Oil Report

ANALYSIS-More heating than cooling not a problem for LNG

LONDON, Sept 24 (Reuters) - Having double the capacity for heating liquified gas for use than there is equipment to super-cool it into liquid for shipping from producing countries is not a problem --- its what the global LNG market says it needs.

Consuming countries have built dozens of multi-million dollar gas warmers to receive liquefied natural gas tankers, sharply exceeding the volume of freezing facilities, the International Energy Agency says.

It is the way the companies building plants at both ends of the tankers’ voyages want it to be in an open market, those in the industry say.

“The whole point about today’s LNG market is that you want to try and arbitrage,” Niall Trimble of the Energy Contract Company said.

“You want to move it to the market that has the greatest value, which is basically a choice between northwest Europe and North America. You have to have more regasification capacity in order to do that.”

Producers can build the warmers relatively cheaply and still make money running them only when prices in the market they serve are attractive.

More expensive liquefaction plants run most of the time to fill up the growing global fleet of LNG tankers that roam the oceans, carrying the fuel to those prepared to pay most for it.

Building capacity to heat the liquid fuel and inject the gas into networks may cost 10-20 percent of what the liquefaction plant at the other end of the chain costs, independent LNG consultant Andrew Flower said.

“Because the actual regasification unit is relatively low cost then the terminals can install more of them,” he said, adding that most terminal owners may only need the extra capacity to deal with peak demand.

“The number of regasisfication plants is healthy in terms of giving liquidity and flexibility to the market,” Flower said.


Britain's second onshore LNG reception terminal, Dragon LNG in south Wales, led by BG Group plc BG.L, is expected to be ready for its first cargoes by the end of this year, while the nearby UK South Hook facility is due to open in the first half of next year.

In both cases, the terminals are owned by companies with similar plants in the United States, the other big market in the North Atlantic.

Being able to deliver to the market offering more money for the fuel is more important to suppliers than leaving one of them empty for months on end.

“With something like Dragon, BG has got capacity at Lake Charles and Elba Island in the United States and having capacity on the other side of the Atlantic gives them the opportunity to divert cargoes to take advantage (of differing prices in Britain and the United States)”, Flower said.

Regasification plants tend to be used more seasonally when demand for the fuel commonly used for heating is highest. But liquefaction plants can run year round because there will always be someone somewhere who wants it.

While the United States can absorb volumes of LNG during the summer months because it has plenty of space to store it, the UK cannot, because it does not have much space to store the fuel for winter, John Meagher of consultants Wood Mackenzie said.

Some countries, especially those too far from producers to get their fuel through pipelines, have been guzzling up large amounts of LNG for decades and show no sign of losing their appetites.

Others, like Britain, have only recently started looking at the fuel as their own supplies have dwindled or concerns about over reliance on one pipeline supplier have intensified.

Japan already has more regas facilities scattered around its coast because it does not have an integrated national gas network that can carry the fuel around the country.

“And that’s one of the reasons why you’ve got this large surplus of regasifation capacity to liquefaction globally,” Meagher said.

For a table of liquefaction plants click here [IDn:L28866319] for a regasification terminal table click here [IDn:L28866319]