Although 2018 is touted as the year when the benefits of a recovering LNG market will be felt, 2017 will not be short on good news.
Momentum is building for a return to a healthy, balanced industry and will gain strength in the coming year. Volumes of LNG shipped by sea are expected to grow by 11 per cent in 2017, pushing global trade above 300 million tonnes per annum (mta) for the first time.
This follows an 8 per cent expansion in trade in 2016, an advance that reduced the number of idle LNG carriers from 40 to 20 during the year.
Of the five worldscale liquefaction trains due to commence commercial operations in 2017, four are in Australia – Gorgon Trains 2 and 3, Ichthys T1 and Wheatstone T1. Australia is expected to load 51.5 million tonnes (mt) in the fiscal year to end-June 2017, consolidating its position as the world’s second-largest LNG exporter behind Qatar.
The fifth is Sabine Pass T3 in Louisiana. Cheniere’s Sabine Pass export project has a two-year jump on its US rivals. It is only in 2018 that Cove Point and Cameron LNG will commence commercial operations. Freeport LNG and Corpus Christi LNG will follow in 2019.
By 2021 Japanese buyers will be receiving 14 mta of US LNG under long-term contracts, or 22 per cent of the 64.7 mta that the 14 new US liquefaction trains can produce.
Japan is the world’s largest LNG importer, accounting for 30 per cent of global trade. It will liberalise its gas market in April and is seeking more flexible LNG procurement, including enhanced LNG tradability, loosened destination restrictions and purchase prices not directly oil index linked.
The more open-ended arrangements agreed with US suppliers will help Japan. November’s decision by members of the Organization of Petroleum Exporting Countries (OPEC) to reduce oil production volumes and strengthen prices will boost the competitive attractiveness of natural gas and LNG and increase pressure to break the traditional link between LNG and oil prices.
Although it didn’t lead the race to develop the world’s first floating LNG production (FLNG) vessel, Petronas is first across the finish line. Its 1.2 mta vessel PFLNG Satu has begun to produce LNG from the Kanowit gas field off Malaysia’s Borneo coast.
It is due to load the first cargo and start commercial operations in the first quarter of 2017. Unless the 0.5 mta FLNG Caribbean barge finds employment over the coming year, the next FLNG vessel to enter into service will be Golar’s FLNG Hilli, a converted LNG carrier, in Cameroon in late 2017/early 2018. Shell’s 3.7 mta Prelude will follow later in 2018, off the coast of Western Australia.
Meanwhile, gas buyer use of floating storage and regasification units (FSRUs) goes from strength to strength. Since 2007 FSRUs have opened more than 75 per cent of markets new to LNG.
As Golar LNG points out, a combination of falling energy prices, increasing gas availability and severe power shortages in many regions is prompting increased interest in FSRUs and the competitive cost and project timescale advantages they offer. Inquiries are increasing for FSRU newbuildings and for smaller conversion units.
At year-end, the 170,000m³ Hoegh Grace and the 145,000m³ FSRU Neptune (ex-GDF Suez Neptune) were positioned at Cartagena in Colombia and off Aliaga in Turkey, to enable the two countries to introduce FSRU-based imports. The recently completed Hoegh Grace is Colombia’s inaugural LNG receiving facility.
These are two of seven FSRU-based LNG import projects scheduled to come on stream over the next 12 months.
The Colombia and Turkey-based newcomers augment 19 existing FSRU schemes and push floaters’ contribution to global regasification capacity towards 15 per cent. At least three new FSRUs will follow in 2018. A further 50 FSRU project proposals are waiting in the wings.
Petronas will decide by April whether to press ahead with its 12 mta Pacific NorthWest LNG export project in British Columbia, Canada. If it’s a yes, Pacific NorthWest will be the first large onshore, greenfield LNG project sanctioned since Total and Novatek reached a final investment decision (FID) on Yamal LNG in December 2013.
Another, smaller project for which FID is expected soon is the Fortuna offshore scheme that Ophir Holdings and the Golar LNG/Schlumberger joint venture OneLNG are promoting in Equatorial Guinea. The participants aim to decide on the 2.2-2.5 mta initiative by June.
FID is also imminent on the Eni-led Coral South project, a second African FLNG venture. The planned floater, to exploit gas in Mozambique's Rovuma Basin, will process 3.3 mta of LNG.
Amid this LNG supply build-up, shipowners will benefit from rebounding demand in China and India and emerging new markets, facilitated by FSRUs.
Chinese LNG imports were on target for a 27 per cent jump in 2016, to around 25 mt. Year-on-year shipments to India were 36 per cent up by early November, expected to reach 20 mt for 2016. These rebounds highlight resurgent Chinese and Indian import volumes that should be sustained for at least five years.
Egypt and Pakistan have been strong performers among new FSRU markets. Egypt has booked about 60 LNG-import cargoes, more than 4 mt, for its two Ain Sokhna FSRUs in 2017. Pakistan is seeking a similar number of shipments and will launch a second FSRU at Karachi’s Port Qasim during the year.
In a separate tender, state-owned Pakistan LNG has requested bids for an additional 180 cargoes over 15 years
The fleet of LNG carriers in excess of 30,000m³ stands at 444 vessels, with some 20 surplus to current requirements. With some 33 ships due for delivery in 2017, trade volumes will expand slightly faster than cargo-carrying capacity over the next 12 months.
Somewhat worrying for shipowners is the fact that most of the new production coming on stream in 2017 is in Australia, fairly close to the main Asian markets.
On a more positive note, US exports will boost tonne-mile figures. Poten & Partners’ analysis of the first 26 Sabine Pass export shipments reveals that every 1 mt of cargo exported requires 1.75 ships. On this basis, the new US projects will require a total fleet of 113 ships.
Wood Mackenzie points out that a further 50 vessels will be needed to transport cargoes from export projects under construction and due on stream by the end of 2020. Given shipowner and charterer preferences for modern tonnage, this requirement translates into at least 40 newbuilding orders to be placed by the end of 2017 to guarantee 2020 deliveries.
A key indicator of the LNG market’s underlying strength is the number of trade routes that the industry’s 444 ships serve. Poten’s data shows that the number of LNG trade routes increased from nine in 1995 to 232 in 2015. This translates into compound annual growth of 18 per cent.
Reviewing the project startups planned for 2017 and beyond suggests that the pace of expansion is unlikely to slow.
As we look forward with anticipation to the year ahead, LNG World Shipping extends best wishes of the holiday season to all our readers.
Looking forward: 2017 in figures
300mt projected global LNG trade
11% growth in shipped volumes
5 new liquefaction projects
7 FSRU start-ups
2 FLNG start-ups
33 LNGC deliveries
Source: LNG World Shipping, December 2016