Australia becomes the largest LNG exporter to Japan, overtaking Qatar and Malaysia, the two biggest previously.
“The United States is playing a major role in transforming the global LNG markets as it marches toward becoming the third largest LNG exporting nation in the world,” says Srirama Palagummi, Harry Vidas, and Eric Kuhle, with ICF, a global consulting and technology services provider writing, An American First Future for LNG Exports (2017).
As the big gas producing nations advance towards global domination in LNG exports, Canada lags the pack trying to appease the anti-fossil fuel activists and various Indigenous Peoples who want royalties for producing natural gas from their traditional hunting grounds. The Americans expect their terminals will set the global LNG price by the early 2020s, acting as swing suppliers in the global marketplace.
Natural gas is a major source of global energy, providing more than 20 per cent of the planet’s energy generation annually. Shipping it long distances often requires liquefying it, which reduces its volume approximately 600 times, making it possible to ship it around the world. On December 31, 2016 eight countries dominated LNG exports with a combined market-share of 80 per cent:
1. Qatar – holds the world’s largest reserves of natural gas and exported 77.2 mtpa of LNG, or 29.9 per cent of total exports;
2. Australia – has substantial offshore reserves and exported 44.3 mtpa of LNG, 17.2 per cent of total exports;
3. Malaysia – exported 25 mtpa of LNG, almost 10 per cent of global supply;
4. Nigeria – produced and exported 18.6 mtpa of LNG, 7.2 per cent of market-share;
5. Indonesia – liquefied and exported 16.6 mtpa, or 6.4 per cent of global supply;
6. Algeria – LNG exports came to 11.5 mtpa, 4.5 per cent of the worldwide total;
7. Russia – produced 521.5 mtpa of natural gas, consumed 351 mtpa internally, and exported 172 mtpa mainly through pipelines to Europe; and
8. – exported 10.6 mtpa, accounting for 4.1 per cent of global supply.
Experts say there are three trends impacting the LNG market: global trade is moving towards short-term flexible contracts, natural gas markets are linking to LNG exports, and exports are playing an increasing significant role in international price-setting.
Trade Trending to Short-Term, Flexible Contracts
According to An American First Future for LNG Exports, the share of spot and short-term cargoes for duration of less than four years is trending upwards, from about 16 per cent of shipments in 2010 to more than 28 per cent in 2016. The authors attribute this to “increases in the LNG shipping fleet and regasification capacity during the past few years, supported by the recent shift towards short-term LNG cargoes.” They predict this trend will continue as more LNG export capacity is commissioned globally.
In the future, this trend is projected to increase 32 per cent to about 450 mtpa in the early 2020s as approved and under-construction projects come online. In July, Qatar Petroleum announced plans to increase its LNG production by more than 20 per cent (by about 2025) and hope to avoid rigid contracts with high take-or-pay levels. This spring a trio – Korea Gas Corp., Japan’s JERA, and China National Offshore Oil Corp. — signed a memorandum of understanding (MOU) to cooperate in the joint procurement of LNG. Experts says this accounts for about one-third of global LNG demand. This summer, Petronas, Malaysia’s state-owned energy firm, withdrew from its Canadian LNG project to explore short-term LNG contracts and smaller cargo sizes to “capture new demand in an over-supplied market.”
ICF’s Palagummi, Vidas, and Kuhle predict, “As long as buyers expect spot prices to drop, we expect the shorter duration (five to 15 years), flexible LNG contracts without destination clauses will be more prevalent, and that significant demand will remain uncontracted. Short-term trade will thus increase considerably to reach 40 to 60 per cent of the global trade.”
Natural Gas Markets are Linking to LNG Exports
In 2016, international LNG imports grew by about 7.5 per cent to approximately 263.6 mtpa with demand increasing in China, Egypt, India, Pakistan, and Jordan and offset by Japan’s decline. Most of the new supplies was shipped from Australia and the first two trains at Sabine Pass, in the U.S.
According to ICF’s Palagummi, Vidas, and Kuhle, as supply-demand balances tighten and use of existing facilities approaches 80 per cent capacity. “We anticipate a second wave of LNG terminal buildouts between 2023 and 2030, with new capacity commissioned in the U.S. Gulf coast.”
The trio believe that predictions and reality may differ significantly depending on factors like the world oil price, economic growth, international pipeline trade, and market-share of natural gas versus other fuels. “Lower domestic natural gas prices or more expensive international LNG supplies could result in a ‘high case’ scenario in which U.S. LNG exports grow through the forecast period.” In addition, they add, weather will continue to impact seasonal LNG demand, “presenting American suppliers an option to leverage their vast gas supply resources and robust pipeline network to ramp up their feed-gas deliveries and meet the demand more quickly than other integrated LGN facilities around the world.”
Exports Playing Increasingly Significant Role in International Price-setting
“The projected increase in U.S. LNG export capacity and competition among LNG sellers will likely result in de-linking of the long-term oil-indexed LNG contracts and promote competitive trading,” ICF says. “LNG exports of more than 100 cargoes from Sabine Pass are already indexed to the natural gas price at Henry Hub. As more U.S. export facilities are commissioned, the amount of global LNG trade indexed to gas prices will increase, thereby transforming the terms of pricing in contracts.”
Today the global markets are over-supplied, favour LNG buyers, and will see increasing exports from new American and other terminals. Yet the future looks bright.
“Over the long-term, incremental LNG supplies will be needed from a variety of supply areas: the global LNG price will be influenced by the cost of new greenfield supply projects outside of traditional low-cost centres,” ICF says. “We estimate the free-on-board (FOB) LNG price required for a typical, moderate-cost integrated project to be about $1,900/tpa ($7.40/MMbtu US). Projects in the Middle East and East Africa would require delivered ex ship (DES) prices in Asia of roughly $8.00/MMbtu to make money.”
ICF claims once new liquefaction capacity is needed, then prices should increase enough to offer incentives to make new investments. “Initially, we expect LNG prices to trend to the upper end of the range of full cycle costs for a new facility, but as the market continues to tighten, LNG prices must rise further to incent development of supplies outside of lower-cost supply areas.”
In conclusion, ICF says, the expiration of long-term contracts will create a favourable environment for buyers. “However, as LNG demand grows, new floating LNG regasification terminals will be built, and more countries will start importing LNG, suppliers will likely gain back their advantage. New LNG export terminals will be needed to meet the demand starting in 2023.”
The authors believe the U.S. Gulf coast has the potential to become a leading exporter of LNG. “With highly competitive natural gas markets and potentially lower capital costs compared to integrated LNG facilities in other countries, America will play a major role in increasing liquidity of the global LNG trade. However, the projected LNG exports may vary significantly depending on several factors, like oil prices, economic growth, international pipeline trade, and market-share of natural gas compared to other fuels.”
#LNG #LNGExports #exports #Canada #CanadianLNG #Global #International #NaturalGas #Energy #Trade #Propane #PropaneCanada #Roughneck #TheRoughneck #Alberta
