Lots of LNG
Australia and the US brought significant new supply on line. But who would buy it all?
In 2017, liquefied natural gas producers looked with hope to the future—and some worry at the present. Demand, they believed, would one day catch up. In the meantime, much new seaborne gas floated often aimlessly into the market.
By early 2017, global nameplate liquefaction capacity had reached 340m tonnes a year, more than twice the number from 2005. Another 45m t/y was scheduled to start up by the end of 2017 too (and then another 30m in 2018, and more after that). The long-predicted flood of supply seemed, in 2017, to have arrived.
Malaysia, Indonesia, Russia and Cameroon all chipped in—or would by year-end - but the bulk of the LNG came from two countries. Australia in 2017 entered the final phase of its huge capacity expansion and passed the baton to America, in the first stage of its even grander plans.
The market for all this gas changed, too. Japan, South Korea, China and India remained the world's leading LNG importers. But new, smaller pockets of demand continued to emerge thanks to the deployment, from Jordan and Egypt to Bangladesh and Pakistan, of floating storage and regasification units (FSRUs).
In early 2017, total active import capacity through FSRUs stood at 83m t/y at 21 terminals, according to the International Gas Union. But the trend was just gathering steam in 2017. The UAE, Turkey, Colombia, Ghana, Uruguay, Chile, Puerto Rico, and Russia were among countries that planned to join the FSRU party.
Still, it wasn't enough to soak up all the new capacity. Small markets favour FSRUs because they allow for small imports without the expense of big onshore facilities. So the outlook remained for a somewhat lopsided market. Wood Mackenzie forecast that while global LNG export capacity would rise by more than 160bn cubic metres a year between 2016 and 2020, LNG demand outside Europe would increase by only half that amount. It left a lot of the onus on Europe, which has flexibility when choosing where its gas comes from. The bad news is that LNG landed in the continent would have to compete with pipeline gas from Norway, Russia and Algeria. In practice, much of that 80bn cm/y surplus might not find a home, Wood Mackenzie reckoned.
Against this backdrop, few LNG projects moved forward. Eni's Coral LNG in Mozambique was the sole venture to receive a final investment decision (FID). Fortuna LNG, in Equatorial Guinea, was the next best hope for FID by end-2017. Others were postponed or cancelled, especially in Canada, where Petronas scrapped one project and others ground to a standstill. The world certainly wasn't short of options. In Mozambique alone, the reserves would be enough for 10 full-sized trains—50m t/y or so of capacity. On the other side of Africa, floating LNG projects took some shape too. Aside from Fortuna, developers made plans for plants in Senegal and Cameroon.
And then there was Qatar. Unfazed by the apparent glut of supply—and by the economic blockade imposed on it by its Gulf neighbours—the emirate announced that it would lift the moratorium on drilling in its North Field. Details of the plans were scant in 2017, except that Qatar could increase its LNG capacity from 77m t/y to 100m t/y by 2024.
Although they couldn't keep up with the rush of new capacity, consumers in 2017 did at least start to show signs that Qatar might have a market for that extra LNG. India continued to add receiving capacity—while also using its power to renegotiate a purchase agreement with ExxonMobil. Chinese LNG imports soared after some anomalies in its internal market were fixed. Even demand in Japan and South Korea showed some growth.
Prices helped fertilise these green shoots of consumption. In Japan, LNG sold for an average of $6.42 per million British thermal units for the first 10 months of 2017—about a third of the price four years earlier. Elsewhere it was slightly cheaper in 2017. Exporters started to learn that a period of cheap LNG might just be the thing to fix their oversupply problem.
This article is part of Outlook 2018, our annual book looking at energy market trends for the year ahead. To purchase a copy, click here