The LNG market experienced two shocks in early 2011: the devastating earthquake and tsunami which hit Japan in March 2011 produced a demand shock, while the political unrest in several MENA countries has led to a supply shock. Together, these developments will accelerate the arrival of a tight LNG market.• Increased short-term LNG needs in Japan has already provided a boost to spot prices in the Paciﬁc Basin. Longer-term, changing public opinion toward nuclear safety poses signiﬁcant upside for natural gas and LNG demand as governments across regions are rethinking nuclear policy. In MENA, the cessation of Libyan LNG exports has had only a modest impact on LNG supply, but concerns loom about further regional shut-ins.• Where will Qatari LNG volumes ﬂow in the future? The world’s largest LNG supplier, Qatar, has a signiﬁcant volume of ﬂexible LNG supply; where it will send those volumes, could signiﬁcantly impact on the LNG balance in the Atlantic and Paciﬁc Basins.
14 IGU World LNG Report -20104. LNG Liquefaction PlantsThe geography of growth in liquefaction capacity will be shifting from Qatar to Australia.Qatar drove liquefaction capacity growth in recent years, reaching its target of 77 MMtpa in February2011. However, over the next decade, Australia’s liquefaction capacity is set to grow significantly. Ofthe remaining projects under construction, the majority are in Australia, in part driven by conventionalreserves and in part by coal-bed methane (CBM) to LNG projects. Three LNG projects utilizing CBMreserves have received environmental approval and two have already begun construction. 4.1. OVERVIEW At the end of 2010, there were 94 liquefaction trains in operation, representing global liquefaction capacity of 270.9 MMtpa. In 2011, one additional train has been commissioned (Qatargas IV, 7.8 MMtpa) and by the end of the year, one more (Pluto LNG, 4.8 MMtpa) is expected to complete construction. Since 2005, five countries have commissioned greenfield LNG plants: Equatorial Guinea, Norway, Peru, Russia and Yemen; whilst another seven have expanded existing liquefaction capacity: Australia, Egypt, Indonesia, Malaysia, Nigeria, Oman and Qatar. 4.2. LIQUEFACTION CAPACITY GLOBALLY At the end of 2010, global liquefaction capacity stood at 270.9 MMtpa, compared to 171.4 MMtpa at end-2005, with another 64.9 MMtpa under construction. Current liquefaction capacity is a reflection of tremendous growth over the past decade. During 2006-2010, new liquefaction capacity was added at an average annual rate of 10% as compared to an average 5% per annum during 1990-2000. 3 FIGURE 11: GLOBAL LIQUEFACTION CAPACITY BUILD-OUT, 1990 - 2015 Forecast 350 300 250 200 mmtpa 150 100 50 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: PFC Energy, Company Announcements The first liquefaction plant in Arzew, Algeria (which has since been decommissioned) had a nameplate capacity of 0.85 MMtpa in 1964, but train capacities have steadily increased over the years. The recently completed Qatari mega-trains, which utilise the APCI AP-X liquefaction process (Qatargas II T1-2, Qatargas III, Qatargas IV and RasGas III T1-2) have a nameplate capacity of 7.8 MMtpa each.3 Forecast for LNG capacity to 2015 are calculated based on company-announced start dates for sanctioned projects only. As of May 2011, allsanctioned liquefaction project had already begin construction. Planned decommissioning of plants in Algeria and Indonesia are also included.
IGU World LNG Report -2010 15Since 2005, 24 trains have been commissioned, bringing the total number of LNG trains in operationat end of 2010 to 94. The 95th train, Qatargas IV, came onstream in February 2011. The average sizeof new trains has also since increased; in the first years of LNG, an average train was 1.1 MMtpa,compared to 4.8 MMtpa during the last five years.FIGURE 12: NUMBER OF TRAINS COMMISSIONED VS. AVERAGE TRAIN CAPACITY, 1964-2010 5 25 Average Capacity of Trains Commissioned No. of New Trains Online No. of New Trains Commissioned During the Period (right axis) 4 20 3 15 mmtpa 2 10 1 5 0 0 1964- 1971- 1974- 1981- 1985- 1991- 1996- 2001- 2006- 1970 1975 1980 1984 1990 1995 2000 2005 2010Source: PFC Energy4.3. LIQUEFACTION CAPACITY BY COUNTRYDuring 2010, Peru commissioned its first liquefaction plant, making it the 18th country to haveliquefaction capacity to export LNG. The seven largest countries based on total liquefaction capacityaccounted for 75% of the world’s liquefaction capacity in 2010; with the top three – Qatar, Indonesiaand Malaysia – accounting for nearly 50%.TABLE 6: LIQUEFACTION CAPACITY BY COUNTRY, 2010 Country MMtpa Qatar 69.2 FIGURE 13: LIQUEFACTION CAPACITY BY COUNTRY, 2010 Indonesia 34.1 Algeria, 7% Trinidad, 6% Malaysia 23.9 Australia, 7% Egypt, 5% Nigeria 21.9 Algeria 19.9 Oman, 4% Australia 19.3 Trinidad 15.5 Russia, 4% Egypt 12.2 Nigeria, 8% Brunei, 3% Oman 10.8 Yemen, 2% Russia 9.6 Malaysia, UAE, 2% Brunei 7.2 9% Norway, 2% Yemen 6.7 Peru, 2% UAE 5.8 Indonesia, Norway 4.5 Equatorial 13% Guinea, 1% Equatorial Guinea 4.5 Qatar, 26% Peru 3.7 US, 0.6% Libya, 0% US 1.5 Libya 0.7 Total Capacity 270.9Source: PFC Energy
16 IGU World LNG Report -2010Since 2005, all countries saw their liquefaction capacity remain the same or grow, except for Algeria,whose liquefaction capacity dropped 4% due to decommissioning of LNG trains. Moreover, since2005, five countries commissioned greenfield LNG plants: Equatorial Guinea, Norway, Peru, Russiaand Yemen; while another seven expanded existing liquefaction capacity: Australia, Indonesia,Malaysia, Nigeria, Oman, Qatar and Trinidad &Tobago.FIGURE 14: LIQUEFACTION CAPACITY BY COUNTRY IN 2005 AND 2010 75 % Change in Liq. Capacity 2005 160% 60 2010 % Growth in Liq. Capacity (2010 vs. 2005) 120% 45 80% 30mmtpa 40% 15 0% 0 -40% Indonesia Nigeria Equatorial Norway Oman Australia Libya Brunei Algeria Qatar Egypt Peru Trinidad Malaysia US Yemen UAE Russia GuineaSource: PFC EnergyThe 1.5 MMtpa Kenai LNG – the only commercial LNG plant in the US – is slated to go offline in 2011,with no new liquefaction capacity expected to come onstream in the US until Cheniere’s plannedliquefaction plant at Sabine Pass in the Gulf of Mexico. Indonesia’s Arun LNG as well as additionaltrains in Algeria are also scheduled to be taken offline.In recent years, Qatar contributed the largest volume of global incremental liquefaction capacity.During the past five years (2006-2010), Qatar commissioned approximately 44 MMtpa in liquefactioncapacity. In February 2011, Qatar achieved its planned target of 77 MMtpa of nameplate capacity; buta moratorium on new production from the North Field limits expansion potential, though the Qatarishave discussed debottlenecking the existing mega-trains.Over the next decade, Australia will be the driving force behind growth in global liquefaction capacity.Thirty-six MMtpa of capacity is currently under construction in Australia and more than 120 MMtpa isbeing proposed or in the planning stages – a number that keeps growing as companies discoveradditional natural gas reserves. There is also a significant amount of proposed capacity in Nigeria –40 MMtpa – but developers have yet to start construction or reach a final investment decision on anyof the proposed projects.There is 57.1 MMtpa of liquefaction capacity currently under construction, 63% (36.1 MMtpa) of whichis in Australia. In addition to the trains under construction, 95.4 MMtpa of liquefaction capacity hasbeen completed or is currently undergoing front-end engineering and design (FEED), and over 230MMtpa of additional capacity has been proposed. For the 95.4 MMtpa of capacity that has beencompleted or is in FEED, Australia is again dominant, accounting for 61% (58.5 MMtpa). AtlanticBasin Russia accounts for the second largest volume (24 MMtpa) of liquefaction capacity that hasbeen completed or is in FEED.
IGU World LNG Report -2010 17FIGURE 15: FUTURE LIQUEFACTION CAPACITY BY STATUS AS OF Q1 2011 125 Pacif ic Atlantic-Mediterranean Middle East 100 75mmtpa 50 25 0 Under Construction FEED Completed / In FEED ProposedSource: PFC Energy4.4. LIQUEFACTION CAPACITY BY REGIONThree quarters of global liquefaction capacity is located in the Pacific Basin and the Middle East, withthe remaining quarter in the Atlantic Basin.TABLE 7: LIQUEFACTION CAPACITY BY BASIN IN 2005 AND 2010, MMTPA Basin 2005 2010 Atlantic-Mediterranean 58.2 77.8 Middle East 38.4 92.5 Pacific 74.75 100.6 Total Capacity 171.4 270.9Source: PFC EnergyFIGURE 16: LIQUEFACTION CAPACITY BY BASIN IN 2005, 2010 AND 2015 150 2015 125 2015 2010 100 2010 2015mmtpa 2010 2005 75 2005 50 2005 25 0 Atlantic-Mediterranean Middle East PacificSource: PFC EnergyGrowth in the last five years has centred in the Middle East, notably Qatar. Qatar ramped up to fullproduction the first of its 7.8 MMtpa mega train in July 2009 and, through February 2011, had broughtanother five plants onstream, representing 46.8 MMtpa in new liquefaction capacity.
18 IGU World LNG Report -2010Future growth can be expected from the Pacific Basin, driven by LNG developments in Australia: 76%of this capacity is currently under construction (44.7 MMtpa out of 59.1 MMtpa) in the Pacific Basin,36.1 MMtpa of which is in Australia. There is also another 64.5 MMtpa of liquefaction capacity in thePacific Basin which is either in the FEED phase, or has completed FEED.4.5. LIQUEFACTION PROCESSESThere were eight types of liquefaction processes in use at liquefaction plants by the end of 2010. Themost extensively used process was APCI C3-MR, which accounted for 144 million tonnes (55%) of theglobal nameplate liquefaction capacity.FIGURE 17: LIQUEFACTION CAPACITY BY TYPE OF TECHNOLOGY, 2010 ConocoPhillips APC Optimized C3MR/Split Cascade APC AP-X MR 12% 12% 12% Shell DMR 4% Linde MFC Other 2% 9% APC Split MR 0% Other APC C3MR 3% 55%Source: PFC EnergyAir Products and the ConocoPhillips Optimized Cascade® technology are the most widely usedliquefaction technologies, present in 92% of global LNG capacity. Air Products technology is the mostwidely used, present in 80% of the LNG trains around the world in 2010 – roughly the same marketshare it had enjoyed for more than 30 years. ConocoPhillips Optimized Cascade® technology is thesecond most widely used, present in about 12% of the world’s liquefaction plants.New processes are being employed at several projects. Shell’s Dual Mixed Refrigerant (DMR)process is being used at Sakhalin LNG in Russia, APCI’s AP-X technology at the Qatari mega-trains,and the Linde Mixed Fluid Cascade (MFC) process is in use at Snøhvit LNG in Norway.The Snøhvit LNG plant, which came online in 2007, uses a new process developed by Linde/Statoil.The Mixed Fluid Cascade (MFC) process comprises three refrigeration cycles in series. Novel projectfeatures include all electrically-driven compressors and direct use of seawater for cooling. Carbondioxide present in the feedgas is removed and re-injected underground.ExxonMobil and Qatar Petroleum were the first to employ the APCI AP-X technology at the two-train,15.6 MMtpa Qatargas II project. The same design was repeated for all the 7.8 MMtpa mega-trains inQatar: RasGas III, Trains 2 and 3 and Qatargas III and IV. A nitrogen sub-cooling loop has beenadded to the C3/MR process to increase capacity for the same sized MCHE. It is also the firstapplication of a GE Frame 9 gas turbine as a mechanical driver for the refrigerant compressors.
IGU World LNG Report -2010 19 The Shell Dual Mixed Refrigerant (DMR) process is being used for the Sakhalin project in Russia. This novel process uses two Mixed Refrigerant cycles in series and the process is air cooled for process and environmental reasons. It is sufficiently flexible to support the wide range of ambient temperature experienced in the sub-arctic environment. Train capacity is 4.8 MMtpa. FIGURE 18: LIQUEFACTION CAPACITY BY TYPE OF TECHNOLOGY, 2000-2010 300 Other 250 APC Split MR 200 Linde MFC Shell DMR mmtpa 150 ConocoPhillips 100 Optimized Cascade APC AP-X 50 APC C3MR/Split MR 0 APC C3MR 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: PFC EnergyLooking Ahead. . . Will the LNG industry be able to sanction projects at a rate necessary to keep pace with LNG demand growth? Significant liquefaction has been proposed, but how much and how fast the proposed capacity comes on-stream will be critical to enable meeting projected demand growth. Will floating liquefaction technology be a game-changer for the industry? Floating liquefaction technology has yet to be commercially proven, but success could open up previously stranded or non-commercial gas reserves.
20 IGU World LNG Report -20105. Special Report: Impact of Unconventional Gas on the LNG IndustryThe rapid transformation of the US natural gas market following the shale gas boom has alreadyhad an impact on the LNG industry, but this impact could grow if the US exports shale gas asLNG or if unconventional gas can have the same transformative impact on other markets.The shale gas boom in the US and its dampening impact on the country’s LNG demand has amplifiedthe supply and demand balance in the market in 2009 and 2010. Yet the absence of the US as asignificant LNG importer merely pushes back the time at which the LNG market tightens by a couple ofyears. The bigger question is whether other countries will replicate the success of the US – this couldhappen in some places, but in general the process will be a long one. 5.1. INTRODUCTION The following special report discusses the factors that led to the unconventional gas boom in the US, the potential for that to be replicated elsewhere and the resulting impact on LNG demand. It also addresses the potential for the US to export shale gas as LNG, another possible impact from the shale gas boom on the LNG market. 5.2. US SHALE GAS BOOM AND IMPACT ON US LNG DEMAND Since 1950, the US gas system has gone through five phases. First, production grew by an average 6% per annum from 1950 until it peaked in 1973. Second, production started to fall in 1974 until it bottomed out in 1986 – in that period, production declined by over 25%. Third, from 1987 to 2000, US production increased by a sustained 1.3% annually, leading to a significant recovery in output, but still below the 1973 peak. Fourth, production hit another peak in 2000 and started to decline by 1.2% per annum until 2005. From 2006 onward, production experienced its most dramatic growth in the last 40 years, growing by an average 3.6% per annum. In 2010, output was almost equal to the 1973 peak. The growth in gas production has been driven primarily by the ability to produce unconventional resources at ever cheaper rates. Unconventional gas includes shale, coal bed methane and tight gas which are all characterized by low natural permeability in the reservoir (commercial gas volumes do not “flow” naturally). Using horizontal drilling and hydraulic fracturing, companies have been able to create sufficient permeability to extract ever increasing commercial volumes from these reservoirs. FIGURE 19: US NATURAL GAS PRODUCTION FIGURE 20: SHARE OF SHALE GAS IN US GAS PRODUCTION 700 25% 600 20% % Share of Total 500 400 15% bcm 300 10% 200 5% 100 0 0% 1950 1960 1970 1980 1990 2000 2010 1990 1995 2000 2005 2010Source: EIA, PFC Energy Source: EIA
IGU World LNG Report -2010 21 This growth in unconventional gas production has emerged as a shock to the LNG system for two reasons: first, it has made clear that the US will not need to import significant volumes of LNG over the next decade (at least); and second, there is growing uncertainty over whether other countries will be able to replicate the experience of the US and hence, reduce their own needs for imports. Together, these two prospects could reshape the LNG industry. 5.3. IMPLICATIONS OF US SHALE GAS BOOM ON LNG TRADE FLOWS AND PRICES Perhaps the most important global implication of this “shale gas revolution” is that the US no longer needs as much LNG as previously forecasted. One useful way to think about the importance of US LNG is to re-examine the forecasts done by the Energy Information Administration (EIA) at the US Department of Energy. In its 2005 Annual Energy Outlook (AEO 2005), the EIA was forecasting that the US would need to import as much as 70 bcm in 2010 to meet demand and offset the drop in indigenous production. Given actual LNG production in 2010, this would have amounted to a global market share of 23%, making the US the world’s second largest LNG market after Japan. To meet this projected rise in imports, there was a boom in US regasification capacity which increased sevenfold between 2002 and 2010. As the production growth story proved to be sustainable, those expectations shifted: by 2008, the EIA thought that by 2010, the US would only need 34 bcm. However, even those numbers turned out to be optimistic. In the 2011 AEO, the EIA has significantly downgraded its LNG import expectations and it effectively foresees no growth through 2025. FIGURE 21: EIA FORECASTS FOR US LNG IMPORTS FIGURE 22: US REGASIFCATION CAPACITY VS. IMPORTS 200 150 AEO 2005 US Regas Capacity AEO 2008 125 150 US LNG Imports AEO 2011 100 100 75bcm bcm 50 50 25 0 0 2000 2005 2010 2015 2020 2025 2000 2002 2004 2006 2008 2010Source: EIA Source: PFC Energy This means that a significant source of demand for global LNG supplies has disappeared. Given that LNG investments have a long-lead time, there is a significant amount of LNG capacity that is coming online between 2009 and 2012 which was constructed based on the market expectations of 2005, whereby the US would become a major import market. This LNG had to find a new place to go – and in 2010, it found a home mostly in Europe as well as in emerging markets (Middle East and Latin America). Combined with a recession-induced drop in gas demand in 2009, the lack of more imports needed from the US produced a longer-than-expected glut in gas supplies. This glut has had two implications for gas pricing: