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2.Literature Review

 

In this part of the literature review the course of the LNG
market until nowadays will be presented, as well as the supply-demand
alterations and the course of each one according to import-export countries.

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On early January 2018 total LNG
fleet numbered 475 vessels, including conventional LNG vessels and at the same
time vessels using as FSRUs and floating storage units. 29 newbuild LNG vessels
were given to use in 2016 and among them two FSRUs and were delivered from
shipyards, that was a rise of 8% in comparison to previous year. Relative to
the previous year, this was a much more balanced addition to liquefaction
capacity, which was increased by 36 MTPA. It is important to point out at this
point that the market has also some ups and downs, charter rates had been kept
quite low in 2016 and as result two vessels were sold for scrap (Ga?czy?ski et
al., 2017).

The total around the world LNG trade
accomplished 269.2 million tons in 2015, a 14.2 MT increase more than 2014 and
unused record for around the world of LNG trade. Be that as it may, this record
is prepared to be broken more than once wrapped up the taking after a long time
since more liquefaction plans will begin. The annually improvement of 14.2 MT
signifies the most raised sum since 2011 (ALIZADEH, 2016).

LNG exports by amount of
countries in February 2016 came back to 19 from 18 in January 2015
(Sin.clarksons.net, 2018), that was mainly since Angola and Egypt continued to
export LNG as the 2015 progressed. In mid of 2015 the political unsteadiness in
Yemen made clear that LNG imports were not able to happen, so that was a minus
to the expected total import amount. Due to the start of the operations at
Sabine Pass, LNG trade started to expand the trade more to the US, this was
also because the Kenai LNG plant in Alaska during 2015 did not operate properly.
Add up to re-trade movement remained moderately stable all around, with 4.4 MT
re-sent out by 10 nations amid the year (10 nations additionally re-traded LNG
in 2015).

Driven by growth in Qatari
production, the Middle East was the world’s largest LNG exporting region from
2010 to 2015. However, the Asia-Pacific regained this mantle in 2016 due to new
production at several new liquefaction plants, coupled with Yemen LNG remaining
offline due to continued unrest in the country. Asia-Pacific countries
represented 38.6% of total exports, compared to 35.3% for the Middle East in
2016. Qatar continues to remain the world’s largest LNG exporting country,
accounting for around 30% of global trade by exporting 77.2 MT (Maritimeintelligence.informa.com,
2017). Growth in Asia-Pacific supply was 15.4 MT, primarily from Australian
project start-ups, both of which started up in Q4 2015, also added to the growth
in annual volumes from this region. The US shifted from its pattern of
exporting only minor volumes from Kenai LNG and a handful of re-exported
cargoes, to exporting 2.9 MT from the new Sabine Pass project in the US GOM
during 2016. Elsewhere in the Atlantic Basin, Trinidad continued to struggle
with feedstock limits, as production at Atlantic LNG was down substantially for
the second consecutive year (ALIZADEH, 2016).

Nigeria LNG (NLNG) produced 1.8
MT less in 2016, due to domestic unrest in the Niger Delta region, as well as a
period of extended maintenance during the first half of the year. Contrasting
with difficulties in those countries, the return of Angola and Egypt to
exporting status provided a combined boost of 1.3 MT in 2016 to Atlantic Basin
production. Asia-Pacific and Asia markets continued to represent the most
activity in LNG imports, recording a small increase in combined market share
from 71. % in 2015 to 72. % in 2016 (Maritimeintelligence.informa.com, 2017).

Given a decline in Japanese
demand and near-flat South Korean demand, this slight growth was due to strong
demand growth from both China and India (+6.9 MT and +4.5 MT, respectively).

Continued moderate growth in
smaller markets such as Thailand, Pakistan, and Singapore helped these regions
retain their important role in global trade. The addition of Jamaica and
Colombia brought the number of importing countries to 35, although the pair
registered just 0.1 MT of additional trade. The four new markets from 2015,
Egypt, Pakistan, Jordan, and Poland, added 7.7 MT in 2016, including 4.3 MT by
Egypt alone. This builds on the 6.0 MT of imports those markets contributed to
global trade during 2015 (Haralambides, 2015).

Looking forward, Malta received
its first commissioning cargo in January 2017, and will likely be the only new
importer of LNG in 2017. European LNG imports increased for the second
consecutive year, although strong Pacific Basin prices during the second half
of 2016, and particularly during the last quarter of 2016, kept gains from
exceeding 0.6 MT.

 The Northwest European markets of the UK,
Belgium, and the Netherlands declined by a combined 3.4 MT as sample pipeline
Supplies from both Russia and Norway were readily available. In contrast, the
newest markets of Poland and Lithuania contributed a combined 1.4 MT of growth
in 2016. Re-export activity from Europe decreased slightly in 2016 (-6.6% YOY),
with the largest decrease in re-exports by Spain 1.2 MT (Supply Chain Model on
Uncertainty Demand, 2015).

 Imports in many North American and Latin
American markets fell, with the combined regions’ imports decreasing by 5.8 MT.
Increased pipeline supply availability in Mexico and improved hydroelectric
power generation in Brazil were the leading factors behind this drop. The only countries
with expansions in LNG imports in the Western Hemisphere were Chile (+0.3MT),
Colombia, and Jamaica (both new, total 0.1 MT).

 The increase in Chilean imports was partially
supported by gas sales across the Andes to Argentina to help meet winter demand;
this is likely to be repeated in 2017.

Looking forward, an important
factor in 2017 will include the trend of structural demand loss for LNG in
foundational importing countries of Japan and South Korea. This is despite
continued uncertainty regarding nuclear power generation in both countries.

European LNG imports will be
shaped by inter-basin differentials, as we have seen demand is comfortably
filled by pipeline imports and domestic production. Ample gas supply via
pipeline from both Russia and Norway will continue to compete with LNG in
well-integrated European gas networks (Ga?czy?ski et al., 2017).

Gas-fired power generation in
Spain, Greece, and Italy will help gas and LNG demand.

Carbon pricing policy in the UK
has greatly aided gas’s completeness vis-à-vis coal in that market, however in
other European markets gas will face strong competition from both coal and
renewables. Thus, additional flows to Europe will depend on LNG price shifts influenced
by global LNG balances. From a supply perspective, trends in 2017 will be
nearly parallel to those of 2016. Gorgon LNG T3 and Ichthys LNG are set to
start-up in 2017. In the Atlantic Basin, two additional trains at Sabine Pass
will boost US GOM output and Angola LNG is set for a full year of production (Supply
Chain Model on Uncertainty Demand, 2015).

In the second and final part of
the literature review the factors that affect the demand and supply
(import-export) of LNG market will be pointed out.

Project Economics: Long-term
sales contracts that allow for a sufficient return typically underpin the
financing of LNG projects. High project costs or changing market prices can
have a large impact on when or if a project is sanctioned, and cost overruns
post-FID can impact project returns.

Politics & Geopolitics:
Permitting may be time consuming. Federal or local governments may not be
supportive of exports and could levy additional taxes on LNG projects or
establish stringent local content requirements. Political instability or
sanctions could inhibit project development or operations (Tirelli, 2012).

Environmental Regulation: Regulatory
approval may be costly and extends to the approval of upstream development and
pipeline construction. Local environmental opposition, including from
indigenous groups, may also arise.

Partner Priorities: Not all
partners are equally committed to a project and face different constraints
depending on their respective portfolios. Ensuring alignment in advance of FID
may be difficult (Ga?czy?ski et al., 2017).

Partners must have the technical,
operational, financial, and logistical capabilities to fully execute a project.
Certain complex projects may present additional technical hurdles that could
impact project feasibility, so it is important to exist the Ability to execute (Maritimeintelligence.informa.com,
2017)

Business Cycle: Larger economic
trends (e.g., declining oil prices, economic downturns) could limit project
developers’ ability or willingness to move forward on a project.

Feedstock Availability: The
overall availability of gas to supply an LNG project may be limited by
technical characteristics of the associated fields or the requirement of
long-distance pipelines (Supply Chain Model on Uncertainty Demand, 2015).

Fuel Competition: Interest in a
project may wane if project developers or end-markets instead seek to develop
or consume pipeline gas or competing fuels, including coal, oil, or renewables.

Domestic Gas: Needs Countries
with high or rising gas demand may choose to use gas domestically rather than
for exports. This often results in new or existing liquefaction projects being
required to dedicate a share of production to meet domestic demand. In some cases,
it may also limit the life of existing projects (Tirelli, 2012).

Marketing/Contracting: Project
developers generally need to secure long-term LNG buyers for a large portion of
project capacity before sanctioning a project. Evolving or uncertain market
dynamics may make this task more difficult (Maritimeintelligence.informa.com,
2017).

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