LNG June 2017
Australia and US Increase Production Despite Summer Headwinds

The influence of US exports on Europe and Asia has been mild as deliveries have been focused on Latin America. Australia and the US continued to lead the world in ramping up export capacity. However, Australia’s Ichthys and Prelude facilities have had their start-up dates pushed back once again because of construction delays. Demand growth remains concentrated in new markets in Asia such as China, India, and Pakistan. Indeed, Pakistan awarded Eni a contract to supply 180 LNG cargoes over the next 15 years.

Japan’s contracted spot price was between US$6-8/MBtu during the March Quarter of 2017. Japan’s average import price in April was US$5.70/MBtu, a 7% decrease from March figures. These figures were expected, given the seasonality of gas demand. We do not expect US exports to begin seriously challenging long term, oil-index LNG exports from nations like Australia and Qatar in the next 12 months.  

The world’s LNG supply continues to grow but the delays that have plagued Australia’s new-construction LNG facilities have arisen once again. Shell  announced the start-up date of its Prelude FLNG project has once again been pushed back, this time to 2018. Similarly, Inpex's Ichthys LNG facility has been pushed back several months to March 2018. These delays in start-up are compounded by equipment failure and maintenance. Chevron halted production of Gorgon Train 1 because of equipment failure on 12 May. Chevron stopped production from Train 1 for the rest of the month as it carried out repairs and performed routine maintenance.

Developing countries continue to drive worldwide LNG demand. Countries such as China, India and Pakistan are investing in the required infrastructure to increase LNG imports. We expect demand growth and capital investment in established markets such as Japan and Korea to weaken as their regasification facilities remain underutilised. However, Taiwan is an outlier because it uses 110% of its regasification capacity. Taiwan is aiming to be reduce nuclear energy usage to zero by 2030. We expect gas will benefit the most from this policy switch and Taiwan is currently expanding the Taichung LNG terminal’s capacity from 4.5Mtpa to 5Mtpa in 2018.

Overall, we see the oversupplied market persisting throughout 2017. We expect LNG prices will remain depressed relative to their historical averages because of this oversupply and the lower oil price affecting oil-linked contracts.