LNG carrier market
Over the forecast period, all shipbuilding activity will take place in Asia where the major yards are located. The LNG carrier market will display heavy expenditure throughout the forecast period, increasing by almost 40% over 2008-2012’s spending. This is expected to peak in 2016 at approximately US$ 8 billion.
During 2008-2012, 121 LNG vessels were delivered, peaking in 2008 at 54 units. LNG carriers delivered were predominantly Q-max and Q-flex sized vessels, as per the direct requirements of the Qatari fleet.
However, the effects of the economic recession were reflected in the shipbuilding industry, negatively impacting the order book and associated expenditure levels from 2009 to 2012.
A large surge in deliveries is anticipated due to the onset of liquefaction facilities expected during and beyond the forecast period. Increased confidence in the LNG market as a whole will give the LNG carrier building industry an additional boost.
Pre-2008, some carriers were constructed in Western Europe. However, there has been a transition towards Asian shipbuilding because of increased familiarity with Asian-built vessels coupled with its lower cost offering. South Korean shipyards will account for the majority of new builds, while Chinese group Hudong-Zhonghua Shipbuilding will increase its market share through 2013-2017.
However, given the large number of deliveries anticipated from 2014 onwards, yard capacity constraints in Asia may become an issue. Western European shipbuilders may be well placed to take advantage during periods of exceptionally high demand.
LNG import terminals
Approximately 250 million tpa was brought onstream 2008-2012, with associated Capex totalling US$ 32 billion. The next five years will see Capex increase reaching almost US$ 50 billion, as similar import capacity levels to the 2008-2012 period is again brought onstream.
The previous five years saw significant investments in Asia, North America and Western Europe. However, 2011 and 2012 experienced a drastic reduction in import investment by North America, due to the possibility of monetising shale gas reserves at home, reducing their requirement for LNG imports and associated expenditure. Since then, North America has been moving towards LNG import independence.
Increased Capex for import infrastructure in Asia during 2013-2017 will represent a 180% rise in expenditure on the previous five-year period.
Comparing the two periods, 2008-2012 and 2013-2017, the demand side of the equation has evolved. As with the previous five-year period, developing economies in Asia will continue to be the dominant importing region, accounting for over 80% of import facility expenditure. In addition to established LNG importers, Japan and South Korea, top exporters Malaysia and Indonesia will drive further LNG imports as domestic demand dictates a reverse in trade.
Accounting for almost US$ 30 billion of forecast import Capex, key emerging economies China and India will contribute significantly to import expenditure due to growing domestic gas demand. Likewise, the Philippines, Singapore and Vietnam are anticipated to substantially increase their investments in import infrastructure during the forecast period.
Latin America’s Capex will rise gradually throughout the forecast period. This is attributed to projects in Brazil, Chile, Cuba, Dominican Republic and Mexico.
A poor gas demand climate has been seen in Western Europe as it experiences a US$ 0.4 billion drop in forecast import spend. In the long-term however, the European gas market should recover as gas-fired power demand returns to pre-recession levels.
A forecast of strong growth in global natural gas demand as a fuel for power generation and increasingly as a substitute for oil as a transportation fuel will drive increased expenditure on natural gas facilities worldwide. The discoveries of large reserves are, however, remote from the end users.
This geographic disconnect results in major regional gas price differences and considerable potential for arbitrage. One specific example is the US with gas at some US$ 3 compared with US$ 9 in Europe and >US$ 16 in Japan. Liquefaction enables these reserves to be brought to market.
Many areas in Asia, Latin America and the Middle East are seeing growing gas demand and LNG is also seen as a good solution to seasonal demand spikes. Other areas such as the UK are seeing a severe fall in gas production and are importing increasing amounts of LNG.
Growing environmental awareness is also an important factor – with natural gas only emitting half of the greenhouse gases of coal it provides a mechanism for rapidly reducing emissions.
The EU’s emissions act in 2015 may incentivise ship-owners to use LNG as an alternative fuel in addition to the price arbitrage effect. LNG is also being increasingly adopted in many countries in road applications for buses and trucks.
Unconventional gas reserves such as shale gas and coalbed methane (CBM) will be both a feedstock and a competing source of natural gas. However, some of this may also, as a function of location, be a candidate for liquefaction.
Successful production of unconventional gas may enable the US to become a net exporter within the forecast period. However, regulatory approvals have been hard to obtain, to date impeding the development process.
DW expects US natural gas prices to increase as the full cycle costs of shale gas production are at least US$ 7-8/million Btu. Elsewhere in the world they are yet to be understood but are likely to be higher than the US. LNG from conventional gas plays can, therefore, be cost-competitive with shale gas.
In most regions natural gas prices are strongly discounted, compared to oil on a Btu-parity basis. This suggests potential for increases in natural gas prices over time as the ease of trade and arbitrage increases.
DW expects continued change in the focus areas for LNG export projects. While the Middle East remains one of the top exporters, the region will see very little expenditure within the forecast period. Australian spend however, will surge, peak and start to decline somewhat.
As in many other sectors of the oil and gas industry, reducing the costs of LNG projects remains a major challenge. However, beyond 2017, significant potential for major growth in LNG capital expenditure can be seen, due to the large discoveries in East Africa and Eastern Mediterranean, together with increased focus on exports of US shale gas. Furthermore, the considerable prospective reserves of the arctic offer a longer-term potential.
Written by Michelle Gomez, Douglas-Westwood, UK.
Edited by Callum O'Reilly
Read the article online at: https://www.hydrocarbonengineering.com/special-reports/28102013/world_lng_market_forecast_part_two_344/