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Asia to dominate world LNG demand growth and boost US exports, report says

Asia will account for 86% of the world's growth in demand for liquefied natural gas through 2030, adding 143 million tonnes per annum of demand from 2017 to 2030, Bloomberg New Energy Finance said in a study that highlighted the region's importance to the U.S. LNG industry.

In its "Global LNG Outlook 2018" released Sept. 12, Bloomberg NEF estimated that global imports of LNG will hit a new record this year, climbing to 308 mtpa from 284 mtpa in 2017, an increase of about 8.5%. Half of that growth will come from China. Japan, South Korea and India will account for a large part of the other half. The researchers projected total global demand to reach 450 mtpa by 2030.

"We forecast growing demand — if anything at a quicker pace than before and so there's going to need to be more LNG infrastructure commitments to meet that demand," said Anastacia Dialynas, lead LNG analyst for the Americas at Bloomberg NEF, in an interview.

A trade dispute between China and the U.S. has created uncertainty in the LNG market, but Bloomberg NEF still anticipated that the growth of demand in Asia and a drive to cut the cost of U.S. LNG will lead to sales and purchase agreements with U.S. developers. China in August threatened 25% retaliatory tariff on U.S. LNG, among other products, in response to the Trump administration's announcement of proposed tariffs on a list of $200 billion of Chinese imports.

"The U.S. projects are still pretty cost competitive when you look at the global market ... so we anticipate we will still see a good number of [final investment decisions] coming out of the US despite the trade deliberations," Dialynas said.

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By the end of 2019, 11 LNG export projects proposed worldwide are likely reach a final investment decision, Dialynas said. Seven are in North America: Venture Global LNG's Calcasieu Pass, Tellurian Inc.'s Driftwood LNG, LNG Canada, LNG Ltd.'s Magnolia LNG, NextDecade Corp's Rio Grande LNG, Cheniere Energy Inc.'s Sabine Pass train 6 and Texas LNG LLC's Brownsville facility.

Bloomberg NEF forecasts U.S. LNG developers will reach FIDs "in the next few years" for projects representing about 90 mtpa of LNG production capacity. Globally, the research organization projected 104 mtpa of new production capacity will be added through 2021.

The biggest trade risk that U.S. LNG export developers face is uncertainty that might deter or delay buyers from signing long-term contracts for LNG production, Dialynas said. Developers need to hold such contracts to convince banks and investors to support their projects so they can come online when they are most needed.

"That means that this next year basically is a critical time to line up … final offtake commitments and try to get those FIDs going," Dialynas said. "Because as soon as you have a few moving, the outlook for the rest of the projects changes, because then there is that much more supply anticipated to hit the market."

Bloomberg NEF cut its long-term forecast for LNG demand in Europe, including Turkey, to a total 60 mtpa by 2030. Experts still expect European imports of U.S. LNG to grow.

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In the past year, the conversation in the global LNG market has increasingly shifted from talk of a supply glut to talk a shortfall by the mid-2020s. Royal Dutch Shell PLC in a 2018 LNG outlook released in February warned of a coming LNG shortage. The company said new investment will be needed soon to meet strong demand growth driven by China and other emerging importers.

Bloomberg NEF, which has offered some of the more conservative takes on LNG demand growth, does not forecast an LNG supply shortage, but now only predicts "any global supply surplus after 2019 is likely to be modest and brief."

"In general, and it's happening with us too, everyone is sort of shaving off both the volume of oversupply and the length of time it lasts," Dialynas said.

The research organization projects LNG demand growth will slow around 2020, when Japan restarts a ninth nuclear plant and Russian pipeline gas adds supply to China. New contracts to underpin final investment decisions on new LNG export projects will need to take place by 2021 to ensure sufficient supply capacity post-2025, Bloomberg NEF said.