Environment, Bharatbook : Global Demand and Supply scenario of LNG
The Global LNG Shortage Will Become Acute by 2015 The global LNG industry is heading towards a supply crunch by 2015. The LNG supply shortage is here to stay and will probably become acute after 2012. Assuming that all the LNG producing plants worldwide commence operations as per schedule, the demand-supply gap will stand at more than 500 Million Tonnes of LNG. The supply gap will rise sharply between 2009 and 2011 by over 40% and will keep rising till 2015. Imbalances among the elements of the LNG value chain - liquefaction, shipping and regasification, have long been responsible for a demand-supply mismatch in the global LNG industry. With natural gas becoming the fuel of choice globally, LNG demand is set to grow. In such a scenario, low LNG production capacity growth due to delays in planned liquefaction projects affected by low capital availability will lead the global LNG industry towards an acute supply crunch by 2015.
Increases in LNG Production Capacity will Slow Due to High Construction Costs and the Postponement of Upcoming Liquefaction Projects Rising construction costs and delays in planned liquefaction projects will slow down global LNG production growth. Planned liquefaction projects, which require high capital investment, have been hit by the rising costs of commodities, labor and materials. For example, between 2004 and 2008, steel prices went up by 300%-350% and are expected to remain high. This has led to a revision in cost and time estimates for many planned projects. In Australia, the Gorgon LNG project, which was supposed to commence operations in 2010, is now expected to be operational by 2014. Ichthys, another major project in Western Australia, which was scheduled to start in 2012 at a cost of $10 billion, would commence operations in 2014 with revised cost estimates.
Contractors and developers are hopeful that overall project costs will fall due to dip in commodity prices triggered by the current global financial meltdown. Investors remain skeptical about the extent to which new project costs will decline, leading to investment delays and liquefaction project postponements. Over the next five years, all these factors will lead to the slowest global LNG production growth since the 1970s.
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