Industry Trend Analysis - EMs & Portfolio Players Driving LNG Market - MAY 2017
BMI View: Emerging markets continue to be the driving force behind long-term LNG purchases securing more than 53% of contract volume concluded in 2016. P ortfolio buyers and sellers are maximising their LNG positions in order to optimise LNG deliveries in the face of growing global supply.
According to the 2017 annual report by GIIGNL, an international group of LNG importers, global LNG trade grew 7.5% in 2016 to 263.6mn tonnes. Analysis of the long-term contracts (+4 years) which were finalised in 2016, highlights some of the key trends we indicated would play out in the LNG market.
Emerging markets (EMs) remain the driver of new contracts signed with more than 53% of the long-term contracted volumes agreed in 2016 ( see ' LNG: EM Outperformance Set To Stay ' , December 13 2016). Indonesia, Pakistan, China and Thailand were the main contributors to new EM LNG demand, though it is also expected that a large proportion of LNG sold to portfolio buyers will also head to EM importers. 26% of contracts concluded in 2016 were sold to major LNG portfolio players, including Shell, Total, Pertami n a and BP, which will also sell into emerging Asian markets.
|EMs Lead New LNG Demand|
|2016 LNG Contracts by EM, DM & Portfolio (mn tonnes & %)|
We also noted that the start of LNG exports from the US, would alter the dynamic of global trade, forcing companies to be more flexible with their purchase and sales agreements ( see 'US LNG Reshaping Global Markets ' , February 14). Of the long-term contracts agreed in 2016, more than one third were sold from the international LNG portfolios of oil majors, while more than one quarter were bought by portfolio players. Through this flexibility, companies can offtake LNG and optimise it within their global portfolios to direct cargoes to the markets offering the highest netback margins, an essential ability with competition for supply growing.
|Portfolio Players Building Positions|
|2016 LNG Export & Import Contracts By Portfolio Players (mn tonnes)|
Also of note is the large volume of long term contracts signed by Qatar over 2016. Facing growing competition from US and Australian exports over the coming years, the world's leading exporter has pushed to gain a foothold in key growth markets. Over 60% of the LNG contract volume finalised by Qatar in 2016 will head to Pakistan, indicating the growing risk exporters are having to take in order to secure new contract sales.
|Supply Pressures Yet To Peak|
|Cumulative Global Liquefaction Capacity Additions, mtpa|
|f = forecast. Source: BMI LNG Projects Database|
Our outlook for the LNG prices remains bearish given the substantial volume of new capacity set to join the market over 2017 and 2018 ( see ' JKM: Short-Term Strength Masking Long-Term Weakness ' , December 8 2016). We expect this to drive weaker prices, which will spur greater demand, though not at the same pace supply is set to grow.