China is ushering in a new era for the global energy sector as the populous nation’s demand for liquefied natural gas soars – driving a multi-billion dollar investment wave by the biggest oil and gas players after a long spending hiatus.
Appetite for investment in the LNG industry has been dampened in recent years by fears of a large supply glut, with spending on new projects and processing facilities all but drying up following the worldwide collapse in energy prices in 2014.
Investors had also been spooked by massive costs of projects under development, including Chevron’s $US54 billion ($73 billion) Gorgon project off the coast of Western Australia, or Royal Dutch Shell’s $US14 billion Prelude LNG, the world’s first floating processing facility.
But sentiment has shifted rapidly in the past 12 months, with rising oil prices combining with strong energy demand from China to breathe confidence into the sector.
China has sharply boosted its imports in recent years, as it shifts from coal-burning plants to LNG for its expanding energy needs, part of a wide-ranging plan to reduce greenhouse emissions.
“The supply-demand balance definitely looks more favourable towards producers these days,” said Philippe Sauquet, head of gas at France’s Total, the world’s second largest LNG trader after Royal Dutch Shell.
“China will continue to make the real difference in demand. I don’t see them slowing down. They are shifting attention to building more and more infrastructure.”
Analysis by global research house Bernstein indicates that more than 200 million tonnes per year of new supply will be needed through to 2030, equating to capacity additions of between 25mtpa to 30mtpa each year.
Bernstein said global demand for LNG grew by 12 per cent in 2018, forecasting 10 per cent growth this year.
In response, the world’s biggest LNG players are again ramping up expansion plans.
Qatar, the incumbent biggest LNG producer, is preparing to expand its processing facilities by about a third, to produce up to 108 million tonnes per year by 2024.
United States-based Exxon last year spent $US2.8 billion on a 25 per cent stake in Eni’s Rovuma gas project in Mozambique, which holds an estimated resource of 85 trillion cubic feet of gas.
The company and its partners, China National Petroleum Corporation and Korea as Corp, will make a final investment decision next year on whether to proceed with the project, which could produce 15 million tonnes of LNG per year by 2023-24.
Shell is also considering major investment, nearing a final decision on whether to proceed on its first new LNG project since 2011, LNG Canada.
The company also expects to consider expansion of an LNG processing plant in Nigeria, which it operates with Total and Eni.
Meanwhile BP and its partner Kosmos Energy are set to decide on whether to develop the Tortue gas field off the coast of Senegal and Mauritania by next year.
In Western Australia, a push is underway for the state to become the southern hemisphere headquarters for a brace of multinational engineering and logistics giants, who are expected to tender for an estimated $9 billion a year in work at Australian LNG projects.
But Australia-basd operators need to address high costs of development to ensure international competitiveness, according to leading oil and gas executive Mary Hackett.
Ms Hackett, who spent 17 years at Woodside Petroleum and three years at GE Oil and Gas, a Baker Hughes Company, said Australia’s ambitions of becoming the global leader in LNG were in danger of being surpassed not only by Qatar, but also the emerging US-based shale gas revolution.
“Australia’s LNG industry and Australia’s oil and gas industry has got to prove itself on a global stage,” Ms Hackett told Australia China Business Review.
“The widening of the Panama Canal means that there is ready access from the US to the Asian market for LNG, which links back to our push to ensure that Australia remains incredibly competitive in the LNG world, otherwise there will be cheaper fuels available from elsewhere.
“Certainly, China and Japan have created a much bigger market for LNG than was previously seen, and they were early adopters.
“They have been committed for this for 20 to 30 years, so this isn’t a new evolution for China or Japan, but that commitment has stayed.
“They have seen LNG as a clean fuel, as an efficient fuel and meeting the need of reducing carbon emissions.
“Ironically, China gets treated as a polluter, but it is quite ironic that they have been the early adopters and it now gives them the ability to accelerate that philosophy of gas as a clean fuel.”
The United States’ ambitions of becoming a major supplier to Asia could yet be tripped up by the escalating trade war between it and China, after China proposed new tariffs on US LNG imports.
China, which became the world’s second biggest LNG importer last year, included LNG in July in a list of $US60 billion worth of US goods, raising a significant barrier to US LNG exports.
US gas exporters are also looking at expansions, with about two dozen companies seeking to build LNG export terminals.
Any tariffs imposed by China on US gas could limit those companies’ ability to secure foundation buyers to underpin the finances of the proposed projects.
Nonetheless, Ms Hackett said Australia’s gas industry, which became the first worldwide to export LNG to China in 2006, could not afford to sit idly by as other players expanded operations to supply the world’s fastest-growing market in China.
Ms Hackett also serves on the board of directors for the LNG Marine Fuel Institute, a not-for-profit organisation that is campaigning for the global take-up of LNG as the fuel of choice for the shipping industry.
The International Maritime Organisation has provided the impetus for LNG MFI, with strict requirements controlling greenhouse gas emissions in the shipping industry to be established by 2020, forcing global shipping players to evaluate alternative fuel solutions.
LNG MFI has also been driving the Green Corridor initiative, which calls for the development of LNG-fuelling infrastructure across the iron ore and coal trade route between northern Australia and China.
The Green Corridor has attracted the backing of some of the world’s biggest export groups and shipbuilders, including iron ore giants Fortescue Metals Group, BHP and Rio Tinto, shipbuilders Mitsui O.S.K. Lines and DNV, Woodside and the Shanghai Merchant Ship Design and Research Institute.
Ms Hackett said LNG MFI was also in discussions with several large players covering the full spectrum of Chinese industry for participation in the Green Corridor.
She said the development of a virtual LNG pipeline from Australia to China would place Australia-based producers at the forefront of Chinese demand, while also opening the possibility of developing smaller gas fields, which were not yet viable in the current LNG climate.
“We’ve created this marvellous outcome in terms of LNG exports, we’ve created a massive outcome in terms of raw materials, resources and ore exports, and they sit side by side,” Ms Hackett said.
“It just seems so obvious that we should be leveraging that capability in terms of fuel production, resources production, transport of those resources and developing that into an industry.
“If we build up a fuelling capability in Australia, that can be matched in China using that same technology to allow point to point transport and bunkering in China and bunkering in Australia.
“That is very much a closed loop system where we can partner and get better outcomes.
“Once you have built out the marine solution, then the entire transport supply chain starts to become available, you have given yourself the ability to build out small-scale LNG if that’s what you choose to do, or the whole bunkering fuel supply chain.
“That then becomes something that can be replicated elsewhere in the world.”
Ms Hackett said China was central to the outcome of both LNG transport fuel and the creation of a virtual LNG pipeline.
“We have to create the availability of LNG as a fuel in this South-East Asian region,” she said.
“We can see elsewhere in the world that it’s evolved rapidly, and there is a massive vacuum in terms of China, Japan, Australia and Singapore.
“There is a huge opportunity to create that infrastructure around this particular region, and right now it doesn’t exist.”
Ms Hackett said shipping companies and LNG producers needed to embrace a sense of urgency as we got closer to 2020.
“Right now, the urgency is on three fronts,” she said.
“First off it’s creating a solution for 2020, for IMO, that’s purely from a marine perspective, it has to be now and literally now.
“That’s crucial that it starts and continues now, and the clear intention of the long term is understood.
“Secondly, we will see the merging of the supply and demand curves by 2022, and you don’t build an LNG plant in a day so that ability to meet that demand is critical because otherwise there will be less clean fuels used in preference and that’s the wrong outcome.
“We really have to understand the shift in demand and supply and meet it.
“The third one is that the US are coming and our ability to provide and meet that demand is important, but also to do it in a cost-effective and efficient way is really important.
“Right now, those three events are creating a massive sense of urgency, and how we respond as a region together with China is going to dictate our fortune for the next 50 years essentially.”
– with Reuters