Jonathan Stern, head of gas programs at the Oxford Energy Research Institute, believes that by the end of 2025 global volumes of liquefied natural gas (LNG) will increase by 418 billion cubic meters of gas per year (up to 1 trillion 94 billion cubic meters of gas). The growth of LNG production will mainly result from the launch of new LNG projects in the US, the potential capacity of which is estimated at 265 billion cubic meters of gas.
Over the past 50 years, global volumes of LNG production have increased 21 times – from 189 billion cubic meters of LNG per year in the period from 1967 to 1990 – up to 676 billion cubic meters of LNG annually by the end of 2018. At present, the share of LNG in the total annual gas consumption in the world (3.67 trillion cubic meters) is 18%. During this time, the capacity of the LNG tanker fleet increased 9.7 times.
J. Stern believes that the world market for liquefied gas is developing at an accelerated pace. The competitiveness of LNG projects is determined by the volume of capital investment required for the construction of LNG terminals, the cost of natural gas extraction and the cost of its delivery to the consumer gas market. During 2010 – 2014, due to technical progress, the cost of construction of new capacities of LNG terminals and the cost of their further exploitation was reduced by 35-50%. Technological progress has intensified the investment activity of most international energy companies in this area. Thus, in 2019-2020, Mozambique, Nigeria, Qatar, the Russian Federation and the United States are planning to start construction of new LNG terminals with a total production capacity of 303 million tons of LNG per year (or about 418 billion cubic meters of gas), in particular, with 265 billion cubic meters of gas per year in the US, 60.7 billion cubic meters of gas per year in African countries, 46 billion cubic meters of gas per year in Qatar, 34.8 billion cubic meters of gas per year in Russian Federation, and 11.3 billion cubic meters of gas per year in other countries).
Consequently, the global supply of LNG will increase to almost 793 million tons per year (or about 1 trillion 94 billion cubic meters of gas) at the end of 2025, and will constitute one third of global total gas consumption in the world. On the basis of the long-term estimates of the Oxford Institute for Energy Research, global LNG production will increase by about 138 billion cubic meters every 5 years after 2025.
J. Stern notes that, geographically remote from the consumer market, LNG producers from Canada, Africa and Australia are focused on large-scale LNG projects (from 2.5 to 20 million tons of LNG per year), while in the US, the power of the overwhelming majority of LNG projects amounts to 0.25 – 2.0 million tons of LNG per year. Modular technologies are used in their construction, which allows to significantly reduce the time and cost of implementing each new LNG project.
The expert believes that each LNG project is unique in terms of geography, geology and conditions for the formation of the price of liquefied gas for the end user. However, on average, according to the calculations of the Oxford Institute for Energy Studies, the price of LNG in the global market, which is currently within USD 6.5-8.5 per mmBtu or USD 230-300 per thousand cubic meters, consists of: cost of gas extraction – by 23.5%; costs for gas transportation to the LNG terminal – by 5.88%; costs of gas liquefaction – by 41.18%;cost of transporting LNG to the consumer market – by 11.76%; and the net profit of LNG producers, as a rule, does not exceed 17.64%.
Taking into account the above-mentioned factors, the formation of the price and characteristics of the new LNG projects planned for the period up to 2025, the experts of the Oxford Institute of Energy Research gas program built a forecast (two scenarios) of formulation of a proposal for liquefied gas and the competitive advantages of LNG producers in the European gas market as of 2025.
According to J. Stern, the introduction of technological innovations in natural gas extraction and the implementation of new LNG projects in the medium term will allow the US to significantly reduce the cost of LNG (Figure 1), which will allow American manufacturers to increase their competitiveness both in the Asian gas market, as well as in the Nordic gas market, where the projected LNG in 2025 will be within USD 6 – 7.5. per mmBtu or USD 212 – 265 per thousand cubic meters.
According to the Oxford Institute for Energy Studies, new LNG projects in the United States will allow to provide gas at the EU market at around USD 200 per thousand cubic meters. Such proposals, according to J. Stern, will be competitive in the EU in both scenarios (high \ low LNG prices in the EU) and, even in comparison with Russian pipeline gas. As regards the Russian factor in the EU gas market, J. Stern noted that, according to the GECF Annual Statistical Bulletin 2018 (Table 3.1.1 Gas Proven Reserves of GECF Countries), the proven gas reserves in the Russian Federation at the end of 2017 amounted to 47.8 trillion cubic metres (or about 24% of proven gas reserves in the world). The average cost of gas extraction in the Russian Federation, including all lease payments, is relatively low and equals about USD 35.38 per thousand cubic meters. Since 2013, the Russian Federation has introduced a zero rate of customs payments for the export of liquefied gas. The Russian government announced plans to further introduce a zero rate on rental payments, a zero corporate tax rate and a profit tax rate of 13.5% for 12 years for “Arctic LNG 2”, “Yamal LNG”, “Baltic LNG” and “Sakhalin II” LNG projects. However, technologies used in Russia do not allow Russian LNG projects to substantially reduce the cost of producing liquefied gas, which remains at USD 160 per thousand cubic meters (or USD 4.5 per mmBtu).
Thus, by the end of 2025, the volume of world LNG production is expected to increase by 418 billion cubic meters of gas per year (up to 1 trillion 94 billion cubic meters of gas). More than 50% increase in LNG production will take place in the result of the launch of new LNG projects in the US, amounting to 265 billion cubic meters of gas. In the result of the introduction of the latest technologies in construction of LNG terminals, the United States managed to reduce the cost of implementing and exploiting LNG projects by 35-50%, which already leads to a significant reduction in the cost of US liquefied natural gas and its competitiveness in the EU gas market.