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The LNG supply chain

What is LNG?

LNG, which stands for Liquefied Natural Gas, is natural gas that has been converted to a liquid state by cooling to below -163°C. In this form, it occupies 600 times less space than before cooling, while retaining the same calorific value. This makes transport much easier.

Setting up a LNG chain requires investment in several types of facility:

  • Exploration, to detect deposits of natural gas (which are generally discovered during oil exploration operations) and extraction / production ;

  • Storage then liquefaction, to convert the natural gas from “gaseous” to “liquid” form in which it can be transported by tanker ;

  • Transportation by special vessels called LNG tankers ;

  • Storage then regasification, to restore the natural gas to its gaseous form, in which it can be transmitted through pipelines for consumption by end customers or stored in underground tanks.

LNG supply chain

LNG history

Share of LNG among imports.png

Natural gas liquefaction was developed in the 19th century by the British chemist and physicist Michael Faraday, who experimented with liquefying several gases, including natural gas. The first liquefaction plant was built in the United States in 1917. The first commercial operation began in 1941, again in the US. In January 1959, a former World War II cargo ship was converted into a tanker, the Methane Pioneer, to carry LNG between Lake Charles (Louisiana, USA) and Canvey Island (UK). Long-distance LNG transportation had become a reality. The 7 deliveries made in the following 14 months suffered only minor technical problems. Following this success, the British Gas Council decided to set up a commercial route between Venezuela and Canvey Island. In 1964, the UK became the first LNG importer, and Algeria the first exporter. Subsequently, several countries became interested in this new supply technique, including France, which built its first LNG terminal at Le Havre in 1965 (dismantled in 1989). The terminals of Fos-Tonkin (1972), Montoir-de-Bretagne (1980), Fos-Cavaou (2010) and Dunkerque (2016) are all part of the strategy to diversify national and European natural gas supplies.

Share of LNG among the total of natural gas imports in France in 2020

(Source : BP Statistical Review 2021)

Around the world, there are currently around 52 liquefaction terminals. 38 of them are in activity, 3 under construction and 11 are being planned.

For more information about the existing and planned LNG terminals in Europe, you can check the dedicated indicator here.

 

The global liquefied natural gas trade reached 487,9 billion cube meters traded in 2020. It is an increase of 0,6% over 2019, which is way below the 6,8% of annual growth observed on average on the past 10 years. The current dynamics of the global market can be explained by the substitution of coal for natural gas in several countries such as China and, in the United States, by the low cost of producing shale gas and the increase in demand following extreme weather and winter conditions. BP estimates that global LNG trade will double by 2040 to 900 billion m3.

The LNG supply chain

A LNG supply chain is made up of 4 interdependent segments: exploration/production, liquefaction, transportation and regasification. Each of these segments has its own specific industrial processes and involves specific rules and participants.

1. Exploration – production

At the heart of this essential activity, specialists analyse geological structure to identify areas that may contain hydrocarbons. They carry out special tests, such as seismic analysis, to confirm their initial assessments. Drilling is undertaken when there is a high probability of discovering gas (or oil). If the well is viable (after a series of tests, measurements and additional drilling), it can go into production.

2. Liquefaction

The natural gas extracted from the deposit is filtered and purified, so as not to damage equipment during the conversion from gas to liquid, and in order to meet the specifications of the importing regions. This means that the liquefaction process produces a natural gas with a methane content close to 100%. Liquefaction plants often consist of several installations arranged in parallel, called “liquefaction trains”. The liquefaction process reduces the volume of gas by a factor of around 600, in other words 1 cubic metre of LNG at -163°C has the same energy content as 600 cubic metres of “gaseous” gas at ambient temperature and atmospheric pressure. The density of LNG is around 45% that of water.

3. LNG transportation

LNG tankers are double-hulled vessels specially designed to prevent leaks and hull breaks in the event of an accident. LNG is stored in tanks (usually 4 to 5 per vessel) at a temperature of -163 °C and at atmospheric pressure. There are currently 3 types of LNG tankers, which correspond to the different tank manufacturing techniques: LNG tankers, spheres and Prismatic IHI. At the end of 2020, there were 572 LNG carriers, with 35 new vessels compared to 2019. The current LNG tankers fleet is mainly composed of membrane vessels. Those vessels represent 91% of the LNG tankers under construction, the delivery of which is expected by 2022. This technology is the only one that has made it possible to produce large vessels to date. Q-flex type (210,000 m3) and Q-max type (260,000 m3). The average capacity of the LNG tankers stabilizes between 170,000 and 180,000 m3, which coincides with the size limit of ships that can borrow the extension of the Panama Canal.

For more information on the evolution of the global LNG carrier fleet, you can check the dedicated indicator here.

4. Storage and regasification

Once received and unloaded LNG tankers, the LNG joins cryogenic storage tanks - with a capacity generally between 100,000 m3 and 160,000 m3 depending on the site - where it is maintained at - 163 °C before regasification. This operation consists of progressively heating up the liquefied gas to bring it to a temperature above 0 °C. It is carried out under high pressure (60 to 100 bar), most often through a series of heat exchangers with seawater runoff, the most energy efficient technique when the quality of the water lends itself to it. An alternative lies in the supply of heat by combustion of a portion of the gas. At the end of the terminal, the gas undergoes treatments intended, if necessary, to adapt its specifications to the requirements of the regulations and the end users. Its calorific value, for example, can be adjusted by changing the contents of nitrogen, butane or propane or by mixing with other gases.

Exporting and importing countries

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Number of LNG importing countries

Number of LNG exporting countries

Volumes of traded LNG

Volumes of pipeline traded NG

LNG importing and exporting countries

(Sources : BP Statistical Review 2021)

The LNG importing countries can be divided into 2 markets: the Atlantic Basin and the Pacific Basin. The Pacific Basin comprises countries along the Pacific and in South Asia (including India). The Atlantic Basin covers Europe, North and West Africa and the Atlantic coast of the American continent.

The Pacific Basin market emerged in the 1990s, at a time when demand in some Asian countries increased significantly (mainly Japan and South Korea). LNG represented an alternative to oil, and the goal was to maintain security of supply even at relatively high cost. The Atlantic Basin market emerged later in the 1990s, for reasons of security of supply and also in anticipation of a fall in some countries’ domestic reserves.

It seems like the number of exporting countries remains steady throughout the years. However, the number of importing countries increased a lot the past years. In 2020, there were 43 importing countries.

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Exported volumes

Market share

LNG exporting countries in 2020

(Sources : BP Statistical Review 2021)

Although it tends to import smaller amounts of LNG over time, Japan still remains the largest importing country, followed by China and Japan. South Korea. This is because these countries, like most of those in Asia Pacific, are extremely dependent on LNG to cover their domestic demand for gas.

Importing countries.png

Imported volumes

Market share

LNG importing countries in 2020

(Sources : BP Statistical Review 2021)

To know more about global LNG market, you can check our dedicated indicator here.