London - The increase in US liquefaction capacity is one of the major factors driving LNG shipping rates, as London research firm Drewry writes in its latest report. The increase has created ample supply of LNG in the global market, with US LNG exports quadrupling in 2018 to reach 18 million tonnes from just 3.5 million tonnes in 2016.
In 2019 we project these exports to reach 31 million by year-end; up 68% from 2018. However, competition for US LNG companies is set to increase with Qatar’s North Field Expansion (NFE) (33 mtpa), Mozambique’s Rovuma LNG (15 mtpa) and Mozambique LNG (13 mtpa), Russia’s Arctic LNG-2 (20 mtpa), Yamal LNG Train-4 (1.2 mtpa), Australia’s Pluto LNG T2 (4 mtpa), Gorgon LNG T4 (5 mtpa) plus a range of other projects including US-based ventures likely to add 90 mtpa of liquefaction capacity globally by 2023. The question then arises - where will this new capacity go?
Major LNG importers, such as Japan and South Korea, have recently shown a sign of stagnating for LNG imports, with the former’s increasing reliance on renewables, along with a stable population and latter’s weak electricity demand being the main reasons why import growth has stalled. However, there is a counterbalance as LNG demand in China is rising rapidly. China’s LNG imports have doubled in just two years, reaching 53 million tonnes in 2018 from 26 million tonnes in 2016.
Furthermore, Drewry expects to see additional growth in China’s LNG imports, driven by clean air policies, an aggressive coal-to-gas switch, city gas distribution pipeline expansion and increased gas consumption in the industrial sector. For the moment the US-China trade dispute and the slowdown in the Chinese economy have not impacted the trend of rising LNG demand in China.
Terminal expansions in recent years have added 69 mtpa of LNG import capacity and another 42 mtpa of capacity is scheduled to be online by 2023. The additional terminal capacity is sufficient to absorb production from 12-14 average-sized LNG liquefaction projects around the world.
Until the trade dispute with the US is settled, China will continue to source its LNG from Australia, Qatar, Malaysia, Indonesia and Russia. However, LNG supplies from these exporters will be insufficient to meet China’s future LNG import requirement. Therefore, with a resolution to the US-China trade dispute in the offing, we are of the opinion that US LNG cargoes will head to China in the near future.