Commodity in focus - Liquified Natural Gas

Tue 11 Apr 2023
Posted by: Phillip Adnett
Trade News

LNG pipes leading to gasworks with 'gas' and 'LNG' stickers

In the latest of the IOE&IT Daily Update’s look at global commodities, we focus on one of the more important fuels in the supply chain: liquified natural gas (LNG).

LNG is gas that has been reduced to a liquid by cooling it to -161C (-259F). This process reduces it to 1/600th of its original un-liquified volume and to half the weight of water.

It can then be transported either by specialist tankers or by pipelines, with most of the the world’s exports being transported by ocean.

When LNG reaches its destination, it is turned back into a gas at regasification plants and then used for energy generation.

The future? 

According to National Grid, LNG can help solve the ‘energy trilemma’ of providing affordable and secure energy because it is widely available, meaning countries are not over reliant on one or two major suppliers.

There is also the question of how it can help the move towards net zero and reducing carbon emissions, as a potential renewable energy source.

The latter point is hotly debated. Although it can be used as a ‘feedstock’ in the production process for low carbon hydrogen, it is contentious whether this method is truly green.

According to City AM, the UK’s reliance on LNG is undermining its progress towards hitting net zero, as the carbon intensity of importing the liquified product exceeds that of other energy sources such as gas piped from Russia and Norway.

What is not in dispute is that LNG has become a much more important source of energy since Russia’s invasion of Ukraine forced many countries to re-evaluate their reliance on Russian gas.

Russian replacement

Since the end of 2021, monthly gross LNG imports in the EU increased as the trade bloc dealt with energy security issues.

Only about 10% of the EU’s gas needs are met by domestic production. Russia gas imports were previously responsible for around 40% of all imports.

Recent analysis from the International Energy Agency suggested that Europe has not locked in enough long-term contracts to help with next winter’s supply, instead relying on more temporary ‘spot’ contracts.

From the beginning of 2022, the EU has imported 98bn cubic metres (bcm) of LNG – 39 bcm more than in 2021. Between January and September 2022, the EU imported more than in the entire all-time record year of 2019.

UK imports

The UK also relies heavily on LNG. According to the Department for Energy Security & Net Zero, UK imports of the gas hit a record high of 25.6 bcm in 2022, largely relying on imports from the US as well as Peru and Qatar.

Before 2022, Qatar was the chief importer to the UK for thirteen years.

While the UK does not product LNG, it is capable of re-exporting (or reloading) previously imported gas. However, the energy department notes this has not occurred since 2018.

Liquid asset

Since 1970, the global LNG trade volume has increased by over 500 bcm. In 2021, trading amounted to 513 bcm.

China was the major LNG importing country in the world in 2021, importing some 109.5 bcm, followed by Japan with 101.3 bcm.

Major Natural Gas Producers (2023):

US           934 bcm

Russia   701.7 bcm

Iran        256.7 bcm

China     209.2 bcm

Qatar     177 bcm

Countries with LNG export capacity as of July 2022 (in million metric tons per year):

Australia              87.6

Qatar                     77.4

US                          73.9

Malaysia              31.5       

Algeria                 29.3

Capacity issue

As LNG becomes a more important source of energy, there have been some hurdles to its roll out.

In the US, Reuters reports financial hurdles are rising for LNG project developers aiming to get their export terminals off the ground as investors become more demanding.

After hitting record highs of around $90 per million British thermal units in Europe and $70 in Asia last summer, gas prices this year plunged to around $13 in Europe and Asia. US gas prices dropped from a high near $10 last summer to around $2 today (11 April).

Bloomberg reports that US gas producers will have to wait at least a year until the next major export facility that allows them to ship LNG to Europe becomes operational.

EU price benchmark

Reuters reports that EU energy regulators have launched an LNG benchmark price in an effort to avoid the market mirroring spikes in volatile costs for pipeline gas.

Unlike pipeline gas, LNG is not widely traded on exchanges, so authorities also want to increase transparency around how much it costs.

The success of the benchmark price will depend on whether traders and companies choose to use it.

Japan concerns

Japan, which has few energy resources of its own and is reliant on Australia, has warned that Australia risks undermining global security through a decision to “quietly quit” the international gas trade.

Australian prime minister Anthony Albanese’s government legislated to cap coal and gas prices for 12 months late last year following chaos in global energy markets that left households facing electricity bills about 40% higher.

But the laws also affected the viability of several multi-billion-dollar LNG projects, including a $60bn development by Japan off Australia’s north-west coast.

Japan could turn to Russia, China and Iran to fill any void if Australia exits LNG production.