The LNG story is fascinating

In 2011 world trade in liquefied natural gas (LNG), was almost 331 billion cubic metres or about 245 million tons per annum (mta), 21 mta over 2010 and 62 mta over 2009. Considering the fact that in 1959 there was only few thousand tons exported by the US to the UK on a trial basis, the industry has gone quite a long way with a story to tell.

Natural gas was a nuisance to the oil companies who were after oil only but by discovering its advantages and by legislation it soon became important in the energy mix in the US. It came to an engineer by the name of Thomas Cabot to use very low temperature refrigeration to liquefy natural gas in summer, when demand is low, and to use it in winter when demand is higher.

The first LNG plant was built in West Virginia in 1912 and began operation in 1917. The plant, which belonged to Cabot’s father, was not a success and Cabot went on to do further research and to build a pilot plant in 1939 and the first commercial liquefaction plant was built in Cleveland, Ohio, in 1941. But tragedy struck by the failure of one tank and the death of 129 people in the ensuing fire of the leaked LNG.

Production of LNG soon proliferated and many plants were built in Indonesia, Malaysia, Australia, Trinidad and Tobago, Brunei, the UAE, Qatar, Oman, Nigeria, Yemen and others. Equally important are the regasification terminals which were built in importing countries.

Although the share of LNG in natural gas consumption is only 10.3 per cent in 2011, LNG remains an important way of providing gas to distant places where pipeline is impractical. The industry now is considered mature and train capacity has increased from 1 mta to 4 mta and more recently to 7.5 mta in Qatar, the largest producer and exporter.

By the end of 2012 LNG capacity is expected at 297 mta with 100 mta plants under design and 235 mta planned or proposed.

The LNG success story could have been even more fascinating as plant capital investment fell from $350 per ton per annum in 1980 to as low as $200 in 2000. But the scramble for engineering projects especially in the hydrocarbon and power industries created a shortage of material and manpower and raised costs of LNG plants to $1,000 per ton per annum in 2008 only to fall after the economic and financial crisis of that year and now back to the same level again.

While LNG is traded in accordance with a long-term contract, spot sales of LNG, which started modestly in the 1990s, have been increasing rapidly in the last few years to reach 47 mta or 21 per cent of trade in 2010. This trend is likely to continue and an international gas price is likely to emerge just like in oil.

­— The writer is former head of the Energy Studies Department in Opec Secretariat in Vienna