Growing LNG supply, with new projects coming on-line in the USA and Australia, will put further pressure on prices in 2016; which in turn will encourage coal to gas switching in Europe
2015 brought with it a year of low oil and coal prices, while growing availability of LNG and a changing corporate landscape will shape much of 2016. In our latest Insight: Global gas and LNG: 5 things to look out for in 2016, we consider 5 key issues that will shape market dynamics over the coming year including: coal to gas competition in both Europe and Asia, Chinese energy policy, access to regas capacity in Europe and contract flexibility. This week we look at LNG growth - from projects under construction to those we believe will take project sanction over the next 12 months - and the impact this growth will have on European spot price setting.
A supply surplus
The big supply interest in 2016 will be the start of LNG exports from Sabine Pass in the US, while the largest growth will come from Australia, with new projects at AP LNG and Gorgon and ramp-up of QC LNG and GLNG. We expect additional LNG supply from the re-start of Angola LNG and from the world's first Floating LNG project in Malaysia. In total, we forecast LNG supply in 2016 to increase 17 Mt on 2015, to 267 Mt.
Will LNG supply continue to rise and what does that mean for the wider market?
If all goes to plan, we predict total LNG supply for 2016 to increase 17 Mt. However uncertainty around the exact timing and ramp-up of volumes could take its toll with year-on-year growth in 2016 limited to only 10 Mt. With 125 Mt of LNG currently under development, real LNG growth is expected to develop post 2016.
Low prices will force most LNG projects targeting Final Investment Decisions (FID) in 2016 to defer, but not all - with Western Canada and smaller-scale FLNG projects the most likely to proceed. In aggregate, 20 mmtpa of LNG FIDs are imminently possible in 2016, which could prolong the period of oversupply.
Coal to gas switching in Europe
With a downward pressure on European spot gas prices, coal displacement will be a key theme of 2016. High pipeline exports from Norway and Russia seen in 2015 are expected to continue throughout the year with high storage inventories and growing LNG imports expected to put further pressure on prices.
So how far will coal to gas switching go?
We expect the margin between US and European gas prices to remain high to avoid the shut-in of US LNG exports in 2016, but thereafter the risk grows. For more on coal to gas switching, read our Insight: Coal-gas switching in Europe - what's the potential for increased gas demand?
Next week: Chinese energy policy, access to regas capacity in Europe and contract flexibility.
Get the full forecast for 2016 in our Global gas and LNG: 5 things to look out for in 2016 Insight, available to purchase.
Read our news release on key messages for 2015: US & Australian LNG start-ups in 2016, but real LNG growth yet to come.
Global gas and LNG themes - Q1 2016
LNG FID Tracker - Q1 2016
FLNG - Is small beautiful?
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