IEEJ © January 2020

23 December 2019
The 434th Forum on Research Works

2020 Gas Market Outlook

The Institute of Energy Economics, Japan

Hiroshi Hashimoto, Head of Gas Group

Fossil Energies and International Cooperation Unit
 Executive Summary
 Japan's average LNG import price is expected to go down to USD 8.8 - 9.0 per
million Btu in 2020, from USD 10 estimated for 2019.
 The global LNG market is expected to expand to 370 million tonnes in 2020,
thanks to significant increases in supply capacity.
 The global LNG market is estimated to grow more than 10% in 2019, while the
share of four major importing markets in Northeast Asia in the global total has
shrunk to 55% from 62% in 2018, as the region has been importing almost the
same volumes of LNG in 2019 as it did one year earlier.
 A major portion of the expanded supply of LNG has been directed into Europe
where ample underground storage capacity is located. As spot LNG prices stay in
the lowest level in the history, the gap between them and long-term contract
prices has been the widest ever in Northeast Asia. With stronger influences of gas
hub prices in Europe and the United States over LNG prices, underpinned by the
increasing LNG imports in Europe and increasing LNG exports from the United
States, global interaction of LNG prices in different regions has been more
apparent.
 In 2019, final investment decisions (FIDs) representing 71 million tonnes of
annual production capacity were announced, with many additional projects
approaching the milestone.
 Competition has been intensified in big city areas in Japan’s city-gas market,
especially in the Kanto region, two years after the retail market was opened up.
 In order to effectively utilise expected flexible LNG supply sources, Japanese
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companies and government are expected to contribute jointly to emerging market

development, infrastructure investment, and optimization of transportation. 1
 Natural Gas Consumption in Major Regions

bcm
Gas Consumption in Selected Regions Year-on-year Changes in Gas Consumption
bcm
700 50
600 40
500
30
400
20
300
10
200
100 -
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
- -10
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2016 2017 2018 2019
-20
2016 2017 2018 2019
OECD Americas OECD Europe OECD Asia Oceania China India OECD Americas OECD Europe OECD Asia Oceania China India

(Source) Compiled by the author based on data of IEA “Monthly Gas Statistics”, China’s NDRC and India’s PPAC

 The combined natural gas consumption in the OECD countries, China and India -
representing more than half of global total - grew by 112 bcm or 6% - higher than
global average - year-on-year to 2.1 tcm in 2018, and by 66 bcm or 4% from the
same period in 2018 during the first three quarters of 2019.
 OECD Americas (+25 bcm or +3%) and China (+25 bcm or +10%) continue
driving further demand growth in 2019, while OECD Europe returned to growth in
the second quarter.
 However, the growth rates have been slowed in OECD Americas and China.
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 Southeast and South Asian countries also increase gas consumption modestly.
2
 LNG Imports Surge in Europe Thanks to Expansion of
Global Production
30
Global LNG Imports Driven by Production Expansion million tonnes
Changes of LNG Imports in the First Nine Months of the Year
3Q
25
2019

2Q
1Q
4Q
3Q 20 2016 2017 2018 2019
2018

2Q
1Q
4Q 15
3Q
2017

2Q
1Q 10
4Q
3Q
2016

2Q 5
1Q
4Q
3Q 0
2015

2Q
1Q million tonnes
-5
0 10 20 30 40 50 60 70 80 90

Japan Korea China Chinese Taipei Thailand Malaysia

-10
Singapore India Pakistan Bangladesh Kuwait Dubai
Israel Jordan Egypt Turkey Malta Greece
Italy Spain Portugal France Belgium Netherlands
Poland Lithuania Finland Sweden United Kingdom Russia
Canada United States Puerto Rico Mexico Dominican Republic Jamaica LNG Imports in Southeast and South Asia
Colombia Panama Argentina Brazil Chile
3Q

2019
2Q
(Source) Compiled by the author based on Cedigaz LNG Service data 1Q

 Global LNG imports grew by 12% to 260 million

4Q
3Q

2018
tonnes during the first nine months of 2019 2Q
1Q

 China’s LNG imports grew by 15% during the first

4Q

2017 3Q

ten months of 2019 2Q

1Q

 Europe’s LNG imports grew by 83% to surpass 60 4Q

million tonnes during the first nine months of 2019

3Q
2016

2Q
1Q

 Southeast and South Asia’s emerging LNG 4Q

importers have increased volumes significantly in

3Q
2015

2Q Thailand Malaysia Singapore

recent years, increasing by 25% or 1.7 million 1Q India Pakistan Bangladesh

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tonnes and by 65% or 3.4 million tonnes during

million tonnes
0 2 4 6 8 10 12

the first three quarters of 2019 3

 LNG Production Increases in Australia, the United States
and Russia
12
Global LNG Production Steadily Increases million tonnes
Changes in LNG Exports by Major Producers in the First Nine Months of the Year
3Q
2019

2Q 10
1Q 2016 2017 2018 2019
4Q
3Q
2018

8
2Q
1Q
4Q 6
3Q
2017

2Q
1Q
4
4Q
3Q
2016

2Q
2
1Q
4Q
3Q
2015

2Q 0
million tonnes
1Q
0 10 20 30 40 50 60 70 80 90
-2
Brunei Indonesia Malaysia Australia Papua New Guinea
Abu Dhabi Qatar Oman Yemen Egypt
Algeria Nigeria Equatorial Guinea Angola Cameroon -4
Russia Norway United States Trinidad and Tobago Peru
Others

(Source) Compiled by the author based on Cedigaz LNG Service data

 Both Australia and the United States increased LNG exports by more than
8 million tonnes each, while Russia increased its by 7 million tonnes,
during the first nine months of 2019.
 While Australia came very close to the world top LNG exporter position
held by Qatar (equivalent to 77 million tonnes on an annualized basis),
both the United States and Russia exported 50% more LNG than they did
in the same period of 2018.
 Egypt and Algeria, as well, increased their LNG exports, by 230% (or 1.5
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million tonnes) and 27% (2 million tonnes), respectively. 4

 LNG Demand and Supply Outlook
million tonnes

400 381
369
349
347
350 27
315 315 73
20
68
300 18 80
28
67 80
49
28
250 11 46
10 19 7 32
40 17 52
43
200
92
74 83
53 60 66
150

47 46 49
100

146 136 132

50 91 93 93

0
Demand Supply Capacity Demand Supply Capacity Demand Supply Capacity

2018 Actual 2019 Estimate 2020 Outlook

JKT China Other Asia MENA Europe SEAsia Oceania USA Russia Others

 The global LNG demand is expected to grow by 6% - 7% to 370 million tonnes in 2020, from
estimated 350 million tonnes in 2019.
 The global LNG supply capacity in the new year is expected to be more than 380 million tonnes
even after assuming lower utilization rates.
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 Growth is expected to be led by China and Emerging Asia on the demand side and by the United
States on the supply side, respectively. Europe is expected to maintain its healthy appetite. 5
 In Parallel with Outlet Diversification, Over Half of LNG
Exports from the United States Come to Asia
LNG Export in Bulk from the United States by Project (Ten Months in 2019) (upper) and Yearly (down)

Sabine Pass

Corpus Christi

Cove Point

Cameron

Freeport
Jordan

2019 1-10 Japan Korea India Mexico

China Chinese Taipei Pakistan Netherlands France Italy Spain

2018 Japan Korea China India Mexico

Chinese Taipei Pakistan Jordan
2017

2016
(Source) Compiled by the author based on data from DOE

0 5 10 15 20 25
(million tonnes)
Japan Korea China Chinese Taipei India Pakistan
Bangladesh Thailand Singapore Indonesia Malaysia Kuwait
Dubai Israel Jordan Egypt Turkey Malta
United Kingdom Netherlands Belgium France Italy Spain
Portugal Greece Lithuania Poland Mexico Dominican Republic
Jamaica Panama Colombia Argentina Brazil Chile
 LNG exports amounted 29.28 million tonnes during the first ten months of 2019, representing a
65% increase from one year earlier.
 Cargoes have already reached 36 countries and regions in just first four years of LNG exports.
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 New LNG export facilities have started up in addition to the three projects in operation shipping
out bulk exports to Japan. 6
 All Active - LNG Exports, Project Commissioning, Investment
Decisions, and Permitting - in the United States

Starting Up Cameron, Freeport, Elba Island

FIDs Golden Pass, Sabine Pass (T6), Calcasieu Pass
FERC Approval Calcasieu Pass, Driftwood, Port Arthur, Freeport
(February - (T4), Gulf LNG Pascagoula, Eagle LNG
September 2019) Jacksonville, Plaquemines
(November 2019) Corpus Christi Stage 3, Texas LNG Brownsville,
Annova LNG, Rio Grande
Approved yet no Lake Charles, Magnolia, Delfin LNG Deepwater
FID Port
FERC By filling a vacant seas and a planned Houston
Administrative office, speeding up approvals
issues
 The annual LNG export capacity in operation in the United States is expected to be 48 million
tonnes by the end of 2019 and 66 million tonnes by the end of 2020.
 The total capacity is expected to grow further, surpassing 100 million tonnes per year when the
facilities in which final investment decisions (FIDs) have been announced are completed.
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 Those facilities which have been approved by FERC but FIDs have not been made on could add
further 160 million tonnes per year of capacity.
7
 Diversifying Business Models of LNG Export in
the United States
 SPA Model - Project company directly sells LNG volumes
• While FOB deals give substantial flexibility to buyers, there have been some DES deals lately.
• A unified feedgas arrangement provides the operator an advantage of simplified operation.
• IPM (Integrated Production Marketing offered to gas producers)
The LNG project operator buys feedgas from a producer and pays a price netted back from the international market.

 Tolling - Liquefaction service arrangement, in which a capacity holder is responsible to

sell LNG volumes and procure feedgas supply
• Some Japanese trading houses and utility companies have already participated in such arrangements.
• While the model provides a capacity holder with significant operational flexibility, it also requires a certain
level of expertise to operate in the dynamic gas and LNG markets.
 Equity Model - Project leading company directly invests in the project entirely on the
company’s balance sheet, or accepts equity injections from other companies including
other developers or LNG buyers, with LNG lifting and sales commitments distributed
based on equity holdings
• The largest LNG players finance a new project entirely on their balance sheets.
• New entrants in LNG liquefaction projects try to entice international majors and established LNG buyers
into participating in the new projects.
• Established LNG players incorporate volumes from new projects into their global LNG portfolios.
• LNG buyers may have additional preferential purchasing allocations from the project leading company in
addition to volumes based on the buyers’ own equity participation.
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8
 Australia Continues Increasing LNG Export

 Australia exported 64
million tonnes of LNG
during the first ten
months of 2019,
increasing by 14% year-
on-year.
 The Ichthys project since
late 2018 and the
Prelude FLNG since June
2019 ramp up
production.
 Notable developments
have been reported
toward new generation
LNG projects, including
renewed project sponsor
formations and additional
feedgas arrangements to
existing LNG production
facilities.
 In the meantime, the
country has several LNG
importing projects in the
Eastern regions.
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(Sources) Australian Energy Resource Assessment 2018, Department of Industry, Australian Government
9
 Russia Increases LNG Exports and Advances Export
Pipeline Projects
Russia's LNG Exports by Destination
3Q Power of Siberia Pipeline Starting Operation
2019

2Q
1Q
4Q
3Q
2018

2Q
1Q
4Q Japan Korea
3Q China Chinese Taipei
2017

2Q
Thailand Malaysia
India Pakistan
1Q
Bangladesh Kuwait
4Q
Israel Jordan
3Q Egypt Greece
2016

2Q Spain France
1Q Belgium Netherlands
4Q Lithuania Finland
3Q Sweden United Kingdom
2015

2Q
Canada Panama
Argentina Brazil
1Q
million tonnes
0 1 2 3 4 5 6 7

(Source) Compiled by the author

based on Cedigaz LNG Service data
(Source) Gazprom website

 New pipeline projects to supply China and Turley are starting operations,
while the Nord Stream 2 to supply Germany has been slipped into 2020.
 The Arctic LNG 2 led by Novatek has advanced with participation of Japanese
players to commence operation in 2023.
 The Yamal LNG project also led by Novatek is in competition in Europe
against pipeline gas from Gazprom, who used to monopolize Russia's gas
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export.
10
 China Continues Expanding Natural Gas Market
at Slower Rates than Previous Years
China's Gas Supply Terminal Owner Operation Reception 2018
Shenzhen Dapeng CNOOC 2006 6.22
bcm
250 Putian CNOOC 2009 3.35
Domestic production Shanghai Y angshanCNOOC 2009 4.15
Pipeline import Rudong CNPC 2011 6.58
LNG import Dalian CNPC 2012 3.18
200
Ningbo CNOOC 2012 5.55
Zhuhai CNOOC 2013 2.33
Tangshan CNPC 2013 5.49
150 Tianjin FSRU CNOOC 2013 3.64
Y angpu CNOOC 2014 0.55
Qingdao SINOPEC 2014 4.95
100 Beihai SINOPEC 2016 1.74
Shenzhen Dachan CNPC 2014 0.13
Dongguan JIUFENG 2016 0.76
50 Lvsi Guanghui 2017 0.79
Y uedong CNOOC 2017 0.80
Tianjin SINOPEC 2018 2.92
Shenzhen Diefu CNOOC 2018 0.39
0
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 (1-10) Zhoushan ENN 2018 0.26
Fangchenggang CNOOC 2019
(Source) compiled by the author based on data from NDRC and customs statistics
LNG Import Terminals and Owners. Volumes in million tonnes

 China's natural gas production and consumption both increased by 10% year-on-year during the
first ten months of 2019 to 142.3 bcm and 246.3 bcm, respectively, although the growth rates
were not as high as those in the last two years.
 During the same period, the country imported 47.70 million tonnes of LNG, 6.09 million tonnes
or 15% more than it did one year earlier.
 China has 21 terminals in operation with total capacity 68 million tonnes per year: 34 million
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tonnes by CNOOC, 19 million tonnes by CNPC, and 9 million tonnes by SINOPEC. Additional 70
million tonnes are planned and proposed. 11
 Europe Increases Natural Gas Demand and
Imports Significantly More LNG
LNG Imports in Europe (including Turkey) Have Increased since 4Q 2018
3Q
2019

2Q
1Q
4Q
3Q
2018

2Q
1Q
4Q
3Q
2017

2Q (Source) Compiled by the author

1Q based on Cedigaz LNG Service data
4Q
3Q
2016

Turkey Malta
2Q Greece Italy
1Q Spain Portugal
4Q France Belgium
3Q Netherlands Poland
2015

2Q Lithuania Finland
1Q Sweden United Kingdom

0 5 10 15 20 million tonnes

 Natural gas consumption increased by 2% during the first three quarters of 2019 year-on-year
due to a shift from coal caused by commodity and carbon price advantages. As domestic gas
production decreases, LNG imports have surged.
 The inventory in European underground gas storage facilities at the end of October was equivalent
to 71 million tonnes of LNG, 8.7 million tonnes or 14% larger than one year earlier. It represented
98% of the total working underground gas storage capacity, significantly higher than 87% one
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year earlier and the highest in the history of the storage statistics.
12
 Dependence on Gas Imports Went Up to Over Half of Domestic
Demand During the Last Ten Years in the United Kingdom
30
bcm Quarterly Gas Balance in the United Kingdom
25

20

15

10

0
2016 2017 2018 2019

(5)
(Source) Compiled by the Author based on Data from Department for Business, Energy & Industrial Strategy

(10)
Gas production concumed Norway Netherlands Belgium Qatar LNG Russia LNG
Trinidad LNG USA LNG Algeria LNG Angola LNG Australia LNG Belgium LNG
Cameroon LNG Dominican Republic LNG Egypt LNG Equatorial Guinea LNG Nigeria LNG Norway LNG
Peru LNG Yemen LNG Storage withdrawal Export Ireland Export Netherlands Export Belgium
LNG export Other exort Storage injection

 Dependence on gas imports went up from one-third to more than half of domestic demand during
the last ten years in the United Kingdom, one of the largest gas markets in Europe. However,
more than half of the imports comes Norway via pipeline.
 During the last year of LNG expansion, imports of LNG from Qatar and Russia increased
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significantly. In summer, however, the United States continues exporting gas to the Continent via
pipeline. 13
 The Netherlands Decreases Gas Production,
While It Continues Moving Gas Volumes Around
20
bcm Quarterly Gas Balance in the Netherlands

15

10

0
2012 2013 2014 2015 2016 2017 2018 2019

-5

-10

-15

(Source) Compiled by the Author based on data from Statistics Netherlands (CBS)
LNG imports injected LNG imports reexported
-20 Pipeline imports injected on net basis. Phisically, exchanged injection of domestic production. Pipeline imports reexported
Production exported Production consumed on net basis. Phisically some gas injected.
Net pipeline imports consumed Stock withdrawal exported

 The largest gas producing country in Europe is expected to decrease gas production. The country
has imported gas via pipeline for many years, enhancing liquidity beyond the country’s own gas
consumption, by increasing gas exports and storage utilisation.
 While the country has seen net gas importing quarters since 2017, it maintains its position as the
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main gas transportation hub through pipeline gas imports, exports and storage. The increasing
LNG imports make TTF more influential in the global LNG market. 14
 A Significant Gap Between Spot LNG and Crude
Oil Prices, as well as Crude Linked LNG prices
90
Brent WTI spot LNG USD / m illion Btu
USD / bbl
Henry Hub NBP TTF
80 14

70 12

60
10

50
8

40

30

4
20

2
10

0 0

(Source) Compiled by the author based on data from exchange places

 Spot LNG prices in Asia (Assessed prices and those published by METI) have moved in a range
between European gas hub and crude oil equivalent prices.
 Spot LNG prices in Asia came close to the bottom of this range in 2019 and were about half of
average import LNG prices in the second half of 2019.
 Better terms and conditions of LNG sales and purchase contracts are desired to take advantage
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of the short-term LNG market.

15
 Investment Decisions Have Been Made on
Significant LNG Export Capacity in 2019
million tnnes
70

Y emen LNG Nigeria LNG Train 7

60 Tangguh

Arctic LNG 2

50
Qatargas 3-4 6/7

40
Snøhv it
V enture Global Calcasieu Pass

ALNG T4
RasGas 3 6/7

30

NLNG Plus 4/5

Mozambique LNG1

Cov e Point

Wheatstone
Segas
20 Freeport LNG 1 -2 Tortue FLNG
PNG LNG Sabine Pass 1 -2 Cameroon Kribi FLNG Sabine Pass 6
Qatargas 2 4/5 Y amal LNG
Egy ptian LNG APLNG T1 Sabine Pass 5

Angola LNG Prelude APLNG T2 LNG Canada

10 ALNG T2/3
RasGas 2 T4 Donngi Senoro Corpus Christi 1 -2
Gorgon Petronas FLNG 1 Cameron LNG
NWS 4 NWS 5 Skikda
Qalhat NLNG Plus 6 Elba Island Golden Pass
Sakhalin 2
QCLNG GLNG IchthysSabine Pass 3-4
MLNG Tiga Coral South FLNG
RasGas 2 T3 RasGas 2 T5 Peru LNG Pluto Gassi Touil Freeport LNG 3
NLNG T3 Darwin EGLNG Corpus Christi 3
Petronas FLNG 2 Tangguh 3
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

(Source) Compiled by the author based on company announcements

 In 2019, final investment decisions (FIDs) representing 71 million tonnes of annual production
capacity - three in the United States, and one each in Mozambique, Russia, and Nigeria - were
announced
 Many additional projects are apparently approaching an investment decision, including four ones
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in the United States that were approved for construction in November. Most of them are
expected to make investment decisions only in 2020 or later. 16
 Competition Intensifies in Japan’s City-Gas
Retail Market
Customer Switching (October 2019)
Switching City-Gas
Switching Electric Power
Chugoku Electric Power has lost
about 0.53 million costomers. But
About 0.61 million customers have left from Hokkaido Kanto is the area where the
Electric Power due to the entrance of Hokkaido Gas and 608,300 largest number of customers
other Electric retailers. Hokkaido Electric Power is
have switched their city-gas
considering the entrance into the city-gas retail business.
Hokkaido and electric retail providers.
Tohoku Electric Power, which has lost about 0.62 Especially, the number of
million customers, has already registered as a retail customers switching city-gas
620,100
gas provider. But no supply has been made by the has sharply increased in a

Neither city-gas nor electric power
companies has not entered the
other's markets yet, but try to
enhance their customer services.
Both of Saibu Gas and
Kyushu Electric Power
have lost about 10% of
their own costomers.
Saibu Gas plans to
diversify the business
and build several core
profitable sectors.
company to any residential city-gas customers yet. 6,899,600 year and surpassed the
City gas companies in Tohoku are trying to secure
Tohoku number in Kinki.
their customer bases by newer gas pricing and TEPCO EP, NIPPON GAS and
other service programs. Tokyo Energy Alliance in
January 2019 announced that
1,381,200
1,419,926
358,120
2,851,200
the number of their city-gas
525,500 1,045,630 customers had reached 1
Chubu Kanto million and they are trying to
Chugoku / Shikoku reach 2 million by end of
Kinki (Kansai) Competition between Toho Gas and
March 2020.
Kinki is the area where the number of customers Chubu Electric Power is getting
935,800 On the other hand, Tokyo Gas
114,454 swiching is the second largest following Kanto and fiercer. Both companies have lost
the switching rates in the city-gas and electric larger number of retail customers in also announced in August
power retail business have been very high. their respective home turfs than the 2019 that the number of its
Kyushu /
From the outset of the liberalisation, Osaka Gas and number of customers in the
electric power retail customers
Okinawa Kansai Electric Power have been taking away the counterparties' previous home turfs.
others' customers. had reached 2 million.

 The number of customers switching retail suppliers in Japan's city-gas market has doubled during
the last year to reach 12% of the total in the country. In the Kanto region, in particular, the
number has surpassed 1.5 million or 12% of the total retail customers there.
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 In the electric power retail market, the switching rates have reached 22% in the country and
30% in Kanto.
17
 As Greater Supply Flexibility is Expected, More
Investment is Required in Downstream Facilities
Japan's LNG Contracted Volumes
Portflio
deals
Russian Arctic
Annual volumes
(million tonnes)
United
80
States could supply
Portflio deals additional LNG Trans-shipment
Asia Pacific United States volumes facilities and LNG
new
generation
Asia Pacific could supply consuming markets
new
60 projects 100 million
generation
could be developed
projects tonnes per year

Qatar could supply

India, Pakistan,
more than 100
40 and Bangladesh
million tonnes per
Asia could increase
Pacific year by mid2020s
traditional Asia LNG demand
projects Pacific
traditional Senegal, Vietnam, the
20 projects Mauritania, and Philippines and
Nigeria could Southeast Asia could
add volumes expand markets
Mozambique and
0 Tanzania could
2015 2020 develop significant Papua New Guinea
LNG supply and Australia could
supply more LNG
 The world has significant additional gas resources to be developed.
 To effectively utilise expected flexible LNG supply sources, more infrastructure investment is
required in such facilities as LNG trans-shipment terminals, LNG FSRU receiving terminals, and
LNG bunkering stations, to which Japanese companies and government are expected to
contribute jointly.
 So far in 2019, definitive and basic LNG sales agreements have been concluded for 30 million
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tonnes per year in total in the world, with no destination restrictions attached.
Contact :report@tky.ieej.or.jp　 18