Region to see LNG explosion<\/p>\n
Andrew Symon, The Straits Times, Asia News Network, Singapore<\/p>\n
High oil prices are not the only big energy story of the
\nmoment. Also grabbing headlines is the great promise of liquefied
\nnatural gas (LNG), shipped across the seas from distant gas
\nfields to demand centers in the Asia-Pacific region.<\/p>\n
Singapore is the latest country to become an LNG enthusiast.
\nVivian Balakrishnan, Minister of State for Trade and Industry,
\ntold Gasex -- a major international gas industry conference held
\nin Singapore recently -- that the government wants to make the
\nisland state a regional trading center for LNG similar to its
\nrole in oil trading, as well as possibly importing more LNG to
\ncomplement its natural gas supply from Indonesia and Malaysia.<\/p>\n
Indonesia, long a major LNG supplier to North-east Asia, is
\nalso looking at consuming LNG domestically, taking LNG shipments
\nfrom fields in the far east of the archipelago to Java, to fuel
\ndesperately-needed new power generation on the country's most
\nheavily populated and industrialized island.<\/p>\n
Meanwhile, on the other side of the Pacific, Australian Prime
\nMinister John Howard stopped in California in the United States
\non his way to Washington, to visit state governor Arnold
\nSchwarzenegger, in order to promote plans by the Anglo-Australian
\ncompany, BHP Billiton, to export Australian LNG to the state.<\/p>\n
BHP's scheme is one of several competing to become the first
\nsuppliers of LNG to the west coast of the U.S. and Mexico. Howard
\nsimilarly took a direct role in the ultimately successful wooing
\nby Australia's North West Shelf LNG facility of China for the
\nlatter's first-ever LNG import contract, signed in 2002.<\/p>\n
Markets are expanding, new producers from the Middle East to
\nthe Russian far east and South America are entering the industry
\nand new buyers are emerging, from India and China in the East, to
\nthe U.S. and Mexico in the West.<\/p>\n
LNG consumption in the Asia-Pacific region could almost double
\nby 2015. Last year, 77.5 million tons of LNG -- at a value of
\nnearly US$20 billion (S$34.4 billion) -- were sold to Asian
\nmarkets, of which 55.8 million tons were taken by Japan: 1
\nmillion tons of LNG can support approximately 1,000MW of power
\ngeneration over a year. (1MW is enough energy for 2,000 five-room
\nHDB flats in a month.)<\/p>\n
By 2015, the Asia-Pacific trade could reach 150.5 million tons
\nwith the addition of new markets in China, India, the U.S. west
\ncoast, and within South-east Asia.<\/p>\n
The new dynamics in the industry promise to transform LNG into
\na commodity-like fuel for large markets similar to oil and coal,
\nand -- as is the situation in North America and Europe -- in the
\nsupply of pipeline natural gas.<\/p>\n
Until now, LNG has been only a relatively limited source of
\nenergy in Asia, geared primarily to Japanese needs, and, more
\nrecently, markets in South Korea and Taiwan. From its historical
\nrole as a high-priced fuel for niche markets, almost a 'boutique'
\nfuel, LNG seems to be on the way to becoming a mass market fuel,
\nattractive both commercially and environmentally.<\/p>\n
Great benefits would flow to the region. Natural gas is a very
\nefficient and clean fuel. There is minimal environmental impact
\nfrom its production, shipment and combustion.<\/p>\n
Just 10 percent of Asia's primary energy consumption
\n(including oil) is met by natural gas compared with 25 percent in
\nNorth America and approaching 40 percent in western Europe. In
\nRussia, it is more than 50 percent.<\/p>\n
Until recently, LNG production was dominated by the majors,
\nsuch as Shell and Mobil (now ExxonMobil), with considerable
\ndirection and participation by governments and state-owned
\ncompanies, such as Malaysia's Petronas and Indonesia's Pertamina.<\/p>\n
Buyers were also limited to the few large private power and
\ngas utilities in Japan and the state-owned utilities and oil
\ncompanies in South Korea and Taiwan. Contracts were very long
\nterm (20 to 25 years) and tended to be rigid. Prices were linked
\nand closely indexed to changes in oil prices.<\/p>\n
But much has changed in the last five years. The LNG industry
\nis becoming much more dynamic as a result of new buyers and
\nsellers.<\/p>\n
India and China have become LNG buyers. The U.S. west coast
\nseems certain to take LNG shortly and it must take LNG from the
\nAsia-Pacific region. Mexico is also to take LNG, mainly to fuel
\npower, and pipeline gas supply to California.<\/p>\n
South-east Asia may soon become an LNG consumer with the
\nPhilippines planning to take LNG from Indonesia. Singapore is
\nalso considering taking LNG and Indonesia itself may ship LNG
\ninto Java from Indonesian Papua.<\/p>\n
On the production side, an array of new projects are under
\nway. The Middle East is sharply expanding supply, especially from
\nQatar. Iran, with huge gas reserves, is also intent on becoming a
\nvery larger producer. Yemen and the Russian far east are possible
\nsuppliers.<\/p>\n
South America may also become a supplier from its Pacific
\ncoast; it has plans to pipe gas from Bolivia to Chile or Ecuador.
\nPeru also is looking to supply the U.S. west coast.<\/p>\n
In 1990, the average cost of LNG after production,
\nliquefaction, shipping and regasification was $3.50 to $4.20 per
\nmillion British Thermal Units (BTU). By 2000 that had fallen to
\n$2.75 to $3.40 per million BTU.<\/p>\n
Greater supply and demand diversity and technological change
\nare being accompanied by greater commercial contract flexibility.
\nRigid long-term contracts are being complemented increasingly by
\nshorter term contracts and more flexible terms and conditions.<\/p>\n
Future supply to the U.S. could force radical change to the
\nindustry in the Asia-Pacific region. Producers would sell into
\nwhat is already a very large and competitive domestic gas market
\nsupplied by Canadian and U.S. fields.<\/p>\n
Such trade is similar to what already happens for crude oil
\nand oil products supply in the Asia-Pacific region and, to some
\nextent, for coal. A share of the LNG business in the Asia-Pacific
\nregion may also come to be under spot-trade conditions. The
\nSingapore government is one which has identified a potential role
\nfor the island state as an LNG trading center alongside its long-
\nstanding role in oil trading.<\/p>\n
But there are different views as to how extensive spot trade
\nmight become. Some argue that the still high capital costs of
\nproduction, limited size of the LNG carrier fleet and
\ntechnological constraints mean that long-term and medium-term
\ncontracts will continue to dominate the business.<\/p>\n
In summary, the LNG industry in the Asia-Pacific region is
\npoised for take off. The demand potential is unquestionable; the
\nquestions that remain are whether there are barriers to its
\nprogress -- such as commercial practices and government
\nregulations -- that can be removed and whether there are other
\nactions that governments and developers can take to accelerate
\nits expansion.<\/p>\n
The writer is a Visiting Research Fellow at the Institute of
\nSouth-east Asian Studies.<\/p>",
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