australia’s new projects meet east asia’s h1 lng … · australia’s new projects meet east...

AUSTRALIA’S NEW PROJECTS MEET EAST ASIA’S H1 LNG DEMAND GROWTH

The East Asian LNG importers of China, Japan, South Korea and Taiwan received 86.3 million tonnes of LNG in the first half of 2017, according to ship-tracking and customs data from intelligence platform LNG Edge. This was up 14% from the first half of 2016, as demand in Japan and South Korea rebounded from a dip in 2015-16, rapidly expanding China increased its imports by 35% and Taiwan continued to grow.

New Australian export projects were the key source of supply for meeting the increased demand. The growth in Australian supply close to east Asian consumers has, meanwhile, freed up volumes from the world’s largest LNG seller, Qatar, to supply growing markets closer to its own production base, such as Egypt and Pakistan.

Right: Australia delivered 111 more cargoes to East Asia in H1 2017 than H1 2016, balancing around two thirds of the total year-on-year increase in cargoes of 163.

Number of cargoes delivered to key East Asian buyers in H1 2017, figure in brackets is change from H1 2016, Source: LNG Edge.

EAST ASIAN LNG DEMAND REBOUNDS

First half LNG demand in East Asia had been sliding in recent years, down 6% from 2014 to 2015 and then dipping a further 2% from 2015 to 2016. However, it rebounded strongly in H1 2017 with the region seeing a 14% increase in LNG deliveries. Japan and South Korea both saw imports back up closer to the levels of H1 2014. Japan saw some cold weather in early January and domestic gas sales were strong. South Korea was suffering from a number of nuclear

power outages that drove it back into the spot market for cargoes for power generation. Taiwan has seen a modest growth trend in recent years, and was also suffering nuclear shutdowns. China, meanwhile, stepped sharply upwards in H1 2017, importing 15.7 million tonnes, up 35% from H1 2016, as it took in volumes due under its growing portfolio of long-term contracts.

East Asia’s H1 2017 LNG demand was up 6% from H1 2014 when including China, Japan, South Korea and Taiwan. These countries together form the basis for the ICIS East Asia Index (EAX) for spot LNG cargoes. Excluding China, however, the region’s demand has been stagnant in recent years. H1 2017 demand for Japan, South Korea and Taiwan alone slipped 1% from H1 2014.

By Alex Froley JULY 2017

© Copyright 2017 Reed Business Information Ltd. ICIS is a member of RBI is part of RELX Group plcICIS accepts no liability for commercial decisions based on the content of this report

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ANALYSIS



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HIGH PRICES PULL ADDITIONAL SUPPLY IN Q1

LNG imports to East Asia saw their recent peak in January 2017, when the region imported 17.4 million tonnes, driven by cold winter weather and nuclear outages. The strong demand combined with an outage at train one of Australia’s Gorgon LNG to push the East Asia Index (EAX) spot prices quoted for February deliveries at the time to over $9.00/MMBtu, compared with lows around $4.00-5.00/MMBtu last summer. As demand dropped moving into spring, and Gorgon train one returned, spot prices fell back into the $5.00-6.00/MMBtu range later in the first half. New facilities were also coming onstream during this time, including a third train at Gorgon and a third train at the US Sabine Pass facility.

Australia overtook Qatar as the biggest single supplier to the East Asia region in H1 2017. Australia delivered a total of 23.7 million tonnes during January to June 2017, up 42% from 16.7 million tonnes in H1 2016. Qatar delivered a total 17.4 million tonnes during H1 2017, up just 3% from 16.9 million tonnes in H1 2016, when its supplies to East Asia were marginally higher than Australia’s.

Australia brought an extra 18.8 million tonnes per annum (mtpa) of LNG production into operation across 2016: two trains at Gorgon of 5.2mtpa each, a second 4.5mtpa train at APLNG and a second 3.9mtpa train at GLNG. Australia’s new production enabled it to take a 27% market share of supply to East Asia in H1 2017, up from 22% the year before, while Qatar slipped to 20% from 22%.

Malaysia supplied 14% of East Asian demand in H1 2017, while its southeast Asian neighbours Indonesia, Brunei and Papua New Guinea together supplied 16%. Russia’s market share held steady from year to year at 7%. Russia supplies cargoes to East Asia from its Sakhalin Island production facilities off the east coast of Russia, close to Japan. From the Middle East, Oman and Brunei together supplied 8% of East Asia’s H1 2017 demand. The remaining 7%* was met by other countries, including the US, Nigeria, Equatorial Guinea and Angola. (*Figures sum to 99% due to rounding). The first US Sabine Pass cargo to Japan arrived on the 173,000cbm Oak Spirit to Japan’s Naoetsu terminal on January 5, 2017. The graph shows the share of these “other” producers was at its highest in January, when the high prices in East Asia were able to draw in more cargoes from Atlantic Basin producers.


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QATARI VOLUME FREED UP FOR LOCAL MARKETS

The rapid growth in Australian production capacity during 2016 enabled the global LNG market to meet most of the rebounding demand seen in East Asia in H1 2017 from local production. While Australian exports to East Asia grew steadily from 2015 to 2017, Qatari exports to east Asia only saw slight growth from 2016 to 2017 and failed to return to their 2015 levels. Qatar was able to send more of its volumes to other growing markets closer to home, including to Egypt and Pakistan.

Australian exports will continue to increase in 2017. A third 5.2mtpa train at Gorgon started up in the first half of the year. A first 4.4mtpa train at Wheatstone is due in the second

half of the year, with a second 4.4mtpa train due in 2018, as well as a potential 8.9mtpa of production from the delayed Ichthys project. Japanese LNG demand is not expected to see significant growth, with downside pressure coming from expected nuclear power plant restarts, which means that the local market should be well placed to meet continued growth in consumption from China, reducing requirements to pull in additional cargoes from the Middle East or Atlantic Basin.

Production will also continue to grow in the US, as further plants follow the 2016 start-up of Sabine Pass, while in the Middle East Qatar has announced its intention to boost its output by 30% from 77mtpa to 100mtpa within the next five to seven years, aiming to retain its position as the world’s largest supplier in the face of growing competition.

Find out how the ICIS LNG solution can support your business needs.Europe: +44 20 7911 1960 | APAC: +65 9822 3873 | US: +1 713 525 [email protected] | www.icis.com/lng

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australia’s new projects meet east asia’s h1 lng … · australia’s new projects meet east...

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