After a period of breakneck growth, LNG demand creation using floating storage and regasification units (FSRUs) has suffered some setbacks, and LNG imports via FSRU terminals decreased in 2018 for the first time in many years.
The democratisation of LNG trade and new demand from emerging LNG-importing countries was a major theme in the previous years, as was captured in a Center on Global Energy Policy study titled “They Might Be Giants” in November 2017. Floating storage and regasification units played a very significant role in opening new markets for LNG in the 2015–2017 period in particular.
Three new countries—Panama, Bangladesh, and Russia—joined the LNG-importing club in the past 12 months, the latter two using FSRU technology, and Turkey added a second FSRU to its growing LNG import infrastructure earlier in 2018. There is considerable interest in LNG imports, with multiple credible (and less credible) projects proposed in a host of new countries, including in Germany, Croatia, Cyprus, Lebanon, Australia, and Ireland, to name just a few. But this was not enough to sustain the rapid expansion of FSRU-based LNG demand growth last year, and the total volume of LNG imports via FSRU terminals actually declined in 2018.
There are many reasons for the reversal of fortunes for FSRU projects, especially in poor developing countries.
Higher oil and gas prices over the past two years did not help. The ramp-up of FSRU-based imports turned out to be slower than expected (and several proposed projects have recently been cancelled) even in the most promising emerging markets like Pakistan and Bangladesh, where pent-up demand is huge and downstream markets and infrastructure already exist. Developing FSRU projects in other emerging economies across Southeast Asia is even more challenging, and sub-Saharan Africa—despite the obvious appeal of cheap and flexible FSRU technology to bring energy access to millions in the region—seems impenetrable for LNG at the moment. Some prominent FSRU markets have also retreated from LNG imports recently. Egypt, thanks to its domestic production renaissance, has now completely withdrawn from importing LNG, while the UAE and Argentina each released one of their two FSRU vessels last year due to reduced demand for imports.
Abundant supply and lower prices in the 2019–2020 period as well as the rapidly growing footprint of trading houses in global LNG trade could rekindle some appetite for FSRUs in emerging markets. But absent more credit support from development banks and more successful demand creation in downstream markets (e.g., via LNG-to-power projects), the second wave of FSRU-based infrastructure development may turn out to be more heavily focused on developed markets (like Australia and Germany) and large existing LNG importers (like India and China) instead of opening up new frontiers for LNG in emerging economies.
This article is an excerpt from A Changing Global Gas Order 3.0, a recent publication. The paper discusses the latest trends and developments in the global natural gas market and is available on the Center on Global Energy Policy website.
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