Global demand for liquefied natural gas (LNG) is growing more than twice as fast as overall gas demand and about six times faster than demand for oil; however, North America and the Atlantic Basin in general are playing a comparatively smaller role in the LNG boom, according to a new analysis by Tudor, Pickering, Holt & Co. Securities Inc. (TPH).

“The gas market is increasingly complex and global…and LNG is the link,” wrote David Pursell and Jon Mellberg in their update to the firm’s 2007 LNG research in which they note that TPH will be establishing “a more formal European presence” with an office to open there this summer.

The analysts project that global LNG volumes will grow from about 24 Bcf/d in 2008 to 34 Bcf/d by 2013. “Although the global gas market is oversupplied by 3 Bcf/d in 2010 and 1 Bcf/d in 2011, by 2015 the market will be 9 Bcf/d undersupplied,” they predict.

North America, the former Soviet Union and Europe account for two-thirds of current gas consumption but only one-third of projected growth over the next 10 years, the TPH analysts said.

“U.S. gas markets are too scared of LNG,” they said. “There are lots of reasons to be nervous about U.S. natural gas (supply growth/shale [plays], ample inventories, demand uncertainties)…but LNG is not on the short list.”

While the abundance of shale gas supplies domestically is keeping LNG away from U.S. shores, there are more factors that make other parts of the world more attractive destinations for LNG cargoes, and this is particularly true in the Pacific Basin.

“Since our assumption is that Pacific Basin pricing (tied to oil) will be higher than Atlantic Basin pricing (tied to gas), a large portion of the 3 Bcf/d excess [in global gas supply] should find a home in Asia or Europe and the U.S. will not become a dumping ground for LNG,” the analysts noted.

LNG imports are attractive to Europe and particularly the United Kingdom due to gas production declines in the North Sea and uncertainty over pipeline gas supplies from Russia. “We expect legacy LNG importers Japan, Korea and Spain to grow moderately while China, India and the UK take significant incremental volumes,” the analysts said. Imports to the U.S. will trend higher, they said, but prices won’t be strong enough to attract cargoes on a sustained basis (see NGI, April 19).

On the LNG production side, there are currently 17 LNG exporting countries, an increase from 12 countries 10 years ago. Five countries — Malaysia, Indonesia, Qatar, Algeria and Australia — account for 67% of current LNG exports. Those expected to grow supply the most in the coming years are Qatar, Algeria and Australia, with Australia growing more significantly beyond 2015 (“Confusing but true,” the analysts said, Malaysia and Indonesia will also build LNG regasification capacity in the coming years).

By the analysts’ calculations, global liquefaction capacity will near 37 Bcf/d by the end of this year with the growth rate to slow thereafter. Liquefaction capacity should reach 40 Bcf/d by 2015, they said.

Those with liquefaction facilities built prior to 2006 have an economic advantage as in recent years construction costs have more than doubled. A “current era” liquefaction plant can get competitive returns on the back of agreements that are 20 years or longer at oil-linked prices. Recent evidence suggests that long-term prices are near $10/Mcf delivered to market, the analysts said. “A new facility, backstopped by Henry Hub or UK [National Balancing Point]-linked contract, would be tough to justify and very difficult to finance,” they said.

©Copyright 2010Intelligence Press Inc. All rights reserved. The preceding news reportmay not be republished or redistributed, in whole or in part, in anyform, without prior written consent of Intelligence Press, Inc.