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Spot Action Growing in Global LNG Market

As global liquefied natural gas (LNG) markets rely more heavily on spot transactions, the United States has been mostly a wallflower, leaning instead on cheap gas at home. Meanwhile, abundant shale gas supplies in North America -- and potentially around the world -- have not gone unnoticed in the LNG arena, according to the International Gas Union's (IGU) newly released World LNG Report for 2010.

"More than a fifth of the world's LNG trade in 2010 was in the short-term market, and the volume is expected to grow further in the next few years. Evidently, more companies are now constructing regasification terminals without first securing long-term supply contracts -- such is the new landscape of the LNG market," wrote IGU President Abdul Rahim Hashim in an introduction to the report.

The number of countries trading in the spot market as importers nearly doubled to 22 in 2010 from 12 in 2005, while over the same period the number of spot exporters grew from 11 to 16, according to the report.

The regasification end of the LNG supply chain can be a tricky place to be as the experience of terminal developers in the United States demonstrates. "Large regasification terminals, built over the last few years, now stand almost idle as Henry Hub has remained disconnected from the rest of the world," wrote Hashim.

For a report dedicated to LNG, the 42-page document pays particular attention to shale gas, what's known to be available and what's only dreamt of. "The success of shale gas in the United States sparked enormous interest in other countries that are believed to have significant deposits," the report said.

While these countries hope to mimic U.S. success, "in most places...that process will take many years to materialize," the report said.

Reviewing trade data from last year, report authors found that Qatar continued to lead the pack by far among LNG exporters with 57.5 million metric tons per year, more than double that of No. 2 Indonesia, which was followed by Malaysia, Australia and Nigeria. The United States was the 17th largest exporter, thanks to the country's sole export terminal at Kenai, AK, which was slated for closure earlier this year (see Daily GPI, Feb. 11).

On the import side, longtime importer Japan led the pack by far, bringing in 70.6 million metric tons per year, followed by South Korea with just under half that amount, and then Spain, the United Kingdom and Taiwan. The United States was the ninth largest importer at 8.5 million metric tons.

And given the domestic gas supply outlook, the rest of the world would be wise to not count on the appetite for global LNG to grow in the United States, the report said.

"...[T]here 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 U.S. would become a major import market," the report said. "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)."

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