Global LNG trade: A comprehensive up to date analysis
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Global LNG trade: A comprehensive up to date analysis H a m e d N i k h a l a t - J a h r o m i a, P a n a g i o t i s A n g e l o u d i s b, M i c h a e l G . H . Bellc and Robert A Cochraneb a
Management Consultant in Oil & Gas Industry, No. 1303, Al-Owais Tower, Deira, Dubai, PO Box 61820, UAE. E-mail: [email protected] b Port Operations Research and Technology Centre (PORTeC), Imperial College, SW7 2BU, London, UK. c Institute of Transport and Logistics, University of Sydney, NSW 2006, Australia.
Abstract
The importance of the liquefied-natural-gas (LNG) in global gas trade has grown steadily over the past decades; the article focuses on this significant form of energy and provides an exhaustive portrait of its trade. LNG trade flows both regionally and by country are described and the future of trade is forecast. Next, the business structure is discussed. The traditional LNG trade on long-term contracts (LTCs) is considered and it is explained how vital these contracts are in distributing the volume and price risks in the industry, furthermore, in securing finance for the LNG projects. The essence of gas market liberalization and its effect on LTCs is considered and it is shown that in liberalized gas markets, risk has migrated to upstream. In the light of this risk redistribution, the suppliers’ intent in moving toward vertical integration of the industry is discussed. Later, various types of LNG spot sale in arbitrage, and for uncommitted product to LTCs, are considered and the biggest spot sale markets are identified. Finally, pricing of LNG for different markets in both LTCs and spot sales is discussed and it is forecast that due to the surge of supply, rather than any change in oil prices, LNG prices are anticipated to decrease globally at least for the next 5 years.
Maritime Economics & Logistics advance online publication, 8 October 2015; doi:10.1057/mel.2015.26
Keywords: LNG; long-term contracts; market liberalization; spot sales; pricing
© 2015 Macmillan Publishers Ltd. 1479-2931 Maritime Economics & Logistics www.palgrave-journals.com/mel/
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Nikhalat-Jahromi et al
Introduction Natural gas is the world’s third largest source of primary energy; it supplies around 20 per cent of globe’s primary energy (EIA, 2011). It has been embraced by governmental policymakers as a favoured energy resource in recent decades. A key reason for this is that only one-third of the world’s gas reserves are in the politically unstable Middle East, whereas about two-thirds of the world’s oil reserves lie there (UBS, 2004). In addition, natural gas is efficient and environmentally friendly. According to BP (2014), about onethird of gas produced in 2013 (that is, 1035.9 billion cubic metres (BCM)) was exported internationally. There are two means of exporting gas internationally: using pipelines, and by sea in its liquid form known as liquefied-natural-gas (LNG). Generally, liquefying natural gas and shipping it via ocean vessels becomes cheaper than pumping through off-shore pipelines if the market is farther
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