LNG market to change completely by 2020: Expert

By Murat Temizer

ISTANBUL (AA) - The LNG supply wave is in its infancy and a very substantial increase of spot and short term LNG will be seen in the near future, said Anne-Sophie Corbeau an LNG expert and research fellow at King Abdullah Petroleum Studies and Research Center based in Saudi Arabia.

Corbeau told Anadolu Agency (AA) in Istanbul during World Energy Congress 2016, of which AA is the global communication partner, that 150 million tonnes of LNG per year would enter the global gas market between 2015 and 2020, reflecting a potential 50 percent increase in capacity.

"So far we have mostly seen Australian LNG. Most of the U.S. LNG is going to enter the market over 2017-20. This will change the global LNG market completely," Corbeau said.

She added that when this occurs, the problem for all LNG suppliers is that LNG will enter the market in completely different circumstances than anticipated previously.

"First of all demand in Asia is weak, while it was expected to be a bottomless sink for LNG supplies. Also, oil prices and gas prices are much lower than what people anticipated when they took the decision to invest in these LNG plants," she noted.

According to the latest reports from natural gas organization, CEDIGAZ, the number of LNG importing countries grew from 18 in 2005 to 35 in 2015 and this trend is expected to continue, with 20 new countries planning to import LNG from now to 2025.

"The changes ahead of us are not only a question of supply, demand and prices. Buyers want more flexibility; they no longer want to commit to 20-year long-term contracts because they have no certainty on future LNG demand," she said.

She stressed that the share of spot and short term LNG in the global trade could reach up to 43 percent by 2020, compared to 28 percent in 2015.

"Considering that LNG capacity is increasing by 50 percent, we are going to see much more flexible LNG supplies This could fundamentally change the way LNG is bought and traded, and also threaten existing long-term contracts which have until now represented the backbone of the LNG business model," she explained.

- LNG supplies to end up in Europe

Corbeau said that the question as to whether other regions outside Europe – mostly Asia, but also Latin America, Middle East and Africa - would be able to absorb most of these new LNG supplies or whether the glut will worsen, would leave surplus LNG looking for a home.

"These LNG supplies could therefore end up in Europe, the only market with unused regasification capacity and liquid trading hubs," she added.

The expert said that depending on the quantities at stake, this could put pressure on Russian pipeline gas.

"If you have a lot of LNG looking for a home, this would also put spot prices at very low levels on the global gas market. (Russia's) Gazprom could try to defend its market share by adapting its pricing policy. If prices are too low, we could actually see some shut-in in U.S. liquefaction capacity, notably if U.S. LNG is uneconomic," she said.

She added that "this would happen if the price at which you would be selling the gas on the domestic market would be lower than the variable cost of U.S. LNG, considering the price of gas, the shipping and regasification costs."

- Turkey's aim of becoming a gas trading hub dependent on greater LNG capacity

Turkey imported its first U.S. LNG at the beginning of September.

Turkey has two LNG terminals - Aliaga which is fully operational to gasify 16.5 million cubic meters (mcm) of LNG per day, and the Marmara Ereglisi to the west of Istanbul where three tanks can gasify 22.5 mcm a day at full capacity, but the terminal is currently only processing 18 mcm a day.

"Surplus LNG could put some pressure on Russian pipeline gas in Turkey in the same way that it could put some pressure on Europe," she said.

She commented that the difference between Turkey and the European market is that Europe has a lot of spare capacity and hence the possibility to switch from one supplier to another, depending on the price.

"Turkey would need a lot more import capacity in Turkey in order to really be able to play one against the other," she said.

She stressed that when it comes to create a trading hub, Turkey has already relatively diversified gas supplies.

"But a trading hub also requires wholesale gas liberalization and efficient third-party access to the infrastructure. You also need a lot of market players to trade at the hub," she asserted, adding that it takes time to create a natural gas trade hub.

She affirmed that Turkey was the fifth largest natural gas importer in the world in 2015 with 48 billion cubic meters (bcm) while Japan ranked first with 117 bcm and Germany second with 73 bcm.