Part 2: Global LNG markets – What will happen in 2016?

Guy Broggi's picture
Guy Broggi, Senior LNG Advisor, Total SA
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The views expressed are the author’s own, and do not reflect any position on behalf of his company. This is part two of a two-part article, read the first half.

The list of new LNG terminals will increase in 2016 but the real test remains the appetite of end-users for LNG at a time when “oil distillates” still represent a threat as far as price is concerned (India typically). 2016 will be a difficult year for a substantial penetration of LNG into traditional markets where both coal and crude oil products are difficult to beat on price.

LNG penetration to the transportation sector should take-off seriously in 2016 after an increasing number of stakeholders have embarked on the “small scale” business around GATE, Zeebrugge, and other LNG terminals in Western Europe and the Baltic states.

New types of buyers? Smaller players will take advantage of market liberalization in Japan and China. The press is full of deals recently signed by smaller players in Japan (Shizuoka Gas) and China (Beijing Gas) but I am afraid that these deals are “cannibalizing” former importing contracts by traditional big buyers and do not represent additional demand.

As for future LNG liquefaction projects’ FID’s in 2016… Another topic that keeps LNG analysts awake and busy: the aftermath of the “LNG bubble” around 2020. Would there be a global shortage of LNG? Or would the current stream of “flexible” LNG persists after 2020?

Although LNG demand is a rather unpredictable object - left to government agencies or big energy analysts firms - LNG supply after 2020 will depend upon a combination of declining sourcing at certain existing plants and the completion of new ones from FID’s which have been expected all along 2015 and have yet to materialize.

2016 will witness several FID’s for new liquefaction plants in the US (from current 10 projects), in Canada (West and East), Africa (West and East), Russia and Austral Asia including Indonesia. Several candidates have already secured their final set of buyers and are struggling with other hurdles like environment or fiscal issues as well as economics which must get a balance between anticipated (decreasing) costs and estimated future revenues.

What is absolutely certain, however, is that there is a time pressure on fossil fuel reserves owners to monetize their “riches” before alternative energies make them “irrelevant”. On a positive note for natural gas, however, LNG may dent crude oil predominance in transportation, making new LNG plant FID’s easier to take.

This is part two of a two-part article, read the first half.

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