We wrote recently about the sensitivity of the gas market to local economic conditions and how this has resulted in North America and Europe being awash with gas as consumption has dropped. Indeed storage space in North America is reaching capacity and at risk of a back up in pipes so poor is consumption compared to supply. This is in stark contrast to the long term view of gas as an energy source. As a fuel source, it is has many attractions – much lower carbon emissions than coal or oil, competitive in terms of cost particularly if tied to long term contracts and relatively speaking lower construction costs for the power generation plants that are needed to use it. It is also an ideal feedstock for chemicals production although not suitable for all chemical products. So may be even in the midst of an apparent oversupply we should not be surprised that gas exploration, production and the pipelines and transportation systems needed to bring the product to market are still attracting billions of dollars of investment. Many of the world’s largest gas reserves are in locations somewhat distant from the biggest users and so much of the investment is going into producing LNG terminals and the vessels needed to transport the liquefied natural gas from producer to consumer.
The biggest recent deal is between Chevron, ExxonMobil and Royal Dutch Shell and a number of Asian buyers led by PetroChina the country’s largest energy company. Following Australian regulatory clearance, PetroChina agreed to buy $41bn worth of LNG over a 20 year period from the three majors who own the Gorgon fields in NW Australia. Gorgon’s network of fields is believed to hold as much as 50 trillion cubic feet of gas and over its 40 year life will produce 15m metric tons per year, which is equal to 8% of global capacity according to the FT. Other buyers in Japan are also signing up for long-term supplies from Gorgon and up to 10 other LNG projects being developed in Australia. that could see the country take the crown as top LNG producer from the current holder Qatar by the end of the next decade. Attractive as Australia is for LNG development ” being an OECD country with a stable legal, political and social environment ” it is not the only location by far.
Neighboring New Zealand is developing the Kupe Gas project for both domestic consumption and the production of LNG. A consortium of Korean companies led by Daewoo is developing a major gas field off the coast of Burma and a pipeline to China’s Yunnan province to feed 3.8m tons of gas per year for 30 years at a cost of over $5bn.
Over 17 countries import LNG in a market estimated to be over 200 million tons by the end of this decade. The development of LNG terminals, liquefaction facilities and the vessels needed to transport the very low temperature liquid is providing a boom for the specialist contractors and shipyards qualified to provide them. The industry consumes specific metals in large quantities during the construction phase of the terminal or vessel, specifically austenitic grades of stainless steel and 5000 series grades of aluminum. Specifications have tightened over the years and producers have to meet carefully controlled trace element content conditions to ensure longevity and reliability in use. With stainless and aluminum demand comparatively subdued in nearly all other sectors, the boom in LNG appears the one bright spot for producers.