Unconventional LNG To Assume Limited Role

Unconventional LNG will play a limited role in the future of the liquefied natural gas (LNG) industry, comprising just 5% of total LNG supply in 2020, according to a consultant’s report.

In a video presentation to delegates at LNG16 in Oran last month, Frank Harris – head of LNG Consulting for Wood Mackenzie – reflected on the heightened interest in unconventional LNG supply projects, concluding that these projects will play a limited role in the future of the LNG industry – accounting for no more than 5% of total global LNG supply in 2020.

An LNG project can be unconventional in one or both of two ways, Harris said.

First, the feedstock can be unconventional gas: rather than being supplied from conventional gas reservoirs, the projects will be fed with gas produced from unconventional gas reservoirs, i.e., shales or coals, with multiple projects already proposed in Queensland (Australia), North America and Indonesia. Second, the location of the liquefaction plant is unconventional - it is offshore, in the form of a floating LNG facility, or a modified LNG tanker, he added.

“We fully expect unconventional gas feedstock to become a feature of the LNG supply industry, but its suitability as a feedstock for LNG appears limited and it will be geographically constrained - it is hard to see the next Queensland at the moment,” Harris said.

“However, there are some unconventional gas-rich areas where it doesn’t make sense to liquefy the gas. We believe that unconventional gas resources in China, Europe and India are unlikely to be suitable as LNG feedstock because of accessibility issues and/or the availability of more viable alternatives.

“In these cases, assuming that the resources can be developed economically, we expect it to be more viable to monetize the gas by supplying it via pipeline into local or regional markets rather than by monetizing it as LNG,” he said.

Referencing Wood Mackenzie’s presentation at LNG15, Harris said, “Three years ago we highlighted the challenge that the international oil companies (IOCs) faced in accessing gas reserves so it’s no surprise that since then they have increasingly looked at unconventional gas as a potential source of feedstock for LNG plants.”

Wood Mackenzie said unconventional gas is attractive to the LNG supply industry because of three factors: first, it is largely accessible and not controlled by the national oil companies; second, there are limited exploration risks; and finally the raft of unconventional projects under way is attracting significant investment which is enhancing project economics, through the experience curve.

Regarding the other element of unconventional LNG projects, Harris said, “Floating LNG solutions will be a niche play and will not become a major part of the industry’s supply mix.”

Responding to a question he posed in the title of his presentation ‘An Unconventional Future for LNG Supply?’ he said, “The future of LNG isn’t unconventional. In aggregate, unconventional LNG projects look set to play a limited role, accounting at most for 5% of total LNG supply in 2020, less than unconventional gas per se which our analysis shows will equal 15% of total global gas supply in 2020. Therefore, we see unconventional LNG being underweight.”