Global LNG trade hit another record in 2016 as the U.S. began exporting from Cheniere Energy Inc.'s Sabine Pass terminal in Louisiana, according to an annual report from the International Gas Union.
In the third consecutive year of growth, LNG trade increased by 5% to reach 258 million tonnes per annum, according to the report. Additional supply came online in the U.S. and Australia, while demand surged, most notably in Asia, where China, India and Pakistan added a combined 13 mtpa in incremental LNG imports.
Sabine Pass is the first of a long list of major LNG projects being developed in the U.S. In its first 12 months, Sabine Pass exported roughly 235 Bcf of natural gas, according to data from the U.S. Department of Energy. Dominion Cove Point LNG LP in Maryland is next in line, with an expected in-service date in late 2017. In addition to the trains under construction at Sabine Pass, four other LNG export projects are under construction along the U.S. Gulf Coast, and one is under construction in the Southeast.
Although the IGU expects the U.S. to be the primary source of incremental liquefaction capacity over the next five years, not all identified export terminals are likely to get built. Most of the proposed liquefaction capacity in the U.S. has not received a final investment decision, including projects like Lake Charles and Magnolia LNG, which have major regulatory permits in hand but have not yet received the final green light from developers.
Canada also has a host of proposed LNG export projects, the majority of which are in British Columbia. Just one West Coast liquefaction terminal has received a final investment decision as most ventures have stalled amid challenging market conditions.
Fifty-nine liquefaction projects have been proposed in North America, according to the IGU, totaling roughly 671 mtpa. "Few have made significant commercial progress, however, and the actual capacity buildout is likely to be less than announced," the report said.
Despite buyers' push for more flexible contracts, short- and medium-term trade as a percentage of total LNG fell by 4% as emerging markets such as Pakistan and Malaysia began importing LNG under new long-term contracts. "Other markets that typically rely heavily on spot and short-term volumes experienced a significant decline in demand," the report said. "In the case of Brazil it was due to improved hydro-power availability."
The industry has often pointed to a shift toward shorter, more flexible contracts. After the 2011 meltdown of the Fukushima Daiichi nuclear plant, short-term trade picked up as Japan relied on emergency LNG cargoes to supplement its power generation. Since then, however, that growth has slowed, according to the IGU. That's due partly to projects coming online, such as in the U.S., that depend on long-term contracts to get financing from banks that look for steady cash flows.
Despite difficulties that come with short-term contracts, LNG trade is expected to become more flexible. "The amount of flexible-destination LNG on the market is expected to increase significantly, in part driven by US offtake agreements that are free of destination restrictions," the IGU said.
The report also noted an investigation in Japan that may result in the removal of destination restrictions. "As the pace of FIDs increases again, the split between fixed- and flexible-destination contracts may evolve further."