Global LNG supply and demand outlook (2017 - 2020)

Abstract

1. Motivation: Liquefied natural gas (LNG), the liquid form of natural gas at minus 160 , enables natural gas to become a global commodity because of its ease of storage and transportation worldwide. LNG production and consumption have increased substantially in the last decade, accounting for 10% of the global total natural gas consumption in 2016. The LNG industry is in the middle of a huge change with a very significant increase of liquefaction capacity, equivalent to 22% of the current total capacity. Market agent’s decision making is highly related with their expectations of future market situations. Thus, information on the future LNG supply and demand situation is of upmost importance to market agents in this business. 2. Research questions: The main research question is: What will be the global LNG monthly supply and demand situation during the period from 2017 to 2020? The sub-research questions are: • How much LNG will worldwide producers supply and importers consume monthly from 2017 to 2020? • What will be the LNG monthly supply and demand situation in different basins during the period from 2017 to 2020? • What are the factors that will have a big influence on the demand in Asian markets and how will they influence the market? • How can the global LNG market find its balance? Is Europe able to balance the expected market mismatch by itself? 3. Methodology: LNG supply and demand forecasting have been considered and carried out separately. The worldwide monthly LNG supply forecast is based on the information of physical liquefaction infrastructures, both currently existing and forthcoming liquefaction plants. Future LNG supply is calculated as the sum of current liquefaction plants’ LNG production and forthcoming liquefaction plants’ LNG production. In order to assess their production, a framework considering the utilization rate and ramping up process of new plants has been developed and applied. Forecasting future LNG demand is not that straightforward, as it is affected by numerous factors. At first, statistical time series models (mainly exponential smoothing models and ARIMA) have been used to build the base case scenario. The inputs of these statistical time series models were the historical monthly LNG import data of each country. Then, a fundamental industry analysis of the most important Asian countries was performed in order to compensate the limitation of statistical models and create different LNG demand scenarios. 4. Results and Conclusion: • The global total annual LNG supply in 2020 is expected to be 48% higher than that of 2016, reaching 387 MT from 263 MT in 2016. LNG supply is expected to increase substantially in the Asia Pacific and Atlantic basins, especially in the Atlantic basin, whose annual supply is expected to grow by 144% during the study period, reaching 129 MT in 2020. On the demand side, a 23% of global annual LNG demand increase is expected in the base case scenario, achieving 325 MT in 2020.• Worldwide LNG exporters are expected to produce significantly more LNG than the global market will need during 2017 to 2020. In the base case scenario, the expected annual percentage surplus (annual surplus volume to demand of the year) will rise from 5.3% (14.9 MT) in 2017 to 19.4% (63.1 MT) in 2020. • In the base case scenario, LNG supply is expected to surpass the expected demand in all months except for January 2017, December 2017 and January 2018. The LNG oversupply situation will be evident all the year round starting from 2018. The LNG surplus will be slightly higher in May and June months, and less in December and January months. • Asia Pacific is the only region with an expected LNG deficit throughout the whole period. Middle East and Atlantic basins will produce more LNG than their own LNG demands. The LNG shortage in Asia Pacific will be much more severe during winter months, and LNG will be imported from Middle East and the Atlantic basin. • Fundamental analysis identified that regulation of gas industry in China, coal-to-gas switching in South Korea, restart of nuclear power in Japan and infrastructure development in India are the most significant influencing factors of LNG demand in these most important Asian countries. Four scenarios on demand were developed on top on these factors. • China is expected to have very significant LNG demand increase if strong policies and regulatory measures in favor of gas consumption are adopted. The mismatch of global monthly LNG supply and demand is expected to be very small in this scenario. Quicker than expected nuclear restart in Japan will further add 21 MT LNG surplus in 2020. The effects of higher demand scenario in India and South Korea on the global LNG supply and demand situation are relatively small. • The surplus LNG is expected to reach Europe given Europe is the last resort market in global LNG business. This LNG will have to compete for demand with pipeline imported gas from Russia. LNG is expected to be in a tough situation due to Russian gas’s strong position in Europe. As the result, Europe will not be able to balance the global LNG market by itself alone. • Some of the other balancing mechanisms could be the reduction of the US liquefaction plants’ LNG production or an increase of LNG demand in emerging countries.