Changing Market Dynamics: LNG imports will be driven by strong demand in the short term

LNG imports will be driven by strong demand in the short term

Over the past year, the global liquefied natural gas (LNG) market has witnessed several key developments, such as rising LNG production, enhanced export capacities and unstable gas prices. Global LNG supply increased by about 26 million tonnes (mt), from 263.6 mt in 2016 to 289.8 mt in 2017. The major element of surprise in the global LNG market has been the rapid increase in Chinese imports owing to the country’s policies that are aimed at switching from coal to gas. Growth in LNG supply led to an increase in LNG spot trading liquidity in 2017, resulting in greater flexibility for buyers.

Global LNG trade

Global LNG trade reached 289.8 mt in 2017, registering a growth of 9.9 per cent over the previous year and recording the strongest growth since 2010.

On the supply side, of the total LNG imported by India, the maximum of 77.5 mt was from Qatar, a share of about 27 per cent. This was followed by Australia and Malaysia, with a share of 19 per cent and 9 per cent respectively.

During the past year, five new onshore liquefaction trains – Gorgon Train 3 and Wheatstone Train 1 in Australia; Sabine Pass Train 3 and Train 4 in the US; and Yamal LNG Train 1 in Russia – were commissioned along with one floating liquefaction unit off the shore of Malaysia. The surge in LNG supply was driven by additional production from Australia (10.7 mt) and the US (9.6 mt) as well as by better performance of existing liquefaction plants in Algeria, Angola and Nigeria (resulting in an increase of 6.2 mt). No new country joined the LNG producing community in 2017. By end 2017, there were 101 liquefaction trains globally with a capacity of 340 million tonnes per annum (mtpa), reflecting a liquefaction capacity utilisation of about 85 per cent.

On the demand side, the top importing countries during 2017 were Japan (83.5 mt), China (39 mt) and South Korea (37.8 mt), with a global share of 29 per cent, 13 per cent and 13 per cent, respectively, in total LNG imports. India was positioned fourth among global LNG importers, having imported 19.2 mt during the year, a share of 7 per cent. While Japan has been the top LNG importing country for decades, China is the recent addition to the top importers, supported by its policy of replacing coal-based power plants with gas-based ones. Besides, Malta imported LNG for the first time in 2017, bringing the total number of importing countries to 40. Increasingly, spot and short-term imports (volumes delivered under contracts with duration of four years or less) have been on the rise and totalled 77.6 mt in 2017, a share of 27 per cent in total LNG imports.

Globally, there are 511 LNG shipping vessels, totalling 74 million cubic metres of LNG shipping capacity as of 2017. These include 28 floating storage regasification units and 38 vessels with a capacity of less than 50,000 cubic metres.

LNG pricing trends

Spot LNG prices in Asia were in the range of $10-$11 per million British thermal units (mmBtu), the highest levels seen in the past three years. The prices fluctuated immensely, dropping from $11 per mmBtu in January 2017 to around $5 per mmBtu during June-July 2017 and then steadily increasing to $11 per mmBtu in January 2018. The continued price spikes during winter suggests that the market is currently balanced, but supply additions in 2018 and 2019 could adversely impact prices. These, however, are expected to be counterbalanced by growing Chinese imports. Besides, tough competition between Henry Hub- and crude-linked pricing still exists.

The way forward

Owing to the increasing supply of LNG from the US, Australia, Russia and Africa coupled with the planned capacity additions in Qatar and Canada, the global LNG supply is expected to get a major boost in the coming years. However, the oversupply in LNG markets could be counterbalanced by the entrance of new buyers such as Singapore, Thailand, Mexico and Pakistan along with the rising demands from China and India. LNG demand from the US and Europe is likely to be low owing to the supply of shale gas. Going forward, LNG prices will remain stable provided a balance is achieved between LNG supply and demand.

Based on a presentation by Pankaj Wadhwa, Senior Vice President, Marketing, Petronet LNG, at a recent India Infrastructure conference