LNG: lots today, even more tomorrow
Vast amounts of export capacity are coming on stream, so it's just as well that demand looks set to keep growing
The liquefied natural gas revolution is well and truly upon us. Global export capacity stands at around 290m tonnes a year, with a staggering 60m t/y of that added since early 2016 and a further 80m t/y due over the next couple of years.
Australia is set to overtake Qatar as the world's largest LNG exporter next year, when Shell's Prelude floating LNG project and Inpex and Total's Ichthys facility reach full capacity. But now Qatar is back in the race, ending its long-standing moratorium on building new export capacity and fighting for its share of a fast-expanding market.
Doha has lined up three new trains, which should take export capacity to 100m t/y from 77m t/y by 2023. Canny timing, it hopes, as that's pretty much when the current market imbalance is forecast to end, with global demand starting to outstrip supply.
Then, there's US supply. The wildcard has upset market assumptions for the second half of the current decade. Having launched exports from Cheniere Energy's Sabine Pass plant in 2016, that project now has an 18m-t/y capacity and sends around a quarter of its exports to Asian markets. That's just the start. By 2020, a welter of new projects is likely to bring US LNG export capacity up to 68m t/y, accelerating competition with Australia and Qatar in the hunt for new markets.
Russian exports are also on the rise. The Novatek-led Yamal LNG-1 project will have a capacity of 16.5m t/y, on the commissioning of its third train, due by end-2018. After that, Arctic LNG-2, where construction is slated to begin in 2019, could eventually add another 19.8m t/y.
By contrast, capacity additions elsewhere may seem modest. But they're still significant, not least in the transformative effect they could have on their host countries. In Mozambique, LNG exports based on huge offshore gas reserves in the Rovuma Basin should bolster the economy of one of the world's poorest countries. Eni's 3.5m-t/y Coral South FLNG project and onshore projects being led by Anadarko and ExxonMobil are scheduled to come on stream in the early 2020s.
In West Africa, the story is all about pioneering mid-scale FLNG. Exports have started from the 1.2m-t/y Hilli Episeyo, a converted LNG tanker, on the Kribi development offshore Cameroon. This is only the world's second FLNG project to reach fruition, after Petronas' PFLNG Satu project in Malaysia. Unlike PFLNG Satu and Shell's Prelude facility, Hilli Episeyo could be the first of a production line of several similar conversions to be rolled out of the Keppel shipyard in Singapore. That could lead to lower costs.
The vessel's developer, Golar LNG, hopes to use the same template for projects elsewhere in the region. Ophir Energy's Fortuna project in Equatorial Guinea and the BP-led Greater Tortue project on the Mauritania-Senegal maritime border could be next.
Not all these new liquefaction plants around the world are running at full tilt, of course. Their developers were caught out by more-sluggish-than-expected demand growth and the advent of US exports. However, demand is forecast to catch up in the next five years.
Asia, which has accounted for over 70% of the world's annual LNG trade since 2013, will soak up much of this new global supply. LNG demand on the continent is forecast to rise to 304m t/y by 2025, compared to 129m t/y in 2010.
Beyond that, global LNG demand could rise still further, if, as many expect, gas cements its place as the power sector feedstock of choice, smoothing output from intermittent renewables. If the recent round of industry outlooks is to be believed, global LNG demand could reach around 500m t/y in 2030 and 600m t/y in 2040.
The assumption is, of course, that supply will expand to meet this demand; but as Shell noted recently, that assumes continued investment in new LNG export projects in the 2020s—and it isn't a given.
The increasing role of the spot trades in the global LNG market has been credited with stimulating business by allowing greater flexibility for buyers than, say, a 20-year sales agreement.
Spot deals also allow sellers to find homes more easily for surplus cargoes. But there's a downside.
The potential volatility of the spot market doesn't provide much reassurance if your plans include sinking billions of dollars into an export plant that will take years to come on line and make returns.
Whether power sector buyers will be prepared to commit to 20-year sales agreements in 2025, given the power choices available to them then, remains to be seen.