Markets

Only a few years ago the US market looked set to play a pivotal role in the global LNG trade, with the US Henry Hub price acting as a price marker for short-term cargoes. But with the advent of shale gas and the collapse of US LNG imports, the role of “swing market” has passed to North-West Europe, where the UK National Balancing Point (NBP) is the dominant reference for pricing. But North-West Europe and the US are very different gas markets, not only in terms of scale, but also in pricing dynamics and market depth. In this article, LNG Business Review examines developments in the North-West European market for LNG, the implications for the LNG business of the emergence of this new swing market – and also the implications for Europe of adopting this new role.

2011 was a year of both growth, with activity increasing by around 11%, well above the long-term average of 7.7%/annum, and changing trading patterns as LNG cargoes were diverted to Asia in the aftermath of the tragic earthquake and tsunami in Japan on March 11, which triggered the Fukushima nuclear crisis. It also saw the commissioning of the last of Qatar’s six mega-trains bringing to an end, at least for the next few years, the expansion of the country’s LNG capacity. Australia established itself as the next source of supply growth with Final Investment Decisions (FIDs) on four new projects, including the world’s first floating LNG unit. The USA emerged as a potential major growth area for supply in the medium term while discoveries offshore Mozambique and Tanzania have brought East Africa into the spotlight as a new supply source towards the end of the current decade. LNG Business Review examines the LNG business in 2011 focusing on these five countries – Japan, Qatar, Australia, the USA and Mozambique – which in differing ways had a major impact on the global LNG business during the year.

LNG supply increased by 8.6% year on year in the third quarter of 2011, at a slower pace than the 13.5% rise recorded in the first half of the year. The increase in supply for the quarter came almost entirely from Qatar as output built up from the last of its 7.8mtpa mega-trains, Qatargas 4, which was commissioned in February. No other new trains have been commissioned this year and total output from the other seventeen LNG producing countries was down by an aggregate 0.6mt compared with the same period of 2010. As figure 1 shows, Qatar has been the main driver of global LNG supply growth since the first of its mega-trains was commissioned in mid-2009. In the nine quarters since then, global LNG supply has increased by 70mtpa of which 43mtpa (61%) came from Qatar.

Australia is continuing on the road to challenge Qatar as the world’s largest LNG producer, with the Chevron-led Wheatstone LNG project in Western Australia (WA) the country’s fourth to reach a final investment decision (FID) this year. The decision was taken on September 26 with only around 50% of the project’s output sold under binding long-term arrangements. But who will buy the uncommitted volumes?