These days, supertankers carrying cargoes of liquefied gas are to be found sailing the seven seas and have already become the symbol of the development and expansion of natural gas, which is set to undergo one of the fastest growth rates of any energy source over the next decade.

More than 210 of these ships are currently in service around the world, with a maximum capacity of 215,000 cubic metres. A further 140 are on order in shipyards and the largest so far built, with a capacity of 266,000 m3, is set for delivery in 2008. Such is the progression of  liquefied natural gas (LNG), which by 2020 will account for more than 40% of all international gas trade.
 

At a time of climate change and an overhaul of the energy sector, natural gas has several advantages. First and foremost, large reserves are still available: at the present rate of supply, stocks will last for an estimated 65 years, as opposed to oil, which could run out in around 40 years. On top of that, the reserves are widely distributed geographically: a third in Russia and central Asia, a third in the Middle East and a third throughout the rest of the world. Gas also provides for the efficient generation of electricity and emits far fewer greenhouse gases than all other fossil fuels.

But the areas of gas production are often a long way away from the large consumer markets in Asia, Europe and North America and gas is by its nature more difficult to transport and store than oil. The traditional means of transport, gas pipelines are not practical over long distances.
 

A different form of transport

Once it has been liquefied and cooled down to -160 Celsius, gas is freed from its constraints. Its volume is reduced by a factor of 600, which makes it almost as easy to transport by ship over large distances and to various destinations as oil is. The investment is massive and runs into billions of dollars for a single plant for liquefying the gas, the ships which transport it and the terminals which will receive it and reheat it back to its gaseous state. But it is worth the money and effort because it frees gas from the restrictions that point-to-point pipelines impose on it.

In consequence, trade in LNG has grown by an average of 7.7% a year over the past decade and in 2006 represented a quarter of all the international trade in gas. Projected investment in LNG for the next 10 years is greater than the figure invested in the entire 40 previous years.

The LNG industry was born in Algeria in the 1960s. Produced from deposits under land or sea, the gas is treated in liquefaction “trains” – there are currently 17 such plants in the world – then loaded on board a tanker which transports it to distant markets and delivers it to one of the 51 gas terminals in the world.

More types of different customers are becoming interested in gas. Many wish to multiply the sources of supply in order to be less dependent on the major pipelines. There are more and more gas turbines producing electricity. Industry in general is moving from oil to gas as a source of energy. And other uses for gas are being developed, for example as a vehicle fuel (compressed natural gas, CNG) or the manufacture of liquid fuels based on gas (Gas To Liquids, GTL).
 

The coming of “spot” markets

Transporting liquefied gas is no longer merely a question of logistics. Over the years, it has considerably influenced commercial practices. The gas pipeline ensured that long-term contracts between inter-dependent partners were the norm with . a price usually indexed to oil prices.

The extent of the cost of LNG production and the need to secure supply still incites producers of LNG and their customers to sign long-term contracts. But the flexibility of LNG also makes short-term contracts possible, even down to deals that concern a single delivery. This “spot” trading already accounts for 15% of the total dealing in LNG and continues to grow.

Liquefaction is thus becoming one of the keys to a liberalisation and globalisation of the natural gas market. First of all in the “Atlantic basin”, the vast area formed by Europe and North America, which have become major consumers due to their own waning production. The other major consumers like Japan, South Korea, Taiwan, China and India are building the “Pacific basin” with a strong growth of demand. Between the two basins, lies the Middle East, one of the main producers of LNG which, with the capability of sending the gas it produces in either direction, will play a part in balancing the two.
 

Limits to development

But the very success of LNG itself raises a new fear: can production follow demand? Many of the natural gas reserves are technically difficult to extract and the costs have recently increased significantly, on the grounds of the rise in costs of basic materials like steel and a shortage of specialized companies and qualified labour.
On the other hand, agreements in place between the countries which own the gas resources, producers, transporters and customers are extremely complex. The big international oil companies need to negotiate and initiate genuine partnerships, particularly with national companies. The success of these ventures frequently depends on their ability to listen and to understand the needs of everyone involved.