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 Introduction to LNG

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Is LNG a Competitive Source of Natural Gas?

Large reserves of natural gas exist around the world in areas for which there is no significant market, or where natural gas resources far exceed local or regional demand, or where pipeline options are limited. Such hydrocarbon reserves are "stranded" in North Africa, West Africa, South America, Caribbean, the Middle East, Indonesia , Malaysia , Northwestern Australia and Alaska . Some of the natural gas produced from these resources is liquefied for shipping to areas where usage of natural gas exceeds indigenous supply. Such markets include Japan , Taiwan , Korea , Western Europe and the U.S. LNG offers greater trade flexibility than pipeline transport, allowing cargoes of natural gas to be delivered where the need is greatest and the commercial terms are most competitive. The figure below shows that as the distance over which natural gas must be transported increases, usage of LNG has economic advantages over usage of pipelines. In general, liquefying natural gas and shipping it via ocean transport becomes cheaper than transporting natural gas in offshore pipelines for distances of more than 700 miles or in onshore pipelines for distances greater than 2,200 miles.16

Figure 2 . Natural Gas Transportation Technology and Cost Relative to Distance

In countries like Nigeria and Angola , much of the natural gas that is produced with crude oil has been or is flared because of lack of alternatives for usage or disposal of the excess gas. In the case of Nigeria , flaring has been reduced through that country's anti-flaring initiative which has spurred growth in both domestic demand (through use of natural gas for electric power generation) as well as new investments in liquefaction for export and gas-to-liquids (GTL) projects for export. For both countries, LNG projects offer additional options for export earnings.

16 Figure 2 reflects the competition between natural gas transported in pipelines and natural gas transported as LNG. The relationships depicted may vary depending upon size and economics of liquefaction trains and dedicated shipping routes. Figure 2 reflects relationships as of roughly 2000-2002.