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Q&A on global liquefied natural gas markets

IEA Senior Gas Analyst Anne-Sophie Corbeau looks at the role LNG will play over the next few years.

6 September 2011

How did LNG markets evolve over the last few years?
The last two years witnessed a dramatic expansion in global liquefaction capacity, which increased by over 100 billion cubic metres (bcm) (+39%). In 2010 alone, LNG trade jumped by an astounding 21%, to around 300 bcm, which amounts to 9% of the total global demand for gas.

Currently, who are the largest producers of LNG? 
The largest producer of LNG, by far, is Qatar, whose liquefaction capacity is roughly one quarter of global LNG liquefaction capacity as of mid-2011. Qatar saw a massive expansion of its capacity from 42 bcm to 105 bcm over the past two years. Indonesia, Malaysia, Australia and Algeria are also significant LNG exporters. Other countries have also recently entered the LNG exporting scene: Russia and Yemen in 2009, and Peru in 2010. Angola is expected to start exporting in 2012, and Papua New Guinea in 2014. Australia is set to become the second largest LNG exporter behind Qatar by 2016 – six projects are currently committed or under construction, representing 60 bcm of new capacity.

Will the growth of LNG trade continue at the same pace?
Although LNG trade is still expected to increase by one third over the coming five years, such astonishing growth seen in the last year will not be repeated any time soon. The reason is that global liquefaction LNG capacity is set to grow at a much slower pace after 2011; as of today, only 91 bcm is committed to come online between 2012 and 2017. This rise over five years is less than the increase which occurred over the past two years, albeit similar to the capacity expansion that took place over 2004-08. In particular, less than 30 bcm of LNG capacity is set to come over 2011-14, while several trains are to be decommissioned over that timeframe – in the United States, in Indonesia and potentially in Algeria. The IEA expects new Final Investment Decisions to be taken over the coming year but it is doubtful that much LNG capacity could be built in less than five years. Moreover, new LNG capacity is geographically concentrated, with 80% of the 91 bcm located in Asia-Oceania and earmarked for Asian markets. There is a risk that this concentration may lead to delays due to potential bottlenecks in infrastructure and workforce shortages.

Is there a surplus of gas on the markets?
There was, but it is eroding fast. The past two years witnessed a complete turnaround in the global gas balance and market perspectives. 2009 was more of a buyers’ market as excess supply led to competition between pipeline and LNG suppliers to get what was left of rapidly dropping import requirements. LNG suppliers won the battle by undercutting pipeline suppliers with lower spot prices. However, global markets tightened in 2010 as global gas demand recovered by 7.4%. The appetite for LNG (and spot prices) grew correspondingly in all regions, except in the United States, where unconventional gas supplies minimise LNG import needs. Since the end of 2009, investors decided to proceed with seven new LNG export plants to start around 2015. In 2011, gas markets are further tightening with LNG demand increasing strongly, notably in Asia.

What are the IEA’s expectations regarding global gas demand for the coming years?
Global consumption of gas is projected to increase by some 510 bcm (roughly equivalent to 75% of US consumption in 2010) over 2010-16, according to the IEA’s medium-term forecasts issued in the Medium-Term Oil and Gas Markets 2011 report. (These forecasts are based on economic growth of 4.5% on average).

So, how will this new global demand for gas be met?
Around 60% will be met by regional domestic production increases, notably in Middle Eastern countries, while the rest will be covered by imports. Many producers, mainly in Asia and the Middle East, will struggle to meet their increasing domestic demand for gas as they try to meet existing LNG export commitments. As the unconventional gas revolution is very slow to spread outside North America, its impact in other regions will still be limited over the coming five years. LNG imports will meet around one fifth of the total incremental demand. Global LNG markets are expected to further tighten over the coming two-three years due to strong LNG demand, notably in Asia, and modest supply coming online.

Where are most of the LNG exports projected to end up?
Over the next five years, the bulk of the LNG supplies are projected to go to non-OECD markets. Besides China, India and Taiwan, booming LNG demand is expected to come from South East Asia: Thailand just started importing LNG in June, and will be followed in the next three years by Indonesia, Vietnam, Malaysia and Singapore. LNG imports are also set to increase, albeit to a lesser extent, in the Middle East and Latin America. Hence, LNG buyers are already trying to secure LNG supplies as illustrated by the range of binding sales agreements and Heads of Agreements seen for example between Qatar and LNG buyers worldwide. LNG from the new projects recently agreed upon is already almost entirely contracted to Asian countries.

Will the Fukushima disaster in Japan affect supply of and demand for LNG?
In its August 2011 Oil Market Report, the IEA analysed two scenarios for nuclear generation over 2011-12. In the base case scenario, nuclear plants come back from maintenance works after an average of six months. In the worst case scenario, all 54 reactors in Japan will be offline by May 2012.

With the base case scenario, LNG demand in Japan increases by 18 bcm compared to 2010 levels. With the worst case scenario, additional LNG demand in Japan would rise to 30 bcm. (This is only just below the global additional amount of LNG that is expected to come online between 2010 and 2012).

Photo: © GraphicObsession.

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