The global LNG industry in 2015 was characterized by weak demand and the impact of the oil price crash. As a result, many LNG players shifted their focus to developing markets and employing new regasification capacity, according to a review by Wood Mackenzie.

Despite weakened demand, particularly in Asia where there was a 2% year-over-year decline, LNG production around the world remained high throughout the year. It reached 250 million tons, up 4 million tons over 2014. That increase was primarily due to a number of key project start-ups, particularly in the U.S. and Australia, according to Wood Mackenzie.

Three major coal seam gas (CSG)-to-LNG facilities on Australia’s Curtis Island began shipping LNG exports to Asia over the last 12 months, despite Asia’s drop in demand. BG Group’s Queensland-Curtis Island LNG (QCLNG) and Santos’ Gladstone LNG (GLNG) began exports earlier in 2015. The third, the Origin Energy and ConocoPhillips-led Australia-Pacific LNG (APLNG) began shipping at the beginning of 2016.

“The commissioning of these facilities, which have a combined capacity of 26.5 million metric tons per annum (mmtpa), marks the start of the country's ascent to become the world’s largest supplier of LNG by 2019,” said Giles Farrer, research director for global gas and LNG supply at Wood Mackenzie.

In 2016, however, the initial focus will be on the U.S., where the start of exports from Sabine Pass, would signify a key milestone for the Cheniere Energy-led project. However, Wood Mackenzie cautions that with a further 125 mmtpa of LNG under development, real LNG growth won’t happen until after 2016.

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“U.S. LNG projects raced ahead in 2015 with three taking Final Investment Decision (FID) in the first half of the year,” said Alex Munton, principal analyst, Americas LNG and gas research, at Wood Mackenzie. “ There was 18.5 mmtpa of capacity sanctioned, most notably by Cheniere Energy, which took FID on two trains at Corpus Christi and a fifth train at Sabine Pass, although Freeport LNG also took FID on a third train. 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.”

Adjusting Strategies
Those developments, coupled with weak demand will force global LNG players to adjust their strategies and tactics, Wood Mackenzie said. Chong Zhi Xin, principal analyst for Southeastern Asia and Australasia gas and power research at Wood Mackenzie, said that’s already happening as companies focus on emerging markets to cushion the decline in demand.

“Sellers started to look further afield to emerging markets in Middle East and Africa and new opportunities in Asia, while buyers exercised more caution in contracting,” he said.

He added that new buyers played a crucial role in balancing the LNG markets in 2015, offsetting some of the decrease Asian appetite.

“Jordan, Egypt and Pakistan all issued new tenders, which were met with intense interest,” he said. “The emergence of these three new market entrants alone resulted in 5.8 million tons of LNG imports last year, via fast-tracked floating storage and regasification unit (FSRU) developments—a trend we expect to continue in 2016 as access to new customers and regasification capacity remain key.”

2015 in numbers:

  • Global LNG production reached 250 million ton in 2015;
  • China’s LNG demand declined 2% in 2015, following years of double digit growth;
  • Australia's key CSG-to- LNG projects added 18.5 mmtpa of nameplate capacity;
  • New entrants Jordan, Pakistan and Egypt imported 5.8 million tons in 2015;
  • Asia spot prices reached a low of US$6.90/mmbtu;
  • Atlantic-to-Pacific LNG trade flows fell by 16%, from 96 mmtpa to 82 mmtpa;
  • Weak demand translated into lower shipping rates of US$30,000/day—the lowest since 2010;
  • The potential to optimize U.S. LNG flows saw 19 new LNG vessels ordered in 2015;
  • Shell's proposed acquisition of BG would create the largest LNG marketer—supplying 15% of global demand.

Looking Ahead
Wood Mackenzie asserts that the prolonged fall in oil price also impacted company decision making with budgets and capital allocation across the industry under intense scrutiny.

“The biggest corporate news of 2015 was Shell's planned acquisition of BG, announced in April. Already a major LNG player, Shell has tried to capitalize on the downturn with the takeover, a move, which if finalized will create the largest LNG marketer in the world—meeting 15% of global demand,” Munton said. “Within Japan, the TEPCO-Chubu Electric merger was implemented to strengthen corporate balance sheets and this resulted in the formation of JERA, the world’s largest LNG buyer.”

The fall in demand and the rise in supply meant some Atlantic LNG volumes were squeezed out of the market and Atlantic-to-Pacific trade flows fell by 16%—from 96 mmtpa to 82 mmtpa.

“With the lower oil price driving down Asian LNG prices, the spread between European gas prices and Asian LNG prices narrowed,” Farrer said. “Consequently, companies with Atlantic supply were drawn to European markets offering more attractive returns.”

But while everyone will be watching the U.S. in 2016, Chong points out the pace of new project ramp up and the threat of a prolonged outage at Yemen presents downside risk to LNG supply availability.

“Indeed, the reality is that the wave of LNG growth will not hit the market until after 2016,” he said. “Several key dynamics will affect prices and flows and we will be watching these closely over the course of the year: coal-to-gas competition in both Europe and Asia; Chinese energy policy; access to regas capacity in Europe and contract flexibility will all become more important as the year unfolds.”

Len Vermillion can be reached at lvermillion@hartenergy.com.