Trade/Investment in LNG - Asia/Pacific Region

Abstract

History/Growth of LNG Business As the world-wide demand for natural gas grows, so too does the international trade in LNG. The growth in gas demand, which in the 80's was boosted by the desire to diversify energy resources in the wake of the oil shocks, is now continuing in the 90's due to its clear environmental advantages over other fossil fuels, and its superior thermal efficiency when used in power generation. But why LNG? Why not pipelines? Simply stated, 'LNG reaches the parts that other gas can't reach'. Clearly, the use of an LNG tanker has economic advantages over pipelines (over certain distances) and offers greater trade flexibility. Some buyers and sellers may prefer this, with the straightforward ability to investigate alternative buyers or sellers if incremental volumes are available or sought. In this paper I intend to try and paint a picture of the future of trade and investment in LNG in the Asia-Pacific region. To do this I will discuss new sources of supply, new markets, and the forces at play in these markets. But first I shall begin by looking briefly at the history of LNG. (See Fig. 1) Over the three decades since the humble beginnings of the LNG trade in 1964, when the first shipment from Algeria arrived in the UK, the market has responded and adapted to radically changing world markets. The growth has been spectacular; nearly 70 mtpa of LNG is traded now, compared with less than 10 mtpa in 1975. In 1975, 90% of traded natural gas in the world was pipeline gas, mostly across just one border. Since the mid-1980s, LNG has been holding its own in a world of increasing trade, with its share of total trade being between 20 and 25%. The 30 year history of LNG has seen 8 countries become exporters, and 11 countries have been importers. Today, there are 13 operational liquefaction plants and 29 active regasification terminals, served by a fleet of 90 LNG tankers. Initially, Atlantic trade dominated the market, but three-quarters of world LNG trade is now conducted in the Pacific. The economies of northern Asia are growing, hungry for energy, especially electricity. Gas is an ideal fuel and LNG a competitive transport option. Today's Asian importers are supplied from south-east Asia, Australia, Alaska and the Middle East. With only a few exceptions, there is no over-lap with the other LNG trade flow, between Africa and its markets of Europe and the United States. Japan, being by far the largest LNG importer ever since it entered the scene in 1969, is the country that has given the LNG trade its momentum. Today Japan still accounts for two-thirds of the world-wide trade. All forecasts appear to be confident of strong demand. We kept a note of public forecasts of Asia-Pacific LNG demand in 2010 made at Gastech last year, or within a month or two of it, and these ranged from 108 to 190 mtpa, compared to around 50 mtpa today. Growing Markets Japan's ability to lead LNG demand in Asia-Pacific will undoubtedly continue. MITI's latest forecasts anticipate demand of around 54 mtpa in 2000, and 60 mtpa in 2010, which corresponds to a growth rate of 3.7% between 1995 and 2000, and then just 1% between 2000 and 2010. The slower growth in the later period is due to relatively weak anticipated growth of electricity demand. However, others are less conservative, and Cedigaz's forecasts go as high as 65 mtpa in 2010. Korean natural gas demand continues to be an area of constant speculation. Official gas demand forecasts predict 23 mtpa LNG by 2010, although recent unofficial forecasts suggest that this figure could be nearer to 36 mtpa. As such, potential for additional LNG trade to Korea appears as a prime target for most new LNO projects of which there are at least 9 options for the 2000-2005 market, including the possibility of pipeline natural gas from the CIS, giving Korea the option to secure a diverse range of supplies. Taiwan remains relatively small but a market with significant potential in the Asia Pacific region with an official LNG demand forecast of approximately 9 mtpa by 2010. The majority of additional LNG will go to power generation as a result of the emergence of natural gas fired IPPs and confirmation of gas as the fuel for Taipowers 4 GW Tatan power plant. P. 467^