Sluggish Atlantic Basin Gas Demand Weighs on LNG Industry

Weak gas demand in the Atlantic basin is threatening the viability of LNG projects globally, industry leaders told the LNG Global Congress on 25 September.   

“The greatest risk is the depth of global demand for LNG, said Helena Wisden, Senior Trading Manager at Cheniere Energy. “There are signs that the LNG market is finite. Demand will be capped somewhere.”

Cheniere Energy is developing both the Sabine Pass and Corpus Christi liquefaction projects in the US.

The three-train facility Corpus Christi project, with a 13.5 million tonnes per year capacity, will be located northeast of Corpus Christi Bay in San Patricio County.

The project will source gas from the US’ vast unconventional resources across Texas and the Gulf Coast.

Ted Williams, Director of Codes and Standards at the American Gas Association, said that although shale gas development has been a boon for the US economy, the country’s own sluggish demand is struggling to consume excess volumes. This has caused US gas prices to tumble from around $13 per British thermal units in 2009 to under $4 per British thermal units this year. 

“There have been issues in the US of absorbing the initial (shale gas) production,” Williams said. “Beyond power conversion, (gas) demand growth in the US is pretty slow. Basically the US has a demand problem more than anything else,” he said.

European gas demand in particular has suffered since the economic downturn. Europe is the largest market for LNG within the Atlantic basin and imports of LNG have tumbled in recent years.

Frederic Deybach, Vice President of Prospection at GDF Suez, said in the first half of 2013 LNG demand was 30% less than in 2012 and 50% less than the year before.

Last year Europe consumed around 434 billion cubic metres (cm) of natural gas, according to Cedigaz figures. This down from around 95 billion cm per year in 2005.

Europe’s gas demand tumbled as the 2008 financial crisis took hold and has remained sluggish ever since. The International Energy Agency doesn’t expect Europe’s gas demand to recover until 2020.

Ignacio de Aguirre, Head of Strategy at Repsol Gas Natural LNG, said Spain’s LNG demand will not recover to pre-economic crisis levels for at least a decade.

As Spain’s GDP fell by around 4% between 2008 and 2012, its gas demand also fell by around 5%, de Aguirre said. This displaced around 6 billion cm of LNG which would have otherwise gone to Spain.

However de Aguirre expects Spain’s gas demand will grow at around 1.7% per year between this year and 2023, adding around 10 billion cm of incremental demand until 2025. 

Deybach said around 5 million tonnes of LNG, which had been delivered into Europe, has been re-exported over the past five years because demand has been so low. This reloading of LNG cargoes has mainly been done in Spain, Belgium and France for export to Latin America and Asia where demand is rising.

The largest growth in LNG demand in the medium term will be in Latin America. LNG imports have soared recently in Mexico, Brazil and Argentina, along with economic growth.  

In the first half of this year alone LNG imports to Latin America increased by 3 million tonnes, a 45% rise compared to the same period last year. Brazil imported 1.6 million tonnes and Mexico took around 0.7 million tonnes, according to GDF Suez figures.

Both drought and declining domestic gas production in Brazil contributed to the sharp rise.

“This market is getting bigger and bigger. It’s a nice counter-seasonal market to that of northern Europe, with the seasons being the opposite. A large amount of the volumes going to this market are not long term volumes, they’re spot market volumes,” Deybach said. 

A lot of LNG originally destined for Europe has also been diverted from the Atlantic basin to the Asian Pacific basin.

Asian LNG demand has soared, particularly in Japan, since the March 2011 accident at the Fukushima nuclear plant.

Japan’s LNG demand has increased by around a quarter since 2010. Last year Japan imported 87.2 million tonnes of LNG, according to LNG consultant Andy Flower. This is up from 70 million tonnes in 2010.