The Future of the Global LNG Trade

Fueled by growing demand from Asia and the recent spate of natural gas discoveries around the world, the global liquefied natural gas (LNG) trade is gaining more importance by the day, with important implications for several countries' economies and energy security outlooks.

But according to a recent report by BP (NYSE: BP  ) , the global LNG trade experienced its first ever annual decline last year. Let's take a closer look at why it fell and what the future may hold.

An unusual decline in the global LNG trade
According to the recently released "BP Statistical Review of World Energy 2013" report, the global LNG trade fell 0.9% last year after a continuous 30-year expansion.

BG Group (LSE: BG  ) , the U.K.-based natural gas company, estimates that global trade in LNG last year totaled roughly 239 million tons, down approximately 3 million tons from the previous year's volumes, according to the Financial Times. This rare decline contrasts with strong expansion in 2009 and 2010, when the global LNG trade grew by 40 million and 19 million tons, respectively.

Interestingly, last year's drop came despite soaring demand from Japan, as that country continues to import massive quantities of gas to combat the sharp fall-off in domestic energy supplies in the wake of the 2011 Fukushima nuclear disaster. It also comes despite the entrance of new countries into the global LNG trade, such as exporters Peru and Yemen and importers such as India, Kuwait, and Malaysia.

So what explains last year's unusual decline? Much of it can be attributed to lower energy demand in Europe, as the region continues to struggle with anemic economic growth. According to BP, the European Union saw a 2.3% decrease in natural gas consumption growth, while the Former Soviet Union saw a 2.6% decline. In sharp contrast, consumption growth in the US came in at 4.1%, while China and Japan posted 9.9% and 10.3% increases, respectively.

What's next for the global LNG trade?
Going forward, however, the rare drop last year is likely to be an anomaly, with the number of countries participating in the global LNG trade set to grow sharply. This year, BG Group forecasts that the global LNG trade will grow by a modest 5.4 million tons, bolstered by exports from Angola -- where Chevron (NYSE: CVX  ) recently shipped its first cargo from the Angola LNG plant -- and new terminals in Australia, as well as an increase in imports from Singapore and Malaysia, and an offshore facility in Israel.

And over the next few years, the number of LNG importers -- currently less than 30 -- is expected to grow sharply, as countries such as Bahrain, Croatia, El Salvador, Jamaica, Lithuania, Pakistan, the Philippines, South Africa, and Uruguay join the ranks. Even Indonesia, once the largest LNG exporter in the world, is thinking about importing natural gas to meet growing domestic demand.

Meanwhile, the number of LNG exporters is also projected to rise. Already, there is much enthusiasm about LNG export potential from North America. In the U.S., for instance, the Department of Energy has already approved two LNG projects to export gas to countries that don't have a free-trade agreement with the U.S. -- Cheniere Energy's (NYSEMKT: LNG  ) Sabine Pass terminal in Louisiana, which was greenlighted in 2011, and the Freeport LNG project in Texas, a $10 billion facility whose general partner, Freeport LNG-GP, is 50% owned by ConocoPhillips (NYSE: COP  ) , which received permission last month.

Outside North America, some African countries may also have strong LNG export potential. In addition to Angola, longer-term facilities are in the works in east African countries, such as Mozambique and Tanzania. Russia, Australia, and Israel have also been identified as having significant gas export potential.

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