Recent Sanctioned Projects Set To Meet Growing Demand For LNG
Giving the rising demand for LNG and the lack of recent investment in new production facilities several sector analysts have been predicting a supply shortage in the next decade.
According to the latest annual gas market report, Gas 2018, from the International Energy Agency (IES) global gas demand will grow at an average rate of 1.6% a year, reaching just over 4,100 billion cubic meters (bcm) in 2023, up from 3,740 bcm in 2017.
The current wave of LNG export projects will increase liquefaction capacity by 30% by 2023. This will be led by an increase in output from the United States, which accounts for nearly three-quarters of the growth in total global LNG exports in the period, followed by Australia and Russia.
Mind the gap
That is the good news, but the concern is that an absence of new LNG projects after 2020 could lead to a tightening of LNG markets. Given the long-lead time of such projects, investment decisions will need to be taken in the next few years to ensure adequate LNG supply beyond 2023.
“Investment in LNG supply has historically been cyclical, with project sponsors competing for anticipated demand from buyers four or five years into the future,” Ben Wetherall, head of gas & LNG at ICIS, the global data and information provider for the energy and petrochemical markets, explains. “This has generally resulted in periods of supply waves followed by periods where demand outpaces new liquefaction capacity.”
He adds that the current wave of LNG supply has largely been founded on Australian and US projects being sanctioned in sufficient numbers between 2009 and 2015. “Final investment decisions (FIDs) on new liquefaction projects have been limited in recent years, with less than 10 million tonnes per annum (mtpa) of new capacity sanctioned in 2016 and 2017,” he continues.
Long project pipeline
New supply projects take around four years to develop, increasing the risk of potential supply constraints and a tightening in the LNG market in the early-to-mid 2020s. However, these risks have partly been alleviated in recent months, initially with the sanctioning of the Shell-led LNG Canada project in October 2018, followed last month by ExxonMobil and Qatar Petroleum take FID at the Golden Pass project in the US.
“This brings the total amount of new liquefaction capacity that has been sanctioned over the past 12 months to 37mtpa with a host of other supply options jostling for position,” Wetherall says. “The most cost-competitive of the projects yet to be sanctioned are a wave of new Qatari liquefaction trains. Qatari suspended its moratorium on the development of the North Field in 2017 and since then have announced the intention to develop four new LNG trains, bringing total Qatar liquefaction capacity to 110mtpa.”
The additional Qatar volume along with supply from the projects that have already reached FID over the past 12 months, could add nearly 70mtpa of new capacity by the mid-2020. Also, there is approximately 80-100mtpa of credible liquefaction capacity in East Africa, North America, Australasia, Russia and West Africa that could be sanctioned in the next couple of years.
“There is no question that impetus is building for a new wave of liquefaction capacity to meet the Asian-led demand growth in the early-to-mid 2020s, but if project FID timetables stall this year on the back of falling commodity prices and global economic headwinds then there is greater risk of supply constraints in the 2022-25 window,” Wetherall says.
Future growth for LNG
Global LNG production will hit almost 390m tonnes in 2020, according to the ICIS Edge supply forecast. This will mark the end of the current phase of new export project start-ups. Production will be more evenly split globally, with Australia, Qatar in the Middle East and the US as the three largest single suppliers.
The next wave of new production will come from 2023 and will see further increases in North American production, mainly based on shale gas supply. However, Qatar, Russia, Africa, and Asia will also develop new export projects amid substantial investment from global oil and gas majors looking to expand their gas and LNG portfolios.
A buyer’s market
Wetherall explains that on the buy side, China will remain the key growth market globally with new LNG import terminals allowing a rise in imports alongside the start of Russian pipeline gas. He also believes that long-term demand in Japan, the world’s largest buyer, will decline, as the country moves away from fossil fuel power generation although the speed of change will also depend on the viability of nuclear power generation.
“The market needs fresh sources of LNG demand, and these may come from south and southeast Asia and – potentially – the transport sector,” he concludes. “Other new buyers such as those in the Americas may only require limited LNG volumes to counterbalance unpredictable renewable power generation. LNG supply into Europe will increase as domestic gas production falls.
“Major portfolio sellers such as Shell, Total, ExxonMobil, Qatar Petroleum and BP will likely drive the next LNG supply wave, utilizing balance sheet financing and their strong marketing and trading functions to develop new projects. Nevertheless, long-term contracts, while under some pressure, will continue to underpin new investment. Spot trade will rise sharply but will retain only a minority share in the overall share of LNG sales.”