LNG WORLD MARKET

OUTLOOK FOR 2016

January 2016

Summary
2016 will see first US LNG exports from the Gulf Coast, a sharp rise in Australian production and the first
floating export project in Malaysia. Demand concerns will persist from east Asia with seller margins hit by
low oil prices. Europe will receive additional cargoes, but the market has been weak for some time with hub
prices continuing their descent. In the Americas, buy tenders may be on a smaller scale than in previous
years while the Middle East could prove a useful end market for short-term cargoes.

AUSTRALIA
Supply ramp-up from the east coast
With the Australia Pacific LNG (APLNG) plant officially
starting its first train on 11 December, Queensland
now has four LNG trains that could potentially run at
full capacity at the same time. Besides the impact on
domestic gas supply, LNG production from these trains

could feed into the bearish sentiment in the Asian market as

the north hemisphere winter draws to a close.
Both APLNG and Gladstone LNG (GLNG) are expected to
start up their second trains in the first half of 2016, which
could lengthen global supply further if the long-term offtakers
exercise downward quantity tolerance on contracts, boosting
volumes in the short-term market.

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LNG WORLD MARKET OUTLOOK FOR 2016

On the west coast, Chevrons Gorgon LNG is due to start

up in the first quarter and this will bring the current raft of
new Australian projects to a close. Chevrons Wheatstone
LNG export complex in western Australia is expected to
produce its first cargo by end-2016.

Australias four new export plants

have combined LNG production
of almost 41mtpa

Total nameplate production from QCLNG, GLNG, APLNG

and Gorgon is 40.9mtpa, just over double Australias
previous export capacity.
Although Australias competition authority has approved
Anglo-Dutch Shells acquisition of UK-based BG Group,
domestic market participants remain wary of the longterm repercussions. While it is unclear whether Shell
plans to divert the gas from its Arrow Energy joint
venture to BG Groups QCLNG for LNG exports, growing
domestic demand and insufficient supply sources could
push prices up and impact end users.

INDIA
Buyers to cash in
Perhaps the greatest beneficiary of an ongoing
oversupply will be Indian buyers, who are expected to
purchase more spot LNG in 2016. The market will remain
the centre of attention for producers with flexible volumes,
alongside portfolio and merchant traders.
LNG usage in power generation is expected to increase
due to the governments scheme to revive stranded gasbased power plants.
State-run refiners IOC, BPCL and some private
independent companies may be more active in the spot
market, with short-term tenders the favoured way of
securing LNG. Much will depend on the evolution of Asian
spot pricing.
Volumes priced under the recently-renegotiated long-term
7.5mtpa Petronet-RasGas contract are expected to be
delivered from January, with a shorter reference period to
the historic oil price.
The additional 1mtpa of supply lined up through the

renegotiation is to be sold by Petronet to its four existing

offtakers GAIL, IOC, BPCL and GSPC.
East coast LNG infrastructure is expected to get a boost
this year with a final investment decision (FID) on the
5mtpa Kakinada floating LNG import project in Andhra
Pradesh expected by March. The project will complete
in 18 months from the FID date, according to project
developers.
Pipeline connectivity from the 5mtpa Kochi LNG terminal
on the west coast is expected to improve as the state
government is looking at expediting the process of laying
pipelines and completing the work by mid-2016. This
could lift the usage of the terminal which until last year
had a utilisation rate of under 5%.
Petronet is expected to take the delivery of its fourth
LNG vessel - 173,000 cubic metre (cbm) Prachi from
South Koreas Hyundai Heavy Industries. The vessel will
transport LNG from Chevrons Gorgon project in Australia
to Kochi.

CHINA
Government focus, private companies
The Chinese governments announcement of a yuan
(CNY) 0.70 ($0.11)/cbm cut for city-gate gas prices to nonresidential users is likely to boost domestic consumption in
2016. While the price reduction should encourage private
gas distributors and large industrial end users to increase
their usage, state-owned importers who hold expensive
long-term contracts for LNG and pipeline gas might
suffer. Higher domestic demand might not translate into
increased LNG imports if the crude oil price remains weak
into the New Year because of cheaper competing fuels.
Although ENN Energy, Pacific Oil & Gas and Guanghui
Energy each imported one cargo in early 2015, these
independent buyers had expected to import more LNG
throughout the year. The difficulty of obtaining terminal
access due to the uncertainty of state-owned PetroChinas
shipping schedule and full storage tanks dented their
import ambitions. This scenario will likely repeat itself
in 2016 if domestic consumption does not pick up as
expected. Newcomer Beijing Gas is not expected to
receive another cargo at PetroChinas terminal beyond
January.
State-owned major CNOOC has awarded three cargoes
from its equity allocation at the Queensland Curtis LNG

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LNG WORLD MARKET OUTLOOK FOR 2016

(QCLNG) project this year and aims to market a few more

cargoes in 2016 as it establishes itself as a trading force.
Fellow major Sinopec has also been busy marketing its
long-term volumes from the Australia Pacific LNG (APLNG)
project, but it is unclear if it has been successful. Much
depends on whether its two new terminals can start up on
schedule. PetroChina already has a successful trading arm
that will continue to optimise its portfolio in both basins as it
continues to grapple with high inventories at its terminals in
China. The company recently concluded a supply position
into Egypt.
While much will depend on Chinas 13th five-year plan that is
due in March, new LNG buyers such as China Huadian are
banking on receiving approval for their proposed terminals
from the energy administrator. Approval would mean these
buyers can start building their terminals and pipelines in
preparation for their long-term contracts and possible trading
opportunities from 2020. There could also be further reform
as China introduces more market-related mechanisms that
erode the state-owned importers monopoly and allow more
independent companies to enter the LNG market.
The Shanghai Petroleum & Natural Gas Exchange (SHPGX)
is expected to help domestic pricing to be fully dictated by
market forces over the following two to three years. The
exchange formally started facilitating trades for pipeline
gas and LNG deliveries from December 2015. However, it
remains to be seen whether it can stake a claim as a reliable
benchmark for Asian LNG prices.

EAST ASIA

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Uncertainty over Japans short and long-term LNG

demand will persist. Utility Kyushu has restarted two
Sendai nuclear reactors, and Shikoku Electric will soon
be restarting a reactor at its Ikata plant. Kansai Electric
plans to restart nuclear production at Takahama in
late January. Electricity use is still declining in general,
meaning LNG demand is going down as part of a secular
trend. But demand may be volatile, as TEPCO and some
other utilities have until recently cut down their oil usage,
meaning that any spikes or drops in power demand will
have a big impact on LNG demand.

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Japanese companies will continue to work to balance

potential supply length ahead of US supply contracts
kicking in later in the decade. This may involve setting up
deals to access regasification capacity in Europe, or more
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ICIS accepts no liability for commercial decisions based on the content of this report.

LNG WORLD MARKET OUTLOOK FOR 2016

agreements such as between joint venture JERA and

Shizuoka Gas which could see the former supply LNG
based on the US natural gas price.
South Koreas KOGAS will be an Asian leader when
it takes US volumes from train 3 of Chenieres Sabine
Pass from 2017. The company will also lift more from
Australias GLNG, in which it holds a 15% stake, on a
free on board basis. KOGAS has already taken steps to
mitigate supply length by gaining access to European
import capacity. But the outlook for South Korean gas
demand is weak with Korea Hydro & Nuclear Power due
to start a new 1.4GW Shin Kori No 3 nuclear plant in May
and coal-fired generation likely to continue at a higher
rate than gas.
A more positive exception could be Taiwan, where the
government seems committed to decreasing nuclear
output after Fukushima-era protests. Renewable energy
production is set to increase, but not for a number of
years. But a possible rise in LNG demand could be offset
by electricity producer Taipower ramping up coal-fired
units that have been down for most of 2015.
Taipower is supposed to join LNG buyer CPC as a fellow
importer but is still waiting on the start of construction for
a new terminal.
SINGAPORE
Slow domestic progress
State-owned Singapore Exchange (SGX) plans to launch
LNG futures in January 2016. This follows on from SGXs
launch of an Asian LNG index, the FOB Singapore SLIng
in June 2015. The weekly-priced index includes 20 pricing
contributors and when futures contracts are launched, the
underlying methodology will be based on the Singapore
SLIng index.
Current market sentiment still shows a preference for
hedging based on oil rather than gas pricing, however,
especially in the Asian market. Growing liquidity in
Australian and US export markets could provide a basis
for hedging activity based on an FOB index but this
remains at an early stage.
Singapores plan to appoint up to two LNG importers
has faced recent challenges. On 1 December 2015, the
government postponed the selection process as all four
short-listed companies had requested for an extension to
the second stage of the request for proposal (RFP).

As part of the RFP, BG Singapore Gas Marketing, Shell

Eastern Petroleum and Singapores Pavilion Gas and
Sembcorp Industries had to secure a minimum of 0.6mtpa
worth of downstream agreements by the original deadline
of 29 February 2016.
However, with falling LNG prices and scarce demand,
they now have until 30 June to submit their proposals,
with Singapore likely to announce the final two LNG
importers in the fourth quarter.
SOUTHEAST ASIA
Floating LNG approaches
In Malaysia, PETRONAS $4.5bn 1.2mtpa floating PFLNG
1 project is expected to be ready in the first quarter. As
the countrys supply dwindles on maturing gas fields,
PETRONAS aims to utilise a fleet of smaller, versatile
FLNGs to reach and monetise gas from harder to reach
areas. The 3.6mtpa Train 9 at the Bintulu MLNG complex
is also due online in 2016, although recent local reports
indicate this is more likely to be later in the year.
In Thailand, the expansion of the Map ta Phut terminal
to 10mtpa from 5mtpa is expected in 2017 which will tie
in with 3mtpa of supply deals agreed by PTT over the
course of 2015. The recent postponement of one import
cargo has cast some doubt over the short-term demand
from what is expected to be a growing market.
Small-scale infrastructure should start to play more of a
role in supplying regional power plants in the Philippines
and Indonesia. The latter country expects a sharp rise in
domestic gas consumption but demand for LNG remains
unclear given the lack of a consistent pipeline network.
The floating import terminal at Lampung received only
one cargo in 2015.
US
First exports beckon
A delay in start-up means the first cargo to be produced
out of Sabine Pass is expected to be shipped by
Cheniere in February or March, rather than January.
The commissioning cargoes are expected to be sold
to the short-term market by Chenieres trading entity
Cheniere Marketing, with the possibility of the first cargo
heading to Brazil, given the ability for state-run Petrobras
to absorb a commissioning cargo.

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ICIS accepts no liability for commercial decisions based on the content of this report.

LNG WORLD MARKET OUTLOOK FOR 2016

BG Groups contract with Cheniere is scheduled to start

in the second half of 2016 and the buyer has the option
to lift cargoes before this date based on the same price
mechanism used in the long-term contract. Spains Gas
Natural and South Koreas KOGASs contracts for lifting
from Sabine Pass trains 2 and 3 respectively will both
start in mid-2017.
Only the first and second trains of Sabine Pass are
expected to start up during 2016, while the rest of the
sanctioned projects in the US Freeport LNG, Cameron
LNG, Cove Point and Corpus Christi are moving
forward with construction. Offtakers from each of the
projects are marketing LNG volumes downstream and
securing feedgas commitments.
Pushed lower by unseasonably warm temperatures
and starting the winter season with high inventories,
US natural gas futures prices for January 16 delivery
consistently settled at historically-low settlements for the
front month, reaching levels not seen since 1999. Cash
prices have also traded at a discount, reflecting the low
demand for winter heating.
Futures prices starting from mid-2016 have begun to decouple from the front curve, reflecting the ramp up of LNG
exports and increased pipeline exports to Mexico once
the second stage of the Los Ramones pipeline comes
online.
Short- and mid-term commitments will continue to be
sought by Cheniere, which has reserved allocated

incremental cargoes for its own trading from Sabine Pass

and Corpus Christi, as well as offtakers seeking to resell
volumes on the secondary market.

EUROPE
LNGs old/new friend?
The relentless increase in global LNG production means
deliveries into European terminals and interest in
securing terminal capacity will both increase this year.
Cheaper gas could support demand for gas-fired
generation, taking some of coals share. But pipe supply
will continue to cover the majority of demand, meaning
any sharp increase in LNG deliveries could push prices
down, and possibly to levels that LNG sellers struggle to
justify.
US suppliers and Asian companies have been eyeing
capacity and available slots at terminals in the UK and
France. So far, the most obvious shift in LNG supply has
come from an increase in deliveries from Qatar into the
UK and Italy.
LNG reloads from northwest European terminals are
expected to rival or overtake Spanish reloads, with
merchant traders utilising access to traded markets,
especially those with short-term positions into relatively
near Middle East markets.
In France, the 13 billion cubic metre (bcm)/year Dunkirk

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LNG WORLD MARKET OUTLOOK FOR 2016

terminal is expected to receive a commissioning LNG

cargo by the end of February. The terminal is also
expected to begin reload and small-scale LNG operations
this year. Frances Total and EDF have 8bcm/year and
2bcm/year capacity at the terminal for a 20-year period.
Polands newly commissioned Swinoujscie terminal is
expected to receive volumes from February, but contract
renegotiations with Qatargas mean cargoes previously
destined for Poland can continue to be sold into other
markets this year.
Work on the floating storage conversion unit for
Malaysian Bumi Armada is scheduled for completion in
the third quarter. The vessel will operate at the Delimara
LNG regasification terminal in Malta.
The use of LNG as a marine fuel remains Europes best
hope for long-term growth and could prosper in 2016
following the introduction of new emission regulations for
the sector from last year.
The construction work on Finlands first small-scale LNG
terminal in Pori is expected to complete by the autumn.
The 30,000cbm terminal will improve the availability
of LNG in Finland and reduce emissions, according to
natural gas incumbent Gasum. Truck loading and reload
operations from the Isle of Grain terminal in the UK are
also expected to increase this year.

MIDDLE EAST
One area of optimism
In the course of 2016, the Middle East could present
opportunities for both buyers and sellers to optimise their
spot volumes.
Qatargas is likely to offer flexible cargoes to third parties
as well as directly participating in tenders held by its longterm customers such as Kuwaits KPC and Thailands
PTT. The producer may have a greater availability of
flexible volumes in 2016, as buyers are expected to
increasingly make use of flexibility to take lower volume in
contracts.

Given large storage facilities in Dubai, the emirate is now

viewed as a potential dumping ground for excess cargoes
that could not find a home elsewhere.

On the buy side, Kuwait and Dubai are expected to

increase imports this year. Kuwait will be seeking two
cargoes per month during the peak of its demand season
to supplement its basket of mid-term agreements. Dubai
has secured a number of put options with sellers that
would allow the company to absorb LNG at below a
12% slope price of 90-day Brent crude oil indexation.
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ICIS accepts no liability for commercial decisions based on the content of this report.

LNG WORLD MARKET OUTLOOK FOR 2016

Qatar is looking for new buyers

to take its flexible volumes and
will look both to the east and the
west

In North Africa, Egypts state-owned EGAS and Jordans

power company NEPCO will continue to absorb volumes
secured during tenders held in 2015. These volumes
could be supplemented by additional tenders in 2016.
The rising liquidity in the region is likely to attract cargoes
from the Atlantic Basin to Egypt and Jordan, while Pacific
basin volumes, particularly from eastern Australian
projects, will target at customers in Kuwait and Dubai.
Egypt is attracting prices at levels similar to those paid by
buyers in northeast Asia, sources said. This is due to the
fact that many slots seen on that market were secured
as short positions. Kuwait, on the other hand, typically
monitors levels paid by buyers in India and buys on a
netback basis.
RUSSIA
Slow progress on new projects
Russias Gazprom and Shell will continue to work on
the expansion of the existing Sakhalin-2 project in the
countrys far east region, where most volumes from the
proposed train 3 have been placed with the Asian buyers.
Construction at Yamal LNG, which has also committed
more than 98% of its production under long-term
contracts, will continue as planned. Both projects have
faced difficulties due to the existing sanctions regime,
which mainly impacted access to finance from foreign
sources. With continuous pressure on crude markets,
the feasibility of Gazproms Baltic LNG project near St
Petersburg remains under question. The project, which
is supposed to be supplied directly from Russias gas
grid, is yet to sign any long-term contract. Increased
global competition on supply means that the buyers are
now willing to pay much lower indexation levels than
previously.
On the spot market, Russias incumbent Gazprom and
state-owned oil producer Rosneft both signed agreements
with Egypt for 35 and 24 cargoes respectively. However,

both deals failed to materialise into concrete contracts.

Much speculation revolved as to where Rosneft would
secure the supply from with some market sources
expecting a cross-commodity swap or other swap
arrangement.
The Sakhalin-2 project is likely to hold several tenders
next year, as long-term buyers have nominated close to
the minimum under annual contract clauses. This means
that additional supplies from Russia are likely to hit the
market as early as the first quarter.

AMERICAS
Steady project progress
South American importers have taken a step back from
competing as the premium buyers, as overall demand
has eased with the slowdown in economic growth.
While Argentinas gas distributor ENARSA prepared for
its 2016 requirements, the banner attention and pricing
that the ENARSA tenders once commanded are likely to
be replaced by smaller procurement rounds, organised
by state-run YPF. So far, nine cargoes have been sought
over the first quarter.
The transition of the Macri government will likely usher in
new energy policy, which could change Argentinas LNG
buying strategy and relationships with neighbours such as
Chile.
Brazils state-run Petrobras has grappled with the ongoing
government probe among its executives, which has left
some longer-term strategy planning in the air.
Petrobras has discussed opening up spare capacity at
its three floating storage regasification units (FSRUs) to
private power generators and Brazilian entities, but the
timing of implementation and overall pricing remains
unclear. Other plans to propose floating terminals
by private companies such as Bolognesi Group and
GenPower still must overcome the hurdle of matching
competitive pricing in Brazils upcoming auctions.
Smaller potential buyers such as El Salvador have gained
attention from global sellers looking to place long-term
volumes from the US projects. A shortlist has been
formed and a supply agreement is expected soon to be
in place for the onshore terminal, which is expected to be
online starting in 2018.

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ICIS accepts no liability for commercial decisions based on the content of this report.

LNG WORLD MARKET OUTLOOK FOR 2016

Start-up of a Colombian floating import terminal by a

consortium of power generators is expected before
the end of 2016 with an FSRU provided by Norwegian
shipping company Hoegh. The FSRU will provide LNG to
the Colombian market, which struggles with soaring gas
demand during El Nino years.
In Chile, companies that have been awarded expansion
capacity at the Quintero terminal are separately seeking
supply: IC Power, AES Chile and Chilean generator
Colbun. The three companies were in advanced stages
of supply discussions, although their respective power

projects to underpin the capacity are in various stages of

development.
Shells Andes LNG project, which is expected to be
situated between Quintero and Mejillones, remains
at a feasibility stage, while the planned GNL Penco
project in southern Chile, led by Cheniere and generator
Biobiogenera, has progressed through permitting.
Chiles state-run refiner ENAP is expected to seek more
capacity at the existing Mejillones terminal, given the
countrys mandated plans for the company to secure
natural gas.

Copyright 2016 Reed Business Information Ltd. ICIS is a member of the Reed Elsevier plc group.
ICIS accepts no liability for commercial decisions based on the content of this report.