LNG Flexibility Increasing, But Market Remains Uncertain

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By MarEx 2018-10-21 19:30:43

Global natural gas markets are being reshaped by the development of major emerging LNG                       buyers led by China, and the rising production and exports form the U.S., according to the                         third annual edition of the International Energy Agency’s Global Gas Security Review.

China’s supply shortfall over the last winter, which triggered ripple effects around the world,                highlighted the pivotal role of LNG in enhancing global gas security and flexibility of supply,                     and the analysis finds that, while there have been real improvements in LNG flexibility that                         can contribute to easing supply shortages, uncertainties remain for the future evolution of                           gas markets. This includes a risk of tightening from insufficient investment in production                              and infrastructure capacity, or questions surrounding future shipping capacity growth,                                 a pre-condition for LNG market flexibility. These uncertainties could have an impact on                               price volatility and hurt consumers – especially the most price-sensitive emerging buyers                          – and cause additional security concerns.

The report also states that the risk of a lack of timely investment in the LNG carrier fleet                        could pose a threat to market development and security of supply. Once considered as                             a non-flexible complement supporting long-term sales and purchase agreements, the LNG                         carrier fleet is being affected by changes in the LNG market, with increasing demand for                           flexibility in supply and contracts of shorter duration. Such changes challenge the traditional                      LNG shipping business model, with greater uncertainty in medium-term fleet development                         and availability, and potential impacts on shipping price levels and volatility.

The wave of liquefaction projects development from investment decisions taken in the                                first half of this decade led to a strong level of new vessel deliveries, which ebbs after                                 reaching a peak in 2018. The absence of further growth of the LNG fleet poses a limit                                 to future trade development both in terms of volume and flexibility delivery.

Supply flexibility remains a key prerequisite to ensure further global gas trade development                        and security, states the report. Yet the priorities in terms of flexibility differ for long-term                           traditional buyers who seek the removal of destination clauses, and new emerging buyers                          whose priority is more focused on procuring short-term supply, usually for prompt execution.




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