It is essential to start with two critical pieces of information about liquified natural gas (LNG) that will precursor comments to come. First, LNG is cleaner and cheaper than fossil fuels.
Therefore, in an era of ever-increasing pressures to resolve the central dilemma of increased energy use and protection of the environment, LNG is an enticing middle ground. Although not renewable, nor is it so damaging to our world. Second, LNG currently supplies about 22% of the world’s energy requirements. By 2040, this is likely to be 25%, and industry experts are suggesting this could surge to 45%.
The brave investor?
This information would suggest that investment in LNG is a no-brainer. An abundant resource that can meet growing global demand for energy and likely to increase its market share in the medium and the long-term sounds incredible. However, the transportation of natural gas is complex and requires a significant upfront investment.
As liquified natural gas travels by pipeline, it is difficult to transport to local markets. LNG requires liquefaction and export centres to enable transportation by ship, where it can move to areas of demand. Therefore, although it seems the long-term outlook for investment in LNG is bright, it takes an investor with a degree of courage to tie-up billions in construction.
Investment in facilities
Cheniere Energy launched in 2012 and has focused its attention on large-scale onshore facilities. The first train was completed in 2016, and it expects to build six more in Louisiana and three more in Corpus Christi. The upfront investment is $23 billion. However, the company will become one of the top five global suppliers of LNG.
If large onshore export terminals are too time-consuming, then you could turn to investment in floating LNG terminals (FLNG) such as those constructed by Royal Dutch Shell. The platforms are significantly cheaper and quicker to set up; however, a single terminal only produces 3.6 mtpa. This compares to 40.5 million tonnes per year expected by Cheniere Energy.
There is also the option of floating liquefaction vessels (FLNGVs), such as those produced by Golar LNG. Here old carriers of liquified natural gas are converted into liquefaction vessels and can work in offshore fields that are not close enough to the market to be viable. This is a smaller scale investment but one likely to extend the global reach of LNG in the energy market.
The other option for investment is in transportation. Transporting LNG by ship requires specialised vessels. It also requires LNG to go through a process of regasification so it can move through local pipelines. Therefore, investment in transportation is likely investment in a complete supply chain. Managing a fleet of transportation ships exposes companies to the ups and downs of the market. However, if the company has a set contract with major suppliers such as Shell and Cheniere, then the investment in the ships is a sound proposition. Being available for transportation when there is high demand may be highly profitable at that moment; however, times of market sluggishness could be costly.
Shell has been transparent that they believe there will be a worldwide energy supply crunch in the next decade. The global demand for energy is such that there is a significant gap that could be filled with LNG. There is an abundant supply of natural gas. Therefore, although initial investment costs are high, in the multiple billions, it is likely that the future return could be impressive.
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