New forces are shaping the LNG trade east of the Suez Canal. China has signed a major agreement with Australia for LNG supply from Australia?s Gorgon plant from 2008. In addition, the American west coast is desperately seeking an alternative energy source. The potential demand of China and the United States has only accelerated the development of the Gorgon project in Australia, now in its pre-construction stage. But Gorgon is only one of many planned or under-construction plants competing for the Asia-Pacific market.
Projects such as Gorgon are simply the result of strong demand projections for natural gas. Asian demand alone is forecast to rise from 87 million tonnes per year in 2005 to 116 million tonnes per year by 2010 and 138 million tonnes per year by 2015. This does not include the US West Coast.
Unfortunately, analysts believe that over the short-to-medium term there are too many projects chasing customers. For example, if Gorgon is to rely on demand only from the established Northeast Asian buyers, it is unlikely that it could contemplate production until sometime in the next decade. In fact, if all proposed plants and expansions are realized, capacity for Asian markets could outstrip demand by 50 million tonnes per year in 2010, a US study says.
It?s unlikely, however, that all projects will be completed, at least as scheduled. In addition, Asian supply can be 'controlled' as plants in the Middle East swing supply to Europe and America?s east coast through the Suez Canal if there is insufficient Asian demand. Western hemisphere producers cannot ship LNG through the Panama Canal to the Pacific because the canal is too narrow.
Key to Gorgon?s future, and the future of LNG in the Pacific, is the development of the American West Coast. With the State of California facing an increasing shortfall in piped gas supply, LNG import terminals are being planned by leading energy companies to meet what, by 2015, could be demand in the order of 15 million tonnes per year. ChevronTexaco has heeded the call through its plans to import LNG to California from Gorgon by the end of 2007 through a five million tonnes-per-year terminal in Mexico. Gas will then be piped north and/or supplied to local power plants that export electricity to California.
What will be most interesting as the LNG market develops is how the energy source will be traded. Some analysts believe an ?OPEC like? organization will form where LNG producers band together to determine market supply and price, drastically changing global economics and politics. Others see LNG giving a second wind to some OPEC members whose crude supply is quickly drying up. And yet some downplay the craze calling LNG too risky, and likely to fail. Whatever happens, it is clear the world of energy is in for a change.
Author: Nick Muessig
