Supply vs Demand conversation

Sorry folks, text came through skewed in last post. Hopefully corrected

When working out the Supply vs Demand equation, one of the key factors you have to take into account is the utilisation rates of the terminals. This is important in determining the overall, future outlook on the demand side, giving a clearer picture of our position and our rivals position as aspiring LNG projects looking to succeed. In a previous report posted 26/6/17 I had not taken this into consideration. Going to give 3 examples of what i'm talking about, including the utilisation rates of major importing players over the past 3 years.

Japan in 2016 imported 88mt but had a regasification capacity of 194mt so their utilisation rate was 47%.

Europe has 23 large scale LNG terminals and in 2016 had a regasification capacity of 148.74mt... with 136mt coming from 7 major EU members + Turkey. Average utilisation rates in European terminals has fallen dramatically since 2010, having decreased from 53% back then to 22.85mt now from those EU countries (26.75mt including Turkey). The primary reasons for low utilisation rates are stagnant demand for natural gas in Europe due to subsidized renewables and the continued supply of cheap coal and higher demand and prices in Asia/South America that have driven LNG elsewhere. What could go wrong for LNG in Asia to derail the current consensus of strongly rising demand being met by supply that is increasing even faster? One of the assumptions that often remains unspoken when analysing the energy markets is the status of infrastructure needed to ensure products can actually get from one place to another and then be processed at their destination. Japan, Europe can be constrained on how much LNG it can receive based on limited berthing, ship size, lack of pipeline network and other infrastructure limitations.

China -  The country right now has a regasification capacity of 51.2mt (of which 43.55mt is contracted)... currently there are 7 new terminals + 3 expansions under construction that are due to be completed by 2020 (26.6mt worth). Once completed their total import capacity will be just under 80mtpa. Now assume China can utilise 60% of that regas capacity, it means imports could reach 48mt by then.

First column is regasifcation storage capacity, second is terminal utilisation rate.

*2016* *2015* *2014*

Japan    197 - 43% 195 - 44%    184 - 48%
SouthKorea 101 - 35%    98 - 34%    92 - 44%
Spain 49 - 21% 51 - 18% 42 - 22%
China 49 - 56%    40 - 50% 38 - 51%
UK 35 - 21% 38 - 26%    38 - 18%
India 27 - 75% 22 - 67% 14 - 95%
France   25 - 36% 16 - 29% 17 - 33%
Mexico 17 - 25% 17 - 31% 17 - 36%
Turkey   16 - 54% 10 - 54% 9 - 48%
Taiwan   13 - 118%   13 - 113%    13 - 99%
Italy    11 - 40% 11 - 38% 8 - 51%
Egypt 10 - 75%    10 - 31%   n/a   
Brazil 12 - 11% 12 - 45% 6 - 79%
UAE    10 - 37% 6 - 34%   n/a
Netherlands    9 - 4% 9 - 7%   9 - 4%   
Indonesia    9 - 36% 9 - 28%   n/a
Argentina    8 - 47% 8 - 55%   8 - 65%
Canada 8 - 3% 8 - 6%   8 - 10%
Belgium    7 - 15% 7 - 29%   7 - 17%
Singapore    6 - 36% 6 - 35%   n/a
Portugal   6 - 23% 6 - 20% 6 - 23%
Kuwait 6 - 66% 6 - 50%   n/a
Chile 6 - 59% 5 - 55%   4 - 69%
Thailand 5 - 50% 5 - 52%   5 - 28%

These figures are from the International Gas Union Reports which are produced at the start of every year. In knowing the figures above, we can calculate accurately the amount of supply each importing country is looking for when they look to build new terminals or make expansions. However, with new emerging markets you can't predict what their utilisation rates will be. Before giving the numbers for supply off-takers will be looking for, i'll give an updated list of Proposed FSRU or land based projects that are likely to succeed - In June I listed the following: * Uruguay 4mt * India 5mt (Gail's Kakinada terminal), VGS 4mt * Sri Lanka 2MT * Chile 4mt (Penco Lirquen, under construction) * Colombia 2.9mt (country's 2nd terminal near port city of Buenaventura) * Vietnam 5mt (Thi Vai 1.4mt + Son My 3.6mt) * UAE 4mt (Sharjah, under construction) * Thailand 7.5mt (country's 2nd terminal) * Philippines 4mt (Batangas) * Hong Kong 3mt

Updated...

India 5mt (Dhamra Paradip Terminal in Odisha) - To be commissioned by 20/21, joint venture between IOC, Gail, Adani. On 8/7/17' Union Petroleum & Natural Gas Minister, Pradhan Dharmendra, inaugurates the terminal in ground breaking ceremony at Dhamra (unveiling the plaque). "In Eastern India, Dhamra will have the destination of hosting the first LNG terminal, which will import gas from countries like US and Qatar".

India 5mt (Mundra Terminal) - GSPC is building a terminal in NE Gujarat. Will handle an initial 5mt capacity although this could double if demand requires it. Will be 3rd facility in Gujarat, construction nearly complete.

India 7.5mt (Karwar) - Fox Petroleum has proposed an FSRU and LNG terminal in Karwar, Karnataka on the west coast. Hyundai Heavy Industries has won a $563 million contract to build Asia's largest FSRU. Fox has signed an MOU with the Government of Karnataka State but still awaits full regulatory approval from Government of India. Expected to be commissioned in 2018.

India 5mt (Gujarat) - Swan Energy terminal in Jafrabad Port is under construction, to be completed in 2020. Contracts already in place with Oil & NG Corp for 1MT, IOC 1MT, Bharat Petroleum Corp 1MT, GSPC 1.5MT.

India 4mt (Maharashtra) - H Energy (Hiranandani Group) terminal in Jaigarh Port is under construction, to be completed in 2018. Supply yet to be allocated.

India 5mt (Ennore) - IOC terminal in Kamarajar Port is under construction, to be completed in 2018. Supply yet to be allocated.

Pakistan 4.4mt (Port Qasim) - US based Excelerate Energy has announced the development of a new FSRU with a consortium comprising of Shell, terminal operator Engro and fertiliser company Fatima. Expected to be come online in 2018. Engro's subsidiary Elengy was responsible for developing Pakistan's first FSRU.

Pakistan 5.5mt (Karachi) - Turkish company GEIL is constructing the country's 3rd terminal in Port Qasim's LNG zone in Karachi. Hoegh signed a contract in Dec 16 for chartering an FSRU. Qatar Petroleum, Total, Mitsubishi and Exxon Mobile are all partners in the project.

Pakistan 4.5mt (Gwadar/Nawabshah) - In Sept 16', Pakistan's Executive Committee of the National Economic Council (ECNEC) approved the strategically important Gwadar-Nawabshah terminal and pipeline project at a cost of $2 Billion. China Pipeline Petroleum Bureau was assigned to build the pipeline that will link the country's gas network with the Iranian system. The terminal has been temporarily shelved but Pakistan has given assurance that it will start work on the 700KM Gwadar pipeline with the remaining portion of 80KMs to be connected with the Iranian border once US sanctions are lifted against Tehran.

Bangladesh - Looking towards the international market to ease its energy shortage largely caused by depleting domestic reserves and rising demand. As of Jan 1 2017, gas supply stands at about 2,700 mmcfd against demand for 3,300 mmcfd. The government aims to set up 4 land based terminals and 2 FSRUs as an additional 3,500 mmcfd of gas will be required in the coming years, especially for power generation and industrial purposes.   The country's first terminal, a 3.75mt FSRU is being developed by US based Excelerate Energy, expected to be commissioned in April 18' ; its second with a capacity of 3.75mt is being developed by Summit Group, expected to be commissioned by end 2018... both FSRUs will be located on Moheshkhali Island.

Bangladesh 7.5mt (Kutubdia Island) - In Dec 2016, Petrobangla signed a MOU with India's largest LNG importer Petronet to build a $950 Million land based terminal on Kutubdia Island in the Bay of Bengal. Expected to be commissioned in 2021.

Bangladesh 3.5mt (Matarbari) - In May 2017, Bangladesh based Power Cell announced a shortlist of four firms to build a land based terminal at Matabari on Moheshkhali Island. It has chosen Mitsui & Co of Japan, Petronet of India, Shell owned EP International and Chinese consortium comprising China Huanqui Contracting & Engineering + Yifeng Industrial Gas Co.   In July 2017, Bangladesh received bids to build another 7.5MT onshore terminal on a build-own-operate-transfer (BOOT) basis from Jera, Osaka, Mitsui, Itochu, Kyushsu & Marubeni, SK E & S, Kogas, Posco.

Turkey 10.8mt - On Nov 15 2016, Turkish pipeline operator BOTAS announced plans to install 2 FSRUs, operational by 2019, to increase the country's import capacity. BOTAS has prioritised improved security of supply and to diversify its sources of natural gas. Each of these will have a capacity of 5.4MT, one being located in the Gulf of Saros near the Gallipoli Peninsula and the other near the Gulf of Iskendurum in the Eastern Mediterranean Sea.

Malta 2.9mt - On Oct 2016, the FSU Armada Mediterrana arrived in Malta where it will be deployed at the Delimara terminal and power station. In January it received its first cargo as part of the commissioning process.

Croatia 1.5mt (KRK) - Terminal on the Island of KRK has been awarded $108.6 Million under the European Union's Connecting Europe Facility (CEF). The company developing the terminal, Hrvatska, will use an FSRU and expects to have the project completed by 2019.

Finland 1.5mt (Tornio Manga) - Under construction at Roytta Port, Tornio. Scheduled completion April 2018.

South Korea 3mt (Boryeong) - Under construction. Completion expected 2017.

South Korea 7.3mt (Samcheok) - Under construction. Completion expected 2019.

Italy - Italy's new National Energy Strategy (NES) will lay out plans to develope additional LNG terminals and increase the country's storage capacity. During the document's first hearing in Italian Parliament in early March, Carlo Calenda, Italy's Minister for economic development, suggested a new gas infrastructure was needed to increase the liquidity of the Italian market and diversify the country's sources of supply. Calenda is expected to define one of the country's many proposed terminals as "strategic infrastructure" - a label companies crave, as it effectively allows them to charge the cost of the development to consumer. 3 terminals have received full authorisation:

Italy 5.9mt (Enel's Porto Empedocle Terminal in Sicily) - Is most likely to succeed and be defined as "strategic", as Enel is a gas supplier already operating on the national and international market. If the reduction in imports from Algeria proves to be permanent, Porto Empedocle can be used to fill the pipeline between Enna and continental Italy. The terminal's location, which would be close to Algeria but equidistant from Suez and Gibraltar, was also a bonus.

Italy 8.8mt (MedGas Gioia Tauro Terminal in Calabria) - Italy is positioning the Port of Gioia Tauro, a leading regional hub for container transhipment, as an LNG fuel-supply hub. Will be the largest in the Mediterranean. Medgas is confident its proposed project will be in pole position (in government's selection), since it ranked first among Italian terminal projects included in the EUs list of Projects of Common Interest 2015. It gained full regulatory approval in early 2017.

Italy 2.9mt (Api Nova Energia Falconara Marittima Terminal)

Greece 4.5mt (Alexandroupolis) - The terminal will seek to supply gas to south-eastern Europe via the interconnector Greece-Bulgaria (IGB). Bulgaria and Greece signed the final investment agreement for the pipeline in late 2015. The IGB link is expected to enter into commercial operation in middle of 2018. In addition, Bulgaria can make possible the transmission of gas from Alexandroupolis to the markets of Serbia, Macedonia, Romania and Ukraine through IGB. The project is included in the priority projects of the European Commission's list for the connectivity of gas infrastructure networks in central and eastern Europe. Scotland's Wood Group has been awarded a front end engineering & design contract covering an FSRU. FID expected 2017, to be operational by 2019.

Myanmar 4mt

Albania 3-5.9mt - Eagle LNG project near Levan where an FSRU will be stationed. Chairman of the Albanian Energy Association in Tirana, Erlet Shaqe, "Albanian Government established Albgaz in Dec 16, which is 100% funded through state capital. One key element of the master gas plan is the connection of Albania to other countries in the region, such as Montenegro through the IAP project (Ionian Adriatic Pipeline), Kosovo through the Alkogap project and Greece/Italy through TAP (which is currently under construction). Last year Albania, Croatia, Bosnia & Hercegovina and Montenegro signed a MOU concerning the construction of an IAP with the Azerbaijan state company, SOCAR. The IPA pipeline will have a length of 516km and a capacity of 5 bcm of gas per year. It will be connected with the TAP near Fier (Albania) and shall cross Albania, Montenegro, Bosnia & Hercegovina, terminating in Split (Croatia) where it will be connected with the current gas distribution system. From Croatia the gas will then be distributed to Hungary and other countries of Western and Central Europe".

France 6.1mt (Fos Cavaou Expansion) - Terminal has been commercially operational since 2010. This project exploits the site's natural advantages, namely its ideal location between the Middle East and Europe and its around-the-clock access to the sea. Scheduled to come online 2020.

Spain 5.3mt (Mugardos Expansion) - Scheduled to come online 2023.

Belgium 1.3mt (Zeebrugge Expansion) - Scheduled to come online 2018.

So... how does the seemingly anticipated strong demand between now and 2023/24 stack up against supply from exporting countries and also supply from portfolio players/traders like Shell, BP, Total, Engie (GDF Suez), EDF, Eni and Gazprom? The increasing presence of traders in the LNG space will have an impact on both LNG sellers and buyers. For traditional sellers, the impact may be both negative and positive. On the one hand, it may mean more risk stemming from increased competition but, on the other, it may act as an opportunity for them to use a new platform that will allow them to access markets they would not consider otherwise. For buyers, the impact is expected to be positive as it could increase their optionality in terms of supply, while also providing them with more flexibility and negotiating power on the formation of contractural terms.

The overall story looks like this...

Uncontracted supply from existing exp countries that is currently online or due to come online = 62.59mt
Uncontracted supply from portfolio traders mentioned above   =    25.2mt
Uncontracted supply from proposed export terminals:    Golden Pass 15mt
   Rio Grande   27mt (9 initial exp capacity)
   Delfin 13mt (9 initial exp capacity)
   Woodfibre    2.1mt
   Tellurian   26mt (unknown initial capacity)
   Fortuna 2.2mt
* Total *    = 36.3mt (without Tellurian)

Demand from off-takers from existing regasification terminals/terminals under construction & terminals likely to succeed between 2017- 22/24 = 117.35MT

Dealing with new emerging markets, i gave a low utilisation rate of 35% which is below the 2016 global util rate of 41% (44.5% if you exclude Netherlands, Canada) because i wanted to give a worst case scenario. The Top 5 countries that will have the largest quantities of supply to be met (granted their proposed projects are successful) are:

China 38.5mt - 7 new terminals & 3 expansions under construction + 12 expansion projects to come + 6 new terminals proposed, 68.9mt worth @ 56%
India 24mt - 7 new terminals, 32mt @ 75%  
Italy 7.04mt - 3 new terminals, 17.6mt @ 40%  
Bangladesh 6.4mt - 4 new terminals, 18.5mt @ 35%  
Turkey 5.8mt - 2 new terminals, 10.8mt @ 54%

You also have to take into account countries that are buying by international tenders and the 2 major players in that department are: Egypt - In Oct 2016 launched world's biggest ever mid-term LNG buy tender for 96 cargoes which is the equivalent to 7.1mt Argentina - Enarsa bought 77 cargoes in 2016 for 5.6mt As GV has mentioned before, when the market does eventually tighten it will be a dangerous game relying upon the spot market so countries like these 2 will probably need to lock in contracts to guarantee supply.

In crunching and adding up all the numbers, the supply vs demand scenario arrives at this:
Total uncontracted supply =  *124mt* (62.59mt + 25.2 + 36.3)

Total demand =  *130.5mt* (117.35mt + 12.7 <--- in international tenders)
All these numbers are based on having for months researched and having in hand all known exporting/importing contracts.

Its very interesting times at the moment with the current short-mid term market conditions... buyers sitting quietly on the fence - just when will the tides turn with signed contracts flowing freely once more? And from beyond 2024/25... will there be enough export terminals constructed to keep pace with rising demand? Got to love the game...

Our time is coming!