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Suwin Sandu and Alan Copeland |
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Global demand for natural gas has grown rapidly in recent years. This has translated to increased demand for Liquefied Natural Gas (LNG) in the Asia Pacific region, where LNG imports are the primary source of gas in some countries. |
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| LNG import demand | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The world LNG market is characterised by two distinct markets, Asia Pacific and the Atlantic. LNG imports in the Asia Pacific market are estimated to have totalled 119 million tonnes in 2008, an increase of 6 per cent from 2007. All of Australia’s LNG exports are delivered to economies within this region. Growth in LNG imports in 2009 is expected to moderate as weaker economic growth results in lower growth of electricity generation and weaker consumption by industrial users. |
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| Imports to moderate in Japan and Chinese Taipei | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Japan, the largest LNG consumer in the Asia Pacific region, imported 52 million tonnes of LNG in the first three quarters of 2008, up by 6 per cent compared with the same period in 2007. The growth in LNG imports reflects increased use of natural gas for electricity generation, which was needed to compensate for lower than planned utilisation of nuclear power generation. Increased gas-fired electricity generation during 2008 was also supported by the start up of new gas-fired electricity generation capacity. A total of 2600 megawatts of new gas-fired electricity generation capacity has come into operation in 2008, including Chubu Electric’s 1600 megawatt Shin-nagoya plant and Tokyo Electric’s 500 megawatt Futtsu unit 1 and Kawasaki unit 2. The growth in Japan’s LNG imports is expected to slow in 2009 as a result of an expected slowdown in the Japanese economy and increased utilisation of nuclear electricity generation. In 2009, economic contraction is expected to result in lower growth of electricity demand and lower growth in natural gas consumption. In addition, the restart of the 920MW Tomari 3 nuclear facility in early 2009 will increase nuclear generation capacity utilisation and reduce demand for other fuels such as natural gas. In the first nine months of 2008, LNG imports by Chinese Taipei increased by 9 per cent, compared with the same period in 2007. This growth was underpinned by increasing natural gas consumption in electricity generation and the industrial sectors. Natural gas consumption in the industrial sector has increased by 14 per cent in the first three quarters of 2008, supported by higher production of petrochemicals. Since demand for LNG in this period exceeded contracted volumes, this shortfall was met from short-term and spot purchases, mainly from Atlantic Basin suppliers such as Nigeria and Equatorial Guinea. However, a slower rate of growth in Chinese Taipei imports of LNG is expected in 2009. In both July and October, the government raised electricity tariffs by 12.6 per cent. The 25 per cent increase in electricity prices, combined with an expected economic slowdown in 2009, is expected to dampen electricity demand. This is likely to be reinforced by expected lower growth in industrial output. |
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| Imports to increase in China and the Republic of Korea | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| In the first nine months of 2008, China’s LNG imports were 2.6 million tonnes, a year on year increase of 24 per cent. The growth in China’s LNG imports is attributed to increased natural gas consumption in the industrial sector, particularly in the southern and coastal regions around the Guangdong province. In 2009, increased natural gas consumption and LNG demand will be supported by new import terminal capacity in Fujian (2.6 million tonnes a year), Shanghai (1.1 million tonnes) and an expansion at the Dapeng LNG terminal (increase of 2.5 million tonnes a year). Despite slowing economic growth in China, energy consumption and natural gas demand is expected to remain relatively strong in 2009, supported by a US$586 billion spending program on infrastructure and the rebuilding of the earthquake damaged Sichuan province. China’s increased LNG imports in 2009 will be supplied primarily through long-term contracts with Indonesia, Malaysia and Qatar. During 2008, LNG imports by the Republic of Korea have increased by 12 per cent compared with 2007. The increase in LNG imports reflects increased output from gas-fired electricity generation units and increased natural gas consumption in the industrial sector, supported by high oil prices in the first half of 2008 and the resulting switch to natural gas. In 2009, Korean LNG imports are forecast to increase to around 28 million tonnes, underpinned by a number of long-term contracts scheduled to start during the year. These contracts comprise a total volume of 5.2 million tonnes a year including: 2 million tonnes from Yemen; 1.5 million tonnes from the Russian Federation’s Sakhalin II project; 1.2 million tonnes from Indonesia’s Tangguh project; and 0.5 million tonnes from Australia’s North West Shelf project. A small proportion of the LNG imports will be supplied to Posco Power’s new 550 megawatt gas-fired Incheon-II power plant. |
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| World LNG supply capacity to grow | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| While the world LNG import market can be split into two regions, there are three broad LNG supply regions: the Asia Pacific, the Atlantic and the Middle East. Over the past decade there has been an increasing volume of LNG exports from Atlantic and Middle East sources being imported by Japan, the Republic of Korea and Chinese Taipei. This reflects Asia Pacific import requirements exceeding the region’s export capacity. For this reason, supply of LNG to the Asia Pacific needs to be viewed from a global perspective. Global LNG production capacity at the end of 2008 was around 206 million tonnes. During 2008, two new LNG trains were commissioned, the fifth train at the North West Shelf project in Australia (annual capacity of 4.4 million tonnes) and a sixth train at Nigeria’s NLNG project (4.1 million tonnes). In 2009, world LNG production capacity could increase by 24 per cent to 255 million tonnes, under the assumption projects scheduled for completion during the year are completed on time. Around two-thirds of these additional supplies are located in the Middle East, including Qatar (annual capacity of 23.4 million tonnes) and Yemen (6.8 million tonnes). A significant proportion of the LNG capacity in the Middle East will be supplied to the European market. In terms of new capacity in the Asia Pacific market, the Sakhalin II project in the Russian Federation is scheduled to be completed in early 2009 and will have a capacity of 9.6 million tonnes a year. In Indonesia, BP’s Tangguh project is scheduled to commence LNG production in early 2009 with an annual capacity of 7.6 million tonnes. LNG production from the Tangguh project will partially offset declining production from the Arun facility, which has been affected by falling natural gas reserves. Further, the project to improve efficiency at the existing MLNG Dua plant in Malaysia is also expected to add capacity of around 1.3 million tonnes. |
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| Australia’s gas production | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
In 2008-09, Australia’s gas production (including coal seam methane) is forecast to increase by 11 per cent to 49 billion cubic metres. This reflects the expected start up of a number of natural gas fields in late 2008 and early 2009. In terms of production, the largest of these is the Angel natural gas field, which has an annual production capacity of 8.3 billion cubic metres. Production from the Angel field commenced in October 2008 and will be supplied to the North West Shelf’s fifth LNG train. Natural gas production at the Blacktip field in the Bonaparte Basin is scheduled to commence in early 2009. An initial volume of 650 million cubic metres a year of natural gas will be supplied by the Blacktip field to the Gas and Power Corporation in the Northern Territory for 25 years starting from 1 January 2009. |
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| Australia’s LNG exports | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The anticipated slowdown in world economic growth is not expected to have a significant impact on Australia’s LNG export volumes as the majority is sold under long-term contracts. However, the value of Australian LNG exports is expected to be affected by lower oil prices in 2008-09 compared with 2007-08. LNG prices within long-term contracts are usually determined by a formula linked to oil prices. Since the middle of this year, oil prices have fallen by around two-thirds, and this is expected to result in lower prices for Australian LNG exports. |
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