With LNG markets over-supplied and demand growth disappointing in key markets such as China, the rapid development of new markets (via FSRUs) and supplier flexibility on contracts is key to rebalancing the market
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: LNG supply growth, 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 Chinese protectionism, regasification capacity and contract sanctity versus flexibility.
China has reduced regulated City Gate gas prices, but not by much. Its reluctance reflects a protectionist fear of damaging investment in the development of expensive indigenous gas. However, it is having unintended consequences, it is discouraging switching from low priced competing fuels such as LPG and lowering gas demand growth, constraining the ability of the market to absorb contracted LNG.
Where could LNG import growth come from in 2016?
New FSRU terminals supported demand in 2015 and new floating importers will continue in the same path in 2016. With Europe acting as the market of last resort, LNG sellers are securing access to limited regas capacity in NW Europe, causing the availability to dwindle and the cost of accessing such capacity to increase.
Key markets and players:
- Ghana, Colombia, Malta and Abu Dhabi: Potential new floating importers in 2016
- KOGAS, Cheniere and Shell: Majors taking options on regas capacity in NW Europe
- Huadian, Guanghui and ENN: New entrants in China are developing their own regasification infrastructure to import LNG
The successful RasGas-Petronet contract renegotiation suggested a win-win outcome for both parties as they sought to adjust the contract to fit better with current market pricing. However, with an increasing number of buyers likely to be over-contracted, it points to a growing expectation that buyers can put some of the burden onto sellers.
Get the expanded forecast for 2016 in our Global gas and LNG: 5 things to look out for in 2016 Insight, available as part of our subscription service or to purchase On-Demand.
Our new LNG Corporate Service delivers insight into the LNG strategy and assets of 12 of the key players, providing accurate assessments of flexible LNG supply within each portfolio.