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LNG markets are at the crossroads-I: How will it eventually balance?
Mar 14: 2017 year looks set to be an important one for LNG. Global production is forecast to reach 292 million tonnes this year, marking an increase of 34 million tonnes from 2016 – an unparalleled year-on-year rise.
8The lion’s share of additional production will come from the ramp-up of liquefaction plants commissioned in the US and Australia in 2016, though a fair amount of extra production is also expected from projects scheduled for start-up in 2017.
8But as sellers continue to grapple with an already well-supplied market, the crucial question this year is: will demand grow enough to absorb surplus production volumes as it did in 2016? If not, how will the market balance?
8Spot LNG prices are currently ruling high. A cold snap in Japan, Korea, China and most of Europe boosted demand for LNG. In addition, outages at the Chevron-operated Gorgon LNG export plant in Australia reportedly left long-term contracted buyers with the project short.
8But projections are that around 141.8 mt of LNG to be produced in the first six months of 2017 – an increase of 16.8 mt from the 125 mt produced in the first half of 2016. Out of these additional volumes, liquefaction projects commissioned in 2016 – APLNG Train 2 and Gorgon Trains 1 and 2 in Australia and Sabine Pass Train 2 in the US – are forecast to contribute 8.5 mt. Another 0.9 mt is forecast to come from the start-up of Petronas’ FLNG Satu and Malaysia LNG Train 9 in Q1 2017 – the latter started up in January – while 0.56 mt is expected from the start-up of Sabine Pass Train 3 in Q2 2017.
8Against this extra supply, demand is expected to pick up speed. Malta became the first new LNG importer of 2017, when the 125,000 cm floating storage unit (FSU) Armada LNG Mediterrana received its maiden cargo on 11 January. The gas imported by Malta will feed a new 215 MW combined-cycle gas turbine power plant and an existing 149 MW unit that will be converted to burn gas rather than heavy fuel oil. Maltese LNG demand is currently forecast at 0.3 mtpa.
8By end-June, GasPort is scheduled to finish commissioning Pakistan’s second, 4.4 mtpa FSRU at Qasim, while India also is due to see its 5 mtpa Mundra LNG facility commissioned.
8Later in the year, LNG receiving terminals also are scheduled to start-up in China – Sinopec’s 3 mtpa Tianjin terminal – as well as Ghana, which will be sub-Saharan Africa’s first import project.
8Assuming that LNG demand remains solid during H1 2017, either from countries going through a colder-than-normal winter, or gas-hungry markets in the Middle East and Asia, a long market is likely to be kept at bay in the first half of 2017.
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