While there were many positives, including a record number of FIDs on new LNG supply capacity in 2019, 2020 could be challenging for the market
Here are five trends to watch in the LNG industry over the next 12 to 18 months:
Record year for LNG supply and FIDs
The global supply of LNG will continue to grow in 2020. By the end of 2019, global supply is forecast to reach 364M tonnes of LNG, up 12% year-on-year according to Wood Mackenzie. It will be the sixth consecutive year of LNG supply growth.
Underpinning the continued growth of global LNG supply in 2019 were new trains commissioned on the US Gulf Coast at Cameron LNG in Louisiana and Freeport LNG in Texas, Russia’s Yamal LNG and Shell’s Prelude FLNG in Australia. With its first commissioning cargo in December, the Elba Island LNG facility in Georgia will also add incremental growth to US LNG exports.
The year was also marked by a record number of FIDs led by Russia’s massive Arctic LNG-2 project with a whopping 19.8 mta nameplate capacity. In 2019, FIDs were reached on a total of 63 mta – 37% higher than the previous record of 46 mta set in 2005.
More than 100Bn m3 of new LNG supply capacity is projected to come online between 2018 and 2023, mostly from US and Australian projects, according to the International Energy Agency. The demand is expected to be driven by Asia, led by China, Japan and South Korea.
Fleet growth continues
With a healthy orderbook, limited scrapping and new projects being developed, the LNG carrier fleet will grow beyond 600. There are 120 LNG carriers on order or under construction at shipyards in South Korea, Singapore, Japan and China. VesselsValue reports that the capacity of these vessels ranges from a small-scale LNGC with a capacity of 2,500 m3 under construction at Japan Marine United to world-scale LNG carriers of 180,000 m3 capacity at Samsung Heavy Industries and Hyundai Heavy Industries. About 48 LNGCs are expected to be delivered in 2020 and Howe Robinson expects the global LNG fleet will have excess capacity until 2022.
Shift from coal-fired electricity to gas-fired power
Underpinned by governmental policies supporting the Paris climate agreement and the increasing availability of inexpensive LNG and lower-priced renewables, the shift away from coal in Europe, South Korea and the US will continue.
Coal-fired power generation is expected to fall by 3% this year in the wake of sharp declines in use in Germany, the UK, European Union, US and South Korea. The decline is due to nations switching to less expensive, cleaner alternatives such natural gas and renewables. It will be the largest annual fall on record and one of only three times in the last 40 years coal-fired power generation has fallen.
With its blue skies policy in place, China emerged as the world’s second-largest importer of LNG, but it still remains the world’s largest coal producer, consumer and importer.
In the US, coal-fired plants are under economic pressure because of inexpensive natural gas and renewables. Between 2010 and Q1 2019, some 546 coal-fired power plants totalling 102 GW of generating capacity were retired in the US, according to the US Energy Information Administration. Despite measures to boost the industry by the Trump administration, coal does not have a bright future in the US.
Gas oversupply lowers prices on the spot market
With gas supply outstripping demand in the short term, natural gas prices will continue to be pushed lower. Henry Hub natural gas prices are expected to average US$2.45 per million BTUs (MMBTU) in 2020, down from US$2.59 per MMBTU in 2019, according to US EIA.
More countries to import LNG
Over the next two years, the number of countries importing LNG will grow from 42 to 46. Croatia, Cyprus, Vietnam and the Philippines will become the newest countries to import LNG. Croatia will begin importing LNG through the floating storage and regasification unit (FSRU) Golar Viking starting in 2021.
A Chinese-led consortium is developing a floating LNG import terminal in Cyprus that will be commissioned in 2022. The terminal is expected to be completed by early 2022 and will be built by a consortium of China Petroleum Pipeline Engineering, Metron, Hudong-Zhongua Shipbuilding and Wilhelmsen Ship Management.
Vietnam has begun work on its first LNG import terminal, with the first phase of the project ready to import up to 1 mta of LNG starting in Q3 2022. The first LNG import facility is being developed in the Philippines, with Luzon LNG expected to begin operations using an Excelerate FSRU starting in Q3 2021.