LNG Markets: the race for supply, 2020-2025
In this guest post, independent LNG consultant Guy Broggi lays out the groundwork for the supply factors that are likely to shape LNG markets over the first half of the next decade. He goes on to provide an in-depth analysis of the major actors’ LNG strategies over the period under consideration, taking into account the timelines for new projects, the balance of global demand and the impact of geopolitical risk.
Groundwork: LNG over the period 2018-2019
Assuming a 2018 figure of 320 Mt of traded LNG, with a fleet of 547 existing tankers, we can expect an increase of production of 40 Mt of LNG in 2019 primarily through projects already under development in Australia, Russia and the US. 49 new tankers will be available for use, as planned by shipyards’ delivery schedules.
On the liquefaction side, FIDs for an extra 23 Mt have been taken in 2018, while we expect between 60-120 Mt to be FID-ed in 2019, leading to an increase of available LNG around 2024 of between 120-150 Mt compared to 2018.
On the shipping side, 60 new tankers have been ordered in 2018 for delivery between 2020 and 2022. There is still a need for more of course (Qatar Petroleum alone is looking at building 60 new tankers for its two new developments in the US and in Qatar).
Here are the details of the FIDs so far confirmed, and those likely over the coming year, given in Mt.
2018 FIDs:
- LNG Canada (17)
- ENI’s Coral LNG in Mozambique (3.4)
- BP Greater Tortue Ahmeyim LNG in Senegal (2.5)
2019 FIDs may include:
- Novatek’s Arctic LNG II (20) (already announced)
- Qatar Petroleum’s new trains in Ras Laffan (30) (decision announced)
US second phase with:
- Golden Pass LNG (15.6) (already announced)
- Calcasieu LNG (Venture Global) (10)
- Sabine Pass T6 (4.5)
- ExxonMobi’sl Rovuma LNG (Mozambique) (15.5)
Post 2024, we will have to update the count to include Nigeria T7 (Shell, Total ENI with NNPC), two new projects in PNG (Exxon & Total), Mozambique LNG (Anadarko) and Alaska LNG (Local Government), plus the several US LNG export projects under real consideration - i.e. for which FERC is working on delivering the necessary adequate permits (Sempra, NextDecade, Texas LNG, Tellurian, etc).
Alaska LNG deserves a special mention as it is the only Government-promoted LNG project in the US. The project makes huge sense geostrategically, but it will have to navigate through the uncharted commercial territory currently affecting US-China trade relations if it is to be active in 2025+.
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What to make of these facts / the main actors’ strategies
A quick analysis of the actors behind the new wave of FIDs will tell us more about the new landscape the LNG industry is entering for future Global Energy supremacy.
The first group of decision makers consists of well-known National Oil & Gas Companies like Qatar Petroleum, Petronas, Gazprom and Novatek (although technically a private company), which work on behalf of the owners of the biggest gas reserves in the world, if we discard Iran and the US.
The second group encompasses ex-so-called Big Oil IOCs like ExxonMobil, BP, Shell, Total, to name the first-tier companies in the race to supply the world with the latest acceptable fossil fuel, LNG.
A third group comprised of smaller players (Woodside of Australia, Cheniere from the US and ENI from Italy) or newcomers to LNG (SOCAR, Rosneft and Aramco) is worth studying through a geopolitical lense, for it demonstrates the appetite of such laggards to elbow themselves into the group of main energy suppliers for this century.
The short-term race between Qatar, Russia and the US for new LNG capacity by 2025
If we keep Australia separate for the sake of demonstration (because it is only able compete in Asian markets), the new liquefaction capacity for 2025 is set to be decided before 2020. It will be shared between Russian gas reserves, US gas reserves, Qatari gas reserves and a set of other gas reserves more or less controlled by large IOCs.
The assumption here is direct competition from LNG suppliers for the European, Middle-Eastern and Asian LNG markets as a whole.
The case of Shell
LNG Canada’s FID rightly made headlines last year. Shell is obviously the leader of the project, although the final offtake of this first phase will be split among the stakeholders, many of which are LNG consumers in Asia.
Waiting for a decision on Nigeria T7 along with its partners, Shell has been active recently on T&T Atlantic LNG for supply and offtake (along with BP) and on the re-birth of Egypt Idku LNG (supply and offtake). They have also signed offtake agreements with Mozambique LNG (Anadarko), Lake Charles LNG and Calcasieu LNG in the US, where they are already a big offtaker at Sabine Pass and Elba Island (2019).
It is worth noting that Shell’s Tanzanian gas reserves are waiting to be monetized one way or another and could explain Shell’s commitment to buy from the project in adjacent Mozambique.
In Qatar, Shell may hope to get something from the new trains in Ras Laffan, as do their peers in Qatar, ExxonMobil and Total.
Russia is not absent from Shell’s LNG considerations. FID from Gazprom-lead Baltic LNG and expansion of Sakhalin-II LNG in East-Russia could be achieved by 2021.
The demise of Gröningen will be an important strategic consideration, as Shell and its equal partner ExxonMobil within NAM will have to compensate for the loss of production of the biggest natural gas field in The Netherlands and the EU.
The case of ExxonMobil
After having decided to let the Alaska Governor take the lead on Alaska LNG while signing supply agreements to monetize their gas reserves, the road for new FIDs was cleared in the US with Golden Pass (30%).
ExxonMobil is also a sponsor of Rovuma LNG in Mozambique (now as a stakeholder of gas reserves and as the operator of the on-shore LNG project, while having Tanzanian gas reserves to monetize like Shell).
As Qatar Petroleum’s main partner in several projects worldwide, ExxonMobil may dream of getting something from the Ras Laffan expansion project too.
PNG LNG’s expansion is of course a main source of new LNG for ExxonMobil in Asian, which remains a focus for all suppliers in the wider region.
Russia is still on ExxonMobil’s radar due to their partnership with Rosneft in the Sakhalin-I gas reserves. This could translate into an expansion of Sakhalin-II LNG where Shell has stakes along with Gazprom, the operator.
In Australia, after having sold its stake in Scarborough field, ExxonMobil is still active as a supplier of the Southern States gas markets and could be an important actor in LNG imports from PNG.
In Canada, contrary to Shell, ExxonMobil and its affiliate Imperial Oil have decided to place their LNG project on the Western coast on the back-burner. There are other ways to monetize Canadian gas reserves than to ship it as LNG on the Pacific coast.
The case of BP
A big absence from Qatar after its early withdrawal in 1990 and recovering from its later upstream disaster in Gulf of Mexico, BP is now fit and ready to take its share of new LNG supply globally.
The recent announcement of an FID for the first phase of the “Tortue Ahmeyim” development in Senegal-Mauritania proves the incredible ability of BP to fast-track decisions which usually take years, even if this concerns only the first-phase of a broader project.
Before that BP increased its portfolio of LNG by committing to the whole offtake of Coral LNG in Mozambique, while assuring a sound monetizing of gas reserves in Oman and T&T (supply and offtake).
A bold move was made in Egypt too, where BP will add some Zohr reserves (by its recent acquisition from ENI) to its current gas field developments, which will permit Egypt to stop importing LNG.
In the US, being a major gas trader on the American gas market BP will be able to supply its share of Freeport LNG offtake it has committed for 2020 already, as well as Calcasieu LNG, which should take FID this year.
Like ExxonMobil in Alaska, BP decided to monetize their share of gas reserves through the Government-led Alaska LNG project.
The case of Total
Now ranking second to Shell for LNG among the big IOC’s – after the 2017 takeover of Engie’s LNG Business Unit – Total has been following the Qatar, Russia and the US LNG paths like its peers.
Being a gas reserve owner in Russia thanks to its stake in Novatek, Total is a main partner and offtaker of Yamal LNG and will follow with Arctic LNG II, which will help monetize otherwise stranded reserves.
In Qatar, as one of the first historic partners in QatarGas (alongside ExxonMobil), Total could benefit from the Ras Laffan expansion project if it suits Qatar Petroleum.
In the US, Total is already an offtaker for the Sabine Pass LNG project, and will soon follow on with Cameron LNG (ex-Engie’s stake). It is also willing to support new projects to come onstream by 2025, whether from Sempra and/or Tellurian.
In the meantime, “Papua LNG” may be FID-ed along with ExxonMobil’s PNG LNG expansion when the planets align for FID mainly aimed at Asian buyers.
Nigeria T7 FID has been on the drawing board for some time, and is also waiting for shareholders to align.
A special mention goes to Yemen LNG. Readers’ attention should be drawn to the fact that this “idle” plant may be started again, and represents a huge offtake for Total after its merger with Engie’s LNG BU.
The case of ENI
Traditionally a big buyer of gas from Gazprom and Alegeria’s Sonatrach for its downstream markets in Italy and several other EU countries, ENI has been making headway as a successful upstream developer within its Mediterranean turf from Algeria to Egypt, including the Zohr field discovery. The Damietta LNG plant (co-owed with Spanish interests) could be revived, providing ENI with new LNG in the East-Med basin.
Exploration success in Mozambique lead ENI to be a major regional player first through the operatorship of Coral LNG (on which BP is the sole offtaker), and then through a substantial stake in Rovuma LNG – operated by ExxonMobil – from which it will also have access to LNG offtake volumes.
The recent entry of ENI into the upstream business in UAE and Oman (after Bahrain), as well as the signing of accords with Qatar (exploration blocks in Mexico), is an indication that ENI is contemplating diversifying its business away from Africa – its traditional playground.
Absent from Russia and the US, ENI is following a Mediterranean approach to supplying Europe and the Middle-East while still growing its Indonesian LNG around the Bontang plant for the Asian markets.
After the failure of Brass LNG in Nigeria, ENI’s LNG hopes rely on the potential T7 FID of Nigeria LNG, in association with NNPC, Shell and Total.
Geopolitical considerations
The balance of power in the energy sector must include OPEC members, Russia and the US as far as crude oil is concerned, and this will last at least for the next twenty to thirty years.
When it comes to natural gas, however (LNG being the best way to ship it everywhere without the need for a pipeline link) Russia, Qatar, the US and Australia seem to lead the pack as future sources of supply to the world.
On the demand side, if Asia (Japan, Korea, China, India, Pakistan and Bangladesh) represents 70% of suppliers’ target, Europe remains a serious buyer and a potential price-setter for the rest of the world, as it represents the last resort for unloading excess quantities.
Members of OPEC who don’t want to leave the LNG market to other players have to embark on the new wave of liquefaction plants and enable the monetization of related gas reserves (see the recent moves by Saudi Aramco towards Novatek). That explains the new gas policy of the non-Qatar CGC members in the Middle-East that don’t want to be left behind.
Is LNG used as a diplomatic tool within the current reshuffling of international trade? This is certainly the case when it comes to the Russia-US relationship respecting European gas demand. It is probably also the case within the current trade imbalance discussions between the US and the big LNG buyers in Asia, including China and allies like Japan and South Korea.
A positive outcome to US-North Korea discussions could also theoretically see LNG used to alleviate the energy deficit in North Korea.
The main risk of the race to new supply is obvious - building white elephants. New projects will face the question of whether global demand for natural gas and LNG is sustainable in the long-run.
Rather than answering such an undecidable question, let us instead admit that the owners of gas reserves around the world are mostly concerned with monetizing their reserves as quickly as possible. They do not wish to wait for a long-term energy landscape where fossil fuels (and methane in particular) would be unwelcome, if not prohibited, for climate change policy reasons.
Is there room in the world for the quantities of LNG under development? Will there be enough shipping capacity to transport LNG from liquefaction plants to end-users’ terminals? Will market prices cover all the costs from upstream production to end-users’ burners?
The answer is that traders from LNG portfolio owners (IOCs or Utilities) and from Trading Companies will do their utmost to make the maths work for everyone in the chain by using all the commercial tricks available (physical swaps, derivatives, etc). Count on them for once!
About Guy Broggi
Guy Broggi, retired from TOTAL since 1/1/2018, entered the company in 1978 as an expert in data treatment for geosciences after he graduated from “Ecole des Mines” (Nancy, France) and after serving a two-year position as Professor at IAP, Algeria (Algerian Petroleum Institute). He works now as an independent consultant on LNG markets and can work in three languages: English, Spanish and French, his mother tongue. In 2011 he was appointed Senior Advisor to the LNG Director in Total’s Paris Headquarters after having been in charge of the LNG Supply for the group LNG portfolio. (2006-2011). A member of the IGU LNG committee, he was active also as a member of Governing Bodies of the main international LNG and European gas conferences. Before that, he held several commercial positions related to the development of TOTAL LNG business in Jakarta and Tokyo (1988-1995), Commercial Director for TOTAL E&P subsidiaries in Argentina (1998-2001) and the UK (2002-2006) where he helped create TOTAL LNG desk in London. His first assignment at E&P Division at TOTAL was dedicated to data treatment for geosciences first and economic evaluations after his return from a one-year sabbatical in 1985.
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