Global LNG trade will increase to a base-case 450 million tonnes/year by 2030, from roughly 300 million tpy currently, according to Accenture Strategy. The company’s high-case projections approach 700 million tpy. Western Europe, China, and India will be on the receiving end of the bulk of this increase.
Manas Satapathy, Accenture’s managing director-energy, told the World Gas Conference that enough short-term sales volume (spot or contracts 4 years or shorter) will be available to meet this demand growth, with much of the new supply coming from the US. The bottleneck, according to Satapathy, will shift to the “last mile” of the LNG chain: regasification terminals and outbound pipelines. With few companies integrated to take advantage of clearing this constraint point, it also marks the segment of the industry with the greatest potential investment upside.
For example, Petronet LNG’s 5 million-tpy terminal at Kochi, Kerala, India, is designed to receive LNG vessels of 65,000-216,000 cu m and has two 155,000-cu m full containment above ground storage tanks. But the terminal, commissioned August 2013, is only operating at 3-5% of capacity, according to Satapathy. Plans are in place to increase capacity utilization to 40% to address growing unmet nonpower-generation demand in the region.
Adani Ports and Special Economic Zone’s 5 million-tpy Dharma LNG terminal in Odisha on India’s east coast will enter service in 2020-21, according to Satapathy, serving a similar purpose in its region. Dharma’s capacity can be expanded to 10 million tpy. It will be built with reloading capabilities to serve nearby markets such as Myanmar and Bangladesh.
For either of these terminals to reach their near-term targets, however, the pipeline capacity to move regasified LNG to the unmet demand will need to be developed. Satapathy noted that major market participants frequently discuss supply-demand dynamics on a macro level, but so far have failed to integrate their operations to address the entire chain and that solving India’s infrastructural problems will likely require the involvement of an outside company. Trucking remains an option in the meantime but is expensive.
“The [Indian] market remains very fragmented,” Satapathy explained after the session. “End users are so desperate that they will take gas from the terminal to their facility on their own. But if one of the natural gas producers or marketers sees value in this last mile as an intermediary it could meet a lot of the pent-up demand that we see in the catchment areas of these terminals. None of the consumers are big enough or incentivized enough to do it, so they’re waiting on the government. But in the meantime, there is an opportunity for an outside company to fill this need.”
More globally, Satapathy sees room for US-produced gas in Western Europe despite the price advantage held by pipelined Russian material. “Russia’s largest source of revenue is selling gas, particularly to Western Europe, where indigenous supplies are declining rapidly,” he said. Russia wants to be sure it’s going to be able to grow its market share. It has laid new pipelines and rationalized terms with transit countries such as Ukraine and Turkey.”
Satapathy said, “Russian gas will always be able to underprice gas from anywhere else in the world, but they aren’t going to price any more cheaply than they have to because at the same time they need to maximize revenue. This will leave space for LNG in the European market. Traditional market players like Qatar will still have an edge. They produce gas cheaply and also have cost advantages regarding transport to Western Europe. However, the reliability of supply is becoming increasingly important in places like the Iberian peninsula and Italy, and they are opting toward US-sourced LNG. And there are other countries in Western Europe who don’t want to be reliant on Russian gas alone. But Russia will fight to maintain its market share. There will be pain.”