WoodMac: LNG growth wave to come post 2016
WoodMac’s review of the LNG industry reveals that the 2015 market was characterised by weaker Asian demand which dropped 2 percent forcing LNG players to shift focus to developing markets and employing new regasification capacity.
Despite weakened demand and the impact of the oil price crash, LNG production remained high throughout the year reaching 250 million tonnes in 2015, up 4 million tons on 2014, primarily due to a number of key project start-ups, the review shows.
The initial focus in 2016 will be on the United States as first cargo from Sabine Pass liquefaction facility is expected.
Wood Mackenzie’s Chong Zhi Xin says: “In 2015, weak market environment forced companies to adjust strategies and tactics. Sellers started to look further afield to emerging markets in the Middle East and Africa and new opportunities in Asia, while buyers exercised more caution in contracting.”
Chong adds that new buyers played a crucial role in balancing the market during 2015making up for the decline in Asian LNG demand. Jordan, Egypt and Pakistan, newcomers to the LNG market together imported 5.8 million tons of liquefied natural gas in 2015. According to Chong, this trend is expected to continue in 2016 as new customers and regasification capacity remains key.
Global LNG production remained high in 2015, reaching 250 million tons per year rising 4 million tons compared to 2014, according to Wood Mackenzie.
Giles Farrer of Wood Mackenzie adds that the increase is primarily due to the start-up of key coal seam gas projects in Australia, BG’s QC LNG in January and Santos’ GLNG in August 2015.
Adding to that, ConocoPhillips-operated APLNG plant recently shipped its first cargo, which according to Farrer, moves Australia closer to becoming the world’s largest supplier of LNG by 2019, as the three Curtis Island facilities bring a total of 26.5 mtpa to the market.
“The fall in Asian demand and the rise in Australian supply, meant some Atlantic LNG volumes were squeezed out of the market and Atlantic to Pacific trade flows fell by 16% – from 96 mtpa to 82 mtpa. With the lower oil price driving down Asian LNG prices, the spread between European gas prices and Asian LNG prices narrowed. Consequently, companies with Atlantic supply were drawn to European markets offering more attractive returns,” Farrer adds.
Wood Mackenzie also reveals that the fall in oil prices impacted company decisions as reaching final investment decisions on LNG projects slowed during the second half of 2015.
Alex Munton of Wood Mackenzie noted that the major event in 2015 was Shell’s proposed acquisition of BG Group, which would create the largest LNG marketer in the world.
In conclusion, Chong adds that “the pace of new project ramp up and the threat of a prolonged outage at Yemen presents downside risk to LNG supply availability in 2016.”
He said the growth wave is set to come after 2016 noting that several key dynamics will affect LNG prices and flows, namely, the coal to gas competition in both Europe and Asia, Chinese energy policy as well as access to regas capacity in Europe and contract flexibility.
LNG World News Staff