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Changing LNG Market Dynamics – Implications on Supply Security in the APEC Region

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Changing LNG Market Dynamics – Implications on Supply Security in the APEC Region Changing LNG Market Dynamics – Implications on Supply Security in the APEC Region APEC Oil and Gas Security Studies | Series 17 APEC Energy Working Group September 2020 APEC Project: EWG 01 2020S Produced by Asia Pacific Energy Research Centre (APERC) Institute of Energy Economics, Japan Inui Building, Kachidoki 11F, 1-13-1 Kachidoki Chuo-ku, Tokyo 104-0054 Japan Tel: (813) 5144-8551 Fax: (813) 5144-8555 E-mail: [email protected] (administration) Website: http://aperc.or.jp/ For Asia-Pacific Economic Cooperation Secretariat 35 Heng Mui Keng Terrace Singapore 119616 Tel: (65) 68919 600 Fax: (65) 68919 690 Email: [email protected] Website: www.apec.org © 2020 APEC Secretariat APEC#220-RE-01.9 ISBN: 978-981-14-7794-2 OGSS Series 17 Changing LNG Market Dynamics – Implications on Supply Security in the APEC Region 3 | P a g e TABLE OF CONTENTS Table of Contents .......................................................................................................................... 3 Foreword ....................................................................................................................................... 6 Acknowledgements ....................................................................................................................... 7 Project coordinators .................................................................................................................. 7 Authors ...................................................................................................................................... 7 Editors ....................................................................................................................................... 7 Disclaimers ................................................................................................................................ 7 Executive summary ....................................................................................................................... 8 Significant changes in LNG contracts ........................................................................................ 8 Increasing share of portfolio players strengthens LNG supply security and shapes LNG shipping industry ....................................................................................................................... 8 Modular construction approach offers a solution to ballooning costs of LNG projects ........... 9 Technological advancement contributes to higher usage of BOG and IMO rules compliance in LNG shipping ......................................................................................................................... 9 Government’s role is required for LNG terminal and gas storage development ................... 10 The importance of gas storage on supply security ................................................................. 11 1 Introduction.............................................................................................................................. 12 Definition of LNG supply security ............................................................................................ 12 Objective and scope of the study ............................................................................................ 14 2 Changing dynamics in LNG contracts, portfolio players and project construction .................. 15 Changing LNG contracts .......................................................................................................... 15 Contract duration is changing ........................................................................................... 15 Oil-indexation is weakening .............................................................................................. 17 More destination-free contracts signed ............................................................................ 18 Increasing share of portfolio players....................................................................................... 19 Definition of portfolio players ........................................................................................... 19 Types of LNG market players ............................................................................................. 19 The concerns over emerging portfolio players for consumers ......................................... 23 Contributions of portfolio players to LNG supply security ................................................ 23 Challenges during LNG projects construction phase .............................................................. 26 Ballooning cost of LNG production projects ...................................................................... 26 OGSS Series 17 Changing LNG Market Dynamics – Implications on Supply Security in the APEC Region P a g e | 4 Cost reduction measures for LNG projects ....................................................................... 29 3 How the LNG business model shapes the LNG shipping market ............................................. 32 The evolving LNG model ......................................................................................................... 32 The traditional LNG business model ................................................................................. 32 Embracing flexibility and the emergence of the portfolio player model .......................... 32 Technical developments in LNG shipping ............................................................................... 34 The technical evolution of LNG carriers in the 20th century ............................................. 34 The technical evolution of LNG carriers in the first decade of the 21st century ............... 36 The technical evolution of LNG carriers in the second decade of the 21st century .......... 39 The LNG shipping market ........................................................................................................ 41 Current status and outlook for LNG carrier market .......................................................... 41 Potential challenges .......................................................................................................... 42 Shipowners response to carrier obsolescence .................................................................. 44 Could advances in LNG shipping impact the global LNG market? .......................................... 45 4 Challenges for LNG infrastructure ............................................................................................ 46 Regulatory challenges to LNG terminal development ............................................................ 46 LNG’s characteristics are a challenge to its infrastructure ................................................ 46 Requirements of LNG terminal development ................................................................... 47 Korea—contradictory policy as a potential hindrance to LNG imports and gas demand . 47 Thailand—relaxed regulations not fully embodied in market practices ........................... 48 Viet Nam — unclear policy helps slow LNG terminal investment ..................................... 49 More clear regulations needed to support LNG terminal development .......................... 49 Environmental and community opposition challenge LNG terminal development ............... 50 Chinese Taipei — insufficient communication caused LNG terminal delays .................... 50 Chile — environmental concerns and oppositions to the delays of Penco terminal ........ 51 The importance of gas storage facilities ................................................................................. 52 Gas storage facilities .......................................................................................................... 52 Gas storage benefits .......................................................................................................... 52 The United States — Widespread gas storage and pipeline networks contribute to security .............................................................................................................................. 53 Italy — World’s fifth largest USG capacity: An example for gas import dependent economies ......................................................................................................................... 54 China — A lesson learned the hard way............................................................................ 55 OGSS Series 17 Changing LNG Market Dynamics – Implications on Supply Security in the APEC Region 5 | P a g e The role of gas storage in gas importing economies in APEC region ................................ 57 5 Implications of the dynamics and challenges .......................................................................... 58 Portfolio model injects robustness to market and ultimately strengthens LNG supply security ................................................................................................................................................. 59 Technological advancement contributes to cost efficiency and IMO rules compliance in LNG shipping ................................................................................................................................... 59 Government’s role is required for LNG terminal and gas storage development ................... 59 References ................................................................................................................................... 64 OGSS Series 17 Changing LNG Market Dynamics – Implications
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