Outlook: gas market, full steam ahead.

Author:Evers, Sean
Position::LNG 2016 Update
 
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Significant changes loom over the global gas and liquefied natural gas (LNG) market in 2016, as emerging players backed by huge reserves start to elbow established suppliers aside. Will a sanctions-free Iran, home to the world's second-largest gas reserves, realize its regional supply agreements? And how will Qatar, the world's largest LNG exporter, react now that both the U.S. and Australia are capable of stealing its crown by 2020?

Questions abound, but there is a level of consensus among energy professionals. It is likely that there will be a rise in LNG spot market activity in the three primary hubs over the coming year; Europe, the Middle East and Asia and the U.S. Prices are expected to stay depressed by the oversupply throughout 2016 at the very least, but most likely until 2019 as an already abundant supply is swamped by volume from emerging suppliers, notably the U.S. and Iran.

The LNG market is expected to continue the growth it reported in 2015, despite weakened demand and the impact of the oil price crash. LNG production hit 250MM metric tons (m/t) last year, rising by 4MM m/t on 2014, according to Wood Mackenzie. The consultancy cautions that a further 125MM m/t of LNG under development means that the majority of market growth will come after 2016.

New supply contracts, such as the 5.8MM m/t of LNG for Jordan, Egypt and Pakistan in 2015, are expected to be supplied via fast-tracked floating storage and regasification units (FSRU)--rising competition means plugging into new markets quickly will prove key. Overall, the future for gas, in pipeline or LNG form is still bright.

U.S. Market Awakens

The first LNG exports in early 2016 from the U.S. Sabine Pass marked a key milestone; it signifies another surprise move in the U.S.'s journey from an energy importer to an exporter and it will spark a shift in the global market dynamics. Conservative estimates put the U.S. as one of the world's top LNG suppliers by 2020, coming third to Qatar and Australia. A wave of mega LNG infrastructure projects is also underway in the U.S.

The export of Henry Hub-linked gas from the U.S. could allow Henry Hub to emerge as the global price marker, while the geographic convenience and underused import infrastructure in Europe could tempt U.S. exporters to the continent. The U.S.'s new LNG market is also expected to find clients within the Pacific Rim and possibly even the Far East via the newly expanded Panama Canal.

Iran Wades Back In

Iran, home to the world's second-largest...

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