The changing fortunes of LNG

The last year has seen a complete turnaround in the fortunes of the LNG industry. Oil prices have effectively halved over the last 12 months and the continuing dominance of crude related gas pricing means the LNG industry has been hard hit. In consequence, many LNG projects have been delayed or cancelled – with more likely to follow if prices don’t revive fairly quickly. As highlighted in Petroleum Review’s annual LNG review, to be published early next month (July), over recent years the story has been of Far East LNG demand boosted by post-Fukushima nuclear closures in Japan producing high prices which, in turn, boosted plans for new LNG supply projects. Last year’s LNG construction table showed enormous amounts of new capacity coming onstream in 2017 and 2018. This year’s table, however, shows much more limited capacity coming onstream in these years – although there are still large numbers of potential projects.

Indeed, many of our findings are echoed in the International Gas Union’s (IGU) recently published third report on this sector. In his forward to the report, Jérôme Ferrier, President of the IGU. observes: ‘A number of events have impacted the energy industry. The economic crises slowing down demand, coal replacing gas in the energy mix in Europe, the geopolitical crises triggering worries over security of gas supplies, tumbling oil prices also affecting the gas industry’.

The report notes that LNG trade in 2014 was 241.1mn tonnes, the second highest ever and slightly above that traded in 2013. Higher supply was underpinned with the start of LNG from Papua New Guinea (PNG) as well as improved output from both the Pacific and Atlantic Basins. Japan remained the largest source of demand, whilst Qatar continued its position as the largest LNG supplier.

The strong LNG import prices in north-east Asia and Japan remained throughout 2014, averaging $15.6/mn Btu. However, late 2014 prices came under pressure leading to a levelling of European and north-east Asian spot LNG prices. At the end of 2014, German border prices stood at $8/mn Btu, whilst Henri Hub prices were trading against a discount at $3.4/mn Btu.

The volume of non long-term traded LNG was 64.7mn tonnes, according to the IGU, almost one third of global trade in 2014. Some 75% of all ‘spot’ LNG was delivered to Asian markets. The medium term contracts remain a small component, representing just 5% of the market.

Meanwhile, liquefaction capacity increased by over 10mn t/y (with the commissioning of PNG LNG, Arzew GL3Z in Algeria and Queensland Curtis Island (QCLNG) in Australia) to 301mn t/y capacity worldwide. Nearly 130mn t/y is still under construction and due onstream this decade. The Secretary General of IGU, Pål Rasmussen, welcomes the increase of LNG import terminal capacity: ‘In 2014 Lithuania became the 30th country in LNG imports, while existing importers like Japan, South Korea and China completed large-scale import facilities, and new terminals were also brought online in Brazil and Indonesia. Chile, Kuwait, Singapore and Brazil finalised new expansions.’

Floating LNG regasification capacity has nearly doubled since 2010, reaching 54mn t/y in 2014 with 16 active terminals in 11 countries. Five additional floating projects with a combined capacity of 16.2mn t/y are under construction, four of which are in new LNG import markets.

The IGU study also notes that the shipping fleet at the end of 2014 comprised 373 carriers with a combined capacity of 55mn cm. Some 28 vessels were delivered in 2014 as speculative newbuilds in the market; a trend which continues in 2015 whilst ample tonnage is open for charter.

‘Small scale LNG and LNG as fuel will be the next frontier for LNG penetrating new markets,’ according to the IGU. Small scale LNG capacity stood at 20mn t/y in 2014 and many projects are being developed to create a new market for smaller parcels of LNG, either as energy to remote communities or as fuel replacement for heavy trucking and shipping in SECA (sulphur emission control area) zones.

To view the IGU report, visit http://igu.org/sites/default/files/node-page-field_file/IGU-World LNG Report-2015 Edition.pdf