Wood Mac: Accessing gas feedstock required to support the development of new LNG capacity is key

Wood Mackenzie

Significant liquefaction capacity will need to be developed during the next decade in order to meet LNG demand which is expected to nearly double by 2025, according to a presentation by Wood Mackenzie at the LNG 17 conference in Houston. This new capacity will in turn require 180tcf (trillion cubic feet) of feedgas, leaving developers with the challenge of accessing and developing these gas resources.

The presentation, Access To Gas – Revisiting The LNG Industry’s Big Challenge, notes that supply must not only increase to satisfy incremental LNG demand growth of 4.5% per annum out to 2025, but also needs to replace lost supply from a number of existing LNG supply projects. These are projects where production is going into decline, either due to depleting reserves or diversion of reserves to meet demand from local gas markets. "Several major gas resource holding countries, such as Egypt and Indonesia, now have such strong domestic demand for gas that reserves can no longer be made available to fully support export – from new, and in some cases existing facilities," said Frank Harris, Head of Global LNG Consulting at Wood Mackenzie, “This creates the requirement to look for new sources of supply.”

“The good news however is that the industry is now awash with gas, partly due to successful exploration for conventional gas, but largely due to the huge growth in unconventionals,” according to Harris.

In North America, the shale gas revolution has created the potential for significant LNG exports, but developing LNG export projects is proving far from straightforward. And a wave of gas-focused exploration from Australasia to East Africa to the Levant has added significant new reserves, but as always, turning this gas into LNG remains a challenge.

There are three core options for securing gas according to Wood Mackenzie: exploiting already discovered conventional resources; exploring for additional conventional resources; and/or developing unconventional resources. However, each of these options has its challenges, typically a mixture of technical, political and/or economic factors.

"From the LNG industry’s perspective this means that the main challenge is how to combine exploitation of discovered conventional resources, with exploration for more conventional gas and the development of unconventional resources," added Harris.

While unconventional gas to LNG remains a key industry theme, Wood Mackenzie sees limits to its ultimate role, driven by a combination of competing, domestic requirements for gas, economics and environmental concerns. "Unconventional gas for LNG is an increasingly exciting development opportunity for the industry, although local issues may restrict its ultimate contribution," asserted Noel Tomnay, Head, Global Gas Research.

Wood Mackenzie's presentation mentions that recent developments, such as those in Eastern Australian Coal Seam Gas (CSG) have confirmed the views of some buyers that given the emerging nature of the opportunity, unconventional gas into LNG is best approached incrementally.

Tomnay added; “We expect gas focused exploration to continue as a major theme, particularly in light of burgeoning exploration budgets, but there will be the need for greater or increased focus, otherwise players risk just adding to the bank of already stranded gas." That focus may include targeting additional volumes of wet gas.

Wood Mackenzie's analysis shows how a range of International Oil Companies (IOCs) have shifted the way in which they access gas for LNG projects since LNG 15. There is greater emphasis on the development of discovered conventional gas resources controlled by IOCs, with East Africa having joined Australia as an area of focus. This change in focus is partly the result of exploration success, but also reflective of a loss of interest in developing National Oil Company (NOC) controlled gas now that there are easier options available.

Harris concluded; "Regardless of how the different types of gas are targeted, the business of developing new LNG capacity will continue to pose challenges, even if accessing gas is much less of a worry for the industry than it was five years ago.”

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