FIGHTING FOR LIQUID GAS

Global market for the liquefied natural gas (LNG) is rapidly developing and already covers more than 40% of the global gas trade. Over more than 50 years, the LNG production and sale sector has demonstrated a rather rapid growth, now playing a significant role in the global energy market. Sales of liquefied gas have quadrupled over the past two decades and are expected to double by 2050.

High potential

According to the analysts Royal Dutch Shell, the LNG sector has demonstrated positive results in 2020 and has great prospectives for the development. Last year, the global demand for LNG increased to 360 million tons, with China and India being the main importing countries.

The global demand for LNG is expected to reach 700 million tons annually by 2040. This is due to the continued strong growth in demand for natural gas in Asia and the expansion of its use in industries with the electrification problems.

According to analysts, the key factor contributing to the prospects of the LNG sector is its playing a key role in the decarbonization of the world economy. Shell says that rebuilding the economy and addressing the large-scale economic impacts of the coronavirus pandemic with low-carbon resources, as well as the consistent cut of emissions to zero require solutions based on cleaner energy sources.

According to experts, in the last six years, global LNG production has grown by 55% (from 244 to 378 million tons annually). Based on current investment projects, global capacity can be expected to increase by another 20% by 2025. In the long term, the market will continue to grow at an average annual rate of 4% and will reach 527 million tons annually by 2030.

The COVID-19 pandemic has affected investments in the future LNG projects. In 2020, the announced growth of supply volumes was only 3 million tons, while this figure was expected to be 60 million tons.

Introduction of lockdowns and self-isolation regimes globally has resulted in delays in the construction and commissioning of new LNG facilities. Such delays in the medium term can lead to a lack of supply in the global market.

Analysts believe this forecast means high market potential for participants.

Currently, LNG is exported by 18 countries, and imported by 42. Moreover, there is fierce competition on the market.

Market leader

Qatar remains the largest producer of liquefied natural gas in the world with a market share of 26.5%. However, new projects in several countries have weakened Doha's dominant position in the market – Australia is catching up (26%), followed by the US (14.7%) and Russia (10%). Malaysia, Indonesia, Algeria and Nigeria also have large liquefaction capacities.

According to analysts, Qatar has taken a rather passive position over the past ten years, not investing in the development of LNG production facilities and leaving production at 77-78 million tons annually, which helped push competitors forward.

Bu apparently, Qatar has no plans to surrender. Qatar's Energy Minister Saad Sherida al-Kaabi announced that his country intends to spend billions of dollars to expand its LNG capacity by more than 50%, to 126 million tons annually. This is the level, which will be difficult for other countries to achieve, minister believes.

He also explained that as part of the first phase of capacity expansion, Qatar will be able to produce LNG so cheaply that it will be advisable to continue production even if the oil prices fall below $20 per barrel. “This is one of the most competitive projects on the planet, and perhaps the most competitive,” he said.

In February 2021, Qatar's state-run company – Qatar Petroleum – made the final investment decision to implement a project to develop the Northern field and build an LNG plant there, which will increase Qatar's LNG capacity from 77 to 110 million tons annually.

“The geographic location provides Qatar with flexibility in terms of supply chains. Today, up to 68% of the LNG produced in the country is exported to Asian countries, with the largest consumers being China and India. 27% of the LNG goes to Europe. Since it is the Asia-Pacific market that will become the main driver of growth in global LNG consumption, the geographic structure of supplies is likely to remain in the future, believes Ivan Timonin, an analyst at VYGON Consulting.

New LNG facilities

Meanwhile, the potential for the development of LNG capacities is also highly appreciated in Russia. According to Deputy Prime Minister of the Russian Federation Alexander Novak, Russia can occupy 25% of the world LNG market.

“By 2025, the total capacity of our projects will be over 68 million tons annually. In the future, Russia's share in the global LNG market may reach a quarter of the global indicator,” A. Novak noted.

Russia's potential in the global LNG market is supported by a number of factors. Thus, the Russian Federation has the largest resource base in the world - about 20% of all proved reserves. Moreover, Russia is geographically close to both Europe and Asia. This allows LNG to be delivered to the consumer in the shortest possible time.

By the way, Russia has already developed a draft LNG development strategy until 2035, which provides for the construction of more than 10 plants for the production of LNG in the country. It is expected that the implementation of these projects will provide about $150 billion in additional investments in the Russian economy and will allow the country to almost triple the volume of LNG production by 2035 and additionally produce 2.5tcm of gas until 2040.

Russian Gazprom currently operates two large LNG plants - Sakhalin-2 and Yamal LNG NOVATEK. According to Rosstat, in 2020 the production of LNG in Russia increased by 3.5%, to 30.5 million tons.

The US is also planning to increase its own LNG export volumes, being one of the major players and ready to compete for the Asian market. According to analysts, the most promising American mega-project at the moment is Alaska LNG, which involves the construction of gas liquefaction facilities on the Kenai Peninsula in southwestern Alaska.

According to the Energy Information Administration (EIA) estimates, the US LNG exports in 2022 will surpass pipeline gas exports of the country for the first time in 2022.

“LNG exports from the United States will average 8.5bcp daily in 2021. In 2022, according to the EIA forecast, LNG exports from the United States will reach an average of 9.2bcp daily surpassing pipeline export deliveries of natural gas for the first time,” the agency reported.

The plans are quite realistic, considering that Beijing has given the green light to increase purchases of LNG from the United States. On February 18, the Chinese Ministry of Finance published a list of 696 American goods, which will not be subject from March 2 to import duties imposed in response to similar US measures. In addition to numerous agricultural products, the list also includes energy carriers.

Prospects for Azerbaijan

The projected growth in LNG demand and the increased competition in the market dictate new ideas for the gas industry in Azerbaijan. At the moment, the bulk volume of liquefied gas in Azerbaijan is produced at SOCAR’s Heydar Aliyev Oil Refinery and is sold to Məişət Maye Qaz LLC, which then sells it within Azerbaijan and abroad.

In addition, SOCAR Trading, a trading subsidiary of SOCAR, successfully supplies LNG from third countries to international markets. For example, in 2020, the company supplied LNG to Pakistan, which it continued this year on a tender basis. Also, Azerbaijan initiated the supply of LNG to Pakistan on a long-term basis under attractive conditions, taking into account the fraternal relations between the two countries.

At the same time, due to the upgrade works carried out at the Baku Oil Refinery Plant of SOCAR, we can expect an increase in LNG volumes in the future, and most importantly, an improvement in the quality of LNG produced in Azerbaijan, which can be sent for export directly, without intermediaries.

In addition, Azerbaijan has good potential for organizing transit supplies of LNG from the eastern coast of the Caspian Sea, from Kazakhstan and Turkmenistan, by rail to Europe. The presence of the Baku-Tbilisi-Kars railway connection, as well as the opening of a transport corridor between Azerbaijan and Nakhchivan, can accelerate the progress of such a project. Moreover, the possibility of increasing the transit of liquid hydrocarbon raw materials through the territory of Azerbaijan has been discussed with Kazakhstan for several years. There is interest on both sides. As one of the options, the Ministry of Energy of Kazakhstan even considered the possibility of building an LNG plant in the west of the country with the subsequent transportation of LNG through Azerbaijan to world markets. Of course, during a pandemic, it is difficult to predict the likelihood of this project, but it seems that over time this issue will find its solution anyway. Given the growing interest in LNG globally, Azerbaijan and its Caspian neighbours are unlikely to stay away from such an attractive and promising market.