There has been a return to growth in LNG production in 2015 after three years of stagnation because of technical and gas supply problems at some operating plants and delays in the start-up of new liquefaction trains. The commissioning of two LNG projects in Australia and one in Indonesia in the first nine months of 2015 and the prospect of more start-ups in the fourth quarter of 2015 and in early 2016 are the first stages of a new surge in production which will see around 150 mtpa of liquefaction capacity added to the over 300 mtpa in operation in October 2015. There will be some decline in production from operating plants as gas supplies run down and/or host governments prioritise domestic demand over continued LNG exports. However, production from projects in operation and under construction in October 2015 is forecast to reach around 390 mtpa in 2025. The consensus view of forecasts is that LNG demand by then will be between 425 mtpa and 475 mtpa, which means that 35 to 85 mtpa of new capacity needs to be on-stream in 2025 to meet expected demand.
Proposals have been made for over 750 mtpa of new LNG capacity, around 75% of which is in North America. The proposed capacity offers buyers not only geographical diversity, with new capacity proposed in the USA, Canada, Russia, Australia, East Africa, West Africa and the Eastern Mediterranean but also alternative pricing formulae and different risk profiles. How do buyers decide which projects to support and which should be avoided especially when over half the new projects are sponsored by companies with no previous experience of developing an LNG project? The sponsors of the planned new liquefaction capacity face strong competition to secure the commitment from buyers and off-takers for the output from their proposed plants, only around 10% of which will be needed to meet demand in 2025. The rest face long delays or abandonment. The workshop will discuss the scope for reducing costs, which will be a critical factor in determining which of the proposed projects will be developed over the next decade.
Price will be a major consideration for buyers in deciding which projects they select amongst the many on offer and will be key to the the economic viability of new investments. The workshop will review current LNG pricing, the future of oil indexation and the alternatives of market based prices (i.e. a linkage to Henry Hub prices or to prices at other hubs, such as the UK’s National Balancing Point price) or hybrid prices. The risks for both buyers and sellers in using alternative pricing models will be discussed. The workshop will provide delegates with an overview of the supply and pricing outlook in advance of the main conference, where these topics will be subjects in the presentations and discussion.
Mr. Andy Flower
LNG and Natural Gas Consultant, UK
Andy Flower has been working as a consultant in LNG & Natural Gas since his retirement from BP over fifteen years ago. During his 22 years working on LNG in BP, Andy managed BP’s interests in projects in Nigeria, Abu Dhabi, Qatar and Australia. He also managed a team responsible for evaluating new projects in PNG, Venezuela, Angola, Egypt, Indonesia and Iran. His key expertise is in the commercial aspects of LNG including, marketing, project development, supply and demand, contracts, pricing, shipping and short-term trading. He has run LNG courses in Europe, Asia, the Middle East and the Americas. He frequently speaks or chairs sessions at major conferences and is the author of a number of papers and chapters in books on LNG and natural gas.
Keys issues covered
The LNG Supply Challenge
- LNG plants in operation and under construction in early-2016
- Forecast production 2016 to 2020 from projects in operation and under construction
- Proposed projects in North America, Australasia, Africa,Russia, Eastern Mediterranean & Middle East
- Floating liquefaction (FLNG)
- The cost and economics of developing new liquefaction capacity
- Forecast LNG production 2021 to 2025
- The evolution of oil-linked pricing is Asia and Europe
- Market-based pricing in Europe and the Americas
- Oil indexed versus Henry Hub linked prices is Asia, which will be the cheapest option for buyers?
- Will there be a move to hybrid pricing?
- The pricing of spot and short-term LNG
- The development of spot price indices.
- Will a trading hub develop in Asia?
- Could prices at an Asian hub develop the reliability and credibility to be used to price LNG sold under long-term contract?