What Is Stopping Global LNG Growth?

Since November, when 195 countries signed the Paris climate change agreement, several energy writers, including myself, have concluded that the deal’s biggest winner would be natural gas.

The agreement’s framework pushes countries to develop domestic limits on carbon emissions, which disadvantages oil and coal because of their increased polluting power. By using natural gas as a primary, or major secondary, fuel source, nations can allow cheaper and more abundant energy for its citizens while developing renewable energy options on the side.

“The Paris climate agreement is, if anything, a huge win for natural gas, which is the only thing that can make a meaningful difference in the short term,” Joseph Baran, from oil and gas consulting group Bertison-George, LLC said in December.

But the current international energy infrastructure has been made to facilitate the trade of the two fossil fuel energy giants – oil and coal. Natural gas, unlike its counterparts, is in fact a gas.

Gas producers transport their goods via pipeline to power grids and pumping stations on the same continent, but the real challenge arises when the cargo needs to be transported across oceans.

So far, the best discovered solution has been to freeze the substance to a temperature of -260 degrees Fahrenheit to create liquefied natural gas (LNG) - reducing the gaseous form’s volume by factor of 600.

Ships designed to maintain LNG’s temperature as the cargo crosses international waters can be as large as four U.S. football fields. Most countries, especially the poorest ones, do not have the import terminals to manage the massive ships. If traders opt for smaller ships, the fixed cost per gallon spikes, which could price out gas from developing markets.

Still, oil majors have taken to making major investments in natural gas capabilities. As The Wall Street Journal’s Sarah Kent pointed out earlier this week, France’s Total, Britain’s BP and Italy’s Eni have all announced increased natural gas forecasts for the coming decades.

Anglo-Dutch Shell has taken it a step further; the firm has begun experimenting with special LNG pumping stations in the Netherlands. Shell’s recent $50 billion acquisition of natural gas major BG Group requires that its management stay ahead of competitors looking to carve up market share. Related: Goldman Sachs Crushes Hopes Of Oil Price Recovery

The conclusion of the expansion of the Panama Canal earlier this summer now allows the largest LNG ships to move freely through the narrow gap between the Americas. From now on, it’s a supply race to establish presence in developing markets, which are slated to consume 65 percent of the world’s energy by 2040, according to U.S. Energy Information Administration data from 2013.

Overall, demand growth for LNG depends on how quickly underdeveloped countries turn away from coal – the most prolific fuel source in the world. Facilitating this shift requires the construction of larger ports to reduce distribution costs and the development of LNG reception and regasification terminals.

A 2016 report from the International Gas Union counted 108 LNG receiving terminals around the world, 25 of which operated in Japan and 10 in the United States.

Of the 20 new LNG import terminals that will be completed in the next three years, 17 will be located in Asia. Ten will be in China, the world’s largest coal consumer and carbon emitter. India, another Asian giant that has recently taken criticism for its skyrocketing coal usage, will add three new reception facilities to the four currently in operation within its boundaries.

The infrastructure developments, funded by both private and public sector interests, have not been uniform worldwide. Latin America currently contains a mere nine terminals concentrated in Argentina, Brazil, Chile and Mexico.

Africa is in worse shape. The IGU identified just two import stations on the continent, both located in Egypt – a country that has vowed to keep the spoils of the recent 30 trillion cubic feet natural gas discovery in the Mediterranean Sea to itself, saving it from a $2 billion a year import bill. Related: Lack Of Pipelines Continues To Dog Canada’s Oil Industry

Part of the construction lag could be attributed to Algeria, Nigeria and Libya’s positions as top natural gas producers. African nations could be exporting gas supplies to their neighbors via pipeline, but a quick look at a map of the continents existing lines shows a lack of intercontinental distribution infrastructure.

According to a 2014 report by the International Energy Agency, three LNG export terminals along the coast of West Africa bring North African and Nigerian gas to foreign markets on cargo shipments financed by international traders.

In order for natural gas to truly participate in the fight against climate change, the appropriate infrastructure must evenly develop across developing regions. As the citizens of landlocked countries in Africa gain access to electricity and all of its associated amenities, companies will need to begin developing secure pipelines to service new markets and meet growing demand. Otherwise, we can only expect escalating oil and coal consumption and a polluted environment.

By Zainab Calcuttawala for Oilprice.com

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