Print this pageAAPG ANNUAL CONFERENCE AND EXHIBITION
Making the Next Giant Leap in Geosciences
April 10-13, 2011, Houston, Texas, USA
A Global Perspective on LNG
(1) Center for Energy Economics, Bureau of Economic Geology, Houston, TX.
The first commercial supply contracts over LNG supply were signed in the early ‘60s between Algeria and the United Kingdom and France (Atlantic market). The United States started shipping LNG from Alaska to Japan in 1969, establishing the Pacific market. By the end of ‘70s new liquefaction capacity was installed in Algeria, Libya, Alaska, Brunei, Abu Dhabi, and Indonesia. LNG buyers and new receiving terminals evolved in the UK, France, Japan, the U.S., and Italy, later in Belgium, Spain, Taiwan, and Korea. In the ‘80s, only two new exporters entered the market: Australia and Malaysia. Between ‘70s and ‘90s the Asian market dominated world trade; in 1984 Japan purchased 72% of world’s LNG, mainly used for power generation. Only in the late ‘90s Europe and North America have renewed their interest in LNG. The Middle East joined the world market with supplies to both the Atlantic and the Pacific Basins. Until recently all LNG supply was organized on a project basis; buyers and sellers built the supply chain together. Huge upfront investment cost induced partners to agree on long-term commitment; supply contracts were signed for a period of 25-30 years. To share risks and rents contracts included “take-or-pay” clauses. Such contracts fixed the price a buyer is obliged to pay and the quantity a seller is obliged to deliver. In some contracts price had been fixed for the whole duration of the contract, while in others the price could be renegotiated if market conditions changed. Except for the U.S. and UK, the LNG prices in Northeast Asia were linked to crude oil prices and those in Europe were pegged to a mix of fuel oil and pipeline gas prices. Although such contracts continue to dominate the market, LNG trade has become increasingly flexible, with growing short-term and spot trade and destination diversions becoming more common. Although there is no consensus on significance and pace of these developments, it is generally accepted that arbitrage opportunities have increased. Shale gas boom in the U.S., hurricanes in the Gulf of Mexico, extreme cold weather in Europe, hydro shortage in Spain, nuclear outages in Japan and more “remote” factors can now impact LNG movements and prices around the globe. Equally, availability of flexible and spot LNG cargoes impact investment in upstream gas projects, including shale plays as well as investment in long distance pipelines. Large LNG suppliers such as Qatar play a central role in these developments.