The LNG market balancing dynamics in 2017

September 2017 | Nafie Bakkali

The LNG market in 2017 is clearing thanks to higher demand from emerging and traditional markets but also because LNG production has been lower than expected.

In the upcoming years, the growth in LNG supply already under construction is forecast to create a long market. Unlike oil and refined products, LNG storage is not economical because of the boil-off of the gas. Thus, the market must balance by a combination of higher demand and lower utilization rates at some liquefaction plants.

In the first half of 2017, we have seen some interesting trends shaping the market that are expected to continue into the near future. New regasification infrastructure and low LNG spot prices have led to higher demand in some countries, while technical and economic issues have meant lower than expected supply.

Demand on the up

Demand from several emerging LNG markets has risen sharply this year. These markets include Pakistan, a relatively new LNG importer, which is expected to buy 60% more this year than in 2016 based on current trends– illustrating how lower prices are continuing to unlock fresh LNG demand.

Demand is also higher in Turkey, which installed its third FSRU import terminal this year. The situation there is particularly tight in the winter, when limited spare pipeline capacity means alternative supplies are required to meet rising peak seasonal heating and power demand. Turkey is expected to import 1.8 Mtpa more in 2017 than in 2016.

China - a market with significant spare regasification capacity and the potential to absorb surplus cargoes – is seeing steady demand growth and is expected to import about 1.8 Mtpa more than last year.

Overall, the additional LNG volumes are likely to be absorbed equally by Asia and Europe, which helps explain the convergence of price indices in the two basins – neither is drawing in much spot supply from the other basin, with each clearing independently.

Production below expectations

On the supply side, a few countries and plants stand out.

Monitoring of cargos loaded off Gorgon and East Australian projects this year shows us their utilization rate is averaging just 74% in part due to commission problems at Gorgon. Loadings have fallen short at projects in Queensland in part due to threats to feed gas supply related to a domestic shortage in Australia.

Countries like Oman and Indonesia are dealing with rising domestic demand and limited new upstream development – leaving Indonesia’s Badak LNG and Oman LNG with utilization rates near 75%.

Atlantic LNG in Trinidad is expected to have utilization rates of just 70% this year, confirming a trend of decreasing production, caused by a scarcity of new upstream development and the depletion of exiting reserves.

Elsewhere, while Qatar continues to produce at high utilization rates of above 90%, many other projects are lagging behind, and are struggling to reach such levels. Qatar’s relatively high utilization suggests it may be keen to maintain market share as new capacity comes on-stream elsewhere. Qatar can capitalize on its international outreach to capture emerging market growth through government-to-government deals, which reduce the risk inherent in commercial activity in those markets.

The upcoming 94 Mtpa of new capacity being added in the US, Australia, and elsewhere will challenge the LNG market to home these volumes. It remains to be seen whether the countries that have demonstrated the largest increase in demand can continue to grow aggressively in the coming years and whether countries such as Thailand, Pakistan, and Bangladesh can add sufficient import infrastructure to be able to accept the incremental volumes.

Together, the new market dynamics require LNG players to monitor the market far more closely than in the past in order to seize the short-term opportunities that can arise and build on the trends that unravel.


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McKinsey Energy Insights has developed the LNGFlow platform that tracks the movement of every LNG vessel in the market. This platform provides real-time insights on how the market clears. Further analysis provides information on emerging trends and helps us provide LNG stakeholders with a clearer vision of short-term LNG market dynamics.

About the authors

Nafie Bakkali is an Analyst in McKinsey's London office.

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