The second in-depth analysis of 'The LNG Revolution', a unique three-part format dedicated to the evolution of natural gas, a key driver for the energy transition.
by
Luca Longo
4 min read
by
Luca Longo
4 min read
The first investments in Liquefied Natural Gas (LNG) technologies date back to the 1970s, but it is only in the last decade that a real globalisation of the gas market has been triggered due to the possibility of affordable sea transportation. In Asia, the large consuming countries (Japan and Korea) have invested heavily and pioneered the development of new technologies by creating a network for their own supply from the producing countries in Indonesia and Malaysia. China is also making large investments in infrastructure. It has to supply the energy needs of 20% of the world's population but has only 1.5% of the global oil resources, 3% of gas, and despite having 13% of the world's coal reserves, is trying to get away from it consistent with its own rate of development.
LNG offers clear benefits in terms of safety and flexibility. The gas market is no longer tied to the continuity and operation of fixed pipeline networks and recompression stations, which often cross countries and regions and come with potential geographic and political complexities. In addition, transport costs become relatively cheaper with distance instead of increasing rapidly with the length of the necessary route, offering higher marketability for producing countries and supply possibilities for consuming countries.
Natural gas liquefaction technology allows the specific volume of gas to be reduced by about 600 times compared to standard conditions, making it possible to achieve competitive costs for storing and transporting considerable amounts of energy in considerably smaller spaces. LNG is transported long distances from the production site by sea using LNG carriers in which the LNG remains in the liquid phase at near-atmospheric pressure but at cryogenic temperatures.
The natural gas liquefaction infrastructure
The flexibility offered transporting the gas by ship makes it possible to trigger a commercial dynamic similar to the one that already exists for oil; it makes it possible to reach remote areas and to capture sudden price variations between different markets.
In recent years, LNG production has grown exponentially, from about 50 mtpy (million tonnes per year) in 1990 to more than 236 mtpy in 2013, 371 in 2020 and 394 in 2021 (according to the latest McKinsey Energy data). In its report for the third quarter of 2022, the International Energy Agency (IEA) predicts that the demand for liquefied gas will continue to grow in the coming years. LNG consumption will increase by 140 billion cubic metres between 2022 and 2025.
According to the IEA, in Asia in particular demand continues to experience the sharp increase that began in 2011 due to the shutdown of many nuclear power plants in Japan and neighbouring countries following the Fukushima accident. The LNG market now accounts for 30% of trade and about 10% of world gas demand. Gas, which is currently the 12th most exchange commodity in the world, will therefore continue to play a decisive role in satisfying the global energy requirement.
Based on the latest IEA data, the top five importing countries are all in Asia: in 2020, Japan (with imports amounting to $26.8B), China ($20.4B), South Korea ($14.2B), India ($7.26B), and Taiwan ($4.74B) accounting for 72% of world trade. Demand is expected to increase further in all of these countries, especially in China and India. In the US, the shale gas revolution boosted domestic production and collapsed LNG imports, eventually reversing the trend and making the US a gas exporter.
The largest gas producing countries that equipped themselves with LNG technologies were, again in 2020, Australia (with exports of $25.7B), Qatar ($18.2B), USA ($13.2B), Malaysia ($7.3B), and Russia ($6.8B). Mozambique, Tanzania and Canada have ambitious development plans and aim to become LNG exporters. Australia now has the largest number of LNG plants under construction.
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