Global demand for natural gas – and particularly for liquefied natural gas (LNG) – is growing strongly. Gas consumption rose by an estimated 4.6 percent in 2018, its highest annual growth rate since 2010. LNG demand is growing even more quickly, with double-digit trade growth three years in a row. The commissioning of over 50 million tonnes per annum (Mtpa) of liquefaction capacity during 2018 (equivalent to 72 billion cubic metres per year [bcm/y]) enabled LNG trading to grow by 10 percent, to reach 420 bcm/y, the International Energy Agency (IEA) noted in its “Global Gas Security Review: 2019”.
According to IEA, a wave of investment is gaining momentum in the liquefaction activity. Alongside the US (Driftwood LNG), countries such as Qatar (Qatargas V–VIII) and Mozambique (Rovuma LNG) have ambitious plans to develop new liquefaction facilities.
A record-setting capacity of over 170 bcm of natural gas liquefaction is due to take final investment decision (FID) in 2019, far surpassing 2005’s previous record of 70 bcm. Much more could be coming. If only considering the projects most likely to announce FID during 2019, (those projects that have already completed front-end engineering and design [FEED] and are expected to come online before the end of 2024), 2019 FID volumes could exceed 160 bcm.
The LNG contracting activity rebounded in 2018 to reach its highest level in five years, with a total of 123 bcm/y of concluded contracts. Much of this increase relates to the development and financing of new liquefaction projects. Portfolio players continued to be key to this increased activity and have been involved in all liquefaction projects that have taken final investment decision (FID) during 2018, accounting for 45 percent of contract volumes. This increased activity can be attributed to the desire of portfolio players to rebuild their portfolios so they can provide market flexibility and match long-term supply with the anticipated growth in LNG demand.
Most of the recent growth in demand for LNG in Asia comes from a new group of “emerging” buyers. The profiles of these emerging buyers are different from those of traditional buyers: they are both less dependent on LNG as a source of gas supply and more sensitive to price. Consequently, flexibility is more highly valued despite the continued reliance on long-term deals. Notably, longer-term contracts do not necessarily mean less flexibility. Destination flexibility is becoming a common feature in contracts of all durations. In 2018, 58 percent of volumes contracted and linked to a project that had already taken FID had no fixed destination, reaching 89 percent of volumes so far in 2019.
This is in addition to other forms of flexibility built into these contracts, which enable buyers to adjust the volume and timing of deliveries.
Some buyers with new and increasing demand for natural gas, particularly in Asia, still need to secure their supply and are actively signing new contracts. For example, China is rapidly expanding its imports, and among import contracts to single destinations China was the most popular destination in 2018 and so far during 2019. Of all FID project contract volumes, China’s contracts represented 20 percent in 2018 and 22 percent in 2019 to date.
Expansion of LNG import capability is an urgent requirement to meet unpredictable levels of demand growth. This is where comprehensive contract flexibility becomes essential. In 2018 emerging Asian LNG buyers were overcontracted compared to actual imported volumes by 180 percent. Flexibility in their contracts allowed these excess contracted volumes to be managed.
Over 85 percent of LNG procurement by traditional Asian buyers is via long-term contracts to secure stable supply. Japanese buyers are expanding their LNG networks to implement contractual flexibility. Examples include the formation of joint ventures and jointly procuring contracts with other market participants. Also, the enlargement of receiving infrastructure is being observed in Japan, with additional loading capabilities at LNG terminals.
Source from: The Peninsula