Lower than expected but robust supply growth: On the supply side, 2016 was marked by a lower than expected but still robust supply growth (+7.5%). The year did not see any “wave” of LNG breaking over the market, despite a number of favorable developments.
Due to the slow ramp-up of several Australian projects, the combined new nominal liquefaction capacity of 36 MT worldwide starting up in the course of the year, only added 18MT of actual new supply in 2016. Australia alone produced 15.4MT of additional quantities.
As a result, the Pacific Basin reconquered the top position among producing regions with 45% of global supply, followed by the Middle-East (35.5%) and the Atlantic Basin (19.5%).
In the Atlantic Basin, declines in Nigeria and Trinidad were offset by the restart of production in Angola and in Egypt, and by the start-up of Sabine Pass Train 1 and 2 in the United States.
In the Middle East, Qatar remained the largest producing country with 30% of global LNG supply.
China, India and emerging importers driving demand growth: After a moderate growth performance in 2015, Chinese LNG imports experienced a strong rally in 2016, with an impressive 37% growth. Indian imports also jumped (+30%), confirming the country’s rank of 4th largest LNG buyer worldwide.
Emerging importers recorded strong gains in 2016. Growth was led by Egypt, who almost recorded a threefold increase in LNG imports compared to 2015, mainly via spot and short-term imports.
In contrast, demand in mature importing markets such as Japan, South Korea and Europe remained sluggish. In Japan, LNG imports declined for the second year in a row to 83.3 MT (-1.7 MT) due to the restart of several nuclear units, to energy conservation efforts and to the uptake in renewable power generation.
Against expectations, Europe did not function as a sink for the production increase in 2016 and European countries only absorbed 9% of the new exports from the Gulf of Mexico.
Towards a more flexible market: Despite the addition of new supplies, the share of spot and short-term transactions (defined as transactions under contracts of 4 years or less) remained stable, at around 28% of total trade.
As in 2015, international LNG flows remained largely intra-regional due to the large quantities having been contracted long-term with fixed destination and to relatively low price differentials between the different basins, which in turn held back cargo diversions during most of the year.
Intra-Pacific Trade still holds the lion’s share (43%) of global LNG flows. As a result of the long-term contracts in force, the largest flows of 2016 included shipments from Australia to Japan (22.4 MT) and China (12.7MT), from Malaysia to Japan (15.5MT), and from Qatar to Japan (12.1MT), South Korea (11.9) and India (11.4MT).
In the meantime, other signs indicate an evolution towards a greater flexibility in the trade and a reshaping of commercial patterns. As destination-free volumes increase and new buyers and sellers join the market, new routes are also emerging. In contrast to a limited appetite for spot and short-term volumes in most mature markets, the Middle East expanded its spot and short-term imports to 17.4MT in 2016 compared with 6.4MT in 2015.
The share of “pure” spot trades - defined by GIIGNL as trades whereby cargoes are delivered within 3 months from the transaction date - is estimated for 2016 at approximately 18% of total LNG volumes, up from a share of 15% in 2015.
For more information, the full report “The LNG Industry in 2016” by GIIGNL is available for download here.
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Image Source: Courtesy of GIIGNL (International Group of LNG Importers)
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