LNG 17: Rising development costs weigh on LNG industry
Spiralling development costs for liquefied natural gas (LNG) projects were firmly on the agenda at the LNG 17 conference in Houston.
Daniel Yergin, chairman of energy consultancy IHS Cambridge, said it was the single most important factor which would determine whether projects went ahead and was a great concern for the industry.
'LNG costs may deter investors long before Henry Hub prices are pushed up,' Yergin said.
Floating LNG technology could be the answer, according to Kathleen Eisbrenner, chief executive of Next Decade. Eisbrenner said using floating technology could reduce development costs by as much as 50pc.
The cost of building a floating regasification terminal is around $400 million, Eisbrenner said, compared to around $1.2 billion for the land-based equivalent.
'There are only a handful of projects which can sustain that,' Eisbrenner said.
Next Decade uses South Korean shipyards to build the specialist vessels needed for its floating LNG projects. Eisbrenner said this has also helped to kept costs low.
The price for several high- profile projects has escalated recently, in places such as Australia, as labour costs and capacity scale-ups have pushed up construction costs. This has caused some projects to be delayed.
Analysts say global LNG supply will remain tight in the next few years until some of Australia's mega projects, such as Chevron's 15.6 million tonnes per year Gorgon project, come online.
Soaring LNG demand from Asia could provide the financial incentives needed to expand the use of this specialist technology.
Qatargas' chief operating officer, Alaa Abujbara, said around 80pc of its LNG output now flows to Asia, up from around 30pc in 2010, because of the region's sustained high demand for the fuel. Japan in particular has bolstered the region's LNG demand since idling its nuclear power capacity following the Fukushima disaster in 2011.
Despite soaring gas demand in Asia Europe's consumption has plummeted since the financial crisis began to grip the region in 2007.
Denis Bonhomme, executive vice president at GDF Suez LNG, said Europe's LNG imports fell by almost 30pc last year, compared to 2011. This is mainly because the region has been consuming more cheap US- imported coal at the expense of gas.
The International Energy Agency doesn't expect European gas demand to recover to pre 2010 levels before the end of the decade.
But despite this poor demand outlook for natural gas in Europe the region's production has fallen too. GDF Suez's Bonhomme said Europe will likely face a natural gas supply shortage of around 60 billion cm by 2035 as indigenous output continues to decline.
There could also be hope for a demand demand boost from the transport sector.
Maarten Wetselaar, head of Shell's integrated Gas department, said that in the next decade alone around 20pc of global LNG demand will be used in the transport sector.
'I think the LNG business has huge potential in its traditional markets but we need to search for new markets,' Wetselaar said. 'Apart from the cost savings the reduction in noise and emissions will be dramatic and something regulators will look forward to.'
Shell has been investing in using LNG as a transport fuel for its own fleet of vessels and road trucks.
Related Reading: Shell: LNG is Huge