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Liquefaction capacity to increase 24.5 million mt/yr this year; market dynamics unchanged

The global LNG supply crunch will be eased somewhat this year as several new liquefaction trains come on stream or ramp up production to full capacity, but Europe and Asia are expected to continue outbidding the US for scarce winter spot supplies, experts told Platts recently.

Three trains started operating this year -- Qalhat LNG's 3.3-million-mt/yr train in Oman, Nigeria LNG's 4.1-million-mt/yr train 4 and Darwin LNG's 3.2-million-mt/yr train in Australia. Additionally, three trains started operating late last year and are expected to reach full capacity this year -- Qatar's RasGas (II)'s 4.7-million-mt/yr train 4, Nigeria LNG's 4-million-mt/yr train 5 and Atlantic LNG's 5.2-million-mt/yr train 4 in Trinidad and Tobago.

At full capacity, the six trains would increase global liquefaction capacity by 24.5 million mt/yr this year. Noted UK-based LNG consultant Andy Flower told Platts last week that about 143 million mt was produced globally last year, and he estimated that 160 million to 165 million mt would be produced this year. Deutsche Bank, in a report it published in December, estimated global liquefaction capacity totaled 151.5 million mt last year and would total 174.7 million mt this year.

"I think 2006 should see a pretty big increase in LNG supplies," Flower said. "Some places were desperate for LNG this past winter and were paying high prices. They may not have to pay as much this winter."

This past winter, South Korea's Kogas reportedly paid record prices of at least $20/MMBtu for two Omani spot cargoes to be delivered in January and February, and Japanese buyers were paying in the high teens for spot cargoes at about the same time. Asian buyers are now reportedly only paying single-digit prices for spot cargoes with the onset of warmer weather.

In addition to this year's expected new supplies, the two Egyptian trains that came online last year are now operating at full capacity, also helping ease the supply crunch, Flower said. An additional 4.96 Bcf/d of regasification capacity is scheduled to come online around the world this year, but it is not expected to significantly alter the supply-and-demand picture because regasification capacity was already significantly higher than liquefaction capacity last year, and that situation is expected to continue this year. "Regasification capacity around the world could absorb twice as much LNG as what is produced," Flower said.

Increased liquefaction capacity is expected to help the US import record amounts this summer even though, in the first quarter, the US imported its lowest first-quarter total since 2003 because of stiff competition from Europe and Asia, said Steve Johnson, publisher of the Houston-based US Waterborne LNG Report and European Waterborne LNG Report.

The US tends to have higher natural gas futures prices in the summer and would thus draw more available cargoes, while Europe and Asia have a much greater need for LNG cargoes in the winter than the US and are willing to pay higher prices to attract them, Johnson said.

For example, the UK's BG, which has access to 14 cargoes a month from its stakes in liquefaction projects in Egypt, Nigeria and Trinidad and Tobago, sells those cargoes "every month to the highest bidders," Johnson said. "It's how they're designed; it's why they're making record profits. They're selling 14 spot cargoes a month and making bank off this stuff. They're going to continue to do that as long as there is demand and higher prices."

The US is scheduled to add about 1.5 Bcf/d of regasification capacity this year at existing terminals in Elba Island, Georgia, and Lake Charles, Louisiana, but that would not contribute to the expected record levels of imports because the US' regasification capacity will continue to be underutilized, Johnson said.

"Regasification capacity won't have anything to do with it; it's purely a function of supply," Johnson said.

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