LNG PRESSURE: NO RELIEF IN SIGHT FROM CONSTRUCTION COST AND INNOVATION NEEDS
The dramatic growth of liquefied natural gas (LNG) has produced human resource and cost pressures akin to those experienced across the oil and gas industry. Arguably, LNG's transformation from a relatively niche and specialized industry to a mainstream one has made the pains of growth even more acute. Further, these growing pains come at a time when new markets-chiefly North America-are depending increasingly on LNG. This Decision Brief takes LNG as a case study and examines the industry order book today and over the next 10 years to gain a better understanding of future trends in LNG costs.
*The pressure on the engineering, procurement, and construction (EPC) contractors for LNG is part of the general demand for such skills and equipment across the energy spectrum. In the case of LNG, both the sheer volume of capacity under construction and the increasing lead times to build projects add to the pressure.
*The capacity of the EPC contractors is insufficient to meet the complete slate of LNG liquefaction projects proposed globally and will be a filter on project developments.
*The upward pressure on LNG costs is set to continue and remain at a high level for the next four years, with liquefaction being the key infrastructure bottleneck. This will likely lead to more project delays and reconfigurations.
*Pressures in the EPC market should alleviate from 2011 onward, but only slowly.
*Big rewards are available to those who can work around the bottlenecks. New entrants, and possibly new business models, are expected to challenge the existing select group of companies that manage conventional LNG liquefaction projects.
