The LNG industry GIIGNL Annual Report 2017

Primarily driven by new Australian volumes, additional supply was not as abundant as expected due to production delays, slower ramp-ups and lower exports from historical suppliers. As a result, the expected “wave” of LNG has not materialised yet, and some signs of market tightness have even been observed towards year-end due to colder weather than usual in Europe and North East Asia.

On the import side the year was marked by soaring deliveries to the Middle East, confirming the region’s status of rising star amongst importers. After a moderate growth performance in 2015, China and India came back onto the front stage and confirmed their strong appetite for competitively priced LNG.

Sluggish oil prices have continued to exert downward pressure on LNG contract prices. In the Pacific Basin, a combination of more than adequate supply and of slow demand growth also pushed spot prices to a seven-year low. This situation and the looming supply overhang are causing a slow-down in investment with several FIDs being cancelled or deferred.

Despite the addition of new supply sources in 2016 (APLNG, GLNG, Gorgon, Sabine Pass, Malaysia LNG train 9), import patterns remain largely regional. We observed a slight shift in trade towards Asia Pacific, as additional volumes from Australia and Indonesia went into Asia and kept more Qatari LNG into the Middle East. Shipping costs have become a determining factor of LNG trade. While the general consensus predicted that US exports would essentially end-up in Asia and transit through the newly-expanded Panama Canal, more than two thirds of the cargoes leaving Sabine Pass in 2016 eventually remained in the Atlantic Basin.

Looking at future years, with Australian projects ramping-up and new trains from the United States progressively coming online, the global LNG market could become oversupplied until the mid 2020’s. Nevertheless, surplus capacity could be progressively absorbed by additional imports and/ or by shut-ins, both as a consequence of low price levels, resulting in a market rebalancing in the first part of the decade. Given the scarce number of FIDs taken in recent months (only 1 in Indonesia and 1 in the US) a tightening of supplies in the long run can be expected, perhaps slowing down the emergence of a more flexible and liquid traded LNG market. In this context more than ever, cooperation along the value chain will be needed in order to reduce costs and develop new projects in due time.

In order to respond to market changes and cope with the uncertainty of future supply and demand, LNG contracting strategies have grown in importance. In this respect, most buyers pay particular attention to flexibility –in terms of destination as well as off-take obligations– and price competitiveness. In a well supplied market and given the significant quantities under long-term contracts which are due to expire in the medium-term –particularly in Japan– the share of spot and short-term volumes (which remained stable at around 28% of total trade) could increase further in the coming years.

Facilitated by the development of FSRU solutions, LNG imports appear today as an expedient, efficient and safe solution to provide new markets with a clean and secure source of energy. A valuable alternative to diesel, LNG is also poised to be increasingly used as a fuel for heavy-duty trucks and public transportation. In light of the Paris COP21 agreement and given the necessity to quickly reduce emissions, the role of gas should indeed be pivotal in order to partner with renewables and offer flexibility to meet the growing energy requirements in the power generation, urban development and transport sectors. In maritime transport, the recent decision of IMO to implement a global cap on sulphur emissions by 2020 is opening new opportunities for LNG as a marine fuel and several terminal operators worldwide are developing bunkering services.

Committed to the promotion of LNG imports worldwide and to the exchange of best practices, GIIGNL remains determined to assist in facilitating the cooperation of LNG players along the value chain with a view to optimising efficiency and maintaining the highest safety standards of our industry.

Jean-Marie Dauger, President. To read the full report please visit giggnl.org

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