Global LNG Supply and Demand Review and Outlook

With natural gas being the primary alternative for crude LNG plays a critical role in the global energy scenario. This article gives an in-depth look at the demand and supply of 2009, 2010 and 2011.

R E P O R T
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espite the economic crisis effects on world economies and overall energy demand, global LNG trade in 2009 did not fare too badly. Thanks in large part to markets of last resort in northwest Europe and North America, global LNG trade puttered along as sellers were able to effectively push unwanted cargoes into these liquid gas markets. Given the combination of weak LNG demand in Asia with almost 45 million tonnes per annum (mtpa) of nameplate LNG export capacity entering service in 2009, northwestern European and North American markets were instrumental in balancing the global market by accepting cargoes unwanted elsewhere. The opening of new LNG receiving terminals in Italy and the UK facilitated greater access to these markets, thereby helping the situation. Consequently, we witnessed dramatic changes in 2009 LNG trade flows compared to the previous year: while Asian LNG imports fell, trade movements improved significantly in the Americas and Europe. The Middle Easts entry

into the LNG importers club was also timely in light of the relatively bearish LNG prices in 2009 compared to 2008. Global LNG trade dynamics are expected to shift again in 2010 and 2011, largely on the back of recovering Asian LNG demand. FGE expects Asian LNG imports to improve markedly over the next two years, thanks not only to the improved economic outlook but also as volumes under existing contracts ramp up further and new supply contracts take effect. LNG imports into the Americas are projected to grow positively during the same period as terminals in the region, especially in the US, continue to absorb flexible LNG not required by some markets in Asia and Europe. The ramp-up of deliveries to new LNG regasification terminals in the Americas such as Brazil, Chile and the US will also result in higher LNG deliveries to the region. Despite the possibility of lower Spanish LNG imports, Europe as a whole is projected to import more LNG in 2010 compared to last year as countries like Italy and the UK receive higher amounts of Qatari

mega-train volumes. Meanwhile, Spanish and French LNG requirements could come in lower in 2011 compared to 2010 as pipeline gas supply is expected to rise. Should this be the case, it will temper incremental LNG imports from the rest of the countries in the region in 2011. The Middle East is slated to import a greater amount of LNG in 2010 and 2011 as gas demand for power generation remains robust and new LNG import centers Dubai is slated to joint Kuwait as the regions next LNG importer consolidate their demand.

LNG Demand
Despite the global economic slowdown, world LNG trade rose around 6.5% (or around 11 million tonnes, mt) to over 180 mt. Weaker Asian LNG imports in 2009 (down nearly 3.0% compared to 2008) were offset by strong doubledigit growth in LNG imports by Europe and the Americas (Figure 1) where markets of last resort such as the US and to a lesser extent, the UK, helped to absorb contracted volumes that were unwanted east of Suez, or destina-

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tion-flexible volumes traditionally sold to the highest bidders, again usually located east of Suez. Strong demand by new, highvalue markets in South America and the emergence of the Middle East as an LNG demand center also made a small contribution to overall LNG import growth, effectively creating a new outlet for sellers to place spare cargoes.

Asia Pacific
Asias LNG demand is very much dependent on so-called pull factors, such as economic growth, variations in weather

patterns, power sector developments and government policies towards gas utilization, to name a few. As Asias economy went into a tailspin quarterly year-onyear (y-o-y) growth in real gross domestic product (GDP) continued to contract during much of 2009 (Figure

2)so did LNG imports. For some Asian LNG buyers, the situation became so dire that downward quantity tolerance (DQT) clauses were exercised. This was even more pressing in light of longterm LNG supply contracts with Russia and Yemen taking effect. Overall Asian LNG imports in 2009 were down nearly 3.0% y-o-y or 3.4 mt (see Table 1) to 113.6 mt, owing to the weak demand in Japan, South Korea and Taiwan (JKT). These core markets collectively saw LNG imports drop by 6.5 mt. The relatively strong LNG import growth in China and India (+3.1 mt combined) were insufficient to stem the plunge in JKT LNG imports.

Japan, the global leader in LNG consumption, saw LNG imports in 2009 deteriorate by 6.8% (or 4.7 mt) y-o-y to 64.6 mt. The global economic slump not only put a dent on industrial sector gas demand but also negatively impacted gas usage in the power sector amid lower overall electricity demand. Gas usage in the power sector was also weaker due to improved nuclear utilization rates and hydropower output. On the city gas front, overall demand was 7.8% lower y-o-y in 2009, largely on the back of a massive 12.8% y-o-y drop in industrial sec-

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tor gas demand. Industrial endusers are the city gas sectors largest consumer base. South Korean LNG imports fell 5.3% y-o-y (or -1.4 mt) to 25.8 mt in 2009 as sluggish economic conditions depressed gas demand in the power and industrial sectors. Oils lower per-unit costs compared to natural gas during 1Q 2009 also played a part in reducing LNG imports, power and industrial sector end-users favored oil over gas. With the start of new long-term contracts (1.5 mtpa from Sakhalin II and 2.0 mtpa from Yemen LNG) against a weak gas demand backdrop, Korea Gas Corporation (KOGAS) was forced to exercise DQT clauses in 2009. LNG imports only really began to recover in 4Q 2009, thanks to stock building, frigid winter weather and power sector gas demand recovery. Like Japan and South Korea, Taiwan was also negatively impacted by the global economic recession. The country imported an estimated 8.6 mt of LNG in 2009, down 3.7% y-o-y (or -0.3 mt). The sharpest drop in LNG imports occurred in the first half of the year. The power sector, which accounts for three-quarters of the nations LNG demand, consumed 5.7% less LNG in 2009 versus 2008 as demand for electricity fell nearly 4.0% y-o-y. This in turn was attributed to reduced electricity use by the industrial sector. However, it is worth noting that the y-o-y decline in LNG imports was tempered by the strong recovery in LNG demand by the power sector in 2H 2009. From an LNG demand standpoint, India was one of Asias few bright lights in 2009. The nation imported 9.1 mt of LNG,

an increase of over 10.0% compared to 2008. Indias improved performance was underpinned by higher spot and short-term deliveries, especially during the first three quarters of 2009. Demand for spot/short-term cargoes during 1H 2009 received a boost from companies that were not allocated gas from Reliance Industries Limiteds (RIL) Krishna-Godavari Basin and/or received insufficient volumes. The competitiveness of spot LNG prices compared to naphtha prices supported spot/ short-term LNG demand. India benefitted from the availability of reasonably-priced LNG cargoes as a result of the reduction in LNG imports from depressed gas markets in JKT. Moreover, a deluge of additional LNG supply was made available in 2009 by existing projects such as Australias North West Shelf (NWS; Train 5 only started commercial operations in September 2008) as well as new projects like Sakhalin II and Qatari mega-trains. Asias other pillar of strength during 2009 was China. LNG imports spiked 65.8% y-o-y to 5.5 mt in 2009. This impressive performance was partly due to the ramp-up in CNOOCs contractual volumes with NWS, plus the startup of new long-term deliveries from Indonesia, Malaysia and Qatar. In addition, China received higher quantities of spot volumes which it mainly sourced from neighboring Asian suppliers as well as the Middle East. On the supply side, only the Pacific Basin managed to stave off the decline in LNG exports to Asia, supplying roughly 9.0% (or 5.8 mt) more LNG to the region in

2009 compared to 2008, underpinned mainly by the startup of commercial operations at Sakhalin II. This reinforced further the Pacific Basin as Asias dominant supplier of LNG with a 62.5% share in 2009, up from 55.8% in 2008. The Middle East continued to deliver a consistent amount of LNG to the Asia-Pacific region, but saw y-o-y exports decline by more than 5.0% (or -2.0 mt) in 2009 as some buyers exercised DQT clauses and cut back on spot demand. Nonetheless, the Middle East still accounted for around 31.0% of Asian LNG trade in 2009. After a record intra-basin trade in 2008, Atlantic Basin LNG (accounting for 12.0% of Asian LNG imports in 2008) deliveries to Asia were down significantly in 2009 as demand, especially from JKT, for spot volumes, dried up. Moreover, with geographical proximity in its favor, new Asian supplies essentially crowded out sellers of Atlantic Basin cargoes looking to place shipments into Asia. As a result, we saw greater volumes of Atlantic Basin LNG being shipped to their original markets west of Suez in 2009. Nonetheless, the Atlantic Basin continued to supply around 6.2% of Asian LNG imports in 2009.

Europe
European LNG imports surged by 23.5% y-o-y (or 9.8 mt) to over 51.0 mt in 2009. The regions stellar performance is attributable to higher LNG deliveries to northwest Europe, specifically Belgium and the UK, although Italy showed a healthy y-o-y demand growth also. Only Spain, which is the largest LNG consumer in Europe,

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and Greece fell into the red. Northern Europe proved to be a veritable sink for LNG volumes in 2009, with the UK heading the list of willing buyers. Besides the commencement of new LNG import terminals in the UK (South Hook and Dragon LNG) and Italy (Adriatic LNG), LNG sellers were eager to place unwanted cargoes by Asian buyers into more liquid markets such as the UK and the US (see Table 2 for details). The competitiveness of UK gas prices relative to US levels, especially during 1H 2009, also helped to pull cargoes away from the US and into the UK. The majority of other northwest European countries witnessed positive growth in LNG imports. This was in part driven by the disruption in pipeline gas supplies owing to the Russia-Ukraine gas dispute. Turkey and France for instance bolstered purchases of spot cargoesTurkey received its first Omani cargo in January 2009noticeably in 1Q 2009. In 2009, Belgian LNG imports more than doubled mainly due to the ramp-up in long-term contractual volumes from Qatar. However, relatively ample pipeline gas supplies and attractive spot prices offered by buyers outside of Belgium motivated the re-export of several cargoes in 2H 2009. One of the cargoes was delivered to Kuwait in 2009interestingly, the originally sourced from Qatar while one of two cargoes delivered in 2010 was purchased by CNOOC. One of Europes poorest performers in 2009 was Spain. After a solid import performance in 2008,

Spanish LNG demand fell by more than 7.0% to under 20.0 mt in 2009, in line with a more than 10.0% y-oy plunge in domestic gas demand. Domestic gas demand in 2009 deteriorated significantly on the back of a marked decline in gas consumption by both the power sector as well as the conventional gas market as the economy contacted due to the financial crisis.

Americas
LNG imports in the Americas rose by more than 35.0% in 2009 compared to 2008 (Table 3). In a turn of events, US LNG imports were 28.3% higher y-o-y in 2009 despite robust domestic gas production. Weak demand for Atlantic Basin LNG cargoes from Asian buyers motivated flows back to the US. Argentinean LNG imports more than doubled in 2009 amid strong gas demand during the

Southern Hemisphere winter season when hydroelectricity generation was at a seasonal low. The Americas also saw higher LNG inflows owing to the introduction of new LNG terminals from firsttime importers like Brazil (0.5 mt), Canada (0.7 mt) and Chile (0.4 mt). Brazil imported LNG for the first time when Petrobras Transporte S.A. (Transpetro), the operator of the Flexible LNG Terminal of Pecm, was able to finally receive its inaugural cargo in January 2009. Due to construction delays, the floating storage and regasification unit (FSRU), Golar Spirit, was unable to deliver the cargo in July 2008. The second FSRU, Golar Winter, located at Guanabara Bay (Rio de Janeiro) delivered its first cargo in March 2009. Chiles Quintero LNG regasification terminal, owned by GNL Quintero S.A., received its maiden LNG cargo from BG in July 2009. BG has a 21year sale and purchase agreement to supply up to 1.7 mtpa to the terminal in which it has a 40.0% interest. Canadas Canaport LNG, majority owned by Repsol, started

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importing LNG in June 2009 when it received its first cargo from Trinidad and Tobago. Naturally, this was the case

GasPort terminal, a permanently moored regasification vessel supplied by Excelerate Energy, for a total of 0.7 mt for the year.

since Repsol owns at least a 20.0% stake in the multi-train Atlantic LNG project in Trinidad and Tobago. The Spanish company also has long-term contracts for delivery to Spain and/or the US, which it can divert to other markets. After decades of being an LNG export province, the Middle East entered the LNG import scene in 2009 with the startup of Kuwaiti LNG imports (Table 4). Kuwait unloaded its first LNG cargo in August 2009, which was the start of a string of cargoes that was imported to meet the countrys peak summer electricity demand. A total of 11 cargoes were unloaded at the Mina Al-Ahmadi

LNG Supply
Unlike in 2008 where demand for Atlantic Basin LNG was strong and represented the sole supply growth region, 2009 was fraught with LNG production hiccups that reduced output. In 2009, LNG trade from the Pacific Basin and the Middle East were higher by nearly 10.0% and 17.0% (Figure 3), respectively, as new liquefaction trains came online. In the Pacific Basin, amongst mature LNG producers, only Australia managed to buck the negative growth trend (thanks to ramped-up production from NWS Train 5). Other sellers experienced marginal declines in LNG trade. The solid y-o-y gain

of nearly 8.0 mt from Australia and Russias Sakhalin II in 2009 was more than enough to arrest the combined 1.5 mt y-o-y decline by Alaska, Brunei, Indonesia and Malaysia. The feedgas problems confronting Indonesian (Arun and Bontang LNG plants) and Alaskan LNG projects were downplayed in 2009 on the back of weakened LNG demand in Asia. The combination of anemic LNG demand in JKT and the start of new long-term contracts motivated JKT to exercise DQT clauses and caused some sellers of Pacific Basin LNG to send unwanted cargoes to Europe. The Pacific Basin remained Asias largest LNG supplier, capturing over 60.0% of Asias total imports. The Middle East exported about 17.0% more LNG globally in 2009 compared to a year ago, underpinned by the commencement of new LNG trains in Qatar and Yemen. Qatargas II started the worlds first 7.8 mtpa megatrain in May 2009 (Train 4) and followed up with a second mega-train (Train 5) in 3Q 2009. Meanwhile, RasGas III completed its first mega-train (Train 6) in July 2009. Yemen LNG finally started production at one of its two 3.35 mtpa trains in mid-October 2009 after a long delay, almost 10 months than originally planned. While Middle East LNG exports to Asia fell y-o-y in 2009, European LNG imports from the Middle East (the bulk of which originated from Qatar) more than doubled in 2009. The start of new LNG import terminals such as South Hook in the UK and Adriatic LNG in Italy, both partially owned by Qatar Petroleum, provided new outlets for Qatari LNG.

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In addition, most of the Omani LNG, which were previously diverted from the Spanish market to Asia in 2008 (at a time when Asian

priced markets in Spain and Mexico by Total, another longterm contract holder that was originally intended for the US market.

LNG demand was strong) either returned to their original market in Spain or were shipped to Turkey and Kuwait in 2009. Turkey imported its first Omani cargo following the Russia-Ukraine gas dispute, which disrupted pipeline gas imports and raised dependence on LNG. Kuwaits maiden Omani cargo was part of a string of LNG cargoes secured from Shell to meet its peak summer electricity needs. Apart from deliveries to South Korea under a long-term contract, limited appetite for spot cargoes by other Asian buyers saw Yemeni LNG being sent to higher

Atlantic Basin LNG trade fell 4.4% y-o-y in 2009, led by Nigeria, Egypt and Algeria. These three countries were confronted with either feedgas and/or pipeline-related problems, which lowered LNG production. Fortunately, supply interruptions in 2009 were less disruptive as LNG demand in key Asian and European markets were tempered by the world economic downturn. For instance, Nigerias largest LNG market, Spain, witnessed a severe decline in gas demand that resulted in 34.0% less Nigerian LNG im-

ports. Meanwhile, Asian LNG imports from Nigeria dropped by more than half in 2009 compared with 2008. Only the Americas saw a positive y-o-y growth in Nigerian LNG imports in 2009, thanks largely to increased imports by Mexico. Trinidadian LNG exports rose 14.1% in 2009 compared with 2008 due partly to increased deliveries to the UK following the commencement of BGs majority-owned Dragon LNG in 2H 2009. The start-up of new regasification terminals in the AmericasBrazil, Canada and Chileand Kuwait in the Middle East also offered sellers of Trinidadian cargoes new outlets for their LNG. Algerian LNG trade was down nearly 5.0% y-o-y in 2009 amid supply problems that originated from a pipeline leak which affected feedgas deliveries to the Arzew complex. As such, FGE gathers that Algerian LNG production was down some 20.0% in earlier months of 2009. Trade data collaborates with this: we observed a double digit y-o-y drop in Algerian LNG imports during 1Q 2009. Improvements in LNG trade were subsequently observed for ensuing quarters of 2009. Unlike Algeria, which saw reduced LNG production due to pipeline problems that limited feedgas to the liquefaction plant, Egypts Damietta LNG train is understood to be producing below its nameplate capacity as a result of feedgas diversions to the hungry domestic market. This caused Egyptian LNG exports to suffer in 2009. Norways Snhvit LNG project, which has been fraught with pro-

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duction hiccups since its 2007 startup, made strides in addressing its equipment failures and managed to produce more LNG in 2009 compared to 2008. However, unlike in 2008, all of its cargoes were delivered to markets west of Suez.

pected to import greater amounts of LNG in 2010 and 2011 after a relatively solid import year in 2009. Meanwhile, the pace of recovery in JKT LNG imports is

expected to vary, with South Korea making the most strides in 2010. Taiwan is expected to outperform Japan and South Korea in 2011.

For the Rest of 2010 and 2011

FGE forecasts global LNG trade to continue growing positively in 2010 and 2011, underpinned by several key developments. On the supply side, besides several new LNG trains entering service in 2010/2011, we suspect that Atlantic Basin LNG output will recover in 2010/2011 as production hiccups are resolved. As in the prior years, trade will remain mostly regional with intra-basin traffic being dictated by the strength of recovery in Asian LNG demand. On the demand side, the global economy is expected to stage a recovery in 2010/2011 and this should provide a conducive environment for a recovery in Asian LNG demand. Organizations such as the International Monetary Fund (IMF) forecasted in April 2010 that global output will expand by over 4.0% in 2010 and 2011 after a 0.6% contraction in 2009. Nonetheless, we remain cautiously optimistic about the global growth prospects in light of the recent economic crisis in Europe and its possible negative contagion effect on world output and trade.

Demand
Asian LNG imports are expected to rebound strongly in 2010, growing some 8.0% y-o-y, after a dismal LNG import year in 2009. India and China are ex-

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Although Japanese LNG imports are set to pick up in 2010 (+0.4% y-o-y) and improve further in 2011 (+2.3% y-o-y), it could take four years before LNG imports recover to pre-crisis levels. Nuclear utilization rates in Japan are expected to improve in 2010 and 2011 as TEPCO slowly restarts shut-in nuclear units at its KashiwazakiKariwa power plant, which was hit by an earthquake in 2007. While this will likely temper demand for thermal fuels including LNG for power generation, an uptick in industrial sector gas demand is expected to lend support to the recovery in Japanese LNG imports. Even though Japanese industrial sector gas demand has rebounded quite nicely y-o-y during the first four months of 2010, it still fell short of 2008 levels (first four months and prior to the economic crisis), suggesting that there is still room for recovery. Meanwhile, the rebound in Taiwanese and South Korean LNG demand is expected to be more pronounced in 2010 and 2011 relative to Japan (preliminary estimates seem to suggest that Taiwanese LNG imports rose over 50.0% y-o-y during the first four months of 2010. This compares against13.1% and 9.0%, respectively, for South Korea and Japan during the same period). FGE forecasts a more than 15.0% y-o-y recovery in South Korean LNG imports in 2010 and for LNG imports to grow by 3-4% y-o-y in 2011. Similarly, Taiwan is expected to see higher LNG import growth in 2010 (+10.1% y-o-y) following a weak import tally in 2009. For 2011, Taiwanese LNG im-

ports are forecasted to climb 4.2% y-o-y. Gas demand in both countries is expected to recover fully and surpass 2008 levels in 2010, led by gains in the power sector amid favorable LNG per unit generation costs compared to fuel oil and stronger electricity demand in general as the economy recovers. The industrial sector is also expected to play a key role in South Korea and Taiwans LNG demand revival. In South Korea, expansion of city gas demand is also expected to boost LNG imports in 2010 and 2011. FGE predicts LNG imports in China to spike by over 65.0% yo-y and 45.0% y-o-y in 2010 and 2011, respectively. Indeed, China could surpass India as an LNG import province by 2011, despite the fact that Indian LNG imports themselves are expected to grow at a rate of 8.5% and 11.7% during the same period. Chinas appetite for LNG stems from the inability of domestic gas production and Turkmenistan to keep abreast of Chinas strong gas demand, which is led by the power and industrial sectors. Incremental LNG supply will be largely met by the ramp-up in long-term contractual volumes in 2010 Tangguh, MLNG Tiga, Qatargas IIand the start of PetroChinas contract with Qatargas IV in 2011. Meanwhile, China is expected to see three new LNG regasification terminals located in Liaoning/Dalian, Jiangsu/ Rudong and Shenzhen start commercial operations in 2011. In India, incremental gas demand across all consuming sectors is expected to outstrip

increased domestic gas supplies. This will ensure the increased reliance of LNG to meet Indias gas needs. Apart from the rampup in Qatari LNG contractual volumes and a short-term contract with Repsol, India may resort to importing more spot cargoes in 2H 2010, assuming infrastructure bottlenecks are resolved and spot LNG prices are competitive. We saw how gas demand requirements coupled with favorable pricing motivated a buyer to procure a spot cargo for under $5.00/MMBtu for an April 2010 delivery and less than $5.50/MMBtu for a cargo delivered in June 2010. Overall European LNG imports could expand, albeit at a slow rate of roughly 5.0% y-o-y in 2010 and could turn negative in 2011, pulled down mainly by sluggish Spanish LNG demand (it is worth noting that forecasting LNG imports for Europe and the Americas is akin to shooting a moving target. Since markets in northwestern Europe and North America play an instrumental role in helping to balance the global LNG market, most of the LNG imported by these markets represents residual volumes. As such, the amount of LNG imported not only depends on LNG demand in Asia, the Middle East and other premium markets but also the availability of supply). Although gas demand in Spain, the largest European LNG importer, is recovering (the European Commission expects Spain to be the last European Union country to come out off the recession, probably in 2011, due to the collapse of its decade-long housing boom as well as the glo-

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bal economic crisis. The Spanish government appears to be more bullish, expecting a turnaround in 2010. However, it should be noted that the Spanish economy was still in negative territory with real GDP contracting sequentially in 1Q 2010), the expected modest increase in 2010/2011 gas demand will likely be met by higher pipeline gas imports when the Medgaz pipeline starts operations sometime in 4Q 2010. Moreover, the Spanish governments aim towards paring down domestic coal inventory is expected to impact negatively on gas-fired power generation, thereby reducing further the need for LNG. In other key European markets such as the UK and Italy, LNG deliveries are projected to increase in 2010 and 2011. While some conventional Qatari mega-trains were closed for maintenance during the shoulder months of 2010, the ramp-up in Qatari mega-trains that started production in 2009, along with the start-up of new mega-trains in 2010 and 2011 will likely ensure that European terminals such as UKs South Hook and Italys Adriatic LNG continue to receive a healthy amount of LNG. The Americas are forecasted to import more LNG in 2010 (up by more than 50.0% y-o-y) and 2011 (higher by more than 15.0% y-o-y). The US will likely remain a key outlet for Atlantic Basin and Qatari LNG, especially when the partially QPowned Golden Pass receiving terminal comes online in the summer of 2010. The latest official US LNG import forecast by the Energy Information Admin-

istration (EIA) for 2010 and 2011 is about 11.6 mt (down from an earlier estimate of 12.8 mt), and 12.8 mt (some 0.4 mt lower than its prior monthly estimate) respectively. EIA believes that domestic gas production will continue to expand in 2010 but may contract in 2011. EIAs projection is a function of higher supply and the inability of still weak markets in absorbing the incremental LNG coming online, essentially acting as a secondary market after satisfying LNG needs in higher priced markets in Asia and Europe. FGE also subscribes to the same view that US LNG imports will come in higher in 2010 (during the first four months of 2010, LNG imports have indeed jumped strongly) and 2011. However, it is possible that the US may import more LNG than what the EIA has projected if demand elsewhere does not recover or pick up as strongly. Also, should the price differential between UK prices at the National Balancing Point (NBP) and US Henry Hub (HH) narrow and turn negative, the US may see higher deliveries. There is a strong likelihood that this could occur in the nearer term as the US enters the hurricane season. The US Climate Prediction Center in May 2010 forecasted that the 2010 hurricane season will be relatively busy with up to 14 hurricanes and seven being major hurricanes. During the same month a year earlier, the center predicted that between four and seven hurricanes and up to three major hurricanes could hit the US (as we have witnessed in the past, the

amount of LNG heading to US shores can be highly variable, dictated by demand from the rest of the world, especially in Asia, as well as NBP-HH gas price differentials when determining which Atlantic Basin market LNG would be pushed into as witnessed in 2009). Meanwhile, the start-up of new LNG regasification terminals in Chile and Mexico may help increase Americas share of global LNG imports. The 1.4 mtpa Chilean LNG receiving terminal at Mejillones, owned by GDF Suez and copper producer Codelco, started commercial operations in May 2010. Meanwhile, the Manzanillo LNG terminal in Mexico may receive its first LNG cargo in late 2011. Middle Eastern LNG deliveries are forecasted to grow substantially in 2010 and 2011. Kuwait secured around 30 cargoes from two suppliersShell and Vitolto meet increased electricity demand during the peak summer season. Moreover, Kuwait Petroleum Company (KPC) could bring in more cargoes, procured on a spot basis, if demand warrants it. Dubai is set to become the second Middle Eastern country to bring in LNG. The reconfigured vessel Golar Freeze, which was delivered to Dubai Supply Authority (DUSUP) in May 2010, will act as Dubais LNG floating storage and regasification unit.

Supply
Global LNG supply in 2010 is expected to benefit from the ramp-up in production at the eight new LNG trains (combined nameplate capacity of 44.0 mt)

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that entered service in 2009. Besides the three Qatari megatrains (However, incremental Qatari supply is expected to be tempered by maintenance programs at some of Qatargas and RasGas liquefaction trains. While there have been conflicting reports about the timing and duration of maintenance programs at the mega-trains, they come amid sluggish gas prices (compared 2008 prices) and concerns about the strength of the recovery in gas demand), the Middle East added Yemen LNG to its list of LNG exporters in 2009. Meanwhile, the Asia-Pacific region introduced four new LNG trainstwo from Russias Sakhalin II project and a pair of equal sized-trains from Indonesias Tangguh LNG project. The Tangguh LNG project is expected to reach full production by the end of this year. BP had earlier in February 2010 indicated that about 100 cargoes will be shipped in 2010. New LNG train additions in 2010 and 2011 will come from Asia, the Middle East and for the first time, South America. The dearth of final investment decisions (FIDs) in the Atlantic Basin essentially means that only Angola LNG will come online from the Atlantic Basin in 2012. A total of six new liquefaction trains with a combined nameplate capacity of 36.0 mt three quarters coming from the Middle Eastare expected to be added in 2010 and 2011. The Middle East saw the start up of RasGas III (Train 7) and Yemen LNGs second train in 1Q 2010 and 2Q 2010, respectively. Yemen LNG is aiming for an average 95.0% availability and average

production of 85.0% of capacity for 2010. Meanwhile, given the relatively bearish gas prices (compared to 2008), Qatargas has not shown much urgency to complete construction at its two remaining mega-trains. Qatargas is reportedly looking to start LNG production in the last quarter of 2010. Peru LNG became the third LNG project to start operations in 2010. It is the second liquefaction terminal to be built on the Americas Pacific coast after the aging Kenai LNG plant in Alaska some 40-years previously. The 4.45 mtpa project was inaugurated in June 2010 and is currently conducting a trial test. In the meantime, the project could ship several spot cargoes while waiting to start long-term deliveries to the delayed Manzanillo terminal. Australias Pluto LNG, the worlds fastest upstream discovery to LNG construction project, is slated to start LNG production in 2011. The project was almost 87.0% complete as of end March 2010. Atlantic Basin projects such as Nigeria LNG and Norways Snhvit LNG project are expected to see improvements in LNG production this year and rising the following year. Efforts are underway to increase feedgas to the Soku gas processing facility and to bring production back to its full capacity. Nigerian LNG production suffered immensely in 2009 amid feedgas problems with intermittent closures at its Soku gas processing facility due to pipeline damage caused by condensate theft. The plant is capable of producing around 1.1 billion cubic feet per day (bcf/d) at full capacity.

In conclusion, we believe that 2010 and 2011 could prove to be a more fruitful year for LNG trade compared to 2009 as a fair amount of LNG supply is expected to hit the market in 2010 and 2011 prior to a supply lull in 2012. Moreover, LNG suppliers will have more supply outlets to place their LNG with the startup of new regasification terminals. Although improvements in gas demand have been encouraging thus far, we remain cautious regarding the strength of recovery in gas demand by LNG importing countries, especially for some European countries, going forward. This comes amid uncertainty over the extent of the impact, following the debt crises in some European countries, on global economic growth and trade. Should the recovery in gas demand in Asia and parts of Europe falter, this is expected to reinforce the importance of markets of last resort and energy hungry markets in soaking up the additional LNG supply.
HA

This publication thanks Sook Ching Wong and Shahriar Fesharaki, both of FACTS Global Energy, headquartered in Singapore, for providing this article.

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