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Spot LNG trading makes up 18% of total LNG volumes in 2016: GIIGNL

London — * Market share up from 15% in 2015, industry group says
* LNG imports up by 7.5% in 2016 to 264 million mt
* But 'wave' of LNG supply has still not materialized: Dauger

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Pure LNG spot trading -- trades where cargoes are delivered within three months of the transaction date -- made up 18% of total imported LNG volumes in 2016, an increase from 15% the year before, industry group GIIGNL said Monday in its latest annual review.

Spot trade volumes were estimated at around 47 million mt last year, up from 37 million mt in 2015, with the main drivers of the growth being China, India and Egypt, GIIGNL said.

Combined, the three countries accounted for 30% -- or 15 million mt -- of the pure spot LNG volumes imported in 2016.



"Signs indicate an evolution towards a greater flexibility in [LNG] trade, and the commercial patterns are evolving as destination-free volumes increase and as new buyers and sellers join the market," GIIGNL said.

With many longer term LNG supply contracts also due to expire in the coming years, the move toward more spot trading is likely to gather pace, GIIGNL president Jean-Marie Dauger said.

"In order to respond to market changes and cope with the uncertainty of future supply and demand, LNG contracting strategies have grown in importance," he said in the report.

"In this respect, most buyers pay particular attention to flexibility -- in terms of destination as well as offtake obligations -- and price competitiveness," he said.

"In a well-supplied market and given the significant quantities under long-term contracts which are due to expire in the medium-term -- particularly in Japan -- the share of spot and short-term volumes could increase further in the coming years."


SHORT-TERM TRADING


While spot trading increased last year, when short-term transactions are added, the overall market share was only flat year on year.

Defined by GIIGNL as transactions under contracts of four years or less, the share of spot and short-term transactions remained stable for the second consecutive year, at around 28% of total trade.

This was despite an expectation that there would be an increase in spot and short-term transactions given the addition of new LNG supplies in 2016 from Australia and from the US with its flexible, destination-free LNG contractual terms.

However, GIIGNL said, "international LNG flows remained largely intra-regional due to the large quantities having been contracted long-term with fixed destination and to relatively low price differentials between the different basins."

Qatar was the main source of spot and short-term volumes to global markets followed by Australia, while Nigeria did not supply as much spot and short-term LNG as in 2015 due to a lower overall output, GIIGNL said.

On the demand side, spot and short-term imports were negatively impacted by the overall reduction of LNG imports into Brazil -- traditionally a large importer of spot LNG volumes -- as well as by a decline in spot and short-term purchases in Japan and South Korea, it said.

Elsewhere, the startup of a long-term contract in Pakistan came at the expense of the country's demand growth on the spot and short-term market.

And while China imported 7.4 million mt of additional LNG in 2016, the country increased its spot and short-term imports by only 1.6 million mt because the rest was already covered by long-term commitments.

On the other hand, the Middle East expanded its spot and short-term imports to 17.4 million mt in 2016 -- almost triple the 6.4 million mt in 2015.

Egypt experienced the largest increase, absorbing an additional 4.9 million mt, primarily from Qatar and Nigeria.


MARKET BALANCING


In 2016, total global LNG imports rose by 7.5% to 263.3 million mt, a return to the "robust pace" experienced before 2011, Dauger said.

Most of the supply was absorbed by increased demand in China, India and the Middle East (see table).

By contrast, demand in mature LNG importing markets such as Japan, South Korea and Europe remained sluggish.

"Against expectations, Europe did not function as a sink for the production increase in 2016," it said, the UK recorded the largest decline in imports year-on-year of 2.6 million mt or 26%.

Dauger said the growth in additional supply was not as abundant as expected due to production delays, slower ramp-ups and lower exports from historical suppliers.

"As a result, the expected 'wave' of LNG has not materialized yet, and some signs of market tightness were observed toward year-end due to colder weather than usual in Europe and northeast Asia," he said.

Nonetheless, with new LNG production facilities due online in the next few years, especially in Australia and the US, the market is set for a period of oversupply.

"Looking at future years, with Australian projects ramping up and new trains from the US progressively coming online, the global LNG market could become oversupplied until the mid 2020s," Dauger said.

But, he said, low LNG prices could see the surplus capacity absorbed by additional imports and/or shut-ins.

This could result in a market rebalancing in the first part of the decade, he said.


TOP 10 LNG IMPORTERS IN 2016 (MILLION MT)


Source: GIIGNL

--Stuart Elliott, stuart.elliott@spglobal.com
--Edited by Alisdair Bowles, alisdair.bowles@spglobal.com