- DAILY GPI
- MEXICO GPI
- SHALE DAILY
U.S. liquefied natural gas (LNG) export terminals "raced ahead" last year as a final investment decision (FID) was made on three projects during the first half, representing 18.5 million tonnes per annum (mtpa) of capacity, according to Wood Mackenzie Ltd.’s principal analyst Alex Munton. But LNG demand in Asia has waned, analysts said, creating uncertainty ahead.
FID was taken last year on two trains at Cheniere Energy Inc.'s Corpus Christi, TX, terminal and on a fifth train at the company's Sabine Pass terminal in Louisiana. Freeport LNG took FID on a third train at its Texas terminal.
"These projects were all able to take sanction as a result of agreements signed in previous years before the fall in prices; however, project sanctions slowed significantly in the second half of the year as the collapse in prices took effect," Munton said in a new report from the consultancy.
Last year's global LNG market saw weak demand in Asia, the region on which so many global liquefaction and export projects -- particularly those in North America -- have pinned their hopes. Asian LNG demand declined 2% last year, the firm said. As a result, many LNG players shifted their focus to developing markets and employing new regasification capacity.
Despite weakened demand and the impact of the oil price crash, LNG production remained high throughout the year, reaching 250 million tonnes (mt) in 2015 -- up 4 mt compared with 2014 -- primarily due to a number of key project start-ups.
"The increase is primarily due to the start up of key coal seam gas projects in Australia: BG Group's QC LNG in January and Santos' GLNG in August 2015," said Wood Mackenzie’s Giles Farrer, director for global gas and LNG supply. "A third project, ConocoPhillips' APLNG plant, shipped its first cargo at the start of January 2016 [see Daily GPI,Jan. 12]. The commissioning of these facilities, which have a combined capacity of 26.5 mtpa, marks the start of the country's ascent to become the world's largest supplier of LNG by 2019.
"The fall in Asian demand and the rise in Australian supply meant some Atlantic LNG volumes were squeezed out of the market and Atlantic-to-Pacific trade flows fell by 16% -- from 96 mtpa to 82 mtpa. With the lower oil price driving down Asian LNG prices, the spread between European gas prices and Asian LNG prices narrowed. Consequently companies with Atlantic supply were drawn to European markets offering more attractive returns."
In a separate note Monday, Barclays Commodities Research analyst Nicholas Potter turned his attention to gas demand in China and its role in setting global gas prices.
"With global LNG volumes expected to grow 50% over the next five years, China's natural gas demand trajectory will have an impact on gas prices throughout the world," Potter wrote. "Of those incremental LNG volumes, China has signed contracts for about 30% of it, so the fact that Chinese natural gas demand growth showed signs of contraction in 2015 could not have come at a worse time, in our view."
With Sabine Pass coming online and the entry of liquefied U.S. gas into the global market (see Daily GPI, Dec. 23, 2015), "...the world should prepare for what promises to be a much more interconnected global gas market and both the positive and negative aspects that it will entail."
Higher demand in China will support spot LNG prices as well as those liquefaction projects that are struggling to gain sanction amid the current LNG glut, Potter wrote. "However, lower Chinese demand will mean excess LNG supplies, low spot prices, and a dearth of new final investment decisions."