Global demand for Liquefied natural gas (LNG) is growing at high rates driven by regional and international factors, including governments’ desire to diversify their energy mix for various industrial and commercial uses. This comes after global LNG prices went down more than 70 percent since 2014 when crude oil prices 2014 plummeted and new promising producers such as Australia and the United States emerged in the LNG global market.
Within this context, the Middle East is likely to be a major global destination for LNG consumption and exports. Several reports show that the region accounts for a large share of LNG supplies. The possibility that the region would have supplies from various sources brings several advantages including flexible pricing and secured supplies that are not affected by fears of cutting supplies from neighboring countries.
Overlapping Factors
Several regional and international factors have spurred an increase in the Middle East’s LNG imports. The following factors stand out:
1- Falling Prices. Over the past three years, the governments of Middle Eastern countries shifted their interest to reliance on LNG imports. The shift is basically driven by a significant fall in LNG prices that is associated with the slump in global oil prices.
Since 2014, LNG prices fell by more than 50 per cent, from US$13,878 per million British thermal units (mmBtu), to $5,719 per million mmBtu. It was natural that this plunge in prices made LNG a cleaner and more attractive alternative fuel for generating electricity and industrial use than the more expensive and polluting sources of energy.
2- Diversification of energy sources. Growing demand for LNG in this region is driven by governments’ desire to diversity their energy mix for various industrial and commercial uses. For instance, the Moroccan government, in 2015, started to diversify the country’s sources of energy to cut reliance on oil and coal imports, while carrying out a plan to generate 4 gigawatts (GW) of power from renewables.
Moreover, by 2018, the country is expected to start importing LNG, with an initial volume of two million metric tons (MT) planned to grow to 5 million by 2025. As part of the this plan, the Port of Jorf Lasfar -south of El Jadida city on the Atlantic coast of Morocco- will be built.
3- Supporting infrastructure. Over the past years, Middle Eastern governments sought to support infrastructure and facilities dedicated for LNG imports to increase their ability to connect easily with the global LNG market. They doubled the capacity of their floating storage and regasification units to around 50 billion cubic meters, equivalent to 36,5 million MT per year.
4- Emergence of new producers. At the same time, a change in the global LNG production map began, with new promising producers emerging on the global scene. The United States and Australia are likely to have a great impact on the LNG trade dynamics in the future. Currently, Australia is the second biggest LNG exporter in the world, with exports increasing to 44.3 MT a day in 2015. Moreover, in the past five years, Australia invested more than $200 billion in LNG regasification projects and should overtake the current world’s largest exporter of LNG (Qatar).
In addition, the shale oil boom in the United States is expected to contribute towards doubling the country’s LNG exports to about 70 MT by 2020.
Growing Demand
The above factors show that the Middle East is increasingly becoming a major global consumer and importer of LNG, where production in many regional countries was outpaced by the high growth in domestic consumption. According to forecasts from S&P Global Platts, LNG demand in the Middle East is expected to continue to grow over the next two years, before stabilizing above 40 billion cubic meters (29.2 million metric tons) per year.
In 2014, the region imported 5.9 billion cubic meters (4.3 million metric tonnes) of LNG or just under 2 per cent of the total global LNG imports. By the end of 2016, the figure has gone up to 28.6 bcm (20.9 million metric tons) or 7.9 per cent of the global total.
New Trend
Securing LNG imports from new suppliers, currently, appears to be the most important change to take place in the LNG market in the Middle East in the coming years. The new trend is evidenced by several indications. For instance, in March 2017, Russia’s Rosneft signed a deal to supply 10 liquefied natural gas (LNG) cargoes to the Egyptian Natural Gas Holding Company.
According to S&P Global Platts, the number of LNG exporting countries to the Middle East increased from 9 in 2014 to 19 in 2016. What should be noted here is that LNG supplies from Africa grew in the same period from 0.7 billion cubic meters (0.5 metric tons) in 2014 to over 6.4 billion cubic meters (4.7 million MT) in 2016.
Without a doubt, securing LNG supplies from various sources will impose positive implications. For one, it will contribute towards potentially cheaper prices, due, in particular, to an expected LNG oversupply in the future. With an increased potential flexible pricing, countries can negotiate current prices while adopting immediate contracts and walking away from traditional contracts with terms of up to 10 years.
It will also possibly help avoid being exposed to potential disruption in LNG supplies from existing exporters, which, over the past years, raised fears in the region given the economic and geopolitical turmoil.
It can possibly be concluded that the LNG market is going through several regional and international changes that can provide advantages for the region’s energy industry in the coming period.
