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World LNG market forecast – Part One

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Hydrocarbon Engineering,

A strong continuation in the recovery of LNG expenditure is underway worldwide, driven by a growing demand for natural gas. The new eighth edition of Douglas-Westwood’s (DW) World LNG Market Forecast expects that global capital expenditure (Capex) will total nearly US$ 228 billion during the 2013-2017 period. The surge includes capital expenditure on base-load onshore and offshore fixed LNG liquefaction, LNG carriers and LNG regasification, via both onshore and offshore fixed import terminals.

Activity over the next five years is underpinned by huge financial commitments to both liquefaction projects and gas import facilities. The liquefaction developments will drive expenditure, with Australasia and North America playing a fundamental role in bringing new supply into the international market.

Spend will peak in 2015 and decline slightly in 2016 and 2017. This is due to the surge of Australian LNG export projects reaching completion. The decline is, however, offset to some extent by significant growth in most other regions, particularly Eastern Europe & FSU, Africa and Asia.

Regional forecast

Accounting for almost 40% of global expenditure, Australasia is expected to witness an increase of over 500% in expenditure on the 2008-2012 period. This is attributed to the region’s construction activity in liquefaction terminals – a strong reserve base combined with a strategic proximity to high value demand markets in Asia makes the region an attractive LNG export hub.

Asia will continue to represent one of the largest LNG investment centres. This is driven by the combined expenditure on carrier shipbuilding and import terminal construction activity. Collectively, the region will represent 35% of forecast global Capex.

The North American shale gas boom has led to a shift in the supply and demand balance with the region now aspiring to evolve from a net importer to a net exporter. DW expects the region to represent 8% of forecast Capex, a 110% step up on expenditure for the previous five-year period. Overall, as the third largest investor, the region holds significant potential in becoming one of the top few exporting regions; however, regulatory approvals will determine the pace of export developments.

Notably, Middle Eastern investment has been in steady decline following the completion of a number of major projects during the 2009-2011 period; however, this has been further progressed by increasing supply constraints as a result of domestic demand pressures. Accordingly, only US$ 1.92 billion (~1%) of total global expenditure is forecast in the Middle East through 2013–2017.

LNG market by facility

Global expenditure on LNG facilities displays a visible upward trend and is forecast to more than double to US$ 227.7 billion. Although all segments display a noticeable increase in expenditure, the wave of new liquefaction projects under construction across Africa, Australasia, Eastern Europe & FSU and North America, coupled with carrier contracts and import developments in Asia will drive Capex at an overall CAGR of 7%.

Over the forecast period, total liquefaction Capex will exceed US$ 140 billion, over 60% of total Capex. Import expenditure will represent the second largest proportion of Capex and is expected to increase at a CAGR of 8%. The key driving factor underpinning import investment is expenditure from Asia, which represents over 80% of all import Capex.

LNG carrier expenditure is expected to increase to nearly US$ 35 billion between 2013 and 2017. The carriers market witnessed a quieter period through 2009-2012 due to the global recession, rendering speculative carrier orders economically unviable at the time. However, with growing confidence in the LNG industry and with the wave of liquefaction projects in Australasia and North America, carrier buyers are more inclined to undertake investment.

Liquefaction terminals

Through 2008-2012, almost 90million tpa of liquefaction capacity was brought onstream. The forecast period will see over 100 million tpa come onstream through 14 new developments and nine expansion projects. Associated Capex in the construction of these terminals (excluding upstream costs but including all terminal costs – liquefaction trains, storage, marine facilities, etc.) will equate to over US$ 140 billion.

There will be some differences between operator announcements and the DW forecast start-up years as DW believes that many of the proposed terminals are still in their infancy and have not attained necessary approvals or secured landing sites. Therefore, where appropriate, onstream years have been adjusted to incorporate these factors, thus, arguably portraying a more realistic view of the market.

Capex for the forecast period represents a 181% increase against 2008-2012. This is driven by a wave of new liquefaction developments in North America and Australasia due to shale gas and coal bed methane (CBM) developments, in addition to projects in Africa, Asia and Eastern Europe. It is worth noting that Capex forecast has been phased over the construction period and therefore includes expenditure on terminals which are expected to come onstream between 2018-2020.

Interestingly, during the 2008-2012 period, the Middle East represented a third of expenditure. However, liquefaction expenditure for the region is forecast to significantly decline to less than 1% as domestic demand for gas rises, minimising export potential.

Due to significant cost escalations in Australasia, the region alone will account for approximately almost US$ 90 billion of expenditure. The continued trend in cost escalation could bring into doubt the viability and future of some Australasian projects, raising the question – could we see a significant slowdown in Australasian investment?

Due to developments in shale gas drilling technology and the associated rise in production, significant investments extending capabilities of existing infrastructure in North America will be made throughout the entire forecast period and beyond. However, the pace of development will be determined by the rate of regulatory approval. Its first export facility Sabine Pass, after Kenai terminal (recently decommissioned), will only be due onstream in 2016.

Eastern Europe will see increased investment in liquefaction with Russia building up its export capacity. Africa will also grow in importance as an exporting region given developments in Mozambique and Tanzania.

Written by Michelle Gomez, Douglas-Westwood, UK.

Edited by

This is the first of a two part summary of Douglas-Westwood’s ‘World LNG Market Forecast 2013-2017’.

Part two of this summary is available here: World LNG Market Forecast - Part Two

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