BP: global natural gas output stalls, LNG on the rise

Natural gas production worldwide last year recorded the weakest growth in almost 34 years as liquefied natural gas (LNG) trade rose and continues the upward trend, according to a report by energy giant BP.

Global gas production increased only 0.3 percent to 21 bcm in 2016, the weakest growth in gas output for 34 years, other than in the immediate aftermath of the financial crisis, BP said in its “Statistical Review of World Energy.”

Global consumption rose by 1.5 percent or 63 bcm, quite a bit weaker than its 10-year average of 2.3 percent.

This sub-par growth went hand-in-hand with falling gas prices – Henry Hub prices were 5% lower than in 2015, European and Asian gas markers were down 20-30% as prices continued to adjust to increased LNG supplies, the report said.

The report notes that much of the lacklustre performance can be traced back to the US, particularly on the supply side where falls in gas and oi) prices caused US gas production to fall for the first time since the US shale gas revolution started in earnest in the mid-2000s.

Outside of the US, on the demand side, gas consumption in Europe rose strongly to 28 bcm,) helped by both the increasing competitiveness of gas relative to coal and weakness in European nuclear and renewable energy.

The Middle East and China both also recorded strong increases aided by improving infrastructure and availability of gas. The largest falls were in Russia and Brazil, both of which benefited from strong increases in hydropower.

On the supply side, Australian production was the standout performer as several new LNG facilities came onstream. Australian production rose 25.2 percent to 19 bcm.

Looking at the growing market for LNG, although China continued to provide the main source of growth, it’s striking that the increasing availability of supplies has prompted a number of new countries, including Egypt, Pakistan and Poland, to enter the market in the last year or two.

These new entrants were helped by the increased flexibility afforded by plentiful supplies of floating storage and regasification units or FSRUs, the report said.

“2016 was the first year of the growth spurt we expect to see in LNG, with global supplies set to increase by around a further 30% by 2020. That is equivalent to a new LNG train coming on stream every two months until the end of this decade – quite astonishing growth,” BP’s Chief Economist Spencer Dale said in the report.

Dale added that as the importance of LNG trade grows, global gas markets were likely to evolve quite materially.

“Alongside increasing market integration, we are likely to see a shift towards a more flexible style of trading, supported by a deeper, more competitive market structure,” Dale said.

“Indeed, this shift is already apparent, with a move towards smaller and shorter contracts and an increase in the proportion of LNG trade which is not contracted and is freely traded,” he said.