The Oilprice.

com Guide to LNG Prospects & Markets Around the World

LNG: Our Fluid, Floating Future

The Oilprice.com Comprehensive Guide to LNG Prospects & Markets
Around the World
Natural gas is a commodity that finds itself in a race to the

And the continuing game is all about streamlining, which is

finish line between three elements: piped natural gas, LNG

where the floating aspect comes into play.

and Floating LNG. Its an exciting game that, at the end of the
day, is all about getting more out of the ground for less
money and getting it to market faster and easier.

The math is quite simple if you leave out regulatory environments and geopolitics. Liquefied natural gas (LNG) is cleaner
than traditional fuels and the more we use it the less we will

LNG, and particularly the floating variety, is the future, and

contribute to global emissions. The world is working towards

also why we have chosen to close out our series of reports

this transition, and the math tells us that, from a US perspec-

with this topic, which has become an obsession for many

tive, investing in LNG appears to be the obvious path to

prospective investors. The most important message for

future wealth.

investors is that LNG is NOT a revolution. Its an evolutiona

term that we hope instills a certain amount of investor rationality and patience. The question is not whether LNG is the
futureit is. The question is when, and its a very important
question for any investor who is preparing to gamble on this
clean fuel.
What is clear is that, while today LNG accounts for only a
relatively small portion of the worlds gas supply, it is hands

The trap is in the timing, and particularly for investors who

focus on a single element of this future gamemouth-watering prices that LNG fetches in Asia. Prices are tumultuous,
and this is a longer-term game with a much bigger picture.
Understanding this big picture is what will set you on a
course to profit from the LNG future.
In this report, we will examine at length:

down the fastest-growing segment, experiencing a 140%

What exactly is LNG and how it is processed and trans-

increase in global demand between 2000 and 2012 alone.

ported
Why LNG is the future and why it is an ideal transition fuel
Why the future is floating
The biggest global LNG venues; where they are and how
much they cost
Why the US is late to this game
The components of LNG investing
Politics, Geopolitics and the marketwhat helps and
hinders LNG

oilprice.com I 02

The Oilprice.com Guide to LNG Prospects & Markets Around the World

Part I: Evolution, if Not Revolution

What is LNG?
LNG is simply natural gas rendered in a liquid state. It is a
clear, colorless, non-toxic liquid that is formed when natural

(CNG), natural gas liquids (NGL), liquefied petroleum gas

(LPG) or gas to liquids (GTL), all of which are comprised of
different components.
How is LNG Stored?

gas is cooled to -162 Celsius or -260 Fahrenheit. Natural

LNG is stored in large, refrigerated cylindrical tanks with

gas is typically at least 90% methane, but may also contain

domed roofs kept at atmospheric pressure. Both pressure

propane, ethane and small quantities of other compounds,

and temperature are kept constant in a process referred to

which are removed when natural gas is liquefied, rendering

as auto refrigeration. The tank released steam (in the form

LNG a very clean product. The process of cooling the natu-

of LNG boil-off vapor), is recaptured by LNG facilities and

ral gas reduces its volume 600 times, and is undertaken on

either used as fuel or sent through pipelines.

what is called an LNG Train. An LNG train is a natural gas

plants liquefaction and purification facility. The typical LNG
plant will have more than one train, with each one operating

LNG can also be stored underground in specially designed

tanks.

independently of the others. The worlds largest trains are

owned by Qatar (Ras Laffan) and can liquefy around 1 billion
cubic feet of natural gas per day. In total, the Ras Laffan LNG
facility has two massive trains and four smaller trains.
The process of cooling the natural gas makes it significantly
easier to store in large volumes and to ship out for export
over long distances.
LNG is not to be confused with compressed natural gas

oilprice.com I 03

The Oilprice.com Guide to LNG Prospects & Markets Around the World

How is LNG Transported?

For international trade, LNG is transported in special tanks

LNG Export Terminals: An LNG export terminal is pretty

aboard double-hulled ships to receiving terminals overseas.

much the same as an import terminal with one big differ-

It then goes through a regasification process, which turns

ence: While an import terminal will have a re-gasification

the LNG back into natural gas. At this point, the natural gas

plant, an export terminal will have a liquefaction plant,

can then be transported through local pipeline systems for

which, again, is called a train.

end-user distribution. Worldwide, there are approximately

relatively easy job to repurpose an existing LNG import

170 LNG transport vessels in operation, with many more in

terminal into an export terminal, keep in mind that lique-

the works.

faction facilities are extremely expensive and the cooling

LNG Import Terminals: These terminals are equipped with

While it may seem a

process itself requires a significant amount of energy.

berths, for mooring ships and offloading LNG, as well as

When export is not the objective, there are smaller-scale op-

storage tanks and re-gasification facilities. The new trend

erations that liquefy natural gas simply to store it more conve-

in the US is to repurpose some of the existing LNG import

niently for later use, when supply and demand dynamics

terminals to handle exports to countries with which the US

make more sense. Natural gas is sometimes taken from a

does not have Free Trade Agreements (FTAs), but well get

pipeline, liquefied and stored for high-demand seasons, with

into this further down in this report.

small-scale regasification plants in this case called peak

oilprice.com I 04

The Oilprice.com Guide to LNG Prospects & Markets Around the World

shavers. Similarly, LNG satellite plants use tanker trucks to

entirety, while some of the other projects are only partially

bring in LNG, store and re-gasify it when necessary.

floating and not as comprehensive and all-contained.

When LNG Starts Floating

Petronas PFLNG-1 Project

While, as of 2015, there are no Floating LNG facilities (FLNG)

This project, by Malaysias Petronas, was scheduled to be

in operation, the future of LNG is certainly in moving the

completed in 2016 and would first be deployed to the

whole process offshore in a very big way. The unfolding

offshore Kanowif field for five years, and then moved to

revolution in Floating LNG technology is not only important

another field. The plan is to park the floating facility near

to a new global gas delivery system, but also to unlocking

offshore gas fields to produce, liquefy, store and transfer

more remote natural gas resources, and basically killing two

LNG at sea to bigger ships for export. This, according to

birds with one stone: natural gas extraction and floating

Petronas, will save hundreds of millions of dollars in pipeline

infrastructure to get it straight to market. If it works the way

construction and render production vastly less expensive.

its supposed toand its still too early to tellwe are

The floating facility is designed to operate in shallow waters

looking at an idea that could potentially render gas produc-

with the capacity to produce 1.2 million metric tons per year

tion both faster and cheaper at the end of the day.

(mtpa) of LNG, with a 20-25-year lifespan. With oil prices at

The main objective here is to get product to market faster

and to bypass very long, very expensive and very geopolitically complicated pipelines, which also require a massive

$70 per barrel or higher, Petronas claims the project would

enjoy a double-digit internal rate of return, but avoids
estimating rates of return for oil prices under $70/barrel.

amount of maintenance, as well as avoiding the construction

of onshore plants, which carry a significant environmental
footprint.
This LNG revolution began in earnest in 2011, when Shell
decided to build the worlds first floating LNG project off the
north-west coast of Australia. This project, The Prelude, is
aptly named as the prelude to the next evolutionary
sea-change for the natural gas sector and what will likely be
a massive business by somewhere around 2020, according
to KPMG. By 2014, Shell had laid the keel of what is the
largest floating structure ever built in the world.

Petronas second PFLNG project, PFLNG-2, was scheduled

to go online in late 2015. This project is designed for deepwater gas fields, with a capacity to produce 1.5 million mtpa

FLNG Project Snapshots

of LNG.

First of all well start by noting that there are really only two

The Petronas projects will be the first Floating LNG projects

true FLNG projects out therePetronas and Shells Prelude.

to come online, and thus they will serve as a barometer for

By this we mean that the Prelude, for instance, is floating in

how the idea holds up to various market conditions.

oilprice.com I 05

The Oilprice.com Guide to LNG Prospects & Markets Around the World

Shells Prelude Australia

Like the Petronas projects, Shells Prelude is a true open-water LNG project in every respect, which means its much
more expensive and much more challenging. This is the
worlds largest floating platform, and aims to produce a
minimum of 3.6 million metric tons of LNG per year beginning in 2017. Shells shied away from putting a price tag on
this project, but most estimate it at around $13 billion.

likelihood of recoverable gas reserves increasing here from 6

trillion cubic feet to 12 trillion cubic feet. The project is being
developed by Inpex in partnership with Shell. The Abadi
project is situated in the Masela block near Indonesia's
border with northern Australia. Production at the Abadi LNG
development is expected to begin in 2022, three years later
than planned.
Woodside Petroleums Sunrise FLNG Project TimorLeste
This project, in which Shell and ConocoPhillips are partners
and Australias Woodside the operator, is experiencing
some political problems. Some officials in Timor-Leste are
opposed to an FLNG project to develop the countrys
Sunrise gas field, describing the proposed LNG vessel as a
target for terrorists. We find this form of thinking nave at
best. Onshore facilities are much easier to target and are
much more attractive targets for terrorists who are looking
to ensure maximum damage and maximum publicity. There

Japanese Inpexs Abadi FLNG Project Indonesia

is probably much more corrupt politics behind this battle

Not only is this project on track, but its being expanded

that have nothing to do with potential terrorism targets. This

while others languish due to unfavorable market conditions.

region, in the Timor Sea, is home to more than 15 trillion

This reflects the Japanese desperation to forward FLNG. In

mid-2015, Inpex announced it would triple the capacity of its
proposed FLNG plant at Indonesias offshore Masela block
to 7.5 million metric tons per year (mtpa), from 2.5 million
mtpa originally. This decision was made based on the

cubic feet of discovered gas that still has to be developed,

with the Greater Sunrise fields being the most advanced
and promising. So once this project finally gets off the
ground, there will be a windfall. For now, it remains a great
idea on paperan idea that could produce around 4 million
metric tons of LNG per year if it can overcome the political
wrangling.
Pacific Rubiales FLNG Project Colombia
This project, originally scheduled to go online in 2014, then in
2015, which was delayed due to unfavorable market conditions, is a floating liquefaction, regasification and storage
vessel designed to export 0.5 mtpa. It is being built by

oilprice.com I 06

The Oilprice.com Guide to LNG Prospects & Markets Around the World

a floating LNG export facility situated between Galveston

and Corpus Christi on Texas Gulf Coast. It will be designed
to export LNG to markets worldwide. It will have a production capacity of 3 million tons per year, a storage capacity of
250,000 cubic meters and a fully integrated gas processing
plant. In size, were looking at a floating vessel 338 meters in
length and 62 meters in breadth. This project is an inshore
barge-mounted designed so it will closely resemble a
land-based facility and we do not consider it a true floating
project partner, Belgium-based Exmar, at a Chinese ship-

project on the same level as Shells Prelude.

yard. The projects costs $180 million and plans to provide

Enis Coral FLNG Project Mozambique

LNG to customers in Central America and the Caribbean.

ExxonMobil/BHPs Scarborough FLNG Project
The Scarborough FLNG project is a joint venture between
BHP Billiton and ExxonMobil to use floating facilities to develop the Western Australia offshore Scarborough natural gas
field, which has an expected producing life of 25-35 years.
But low prices and increasing competition from the US
prompted the partners to put the project on hold in 2015.
The project has since been given a lower spending priority.

Italian oil and gas giant Eni is pursuing an FLNG project

offshore Mozambique to develop the highly prized Rovuma
Basin (read more about this basin in our previous special
report). But the final investment decision (FID) was still up in
the air as of mid-2015. This project would include an FLNG
unit fed by subsea wells. Though the project is expensive, it
would indeed make LNG production cheaper with no need
for the construction of prohibitively expensive subsea pipelines and onshore processing plants. And these facilities, as
we have mentioned elsewhere, can be remobilized. Produc-

Excelerates Port Lavaca, Texas FLNG Project

tion was initially expected to launch in late 2019.

This project was put on hold in late 2014 due to unfavorable

Perenco/Golar Cameroon FLNG Project

market conditions, but was originally scheduled to start

production in 2019. If it ever gets off the ground, this will be

This project is set to start production in April 2017 and, unlike

many others, has stayed on track in terms of budget and
startup. This is a partnership between Perenco and Golar LNG
to develop Cameroons offshore Kribi gas fields and export
to global markets. Production is anticipated to be around 1.2
million tons per year of LNG for eight years, with additional
reserves that may be allocated in the field at a later date.
Ophir Energys Equatorial Guinea Block R FLNG Project
This project has also stayed on track, with production
expected to launch in 2019, targeting 3 million tons per year

oilprice.com I 07

The Oilprice.com Guide to Investing Oil & Gas Outside of North America

(mmtpa), or 12.5 million cubic meters per day. Ophir has also

LNG trains with a 15.6 MTPA liquefaction capacity and a

led the discoveries on Block R, and these discoveries were

domestic natural gas plant. First production was initially

enough for Ophir to conclude that the resources could

planned for the third quarter of 2015 but delays have been

support an FLNG train. Excelerate Energy will be the

problematic.

midstream partner providing the floating liquefaction and

storage facilities. The plan is for a newbuild FLNG vessel with

Lithuanias Independence FSRU

a floating offshore LNG liquefaction terminal and an LNG

This one does not really belong in our snapshots, because

storage capacity of 230,000 cubic meters and side-by-side

its not a true FLNG project, rather just a Floating Storage

offloading.

and Regasification Unit, but were going to include it

Chevrons Wheatstone & Gorgon LNG Projects Western Australia

The Wheatstone Project is a joint venture between Australian
subsidiaries of Chevron Kuwait Foreign Petroleum Exploration Company (KUFPEC), Woodside Petroleum Limited, and

anyway because it paints a clear picture of the LNG situation in Europe and the dependence on Russian gas. In
short, it shows how great a role LNG will play in Europes
futureperhaps even if its a bit more expensive to start
off with.

Kyushu Electric Power Company. This $29-billion project off

Since the Russia-Ukraine gas wars of 2009 and the latest

the coast of Western Australia got off the ground in 2011 and

ongoing battle that saw Russia annex Ukraines Crimea,

will have two LNG trains with a total capacity of 8.9 million

foster a bloody conflict in the countrys east and enter into a

metric tons per year of LNG along with a domestic gas plant.

protracted war over gas, the idea of the FSRU has gained

First production is expected in 2016. At the same time, Chev-

more urgency in Europe. It is only appropriate that Lithua-

rons Gorgon project is also being builtand is further

nias new FSRU has been named Independence. Built at

alongon Barrow Island, about 60 kilometers off the north-

the Hyundai Heavy Industries (HH) shipyard in Ulsan, South

west coast of Western Australia. The project includes three

Korea for Hoegh LNG, the vessels was chartered to Lithuanias Klaipedos Nafta under a 10-year lease agreement
signed in March 2012, with an option to buy. Its claim to
famegeopolitics asideis that it is the first ever new-built
FSRU in the world, while others have been conversions of
existing vessels into FSRUs. It cost around $330 million to
build between September 2012 and February 2014, and it
became operational in October 2014, serving Klaipedos
Naftas LNG terminal.
Independence has the capacity to store 70,000 metric tons
of chilled natural gas and 170,000 cubic meters of LNG in
thermally insulated membrane tanks. Its regasification
capacity is around 400,000 scf/d.

oilprice.com I 08

The Oilprice.com Guide to LNG Prospects & Markets Around the World

This was a gutsy move by Lithuania, and the rest of Europe

entered the scene: Norway, Russia, Yemen, Peru, Angola

should be quite impressed. Lithuania pays more for Russian

and Equatorial Guinea.

gas than anyone else in the European Union, and this FRSU
is its negotiating leverage, and its already worked.

In addition to the tried and trusted are the emerging venues,

which could change the LNG market forever with new supply
sources that include East Africa, the US Gulf Coast and
Western Canada.
LNG Old Guard Snapshots
Qatar is traditionally the largest producer of natural gas in the
world and the largest exporter of LNG, but Australia is threatening to overtake Qatar, and the US is hoping to not be far
behind. Of the seven largest LNG projects under development as of 2015, five of them are in Australiawhich speaks

Part II: Global LNG Venues & Players

In this endeavor, we need to divide the playing field into old
and new because there are the tried and true LNG venues
and some very exciting emerging frontiers.

volumes about where Australian LNG is goingand the

other two are in Russia, in Yamal and Sakhalin.
Australia is a real LNG pioneerthe first to make LNG for the
hungry Asian market. The recent boom in global LNG
construction could see global output almost doubling its

The oldest LNG venues are Qatar, Nigeria, Australia, Oman

2012 level of 250 million tons per year by 2030, and most

and Indonesia, which began expanding production signifi-

would agree that around 60 million tons per year of this could

cantly in 2006. Now a new group of LNG producers have

be from Australia, despite some recent setbacks.

oilprice.com I 09

The Oilprice.com Guide to LNG Prospects & Markets Around the World

Take a look at some of the key LNG projects in Australia:

dence on Russian gas, and while this is a clear possibility, it

will be quite some time before it can be realized both logistically and in terms of pricing. For now, Russian gas is about
all Europe can afford. The US real trump card here is that it
has many more LNG projects under way than Russia does,
so eventually it will have the capacity to win this game at
least in terms of volume.
Emerging Venue Snapshots
US Gulf Coast
This is an emerging venue due to the shale gas boom, and
the need for an outlet for this gas now that the domestic

Australia has put about $160 billion into its plan to become
the worlds largest LNG producer by 2018. We dont doubt it
can secure this title, but we suspect it will take a bit longer.
Of the newer old guard, Russia is an interesting story, and

market has all it needs. But this requires some tricky politicking because, as it stands, and without special permission,
US domestic producers are not allowed to export LNG to
countries with which the US does not have Free Trade
Agreements (FTAs).

this is where we can really see the geopolitics of LNG at

work. Russiaand by Russia we mean the Kremlins energy
goblin, Gazpromcould ostensibly beat out the US in terms
of pricing in this game. But its pipeline deal with China was
also a major blow because it effectively cut off the Chinese
market for future US LNG. There was also a lot of premature
talk about US LNG for Europe as a way to remove depen-

While the big sub-venue here is the Gulf Coast, the Alaskan
North Slope is also an emerging player, with ExxonMobil,
ConocoPhillips and BP at the early stages of considering an
LNG project here. Some LNG is produced in Alaska for
export to Japan because no options exist for transporting

oilprice.com I 10

The Oilprice.com Guide to LNG Prospects & Markets Around the World

Alaskan natural gas production to the lower 48 states.

East Africa

The US entered the LNG game late in the dayat a time

This venue is emerging as a major LNG export giant

when projects were already quite far along in other global

because it is home to deepwater basins that will be the

venues.

scene of some of the worlds largest and most impressive

As of 2015, the US had five LNG export terminals under

construction, with one scheduled to be online in 2016.
Western Canada

Floating LNG projects.

There are two venues that stand out here first and foremost:
Tanzania and Mozambique, both of which we covered in our
previous special report on global oil and gas investing.

Western Canada is an emerging venue likewise due to a

boom in shale gas production. But while things are moving
forward more quickly in the US, Western Canadas 15
proposed projects are proving more problematic. The Pacific
Northwest LNG project hit a road block because this
onshore giant would have to be built on aboriginal lands.

In Tanzania, were looking at an LNG facility in Mnazi Bay

with very established LNG players. This is for the
forward-thinking, long-term investor because this projects
projected start date is 2021.
In Mozambique, were looking at less experienced LNG
players, but more projects to choose from, including two
onshore LNG facilities and a potential FLNG project
proposed by Eni.
The lure here is the vast potential of these deepwater basins
that are only now emerging as giants.
To determine the potential for LNG exports out of East
Africakeeping in mind that this is an emerging venueyou
have to look at how it would get to market. The closest
market for Mozambique will be India, which is another
LNG-hungry venue. Europe and China will be roughly the
same distance, while Japan and North Koreathe biggest
importersare the farthest away.

oilprice.com I 11

The Oilprice.com Guide to LNG Prospects & Markets Around the World

Part III: The Markets

Most eyes will be on Japan, which has a very strong interest

The largest markets for LNG are Asian, and the biggest

in seeing major FLNG projects get up and running.

Asian importers are Japan and South Korea. But they pay a

After the 2011 Fukushima nuclear disaster which resulted in

high price for this LNGa situation that is doing a great deal

the shut-down of Japans nuclear fleet, the countrys LNG

to forward massive new LNG projects, particularly of the

imports increased by 25%. For Japan, though, its current

floating variety.

LNG imports are uncertain because they go through the

China is partly remedying its need for more and cheaper gas
through a pipeline deal with Russia, which took 10 years to
get down on paper, but will see Russia pipe millions of tons
of cheap natural gas into China, reducing the attractiveness
of China as an LNG market.

Straits of Hormuz, which is a geopolitical disaster waiting to

happen, as well as Malacca. The Japanese are also very
concerned about a threat to global gas supplies from
conflicts and crises, such as that in Ukraine. All of this makes
FLNG very important to Japan.
Since 2006, we also have a fairly long list of first-time LNG
importers: China, Brazil, Chile, Dubai, Kuwait, the Netherlands, Canada and Mexico.

Part IV: The Risks

The first thing you need to know about risk in this market
segment is that it is led, first and foremost, by unpredictable
change. You can read all the prognoses you like from a multitude of experts, but at the end of the day, it is impossible to
predict and you have to follow your own gut instinct. What
we have seen so far is a period of massive obsession focusing on an LNG revolution, followed by a period of disappointment as oil prices plummeted in mid-2014 and hugely
ambitious LNG projects abruptly cooled down.
This does not mean that LNG is deadfar from it. The investors mistake here is found in over-exuberance, which favors
Other: Algeria, Egypt, Norway, Equatorial Guinea,
Trinidad, Yemen, Peru, Angola re-exported amounts

Source: EIA

irrationality. LNG is the future, but it should be viewed as

evolutionary rather than revolutionary. Evolutions happen

For Europe, which is struggling to loosen the Russian gas

over time and are logical progressions, while revolutions are

noose, LNG still remains too pricey to be a full-on alternative

forced. The latter may be more exciting, but the wise investor

to piped natural gas, but the future is moving in this direc-

recognizes the difference and can weather shifts in supply

tiongeopolitics willing.

and demand and fluctuations in price. At the end of the day,

oilprice.com I 12

The Oilprice.com Guide to LNG Prospects & Markets Around the World

LNG (like everything else) will be influenced by supply and

For onshore LNG projects, with construction costs typically

demand, price, technological advances, and political and

designed to be about 30% of the budget, times have been

geopolitical dynamics.

tough. According to information compiled by KPMG in

2014the same year that the beginning of a sharp drop in oil
prices caused additional panic--Australian onshore LNG
project costs had risen to 50-60% of the total budget. Liquefaction plant average capital costs rose from $300/ton per
year to $1,200/ton per year from 2000 to 2013. Chevrons
Gorgon project was originally supposed to cost AUS$37
billion, but that was inflated to AUS$54 billion.

Cost: Is It All Worth It?

The first rule of thumb is to fully grasp the fact that LNG operations are very capital intensive, with upfront costs a bit
overwhelming because they include massive and complex
construction projects from liquefaction and regasification
facilities to specially designed LNG ships, among many other
things. What interests us quite a lot is the cost-profit comparison between onshore LNG projects and offshore, FLNG.
Massive onshore LNG projects are promising but costs to
get them up and running have ballooned and there is a long
wait to get product to market, which leads to major frustration. The costs also mount due to remote location infrastructure challenges, opposition to the projects themselves and a

With onshore cost over-runs in mind, investors are increasingly looking to Floating LNG projects. Some estimate that
between 2014 and 2020, $60 billion will be spent on FLNG
projectsjust for starters. Two-thirds of this will likely to go
liquefaction infrastructure, while the remaining will be for
import and regasification facilities.

complicated road to regulatory and environmental approval.

The costs of liquefaction plants have, for some reason, more

In short, cost over-runs rule the day.

than doubled between 2003 and 2013, and it would appear

oilprice.com I 13

The Oilprice.com Guide to LNG Prospects & Markets Around the World

that these costs have increased at twice the rate of other

When you consider a potential investment in FLNG, make

upstream oil and gas facilities during the same period. (This

sure you are prepared to be in it for the long term, and that

Oxford Energy study offers a detailed look at these cost

you can handle the ups and downs of getting these massive

increases.)

projects off the ground.

Pricing Vulnerability
Like everything else, LNG is vulnerable to pricing. The
weather, and changes in season can cause drastic changes
in prices. Oversupply can also significantly affect prices,
and you need to be prepared for shifts in demand in the
major LNG markets. It is very unlikely that you will see any
supply shortages in the near to medium-term future.

There are clear advantages to FLNG, but at the same time

this type of investment will not be for the faint of heart. The
risk over the short term is very high, but over the longer-

Some clever promoters will try to tell you that LNG is less
vulnerable to price shocks than other commodities, but this
is certainly not the case.

term, an investors FLNG foresight will likely pay off in a very

To hit this point home, lets look at two key Asian markets,

big way.

Japan and South Korea, both of which have huge appetites

oilprice.com I 14

The Oilprice.com Guide to LNG Prospects & Markets Around the World

for LNG, but this appetite needs to be constantly measured

metric tons per year of LNG for 20 years when the facilitys

and analyzed. To do this, you need to understand their

second train becomes operational. This is what you need to

energy options.

look for as an investor. What have they already lined up?

Japan has long relied on nuclear energy, and the Fukushima disaster was one of the biggest game-changing events
for global LNG markets. In the aftermath of this disaster,
Japans demand for LNG skyrocketed, making it the key
importer of LNG in the world. Nuclear energy is extremely

Conclusion

important to Japanand the issue is very political. One

would have had to follow the politics to determine the
likelihood of nuclear energy again playing a major role in
Japanese energy. So far, some nuclear reactors have been
put back online, which means that demand for LNG has
declined in accordance with this.
When South Korea put its nuclear plants offline for safety
reasons, the country started stockpiling LNG, sending
demand soaring. But when those plants went back online,
that demand fell.
Spot Market Concerns
The majority of LNG supplyaround 80%-- is contracted at
fixed prices. That leaves around 20% that is bought and
sold by countries on the spot market. It is this spot market
that determines the daily prices for traders buying LNG on
the open market. This spot market is the bane of the LNG
investors existence.

There are all kinds of predictions out there, floating

aroundsome of them extremely tantalizing, others
bordering on the doom and gloom. Shipbroker Clarksons
estimates that by 2019, likely global FLNG capacity will be
44 million tons per year, about 7.5 percent of the industrys
total capacity. By 2022, there could be 22 FLNG vessels in

In this environment, the investor must focus on producers

place, with another 22 possibles. This is all well and good,

who can cement long-term supply contracts at higher

but as weve cautioned, no one can predict where this

prices. If you look at the US projects, for instance, keep in

marketcharacterized by a single constant, which is

mind that it will be the federal governments approval and

unpredictabilityis going. It will move forward, but the

final investment decisions that allow them to cut deals for

timing is anyones guess. A single weather event and or a

long-term LNG contracts. For Cheniere, this means a deal

longer-than-expected drop in prices can send the entire

with Australias Woodside Petroleum to purchase 850,000

industry into a panic and derail investment and progress.

oilprice.com I 15

The Oilprice.com Guide to LNG Prospects & Markets Around the World

As an investor potentially interested in LNG, you need to

selves for massive, long-term future rewards if they play

decide where your long-term investment desires lie.

their cards right. This means paying attention to the venue,

Regardless of positive or negative predictions, LNG will be

the facilities, the existing infrastructure, the politics of global

a future kingmaker, and investors who get in on the ground

demand and, for projects already underway, whats already

floor and can wait out the slumps will likely position them-

been contracted out.

Copyright 2015, all rights reserved by Oilprice.com. No portion of this report may be published or reused in any way
without the explicit consent of Oilprice.com.

oilprice.com I 16