It was unthinkable just a few years ago. Poland is a part of the LNG boom
Dariusz Malinowski - 29-04-2019
None of the fuel markets is growing as dynamically as the liquefied natural gas market. Gigantic investments, expansion plans - LNG is conquering the world. Each of the regions has its own specificity. Europe will be a scene of fierce competition.
The current LNG boom is an effect of technological progress, which radically changed the approach to natural gas.
A key factor supporting the development of the LNG market appears to be the pursuit of the European Union to reduce CO2 emissions.
The Asian and European supply markets are significantly different.
At the end of January, the Polish LNG terminal received its 50th delivery. And yet, at the beginning of the decade, no one could have predicted that Poland would actively participate in the liquefied natural gas market. What happened?
The current LNG boom is an effect of technological progress, which radically changed the approach to natural gas. This is not obvious, so let us remind that it has been 60 years since the first liquefied natural gas carrier voyage. On January 25th 1959, a small tanker Methane Pioneer left Louisiana. Measuring just over 100 meters in length, the unit took the raw material to Great Britain.
This swallow, as we know, did not make a summer. The American raw material became less attractive in Europe after the discovery of gas deposits in Algeria. But gas from Algeria was not welcomed with great interest. Although in the first half of the 60s there were several commercial deliveries to Great Britain, LNG from North Africa lost all importance after the discovery of huge hydrocarbon deposits under the North Sea seabed. Gas in Europe became available off-the-shelf, almost in all quantities and “in the neighbourhood”. Subsequent gas deliveries from the Soviet Union ultimately buried the LNG market. The demand for gas was simply covered by deliveries through gas pipelines.
It was no different in Asia. LNG transports were ephemeris. The Japanese ordered units for the transport of liquefied natural gas in Sweden, but the demand for this raw material was marginal. It grew somewhat in the 70s and 80s after Japan and South Korea started investing in gas power plants.
Gas is money
For nearly two decades, the LNG market was in stagnation. There was a demand for this raw material, but sea transport was expensive, and the gas pipeline network satisfied moderate demand. This can be perfectly illustrated by the number of ships ordered to transport LNG. In the 1980s (throughout the decade), only 22 units were delivered. Meanwhile, Qatar is currently planning to place one order on up to 60 units!
What happened? Some countries discovered the attractiveness of natural gas. This raw material previously interfered with the extraction of oil, creating a danger of explosion. After all, natural gas is a valuable and universal fuel and raw material. It can be burned to obtain thermal energy or converted into electricity through driving turbines; it can be converted into fertilizers. What is interesting, the first countries that became interested in gas were the oil producing countries.
The progress in natural gas liquefaction technologies and regasification of the raw material also had an impact. New technologies made both processes faster, safer and cheaper. However, LNG began to conquer the world mainly due to the dispersion of deposits (larger than, for example, crude oil). Exotic countries (for Poland) that were not able to invest in gas pipelines, decided to export gas.
In recent years, countries such as Papua New Guinea, Trinidad, Tobago, Australia or Qatar rank at the top of LNG exporters. It is worth mentioning that none of these countries, apart from Australia, has an important agriculture, hence they do not use gas as fertilizers.
Two worlds of LNG
What does the LNG market look like today? We are talking about 300 million tonnes of raw material (1 million tonnes of LNG is about 1.38 billion cubic meters). The liquefied gas market includes two zones. The first, larger and more important from the point of view of gas producers, is Asia. The five largest Asian importers (Japan, China, Korea, India and Taiwan) control 68 percent of the global LNG market! The first non-Asian country - Spain - ranks six and controls approximately 4 percent of the market.
Why does Asia control such a big share of the market? The reason is the lack of natural gas resources in these countries. Moreover, none of them has any significant connections with natural gas deposits in other countries. The gas pipeline running from Siberia to China is just being created. The possible construction of a connection between Russian Sakhalin (where large gas resources are located) with Japan seems questionable for political reasons. There are plenty of indications that LNG will be the only solution for key Asian customers.
Besides, this raw material is also used in exceptional situations. Last year, Korea has set a record for imports of liquefied natural gas. Seoul has imported as much as 42.8 million tonnes of this raw material - this is the effect of, among others, problems with atomic power plants.
Last year, a few reactors were shut down in South Korea. However, the planned work on the replacement of nuclear fuel was slower than expected, hence the need to increase the share of gas-fired power plants in electricity generation. A similar situation was noted following the Fukushima nuclear power plant disaster in Japan. At that time, LNG import increased rapidly.
What is the difference between the Asian and European supply markets? The main suppliers. Although Qatar is the key supplier for both regions, Australia is even more important for Asia. Due to its location, gas from Antipodes is almost entirely directed to the Asian market. Moreover, Australia itself starts to breath down Qatar's neck.
Last October, it was this country-continent that was the largest exporter of liquefied natural gas in the world. It achieved a record export of 6.79 million tonnes of LNG (at the same time Qatar exported 6.2 million tonnes of LNG). Deliveries of two giants are complemented by smaller producers, such as Malaysia, Indonesia and Papua. Americans also have their share.
The European LNG market is much smaller compared to the Asian LNG market. The main reason for this situation is the relatively close vicinity of gas producers. Algeria, Russia or Norway carry out their contracts mainly through gas pipelines.
In addition to smaller volumes, the European market is distinguished by the presence of suppliers from Norway, Algeria and the USA. The fundamental role is also played by Qatar.
It looks like an interesting clash of LNG exporters will take place on the European market. The United States increase the LNG production capacity, as Europe is its closest large market.
The Asian clash of Qatar and Australia may cause the first one to increase the volume of supplies to EU countries. The Russian Novatek also has specific plans for Europe, just as Gazprom.
New legal solutions are appearing on the old continent, which will increase LNG and natural gas consumption. It should also be remembered that the European natural gas production is declining.
A key factor supporting the development of the LNG market appears to be the pursuit of the European Union to reduce CO2 emissions. Considering the fact that emissions from natural gas combustion are much lower than those from coal, the conclusion seems quite obvious.
The interest in LNG also stems from the advantages of gas-fired power stations. Their construction is cheaper, they can be quickly and easily turned on in an emergency, they greatly compensate for the instability of photovoltaic and wind sources, and they help to balance energy systems with an increasing share of RES.
But that's not all. In April 2018, the Marine Environment Protection Committee of the International Maritime Organization (IMO) agreed on an initial strategy to reduce the total annual greenhouse gas emissions from shipping by at least 50 percent by 2050 as compared to the level from 2008.
The IMO wants to limit the global sulphur content in marine fuels by 0.5 percent from 1 January 2020 from the present 3.5 percent limit. This will, however, apply outside the designated emission control areas, where the limit is 0.1 percent.
This, in practice, means moving away from the heaviest oils and switching to more environmentally friendly fuels. And since sulphur is usually not detectable in most LNGs, and emissions of particulate matter and nitrogen oxides from gas-fired vessels are significantly lower than from vessels using other marine fuels, this means that there might be a need for a new market. In any case, LNG bunker stations are already being built in European ports.
According to specialists, the LNG market will develop dynamically in the following years. The best proof is the number of built, expanded and planned gas terminals. s
Great investments are planned especially by the United States. In 2023, Americans want to export over 100 billion cubic meters of this raw material per year. Capital expenditures allocated to the development of loading capacities already reach tens of billions of dollars.
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