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Alaska LNG can succeed in world market BP analyst says current international market favors product buyers but that Alaska can compete on cost and quality of service Alan Bailey Petroleum News
With a low in-state gas demand, an abundance of natural gas and a location close to potential markets, liquefied natural gas from Alaska can compete in the international LNG trade, Doug Rotenberg, chief commercial advisor with BP, Integrated Supply and Trading, told the audience at an Alaska energy export luncheon organized by the World Trade Center Alaska on June 24.
Rotenberg said that with numerous LNG projects in operation or under development, the LNG market currently favors LNG buyers.
“There’s no lack of potential resources around the world that’s all trying to get to the same place,” Rotenberg said.
Alaska’s advantages However, Alaska has some advantages in terms of the scale of its available natural gas resources; its proximity to potential markets; and the relationship between the industry and the state.
“Industry costs are beginning to fall. We have partners that are experienced, that are capable of being flexible,” Rotenberg said. “I think we’ve got the right momentum. We’ve got the right people in the project. And we’ve got the right sponsors.”
Rotenberg said that projected costs for the Alaska LNG project fit within the cost per unit of capacity of other LNG projects around the world, thus suggesting that the Alaska project can compete internationally. However, the keys to success will be the cost of the product and the manner in which Alaska can make its LNG offering distinctive and appealing to buyers faced with choices over potential sources of supply.
“There are primarily two ways in which Alaska LNG will compete: the cost of supply and making life easier for suppliers,” Rotenberg said.
Started in Alaska Rotenberg traced the history of the global trade in LNG, pointing out that Alaska pioneered the LNG industry in the 1970s through the export of LNG from the Kenai Peninsula to Japan.
Up through the 1980s there was a slow worldwide expansion in this type of basic LNG trading as new players entered the market. In particular, Indonesia and Malaysia started supplying to Japan and South Korea.
By the mid-1990s the global business was continuing to grow, with further new suppliers such as Nigeria entering the trade. But there was low liquidity in the market, with a simple resource being traded, and with long development timelines involved in establishing new sources of supply, Rotenberg said.
In the mid-2000s Qatar decided to take a major position in the market. Unlike Indonesia, which, with a large population, is tending to turn into an LNG importer, Qatar has a small population coupled with a major natural gas resource available for export.
At around this time there was a rush to build re-gasification terminals in North America, although very little LNG was ultimately imported. Meantime LNG prices climbed, as did the cost of LNG development, Rotenberg said.
Global industry Nowadays, the LNG market is truly global, with multiple sources of supply, multiple demand centers and a significant increase in supply liquidity. China, for example, is building systems involving the use of gas from Russia, domestic gas production, offshore production and imported LNG.
So, the market has become bigger and more sophisticated, and more able to accommodate big projects, Rotenberg said. There has also been a significant increase in the amount of LNG spot traded or traded through short-term contracts, with this type of short-term trading accounting for almost 30 percent of the business, he said. And, in the very recent past there has been some convergence in worldwide LNG prices, with traditionally high prices in Japan dropping towards prices elsewhere in Asia and in Europe.
While current worldwide LNG production capacity stands at some 280 million tonnes per year, another 140 million tonnes per year involving 33 new LNG production trains is under construction, Rotenberg said. The new capacity will likely fill in much of the short-term trading that currently takes place with, in particular, the current west-to-east trade moving back into the Atlantic basin as new Australian capacity comes on line.
Need to compete The key issue for Alaska is the further 140 million to 200 million tonnes of LNG capacity that exist in projects that are waiting on investment decisions before moving ahead. All of these potential projects are competing for capital. At the same time, the demand side of the LNG supply and demand equation has become less clear, given uncertain demand competition from other energy sources, including nuclear, coal and renewable energies such as solar, Rotenberg said.
Alaska’s ability to compete in the evolving market is absolutely fundamental. It is all about the cost of supply, alignment with partners, how people behave and how people promote the Alaska LNG project, Rotenberg said.
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