I just read Rudolf Huber’s article, “When Will US LNG Terminals Switch Off?” As someone new to the industry I realized I don’t know enough about the history of LNG. Can anyone explain why LNG is such a big deal now versus, say, 15 years ago?
1、Bruce Bolduc answered 5 days ago
Looking at supply from the US, LNG is a fairly new product (with the exception of the Kenai peninsula in Alaska). After the development of the gas shale plays (Marcellus, Utica, etc) prior to the oil crash in 2014, US natural gas prices were very low relative to the rest of the world where gas was mostly oil price indexed. The US price advantage when away LNG is a major gas supply source of natural gas to Asia (eg, China, Japan and Korea) and to Europe where there is not plentiful natural gas resources. LNG has been traded internationally since the 70’s and has grown significantly to monetize remote gas fields. To make matters even more “interesting” some of the US LNG export facilities were actually built as import terminals prior to the shale gas growth and were reversed (simplistically stated here) when the US went from gas short to gas long.
2、Dighobo Eze answered 5 days ago
The first commercial transport of LNG took place in February 1959. This was the transport on the LNG carrier “Methane Pioneer” (capacity of 5000 m3) from Lake Charles in the USA to Canvey Island in Great Britain. The “Methane Pioneer” was followed by the carriers “Methane Princess” and “Methane Progress” (each of a capacity of 27400m3) which had their first passage in February 1962. It is necessary to mention that the first carriers had a boil-off of 0, 33%. Today’s carriers have a boil-off of 0, 15%.
“Methane Princess” “retired” in 1997 after 27 years of use, not due to the state of the carrier but due to the fact that using such an old carrier is not cost-effective.
The first commercial contract for the import of LNG into Japan was signed in 1967 and after that, Japan became the leading power in LNG import. Until this day, Japan remains the biggest importer with a total import of one third of the world’s LNG.
After the first carriers, new research was done which led to the general division of LNG carriers into two large groups. Membrane ships (created during the cooperation and afterwards the union of two French factories “Technigaz” and Gas Transport into the corporation GTT) and spherical LNG carriers (Kvaerner – Moss).
From mid 1970s the size of the LNG carriers was standardized to 125000 m3 to 138000 m3.
Until 2000, the number of LNG carriers was relatively constant, around 120 ships. After that, there was a great boom and expansion in LNG carriers and today, 285 LNG carriers are sailing in the world. The size and the capacity have also increased and today, the so-called Q-max (260000 m3) and Q-flex (215000m3) are in use.
3、Rudolf Huber answered 5 days ago
Angela, a lot was said by other commenters below and I don’t want to repeat those words. The only thing I care to add is that until about 15 years ago and for many decades, LNG was a pretty sleepy, exotic business in some corner of the energy world. Those handling it were regarded as Black Wizards doing mysterious things by the energy community. It was often a career ender as once you were in the corner, you stayed put.
Then LNG went mainstream and something that was thought of purely as a floating pipeline replacement was looked at through the lens of the commodity traders. Changing old LNG into the new Flexiworld was going to produce plenty of carnage.
Don’t make the mistake of thinking that in order to understand LNG you need to accumulate a lot of historical knowledge. It’s not an additive thing. This historical knowledge can often be a straitjacket that does not allow you to see today’s LNG for what it really is. Many old hands of the industry have to unlearn a whole lot of stuff.
4、James Drouin answered 5 days ago
Angela – There’s likely not a single reason, but more of a combination of reasons. Here’s my “guess” on the two most significant in that combination:
The war on coal was in abeyance;The price of oil was only ~$22 per bbl.There’re others, but …
5、Christopher Ross answered 5 days ago
Angela，Here’s a potted history. Ocean borne LNG started in Algeria in the 1960s with an assist from British Gas. The successful trial led to further investments in Algeria, then the UAE and Indonesia. The business model was based on pipeline and power plant utilities: a buyer would commit to buy the LNG on a take-or-pay basis and the seller would commit to supply on a long term contract of up to 40 years. The price was indexed to oil prices. As you can imagine, the contracts took forever to negotiate, but the industry gradually grew as a portfolio of point-to-point deals. This business model was rigid, but enabled project finance with buyers and sellers interdependent despite the fact that LNG prices were high relative to coal and local natural gas production. U.S. natural gas market decontrol in 1978 blew up the model and led to litigation between Sonatrach and its U.S. contractual partners because the buyers could no longer roll in the higher cost LNG with domestic supplies and pass the higher costs on to their customers.
This model was further challenged by Atlantic LNG, which tried to move past the utility model and built the plant faster and for substantially lower cost than its predecessors and include destination flexibility in the contracts. BG Group emerged with a geographically diverse set of assets and some ability to route LNG to the highest value markets. LNG developers adopted the model and, while most of the expected production was still sold on long term contracts, a portion was retained to trade internationally. There was a surge in projects with Qatar being the leader in projects with XOM taking the lead, followed by Shell, Total and ConocoPhillips; Australia was the next hot spot.
As other respondents have described, the U.S. is next and is adopting a different and disruptive business model. The liquefaction plant is still project financed based on a fee based long term tolling contract with buyer/customers, who buy natural gas at Henry Hub based prices and either transport and use the LNG in their home countries, or trade it internationally. This could and should result in a liquid global LNG market with LNG being traded like crude oil. The big question is whether falling spot LNG prices will persuade buyers that they do not need to sign long term oil-linked contracts, which would jeopardize the development of future projects such as offshore East Africa. Pandora’s box has been opened and we may not like its contents.
6、Jack King answered 5 days ago
15 years ago natural gas was priced considerably higher than today (sometimes of $10 / MMBTU) and it made no sense to export gas as LNG. Then it seemed likely the USA would need to import a lot of gas and for several years USA energy companies geared up where a lot of gas was being flared with liquefaction facilities overseas AND gasification facilities here in the USA. After a few years in the long cycle of planning & construction, the shale revolution tapped previously inaccessible gigantic amounts of gas here in the USA and the name of the game changed dramatically since the USA had far more than gas than it could use so these gasification plans were changed to liquefaction plants in the USA gas prices declined to levels unheard of for many years and now the USA was in a position to export LNG as a valuable resource to foreign nations which were paying a lot more per MMBTU. The advent of safer transport ships and now a widened Panama Canal puts the USA in a wonderful position of being competitive even in Asian markets today. Now, the USA is in a position to compete well against other LNG suppliers like Qatar and Australia.
7、Richard Linam answered 5 days ago
It was not in such great demand as it is now – the facilities to make LNG and the ability to transport it from one place to another, and convert back to natural gas, was not as available as it is today.
8、Jack King answered 5 days ago
I think long term forecasts of 10 and more years are elusive and maybe best accomplished by using a random walk and doing sensitivity testing to estimate risk / reward. Wouldn’t we love to have a reliable and accurate 10 year crystal ball? It would be priceless。
9、Jayan Pillai answered 5 days ago
The reason why LNG is a big deal now is because it is cleaner fuel than coal or oil. Emissions are lower than when burning coal, diesel or gasoline. The US was a net importer of LNG (Liquefied Natural Gas) – with the shale and fracking bonanza, the US has become a net exporter. I have put together an LNG Diploma Course for those who wish to enter the LNG Shipping Industry. The ocean floor is saturated with methane hydrates, and when recovered as technology improves – several future generations will have a cleaner fuel for their cars, buses, ships, power stations and industrial plant.
10、Mark Rankin answered 4 days ago
I’m certainly no authority on this but my impression is that the LNG business is largely an outgrowth of Japanese industry’s inability to supply its fuel needs any other way. Japan’s proximity to Indonesian gas created a natural market for LNG. Japan’s first initiative in WWII was to secure control over Indonesian oil and gas fields and there are still remnants of Japanese production facilities hidden away of the jungles of Kalimantan and elsewhere.
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