Progressing Global LNG Trade and Profitability of LNG Drive Demand for Infrastructure
Liquefied natural gas (LNG) is one of the most commercially viable energy solutions adopted by developing economies to fulfil their energy requirements. In 2019, global LNG trade in terms of volume accounted for 354 MT, a 13% increase vs 2018. LNG infrastructure includes the entire value chain for LNG production to end user consumption. The construction of large-scale onshore liquefaction and regasification terminals is a function of the development of the global LNG industry. Investment in such infrastructure is dictated by unique supply and demand circumstances in different geographies.
In the LNG industry, the large-scale LNG terminals are primarily developed as per requirements of large demand and supply centres. Natural gas can be transferred/transported (via ships and pipeline) from gas production centres to consumption centres in the form of LNG. Natural gas can be transported in ships and trucks to locations that are not connected to pipelines. In case of large-scale terminals, ships and pipelines are more economical and convenient modes of LNG transportation that takes place between exporting terminal (liquefaction plant) and importing terminal (regasification plant). The conventional process of LNG production includes the transportation of natural gas from production field to liquefaction terminals through pipelines.
Increased Focus Towards Small-scale LNG Facilities to Boost Investments
Growing demand for energy, followed by increased focus on small-scale LNG facilities, is expected to drive the demand for LNG infrastructure. The major parameters involved in growth of the LNG infrastructure market include adoption rate, existing E&P activities, planned E&P projects, volatility in prices of crude oil & natural gas, offshore/onshore oil & gas assets, and refinery output/margin. The conventional process of LNG production includes the transportation of natural gas from production field to the liquefaction terminals through pipelines. With tight financing channels, smaller LNG projects are much more profitable to build as the capital costs required are significantly low and the construction period is considerably short when compared to large LNG terminals.
The LNG industry has witnessed several technological changes in the past few years. Increasing investments in small-scale LNG terminals is one such upcoming trend which has penetrated the market in the recent years. The small-scale LNG terminals are primarily designed to focus on the requirements of small demand and supply centres. The export terminals in this market are mainly developed in close proximity to small gas fields and distribution centres. On the other hand, the import terminals are developed around small demand centres, usually to cater to natural gas requirements of specific end user segments.
High CAPEX & OPEX of LNG infrastructure developments remains the key hurdle for rapid market growth. Moreover, declining prices of crude oil and natural gas have resulted in lower investments in oil and gas operations. Furthermore, lockdowns imposed amid the COVID-19 pandemic held a severe impact on LNG trade. The US-China tensions continue to cast a shadow over bilateral LNG trade. The US-China trade war has left dozens of developers of liquefied natural gas export terminals scrambling, with limited buyer. This is likely to further hamper investments in the LNG infrastructure market.
Investments in LNG Regasification Terminals to Outweigh that in Liquefaction Terminals
Large-scale liquefaction units are widely being developed to supply LNG as a fuel for transportation and industrial sectors. Various LNG distribution companies are developing stand-alone large-scale units. Several nations have planned construction of large-scale LNG terminals along with multiple small liquefaction units in close proximity to the main terminal. Projected expansion of large-scale regasification capacities, especially in key LNG-importing countries in Asia Pacific and Europe, will bolster the market growth in the foreseeable future. Japan, Indonesia, and some other Asian countries are emphasizing increased natural gas consumption, especially in industrial and power generation sectors. Increase in demand for offshore regasification terminals is likely to be generated mostly by the markets of Asia Pacific.
Increased Focus on Receiving LNG Regasification Terminals in Asia Pacific to Surge Investments
In 2020, Asia Pacific overtook Europe to become the main export destination. LNG exports to Asia increased 67% in 2020 in comparison with 2019. Over the past decade, Asia Pacific witnessed substantial economic growth. The region houses a large number of LNG importers are widely housed in this region such as Japan, China, South Korea, and India. High investments in LNG regasification terminals in these countries have boosted the demand for LNG infrastructure. In Asia Pacific, there are five proposed LNG import terminals planned in Australia; two in New South Wales, two in Victoria, and one in South Australia. Only one of those, Port Kembla in New South Wales has moved into site preparation so far. If the Port Kembla terminal is built before 2024, that should plug the supply gap in the southern states and the east coast market until 2028. Looking at the growth prospects, it is evident that access to economical and abundant energy sources would be a crucial factor supporting the momentum of this growth.
Currently, development of large-scale LNG terminals in North America is mostly supply driven. In North America, the US alone has more than 110 active LNG terminals. The increasing surplus of natural gas in hydrocarbon-rich shale gas development areas remain a major factor fostering investments in these projects. The shale boom in the US has changed the market landscape of natural gas in the region. Earlier a major importer of crude oil and natural gas, North America has now become the fourth largest exporter of LNG after Qatar, Australia, and Russia. It is expected that the US would become the largest exporter of LNG by 2023. In the Middle East & Africa, Qatar, Nigeria, and Oman are the key exporters of LNG, where high investments in liquefaction terminals are expected in the near future. This will drive the demand for LNG liquefaction infrastructure projects.
Global LNG Infrastructure Market: Competitive Landscape
Growing demand for LNG in marine and transportation sectors has provided new opportunities for the large-scale LNG sector. Companies such as Linde AG, Petronas, Santos Limited, and Exxon Mobil have plans to invest in large-scale LNG terminals globally in the future. Apart from this, several LNG distributors have planned investments in large-scale LNG terminals in various offshore regions. Some of the key players in the liquefied natural gas infrastructure market include BHP Billiton, Exxon Mobil Corporation, Linde AG, Total SA, Chevron Corporation, Royal Dutch Shell, bp p.l.c., ROSNEFT, Petroliam Nasional Berhad (PETRONAS), ConocoPhillips Company, and Santos Ltd.