Natural gas is a commodity that finds itself in a race to the
finish line between three elements: piped natural gas, LNG
and Floating LNG. It’s an exciting game that, at the end of the
day is all about getting more out of the ground for less
money and getting it to market faster and easier.
LNG, and particularly the floating variety, is the future, and
also why we have chosen to close out a series of reports
on this topic, which has become an obsession for many
prospective investors. The most important message for
investors is that LNG is NOT a revolution. It’s an evolution—a
term that we hope instills a certain amount of investor rationality
and patience. The question is not whether LNG is the
future—it is. The question is when, and it’s a very important
question for any investor who is preparing to gamble on this
What is clear is that, while today LNG accounts for only a
relatively small portion of the world’s gas supply, it is hands
down the fastest-growing segment, experiencing a 140%
increase in global demand between 2000 and 2012 alone.
And the continuing game is all about streamlining, which is
where the floating aspect comes into play.
The math is quite simple if you leave out regulatory environments
and geopolitics. Liquefied natural gas (LNG) is cleaner
than traditional fuels and the more we use it the less we will
contribute to global emissions. The world is working towards
this transition, and the math tells us that, from a US perspective,
investing in LNG appears to be the obvious path to
The trap is in the timing, and particularly for investors who
focus on a single element of this future game—mouth-watering
prices that LNG fetches in Asia. Prices are tumultuous,
and this is a longer-term game with a much bigger picture.
Understanding this big picture is what will set us on a
course to profit from the LNG future.
In this report, we will examine at length:
What exactly is LNG and how it is processed and transported
Why LNG is the future and why it is an ideal transition fuel
Why the future is floating
The biggest global LNG venues; where they are and how
much they cost
The components of LNG investing
Politics, Geopolitics and the market—what helps and
What is LNG?
LNG is simply natural gas rendered in a liquid state. It is a
clear, colorless, non-toxic liquid that is formed when natural
gas is cooled to -162° Celsius or -260° Fahrenheit. Natural
gas is typically at least 90% methane, but may also contain
propane, ethane and small quantities of other compounds,
which are removed when natural gas is liquefied, rendering
LNG a very clean product. The process of cooling the natural
gas reduces its volume 600 times and is undertaken on
what is called an LNG Train. An LNG train is a natural gas
plant’s liquefaction and purification facility. The typical LNG
plant will have more than one train, with each one operating
independently of the others. The world’s largest trains are
owned by Qatar (Ras Laffan) and can liquefy around 1 billion
cubic feet of natural gas per day. In total, the Ras Laffan LNG
facility has two massive trains and four smaller trains.
The process of cooling the natural gas makes it significantly
easier to store in large volumes and to ship out for export
over long distances.
LNG is not to be confused with compressed natural gas(CNG), natural gas liquids (NGL), liquefied petroleum gas
(CNG), natural gas liquids (NGL), liquefied petroleum gas
(LPG) or gas to liquids (GTL), all of which are comprised of
How is LNG Stored?
LNG is stored in large, refrigerated cylindrical tanks with
domed roofs kept at atmospheric pressure. Both pressure
and temperature are kept constant in a process referred to
as auto-refrigeration. The tank released ‘steam’ (in the form
of LNG boil-off vapor), is recaptured by LNG facilities and
either used as fuel or sent through pipelines.
LNG can also be stored underground in specially designed
For international trade, LNG is transported in special tanks
aboard double-hulled ships to receiving terminals overseas.
It then goes through a regasification process, which turns
the LNG back into natural gas. At this point, the natural gas
can then be transported through local pipeline systems for
end-user distribution. Worldwide, there are approximately
170 LNG transport vessels in operation, with many more in
LNG Import Terminals: These terminals are equipped with
berths, for mooring ships and offloading LNG, as well as
storage tanks and regasification facilities. The new trend
in the US is to repurpose some of the existing LNG import
terminals to handle exports to countries with which the US
does not have Free Trade Agreements (FTAs),
LNG Export Terminals: An LNG export terminal is pretty
much the same as an import terminal with one big difference:
While an import terminal will have a re-gasification
plant, an export terminal will have a liquefaction plant,
which, again, is called a ‘train’. While it may seem a
relatively easy job to repurpose an existing LNG import
terminal into an export terminal, we keep in mind that liquefaction
facilities are extremely expensive and the cooling
process itself requires a significant amount of energy.
When export is not the objective, there are smaller-scale operations
that liquefy natural gas simply to store it more conveniently
for later use, when supply and demand dynamics
make more sense. Natural gas is sometimes taken from a
pipeline, liquefied and stored for high-demand seasons, with
small-scale regasification plants in this case called “peak
shavers”. Similarly, LNG ‘satellite plants’ use tanker trucks to
bring in LNG, store and re-gasify it when necessary.