LNG producers to open new markets to soak up surplus

The world’s top producers of liquefied natural gas (LNG) are investing in ship-fuelling operations, floating import terminals and power plants to open new markets and keep from drowning in a fuel surplus expected to last into the next decade.

Companies such as Royal Dutch Shell, Total and Malaysia’s Petroliam NasionalBhd are scrambling to create demand as cheap coal and cleaner wind and solar power threaten to curb growth in the 250 million-tonnes-a-year LNG market.

LNG suppliers have been put in a tough spot as demand from the world’s top importers of the past few decades, Japan and South Korea, has declined due to slowing economies, more efficient use of power, and switches to coal and renewables.

Using LNG, employed now mostly in power generation, as a fuel for transport is one of the industry’s biggest hopes.

Shell recently signed a deal to supply LNG to Carnival Corp, the world’s biggest cruise operator, and sees huge potential to fuel ships, trucks and buses, which it says use the equivalent of 700 million tonnes of LNG a year in oil products.

Australia’s Woodside Petroleum also took a small step to grow LNG demand in transport, buying an LNG-fuelled supply vessel that could be a seed for developing LNG as a shipping fuel in Australia. Woodside is also eyeing road transport markets, such as for trucking.

It was against the backdrop of a vast surplus, stalled demand and weak prices that Woodside scrapped its plans for the $30 billion Browse floating liquefaction plant off Western Australia.

LNG imports by Japan and South Korea fell last year by 7 million tonnes, offsetting growth in the rest of Asia and leading to the region’s first annual drop in demand since 2009, the International Gas Union (IGU) said in a report.

Over the past two years supply growth and shrinking demand has pulled spot LNG prices in Asia LNG-AS down 80 percent to just above $4 per million British thermal units (mmBtu).

“It appears unlikely that demand in this region will fully recover in the near-term,” the IGU said.

Egypt, Jordan and Pakistan started importing LNG at floating terminals last year. And in 2016, another 12.3 million tonnes a year in import capacity will be added by new floating terminals in Colombia, Ghana and Puerto Rico.

Malaysia’s Petronas also sees opportunities to co-invest in import terminals in Thailand, Myanmar, Bangladesh and Vietnam, said its head of LNG trading and marketing, Ahmad Adly Alias.

French oil and gas giant Total is trying a slightly different approach, tying up with major importer Korea Gas Corp to develop new markets, and working with Indonesia’s Pertamina to build an import terminal and pipe gas to an independent power project (IPP).

“We are not a fan of investing in an IPP, but if we need to create demand, why not?” Total CEO Patrick Pouyanné said.