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IGU: 2015 Global LNG Demand Highest Ever But Prices Down Everywhere

Global trade in liquefied natural gas (LNG) last year reached 244.8 million tonnes (mt), an increase of 4.7 mt from 2014 and eclipsing the previous record of 241.5 mt set in 2011. However, all LNG price markers fell, from an average of $15.60/MMBtu in 2014 to $9.77MMBtu in 2015. And in the low-price environment, the bloom is off the Henry Hub rose.

Those are the headline numbers from the International Gas Union's (IGU) 2016 World LNG Report, which was released Tuesday at the LNG 18 conference in Perth, Australia.

The Pacific Basin was the largest source of demand, again; however, growth was driven by Europe and the Middle East. New regasification markets formed in Egypt, Jordan, Pakistan and Poland, just in time to benefit from near-record low prices. However, that demand was not enough to offset weakness in the Pacific Basin and the effect of depressed oil prices.

In 2015 global liquefaction capacity reached 301.5 mt per annum (mtpa). A further 142 mtpa of liquefaction capacity was under construction worldwide as of January.

In 2015, the startup of new projects in Australia and Indonesia contributed to the growth in non-long-term trade (all of these volumes traded under contracts of less than five years), as the delivery of commissioning cargoes plus the prevalence of more flexible contracts allowed short- and medium-term trade to grow in both countries by more than 3 mt year over year. In total, all non long-term LNG trade reached 71.9 mt in 2015, accounting for 29% of total gross LNG trade.

"Natural gas accounts for roughly a quarter of global energy demand, of which 9.8% is supplied as LNG. The 2016 IGU World LNG Report shows that a major expansion of LNG supply through 2020 positions LNG to further increase its market share," said IGU President David Carroll. "The LNG industry has developed to a point where the necessary foundations have been built to turn natural gas into a truly global commodity, enhancing both energy security and meeting growing demand."

Mexico, the largest importer of LNG in North America since 2012, had the third-largest decline in imports last year (after Japan and South Korea). The completion of a new pipeline from the United States allowed for the import of more pipeline gas into Mexico. This accounted for the displacement of 1.7 mt of LNG imports, IGU said. "Additional new midstream projects are set to allow for a further increase in low-cost pipeline supply from the U.S., pushing out more LNG in years ahead."

IGU said global nominal liquefaction capacity increased by about 10.5 mtpa last year.

"As of January 2016, 141.5 mtpa of projects were under construction, primarily in the United States and Australia. Though Qatar remained the largest liquefaction capacity holder as of January 2016, Australia is expected to become the largest source of capacity by 2018," IGU said.

The majority of new LNG proposals stem from North America, where 670 mtpa of capacity has been announced in the United States and Canada, excluding 62 mtpa of projects already under construction in the United States.

"Many proposals in North America as well as globally, particularly high-cost greenfield developments, will face significant challenges in reaching FID [final investment decision] in the medium-term due to impending market oversupply and the slower pace of contracting activity," the report said. "As a result, the actual capacity buildout will likely be significantly lower than announced, though some lower-cost projects, such as brownfield expansions or small-scale floating liquefaction projects, may be able to secure buyers and move forward in 2016. Nevertheless, the LNG business is long term in nature and there will be demand growth in the future due to market rebalancing."

There are five liquefaction projects, representing 62 mtpa, under construction on the U.S. Gulf of Mexico and on the East Coast, the IGU report said. "...[T]he United States will be the predominant source of new liquefaction capacity over the next five years. Through 2016, the U.S. only exported small volumes from the Kenai LNG project in Alaska." However, in February the first train of the Sabine Pass terminal produced its first commissioning cargo, IGU said.

"Three of the under-construction [U.S.] projects, both expansions and newbuilds, were sanctioned in 2015, and all are expected online by 2019. Apart from Corpus Christi LNG, the under-construction projects are brownfield developments associated with existing regasification terminals."

During recent years, the United States, thanks to cheap gas priced at Henry Hub, has been the most attractive supply source for LNG, IGU said. However, this advantage has faded.

"...U.S. LNG is not as cheap as most oil-indexed supply." IGU said. "Thus U.S. FIDs are unlikely to occur at the same pace as in 2015. Three U.S. projects -- Freeport LNG train 3, Sabine Pass LNG train 5, and Corpus Christi LNG trains 1 and 2 -- reached FID earlier in 2015, but these were well advanced, with marketing arrangements locked in before the fall in oil prices began in November 2014. While there are several projects that are relatively advanced in the regulatory queue, offtake obligations have yet to be finalized."

The report is available at www.igu.org.

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