Liquefied natural gas (LNG) is a fundamentally different proposition today compared to just five years ago, transitioning from a regionally traded commodity to one now playing on the global stage.
Over the past few years, we have witnessed a dramatic shift in LNG market dynamics. Rapid supply growth; the emergence of new suppliers; development of lower capital intensity LNG liquefaction and regasification facilities; the shift away from long-term to shorter-duration contracts with smaller volumes; increased contract flexibility; growth of spot market and portfolio trades; the emergence of a new breed of price-sensitive LNG buyers with different offtake requirements; new pricing mechanisms; changes in the regulatory climate; and the development of regional trading hubs are all examples of a market in a fevered state of evolution. All have played their role in what is the remarkable globalisation of the gas market.
For all the talk about the avalanche of new supply hitting the market, coupled with faltering demand and generally weak economic fundamentals, things didn’t exactly go to plan in global LNG in 2016. Global LNG supply increased 15.6 million tonnes per annum, an increase of just 6.3 per cent year-on-year. There was also stronger demand, with buyers attracted by lower LNG prices. As 2016 drew to a close, the global LNG market was tighter and more finely balanced than most analysts predicted.