Given the new wave of LNG projects coming on line worldwide, where will it all go?
“Currently, there are over 100 liquefaction projects at various stages of construction,” says Patricia Roche, Senior Consultant of engineering, development and management firm Mott MacDonald. For instance, three new Australian projects will come online this year with most of their output destined for buyers in Asia (Japan, Korea, Malaysia, India and China) under long term contract, says Roche. In addition, this year marks the debut of US LNG exports from Cheniere Energy’s Sabine Pass plant which has already sent cargoes to seven countries. This additional supply and consequent depressed prices are making LNG a more attractive fuel for power generation and low cost floating regasification plants have made it easier for countries to import LNG and thereby help absorb increasing supply.
Where will all the new LNG export capacity go?
The Middle East and sub-Saharan Africa offer the brightest prospects
Countries in Africa and the Middle East with soaring demand for electricity to satisfy their growing economies and population offer the best market prospects for new supplies of LNG. The IEA forecasts that by 2040 gas demand in the Middle East could almost double. Two cargoes of US LNG have already been delivered to Kuwait and Dubai in recent months and this could be the start of a return to a trading pattern of US energy exports to the Middle East last seen in the 1890s. Sub-Saharan Africa where, according to the World Bank, fewer than 300 million of its 920 million inhabitants have access to mains electricity is also a potential long-term bright market prospect. In particular, South Africa, Ghana and Ivory Coast have been singled out by BMI research (August 2016) as the most likely destinations for LNG imports. As most sub-Saharan countries have limited domestic consumption and infrastructure, integrated LNG-to-power projects will be an anchor for wider demand creation asserts this research. South Africa’s Department of Trade and Industry has a new dedicated gas industry unit to focus on importing LNG as part of the country’s gas-to-power programme to add 3,126MW between 2019-25. And Ghana recently signed deal with Quantum Power for the construction and operation of a LNG storage and regasification facility.
In Latin America, Brazil looks promising, “due to the country’s reliance on hydropower and drought, Brazil’s power sector has decided to increase its usage of gas power from both LNG imports and its neighbour Bolivia, so as to improve grid stability”, notes ICIS Head of Gas, Ben Wetherall.
In contrast, European markets offer little prospect of absorbing new supplies. As Emmanuel Vaz, senior consultant at Mott MacDonald points out, “In the Atlantic Basin, the ability of Europe to absorb the growing LNG export capacity from the US is limited to say the least.” In reality, Europe is a mature market for gas which is traditionally supplied by pipeline from Russia, Norway and North Africa. Future demand will be subdued by the continuing drive towards renewable energy.
Australian LNG suppliers have long regarded the Asian markets of Japan, South Korea, Taiwan, China and India as a good long term bet. In the case of China, prospects for improved LNG demand depends on a variety of factors including the pace of transition towards a service economy and the speed of gas-to-power adoption points out Wetherall. In Japan, the return to nuclear power, combined with increased competition from coal and renewables, alongside weak demand suggest diminished prospects for LNG. I would recommend LNG suppliers looking for new customers to look to India.