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.