LNG continues to be used to increase gas supply security
even in markets with ample pipeline connections. European
importers such as France, Italy, and Turkey use LNG to
diversify their import mix and to maintain access to gas
in the case of inadequate pipeline ows. Countries with
high renewables penetration in their power mixes are also
considering gas, often delivered as LNG, as a source of reliable
backup power generation to complement renewables. This is
particularly the case in Brazil and Colombia, the latter of which
was a new importer in 2016.
During the past decade, the fortunes of domestic gas
production in several countries have, and will continue to aect
their outlooks as importers. The most pronounced shift was the
shale revolution in the US, which allowed the country to begin
exporting LNG from the Lower 48, instead of becoming a net
importer as had previously been projected. US production in
turn inuenced the LNG import needs of neighbouring Canada
and Mexico as well. For other importers, such as Argentina,
the possibility of expanding unconventional gas production is
likely to change the dynamic of LNG imports in the future. The
development of conventional gas resources is likely to play a
key factor in LNG imports, potentially even eliminating the need
for them, as could be the case in Egypt.
3.4. LNG Interregional Trade
The largest global LNG trade ow route continues to be
intra-Pacic trade (see Figure 3.10), a trend that is unlikely to
change in the near term given high demand growth in China,
Southeast Asia, and South Asia and increasing supply from
Australia. Trade between the Middle East and Pacic was the
second-highest by volume, due to Qatar’s role in supplying
Japan, South Korea, and China. With better supply availability
in the Pacic Basin, additional Atlantic Basin cargoes were free
to remain within that basin. This fact, along with a recovery
in European LNG demand, drove an increase of 12.8 MT in
intra-Atlantic trade, as it remained the third largest trade route
by volume.
Pacic Basin LNG has continued to stay within its own basin,
with Pacic-Middle East and Pacic-Atlantic ows totalling
just 3.8 MT in 2017, compared with 125.0 MT of Intra-Pacic
trade. Moreover, the Pacic Basin attracted more LNG from the
Atlantic Basin, largely the result of increased LNG production in
the United States. Flows into the Middle East remain relatively
small, with other Middle East and Atlantic Basin sources
providing around 74% of those countries’ imports.
3.5. Spot-, Medium-, and Long-Term Trade
5
Over the past decade, LNG trade has evolved from being
traditionally delivered under long-term, xed destination
contracts as a growing number of cargoes have been sold
under shorter contracts or on the spot market.
88.3 MT
Non long-term trade in 2017;
30% of total gross trade
This “non long-term” LNG
trade
6
has been made
possible by the emergence of
portfolio players and traders,
as well as more destination
exibility in contracts. The
growth of non long-term trade
accelerated in 2011 owing to shocks like those that resulted
from the Fukushima crisis and the growth of shale gas in the
United States, but stagnated through 2016 as new LNG supply
came mostly from long-term contracted projects. However, the
volume of LNG traded without a long-term contract increased
signicantly in 2017 (+21% YOY), owing partially to ramp-up at
new exibly-contracted liquefaction projects in the Atlantic
Basin. Non long-term trade now accounts for nearly 30% of the
LNG market – nearly double its share from a decade ago. Over
the past decade, this segment of the market has developed as
a result of several key factors:
y The growth in LNG contracts with destination exibility,
which has facilitated diversions to higher priced markets.
y The increase in the number of exporters and importers,
which has amplied the complexity of the industry and
introduced new permutations and linkages between buyers
and sellers. In 2017, 29 countries (including re-exporters)
exported spot volumes to 33 end-markets. This compares
to 6 spot exporters and 8 spot importers in 2000.
y The growth of companies with diverse marketing portfolios
taking on an aggregator role, allowing long-term otake
contracts to satisfy a variety of short- and long-term
buyer commitments.
y The lack of domestic production or pipeline imports in
Japan, South Korea, and Taiwan, which has pushed these
countries and others to rely on the spot market to cope
with any sudden changes in demand like the Fukushima
crisis.
y The decline in competitiveness of LNG relative to coal
(chiey in Europe) and shale gas (North America) that has
freed up volumes to be re-directed elsewhere.
y The large disparity between prices in dierent basins from
2010 to 2014, which made arbitrage an important and
lucrative monetisation strategy.
y The faster development timeline and lower initial capital
costs of FSRUs compared to onshore regasication, which
allow new countries to enter the LNG market.
y The large growth in the LNG eet, especially vessels
ordered without a long-term charter, which has allowed for
low-cost inter-basin deliveries.
0%
5%
10%
15%
20%
25%
30%