GLM FOCUS: The LNG year in review 2021, part one

LONDON (ICIS)–As 2021 draws to a close, ICIS looks back at the year’s developments shaping the LNG industry. Here is part one of the GLM annual review, with part two published next week.

RECORD HIGH PRICES

2021 saw both the highest European gas and spot Asian LNG prices ever recorded, marking a stark change from 2020’s record lows. Asian prices rose early in the year as temperatures plummeted in China and Japan and exposed the markets to limited spot LNG supply.

Europe’s benchmark natural gas price – the ICIS TTF front month – also hit record highs in 2021.

A key theme of the year was the growing connection between Asian and European markets, this time with Europe more clearly driving sentiment in Asia.

Early in the year, the TTF saw one of its largest daily increases in its 18-year history, as fears of a supply shortage drove a scramble for volumes in the forward market.

Concerns over Russian pipeline gas supplies, coupled with low European storage levels, were constant factors driving the TTF front-month price up throughout the year.

By mid December the TTF January ‘22 price had risen above the ICIS East Asia Index (EAX).

Carbon market volatility was also a key influence on 2021’s prices, influencing the movements of European gas prices and as a result the direction of Asian spot LNG.

The disconnect between gas and oil prices continued.

While gas and LNG prices were generally lower than oil in 2020, the opposite was the case in 2021 with some LNG buyers switching to dirtier, cheaper fuels as a result.

CHINA BECOMES TOP IMPORTER

2021 will go down as the year China overtook Japan as the largest global LNG importer on an annual basis.

Strong economic performances, supportive government regulation and investment in LNG and gas infrastructure contributed to the growth in China’s LNG demand.

Among the notable Chinese infrastructure developments this year, state-owned operator PipeChina officially took control of the Dalian LNG terminal and major gas pipelines from China National Petroleum Corp (CNPC), the controlling shareholder of PetroChina.

The handover completed the integration of China’s national gas pipelines and infrastructure.

With the takeover of the Dalian terminal, PipeChina is now in control of seven operational LNG terminals.

In the summer, PipeChina processed tenders submitted by shippers to use its seven LNG terminals for a period of between five to 20 years, effective from April 2022.

This move to offer longer-term capacity was aimed at lifting the utilisation rate of PipeChina’s terminals.

Allowing third-party access to its terminals has been one of the drivers behind the growth in independent Chinese LNG companies.

These companies are expected to have as much as 23.8mtpa under contract by 2023, accounting for 30% of China’s contractual imports and up from 20% in 2019.

Chinese buyers also signed up to significant US LNG offtake which was a key commercial driver in 2021 and one that means several US projects may be in a position to take a final investment decision in 2022.

Chinese state-owned major Sinopec received its first LNG delivery priced off the ICIS TTF benchmark in the summer of 2021.

The deal came amid growth in the TTF as a global price mechanism for short and long-term LNG business.

This came alongside the growing thirst from Chinese buyers to secure US gas indexation to the benchmark Henry Hub.

While concerns over the state of the Chinese economy grew later in the year, there was no let up to the investment in LNG import infrastructure.

Chinese state-owned major Sinopec said it was speeding up construction of the phase 2 project at its Tianjin Nangang LNG terminal.

China’s state-owned Guangdong Energy Group started construction of the Huizhou LNG terminal in south China.

The 6.1mtpa Huizhou terminal will contribute to the 24.1mtpa of capacity under development in Guangdong province.

Guangdong Energy was an emerging buyer on a global scale and signed a 10-year Sale and Purchase Agreement with QatarEnergy for 1mtpa from 2024.

China’s major private gas distributor ENN Group said it will complete construction of its phase III LNG terminal project at Zhoushan in Zhejiang by the end of 2024, boosting the terminal’s capacity to 10mtpa from 5mtpa.

Once again, infrastructure investment and LNG procurement went hand in hand as ENN in October signed up to a 13-year offtake agreement with US Cheniere.

In the autumn, PetroChina-owned Jiangsu Rudong terminal officially put its Phase 3 expansion project into operation.

While China’s gas demand will continue to grow, the year is set to end on a weaker tone for spot LNG demand with a preference for cheaper pipe gas imports where possible, and with domestic gas production rising by almost 9% annually between January and November.

NEW DEMAND FOR CARGOES

The first day of the year saw the Croatian LNG import terminal on the island of Krk receive its first conventional cargo.

By December, a total of 18 cargoes had been delivered into Krk, a combination of term supply from Shell and spot purchases supplied by a range of sellers.

In south Asia, Indian port operator Syama Prasad Mookerjee Port signed to develop a 5mtpa LNG import terminal near Kolkata. The project, likely to use a floating storage regasification unit (FSRU), plans to begin imports in July 2024.

In southeast Asia, the Atlantic Gulf & Pacific Company of Manila received government approval to proceed with the development of its Batangas Bay LNG import terminal.

Known as Philippines LNG, it is scheduled to be commissioned by the summer of 2022.

Vietnam is also expected to join the global list of LNG importers in 2022.

Progress was mixed elsewhere, with delays to the start of Ghana’s LNG import terminal meaning start up is likely in early 2022.

NEW OR RESTARTED LNG SUPPLY

In January, the 3.6mtpa Prelude floating liquefaction (FLNG) project, located off the northeast coast of Western Australia, resumed operations after nearly a year’s outage. The plant typically loaded a range of between two and four cargoes on a monthly basis.

In March, an LNG cargo from Egypt’s Damietta plant was produced and lifted. It was the first LNG cargo produced by the Damietta plant after it was shut down in 2012.

Incentivised by high market prices, Egypt once again became a significant LNG exporter and by December had shipped over 6.3m tonnes of LNG in 2021.

Norway’s Equinor extended the estimated start-up of its 4.3mtpa Hammerfest LNG plant to 31 March 2022.

The Norwegian plant has been closed since a 28 September 2020 fire.

Commercial operations at the 3.8mtpa Tangguh LNG Train 3 in Indonesia were delayed to 2023 due to Covid-related construction issues.

Train 3 had been scheduled for start-up in the fourth quarter of 2021 and then in 2022.

FINAL INVESTMENT DECISIONS

In February, Qatar took FID on its huge, $29bn North Field East LNG expansion project, strengthening its role among the world’s biggest LNG producers.

The arrival of four new trains will see LNG production capacity at Ras Laffan raised to 110mtpa from 77mtpa. Construction of the four new trains started in October.

Production from the trains is expected to start in the fourth quarter of 2025.

In November, Australian energy producers Woodside Petroleum and BHP Group reached FIDs on the Scarborough gas field and Pluto Train 2 LNG developments in Western Australia.

Otherwise it was a slow year for export project development.

But high spot prices did ease negotiations between sellers and buyers and could lead to a more successful year for developers in 2022.

US LNG export developer Tellurian said it continued to plan for FID in the first quarter of 2022, as the company looked to secure financing and acquire upstream US gas assets.

Cheniere and Venture Global are among the best-placed US LNG developers to progress projects next year.

In February, Fluxys took FID to expand the Zeebrugge LNG terminal in Belgium with an extra 6mtpa of regasification capacity, amid the shutdown of the Dutch Groningen gas field.

The expansion will proceed in two phases, with 4.7mtpa scheduled to come online from early 2024. Regasification capacity will reach 12.7mtpa in early 2026.

In the summer, the Dutch Gate LNG terminal took FID to increase sendout capacity by 500 million cubic metres/year to 12.5 billion cubic metres annually from October 2024, but could still expand further depending on market demand.