Last month, LNG cargo deliveries to the UK were up 150% compared to the same period last year, driven by a surge in spot cargoes from Qatar and Nigeria. This increase is a consequence of waning Asian demand, increased supplies from new players in the market, and a switch in strategy from the world’s biggest LNG exporter, Qatargas.
Qatargas is under pressure from a number of new players in the market, which has created a supply overhang and a subsequent fall in price. To date, Japanese imports of LNG are down 3.1% year-on-year, all due to mild winter, a cooler summer, and the restart of one nuclear reactor with more to follow. Additionally, South Korea demand is down 11.6% to date this year as they are using less gas-for-power generation and increasing coal-fired and nuclear generation.
Currently trading at $7.7MMBtu, LNG is now down 40% this year alone and 60% off the market high of $20.5MMBTu in February 2014. Consequently, it is more economical for Qatargas to send spot cargoes to the Atlantic Basin as opposed to the Pacific Basin.
Global LNG supply is presently around 250Mtpa, and several new projects under construction will add around 140Mtpa to that. Additionally, the supply is forecast to experience growth of around 50% by 2020, which is not ideal in the context of the current climate as global demand is on the wane. The effect of the slowdown is being felt across commodity markets with many commodities like oil, copper, coal, and others trading at historical lows. Supply is expected to be even more plentiful in 2016 with a number of larger players about to enter the market.
Here are a couple of the largest players forecast to have a huge impact on the market in the coming years:
Cheniere Energy
Cheniere Energy is a Houston-based energy company with most of its activities concentrated on LNG including liquefaction, regasification, storage, and production. It has two projects underway at present. One of the projects, Sabine Pass, is scheduled to ship its first cargo in January 2016. Sabine Pass has the capacity for six liquefaction trains with an estimated annual production of 4.5Mtpa. Cheniere is forecast to be the largest buyer of US natural gas by 2020, shipping 6% of all gas produced in the US. It has already signed fixed price 20-year forward agreements with Centrica, Natural Formosa, Korea Gas, Gail (India), Total, and BG Gulf Coast.
Santos GLNG
Santos GLNG is a CSG (Coal Seam Gas) project led by Santos in conjunction with Petronas, Total and Korea Gas Corp. Santos itself is one of the leading independent oil and gas producers and suppliers in the APAC (Asia-Pacific) region. Through this project, LNG will be produced from the abundance of coal seam gas (gas trapped within the pores of coal beds) available in Gladstone, Queensland, Australia and liquified into Liquid Natural Gas that will be loaded onto tankers to be sold into the world markets. Like Cheniere, GLNG has already sold a large amount of its early production on forward contracts to Northeast Asia. It has already shipped its maiden cargo to Korea with exports stepping up in Q1-2016. By 2020, or even earlier according to some reports, Australia will overtake Qatar as the world’s largest LNG exporter.
Next year, we expect LNG deliveries to the Atlantic basin to continue unabated, which will have a dampening effect on gas prices at hubs across Europe. In an early indication of the demand destruction observed in Asia, Korea Gas Corporation just agreed a deal with the trading arm of EDF. This deal will result in excess LNG, purchased on forward contracts when Korea was the world’s largest importer of LNG, being shipped to Europe. This is happening across Asia with numerous forward contracts having been signed with Cheniere, GLNG, and other new entrants to the market. Unless demand picks back up, a lot more forward purchased gas will end up being sold to European markets.
