LNG macro analysis, page-34

New LNG investment needed soon as supply gap looms
Time is running out for companies to sanction new LNG export capacity if buyers and sellers want to avoid shortages next decade
By Colin Shek and Tang Tian16 April 2018
2
Sinopec’s LNG terminal in Qingdao. (Sinopec)
The stalemate between buyers and sellers of LNG that has held back investment in global liquefaction capacity must end soon, Sanford C. Bernstein has warned. The industry must build as much as 200 mtpa of new capacity by 2025 to plug a looming supply gap, the research and brokerage firm said in a new report.

“There continues to be a dearth of new projects approved as the stand-off between buyers and sellers continues,” Bernstein analysts, including Neil Beveridge, wrote in a report on Monday. Last year saw the least LNG export capacity sanctioned in almost a decade – just 5 mtpa compared with around 33 mtpa in 2014.

“Buyers will have to come off the fence sooner rather than later if they are to ensure supply security,” Bernstein analysts said. “We expect a new capex cycle to start in 2018 or 2019 at the latest, as new projects are required to meet market demand,” they added.

Projects will face intense competition to get off the mark – with proposals in the United States, Qatar and Papua New Guinea being the frontrunners. Mozambique and Canada should also provide fresh supply, with at least one project in each country expected to reach FID.

Bernstein is the latest voice in recent weeks to claim the time for investment decisions on the next group of export facilities is fast approaching. “When we look at LNG in particular, we see a lot of big projects on the horizon,” Wood Mackenzie said earlier this month. “It will be interesting to see if any of these projects push for a late-2018 sanction, thereby locking-in lower costs and pipping the competition.”

Global LNG demand last year grew at its fastest rate since 2010 – increasing by 12%, to 290 mt, according to Bernstein. The researchers forecast demand would expand by 9-10% in 2018, to 318 mt.

The LNG sector in 2017 was defined by robust demand from emerging markets and Asia – especially China. The country’s imports jumped by 46.4% compared with 2016, to 38.13 mt, as importers pulled in cargoes from suppliers as diverse as Nigeria, Peru and Oman to cover a surge in demand under Beijing’s push to replace coal with gas in households and factories.

China’s booming LNG demand soaked up some of the surplus supply that had been expected to glut the market last year, SCI International analyst Liu Guangbin told Interfax Natural Gas Daily. However, China’s import growth will slow as a result of more restrained coal-to-gas switching following severe gas shortages over the past winter, Liu added.

Liu predicted China would bring in 45 mt in 2018, up by 18% from 2017. Bernstein, meanwhile, forecast Chinese imports would reach 46 mt in 2019 and 115 mt in 2030.

China National Petroleum Corp.’s supply agreement with US-based Cheniere Energy in February was the first by a Chinese NOC for nearly four years – signalling the country’s willingness to sign up for new offtake. More long-term deals will be signed by Chinese state-owned companies and private players in the next two years, according to Lin Boqiang, director of the China Centre for Energy Economics Research.

The US, Canada and Russia are leading the chase to join stalwarts Qatar, Australia and Malaysia as major suppliers to China in the future, Lin told Interfax Natural Gas Daily.

Emerging markets
Other emerging markets such as Turkey, India, Pakistan and Thailand also played a role in driving global growth last year as LNG became more widely adopted as a source of clean energy.

New projects coming online over the next few years will result in as much as 30 mtpa of excess production capacity in 2020, but the market will remain tight during the winter, when demand increases, according to Bernstein.

The firm expects global LNG demand to jump to 360 mtpa by the end of this decade and to 452 mt by 2025. In the longer term, demand could reach 579 mt by 2030 on better-than-expected European appetite, leaving a supply deficit of 200 mtpa.


***************

Chinese demand expected to triple within a decade. Analysts predict increased LNG investment throughout 2018/2019.

Buyers will soon become worried about future supply shortages, BTAs will be signed.

It's only a matter of time for LNG!