Article by Vincent Demoury, General Delegate of GIIGNL – International Group of LNG Importers
In 2016, global LNG trade reached 263.6 MT, compared with 245.2 MT in 2015 (+18.4 MT). LNG now accounts for 30% of international gas trade vs 25% in 2000.
18 countries exported LNG to 39 importing countries. 4 new countries joined the ranks of LNG importers during the year and 11 new regasification terminals were commissioned, with 5 terminals based on floating solutions.
LOWER THAN EXPECTED BUT ROBUST SUPPLY GROWTH
On the supply side, 2016 was marked by a lower than expected but still robust supply growth (+7.5%). The year did not see any “wave” of LNG breaking over the market, despite a number of favorable development: the resumption of production in Angola and Egypt, the start-up of exports from the US Gulf of Mexico, the commissioning of five new liquefaction trains in Australia and of a 9th train in Malaysia.
Due to the slow ramp-up of several Australian projects, the combined new nominal liquefaction capacity of 36 MT worldwide starting up in the course of the year, only added 18 MT of actual new supply in 2016. Australia alone produced 15.4 MT of additional quantities essentially from new production from APLNG Train 1 and 2, Gorgon Train 1 and 2 and GLNG Train 2.
As a result, the Pacific Basin reconquered the top position among producing regions with 45% of global supply, followed by the Middle-East (35.5%) and the Atlantic Basin (19.5%).
In the Atlantic Basin, declines in Algeria, Nigeria and Trinidad were offset by the restart of production in Angola and Egypt and by the start-up of Sabine Pass Train 1 and 2 in the United States. In the Middle East, Yemen was offline all year, but the share of the Middle East remained however stable. Qatar remained the largest producing country with 30% of global LNG supply.
CHINA, INDIA AND EMERGING IMPORTERS DRIVING DEMAND GROWTH
Demand growth returned to Asian countries, mainly thanks to China and India who accounted for almost 12 MT of incremental LNG demand. After a moderate growth performance in 2015, Chinese LNG imports experienced a strong rally in 2016, with an impressive 37% growth due to the rise of gas-fired power generation and to demand from the industrial sector. Indian imports also jumped (+30%) thanks in part to low spot prices and to a price sensitive LNG demand, confirming the country’s rank of 4th largest LNG buyer worldwide.
Emerging importers also recorded strong gains in 2016. For their second year as LNG importers, Egypt, Pakistan and Jordan imported a combined 13.5 MT in 2016 compared to 5.5 MT in 2015.
The Middle East is now the 3rd largest importing region behind Asia and Europe and before the Americas. Growth was led by Egypt, who almost recorded a threefold increase in LNG imports compared to 2015 via spot and short-term imports. The situation may change as domestic production may rise again in the coming years following the recent discoveries in the country.
In contrast, demand in mature importing markets such as Japan, South Korea and Europe remained sluggish. In Japan, LNG imports declined for the second year in a row to 83.3 MT (-1.7 MT) due to the restart of several nuclear units, to energy conservation efforts and to the uptake in renewable power generation.
Against expectations, Europe did not function as a sink for the production increase in 2016 and European countries only absorbed 9% of the new exports from the Gulf of Mexico.
TOWARDS A MORE FLEXIBLE MARKET
Despite the addition of new supplies, the share of spot and short-term transactions (defined as transactions under contracts of 4 years or less) remained stable, at around 28% of total trade.
As in 2015, international LNG flows remained largely intra-regional due to the large quantities having been contracted long-term with fixed destination and to relatively low price differentials between the different basins, which in turn held back cargo diversions during most of the year.
Intra-Pacific Trade still holds the lion’s share (43%) of global LNG flows. As a result of the long-term contracts in force, the largest flows of 2016 included shipments from Australia to Japan (22.4 MT) and China (12.7 MT), from Malaysia to Japan (15.5 MT), and from Qatar to Japan (12.1 MT), South Korea (11.9 MT) and India (11.4 MT).
In the meantime, other signs indicate an evolution towards a greater flexibility in the trade and a reshaping of commercial patterns. As destination-free volumes increase and new buyers and sellers join the market, new routes are also emerging. In contrast to a limited appetite for spot and short-term volumes in most mature markets, the Middle East expanded its spot and short-term imports to 17.4 MT in 2016 compared with 6.4 MT in 2015.
The share of “pure” spot trades – defined by GIIGNL as trades whereby cargoes are delivered within 3 months from the transaction date – is estimated for 2016 at approximately 18% of total LNG volumes, up from a share of about 15% in 2015.
For more information, the full report “The LNG Industry in 2016” by GIIGNL is available for download at: www.giignl/org/publications
GIIGNL (International Group of LNG Importers) is the worldwide association of LNG importers. Founded in 1971, at the outset of the LNG industry, its membership has grown to 78 companies worldwide, comprising nearly all companies active in LNG imports or in the operation of LNG terminals. The association constitutes a forum for exchange of experience among its members, with a view to enhance safety, reliability and efficiency of LNG imports. GIIGNL members are coming from 25 countries located in the main three regions: Americas, 11 members, Asia, 36, Europe, 31.