Reshaping flows: the future of LNG supply

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Growing US exports and spot liquidity are reinforcing global trade interconnectivity and efficiency, but a possible supply shortage in the early 2020s could have far-reaching implications.

The shift from point-to-point LNG deliveries to a liberalized market where cargoes are free to cut a path to the best netback will be cemented by global export infrastructure developments that are opening up new trade flow routes.

The main drivers? Flexible US supplies and expansions by Qatar and Russia that offer greater efficiency to buyers and sellers.

With some 208 million mt/year of liquefaction capacity to be added over the next two decades to the current global total of almost 400 million mt/year, based on S&P Global Platts Analytics forecasts, there will be a surge in spot trading that will incentivize greater optimizations across supply chains, resulting in an overall reduction in voyage lengths and final delivered costs.

National oil companies and big international oil companies, which are driving the majority of new LNG project finance, see liquefaction facilities as a crucial outlet for burgeoning associated gas production. A “producer push” on the scale expected would further pressure traditional trading patterns and drive increased commoditization of LNG globally.

The massive shift of US LNG diverting from Asia to Europe in winter 2018 was an indication of the impact price volatility will have in the future on cargo movements. During that period, Platts JKM, the benchmark price for spot LNG delivered to Northeast Asia, dropped below the prevailing Western European benchmarks on a netback basis to US supply hubs.

Capturing market share

While flexible volumes from a second wave of US export projects will continue to lead the push for international LNG trade liberalization, other exporting countries are looking to expand their market share and not give up so much ground to the US.

State-owned Qatar Petroleum is pushing ahead with a bold expansion plan to boost LNG output to 110 million mt/year by 2024 from 77 million mt/year in 2019.

The move will help Qatar support global supply flexibility — especially if projects in other countries are delayed or do not get built — at a time when emerging economies in China and India are driving up demand and Europe is importing more cargoes after years of stagnation.

While Australia faces headwinds on the liquefaction growth front, it believes the discovery of substantial shale gas resources in the Beetaloo sub-basin in its Northern Territory represents a longer- term opportunity for growth. Success would provide a further backstop to the threat of global supply shortages.

Anadarko’s Mozambique LNG project also offers promise, while Russia’s Gazprom and Novatek are being urged to develop an integrated LNG export strategy to spur growth.

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