While natural gas emerges as one of the cleaner energy solutions for generating power worldwide—in fact it is the cleanest burning fossil fuel—demand across the globe is on the rise. Further, converting natural gas to liquefied natural gas (LNG) ensures the successful transportation of the much sought after energy source. However, with high prices for LNG, some companies may still be sceptical. Here’s a look at what the future holds.
Benefits of Natural Gas and Liquefied Natural Gas
According to the U.S. Department of Energy, 900 of the next 1000 power plants in the U.S. will utilize natural gas. However, as the demand grows, the U.S. has to import natural gas from overseas in the form of LNG. Transportation of natural gas in its liquid form is considered both safe and reliable. LNG is used in over 64 million U.S. homes and businesses for electricity, heating and cooling and for other power necessities. Natural gas also provides 23 percent of all energy consumed in the world.
LNG offers the opportunity for countries to economically benefit from exporting the natural gas resource—liquefying and shipping natural gas actually proves to be less expensive than transporting via offshore pipelines. Smaller countries, such as African country Angola, a producer of LNG through its LNG Angola Project, can see necessary strong financial advantages to exporting. According to the Angola LNG website, “LNG offers a more environmentally sound way to deal with the associated gas and brings additional economic benefits to the exporting countries.”
Cargoes that carry LNG from location to location have the opportunity to go anywhere—for example whichever countries have the greatest demand. Therefore, there are more destination options than with conventional pipeline transportation. Plus, LNG can be use for a variety of uses—electric power plants, alternative clean fuel or for seasonal gas reserves.
LNG supports a number of environmental benefits as well. The resource is 100 percent non toxic, odourless and non corrosive. No dangerous slick would result if LNG should happen to spill—the substance evaporates and disperses quickly with no residue left behind. Regardless of if a spill occurs on water or land, zero clean-up is required.
Costs of LNG
While LNG is generally seen as a costly energy project, the prices over the last 10 years have fluctuated quite a lot. According to the Centre for Energy Economics, “Current estimates are that natural gas can be economically produced and delivered to the U.S. as LNG in a price range of about $2.60-$4.80 per million Btu (MMBtu) depending largely on terms established by producing countries for E&P investment and shipping distance and cost.” The Energy Information Administration (EIA) estimates the average price for the Henry Hub natural gas spot in Erath, Louisiana to be $4.49 per million Btu (MMBtu) this year—a 54 cent per MMBtu increase from the 2009 average.
While prices are higher than this time last year, demand has also grown from last year. The EIA reports from independent energy market analytics company, Bentek, that in the Western U.S., Canadian imports increased by approximately 50 percent. Additionally, demand grew to around 9 percent higher than last year. The report also indicates that the greatest leap in demand occurred within the electric power generation sector.
The combination of high demand coupled with the costly liquefaction process; shipping; and re-heating process of converting it back to gas, contribute to LNG’s comparatively high prices. Plus, due to the threat of competition, prices could potentially remain high. For some who would need to import LNG, the bidding process may not be lucrative.
The Future of LNG
In January, 2010, Chevron Corporation’s Australian subsidiaries signed agreements with Kyushu Electric Power Company, Inc. for the delivery of LNG from Chevron’s Gorgon and Wheatstone natural gas projects. Under the agreement, Kyushu Electric expects to receive 0.3 million tons annually of LNG over the course of 15 years.
On the contrary, the Oregon Department of Energy (ODOE) does not see a need for LNG. The ODOE logic is that foreign LNG costs more than domestic or Canadian suppliers for which the state of Oregon currently depends on for natural gas. Further, according to the ODOE, new natural gas discoveries in the U.S. could meet, “118 years of U.S. demand” avoiding altogether supply from foreign LNG producers, such as Qatar, Iran or Russia.
According to a press release issued by Reports and Reports, North American LNG exports are expected to more than double from 2009 to 2013. While the economy continues to recover from the recession, and if LNG prices decline, LNG markets are expected to show significant growth, driven mostly by supply push.
