Saturday, 13 January 2018 00:14

Will LNG Demand Catch up with Natural Gas Consumption Opportunities?

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While committing hundreds of billions of dollars to transform previously “flared-off” natural gas into “liquid fossil fuel,” the world’s leading energy companies are now faced with establishing global demand.

With a severe shortage at the turn of the past century, U.S., natural gas prices had been as high as $15 per “British thermal unit.” But now, such prices have sagged to as low as $2.50-$3.10 per BTU, while LNG production has risen dramatically. This increased production has resulted in a search for new markets, both in the West, as well as in Asia. Such energy giants as BP plc, Chevron, and ExxonMobil are striving hard to bring LNG into a major expanded demand line.

While BTU prices were less than half that delivered worldwide just a few years ago, prices are hardly high enough today to justify the multi-billion dollars that are still being spent at this time at Gulf of Mexico ports. At least six refineries are now being built/modified to convert this previously flared-off natural gas into liquid natural gas.

To fulfill these massive additional LNG capacities, Shell has already spent $50 billion to become the world’s biggest shipper and producer of LNG. Chevron has recently brought on line two Australian LNG projects that cost over $80 billion. Shell and Exxon say they process more gas than crude oil today, and BP will do so by 2025. This is according to consultant Wood Mackenzie; who warn that large new suppliers are coming online in the U.S., Russia, Australia, and Qatar.

But many countries, such as Myanmar (Burma), Vietnam, and South Africa, don’t have the infrastructure to import and distribute large amounts of natural gas for electricity and homebuilding use. After building all of that LNG production capacity, companies now are forced to look to such less-developed and potentially riskier markets to ship to. Jason Fear, head of Business Intelligence consultancy warns that the next wave of LNG consumers are less experienced, less organized, and politically less predictable.

In the U.S., gas exporter Cheniere Energy teamed up with French utility EDF SA to fund an outlet for its gas. The project has stalled because of existing environmental permitting issues; but Cheniere is not budging from its basic approach. But so far, only one LNG to power project has come to fruition in the U.S.

Meanwhile, energy companies face challenges in finding other uses for LNG. Environmental regulations for cleaner shipping fuels could create an opportunity for LNG. But there are only a limited number of ports in the world, where LNG as a shipping fuel are available. Having indicated these hangups, the overall outlook for LNG looks bright enough to impact liquid natural gas as a major energy fuel in the years to come. But it has a long way to go before a balance between LNG production and demand at profitable prices can be expected to reach a reasonably profitable major business segment.

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Morrie Beschloss

Morris R. Beschloss is a global economic analyst, award-winning long-term top business executive, and avid blogger.

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