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Opinion: I never promised you an LNG wave

21 Dec 2016 16:41 GMT
Opinion: I never promised you an LNG wave

London, 21 December (Argus) — The vaunted wave of LNG is unlikely to ever materialise despite the rapid increase of LNG production capacity over the next few years to 2020.

When Qatar ramped up its production facility to hit 77mn t/yr in 2010, the market saw a wave of LNG that hit the UK. But history will not repeat itself for two main reasons.

1) Producers chasing value

Previously, Qatari producers were not willing to sell LNG on the spot market, and held out for long-term, oil-linked LNG deals into Asia. If state-controlled producer Qatargas had uncommitted cargoes, it would go to the 15.6mn t/yr South Hook terminal in the UK, where Qatargas has import capacity.

But this is no more.

Qatar is now willing to sell spot and short-term LNG. Spot and short-term LNG has been sold to trading firms including Trafigura, Vitol, Glencore and Noble. European utilities and other traders have been able to buy spot Qatari LNG and send it to northeast Asia and South America.

Qatar is willing to sign shorter-term, five-year contracts with Pakistan. It is willing to renegotiate long-term contracts with India's Petronet to secure additional volume sales in exchange for a higher price. This was virtually unthinkable even three years ago.

Qatar's two state-controlled producers Qatargas and Rasgas are merging to share shipping and production operations, which suggests a drive to compete in the market instead of simply sending LNG to the UK and Europe.

In addition, new LNG producers are unlikely to follow the 2010 Qatari model. Total and French energy firm Engie have signed short term-deals with Chinese buyers, instead of sending spare cargoes to France. Shell has shown it will strive to find buyers for LNG instead of simply using its import capacity at the 4mn t/yr Dragon facility in the UK.

2) Import capacity is increasing faster than liquefaction

LNG import terminals used to take three to five years to build, roughly the same period as a liquefaction facility. But now, floating storage and regasification units (FSRUs) mean LNG import facilities can be installed within a year, which is successfully removing the LNG glut.

New importers such as Egypt, Pakistan and Jordan have installed four FSRUs between them over the past two years, with Pakistan looking to hook up another two by 2018.

Turkey installed an FSRU this year, while Colombia and Jamaica commissioned floating import vessels. Lithuania installed an FSRU last year.

These installed FSRUs alone have added roughly 32mn t/yr of import capacity between them, although it is important to note than none are importing at full capacity. In Asia, Malaysia and Indonesia have installed FSRUs.

And there are more FSRU projects in the pipeline including Bangladesh, Ivory Coast, Uruguay, the Philippines and a number of Indian projects.

Meanwhile, new liquefaction terminals have faced delays and unplanned technical problems on top of long lead times. Facilities with issues include a prolonged outage at the Angola LNG 5.2mn t/yr Soyo plant and Australia's 15.6mn t/yr Gorgon, which had shutdowns in March, July and November this year. And there was a two-month delay at the 5mn t/yr Sabine Pass second train in the US.

This was in addition to project start-up slips at Australia's 8.9mn t/yr Gladstone LNG from the end of 2016 to mid 2017, and a six-month delay at both the 9mn t/yr Australia Pacific LNG (APLNG), which started up this year, and the 8.9mn t/yr Wheatstone LNG project, which will now start up next year.

No wave

So there is unlikely to be a wave of uncommitted LNG any time soon. A more appropriate metaphor is a reservoir, which has options to relieve pressure when the water builds up. We may see the reservoir reach the top from time to time, but it will result in a trickle rather than a wave.

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