Global LNG production growth continues to lag expectations

Oct. 4, 2010
Growth of global LNG production in 2010 is again poised to underperform expectations, as a cascade of maintenance outages at some of the world's largest liquefaction trains and the delay in start-up of two new megatrains limit output this year.
Construction in May 2010 on the Burrup Peninsula for Woodside's Pluto LNG plant was moving toward likely commissioning and start-up in early 2011 of the 4.3 million tpy first phase of the three-phase project. The plant, which around 2014-15 will be able to produce 12.9 million tpy, will handle natural gas from Pluto and Xena gas fields in the Carnarvon basin about 190 km northwest of Karratha, Western Australia. (Photograph from Woodside Energy Ltd.)

Based on a Barclays Capital commodities research publication Sept. 7, 2010.

Growth of global LNG production in 2010 is again poised to underperform expectations, as a cascade of maintenance outages at some of the world's largest liquefaction trains and the delay in start-up of two new megatrains limit output this year. Those delays should push growth into 2011.

Barclays Capital projects global LNG production will increase by about 3 bcfd next year. That pace again raises the question of whether the world might face oversupply in 2011, a deja vu of late 2008 and 2009.

The past 18 months highlights the flexibility of the LNG supply chain in adapting to the pace of demand increases. In our view, global LNG markets will be adequately supplied in 2011 but unlikely to run into oversupply.

Delays, glitches

At the beginning of 2010, given planned liquefaction capacity additions, LNG supply looked to grow by more than 6 bcfd in 2010 compared with 2009. Anticipating customary delays and start-up glitches, Barclays Capital had expected global LNG output to grow 4.5-5.5 bcfd in 2010. Indeed, in the first half of this year, global LNG deliveries increased by 5.7 bcfd (Fig. 1). Yet, this performance was driven by extremely cold weather in first-quarter 2010, which prompted producers to ramp up utilization sharply after a slow 2009.

For second-half 2010, delays of two new projects originally planned for June and September 2010, which are likely to start operations in early 2011, will push yearly comparisons lower than previously expected in fourth-quarter 2010. Thus, we have lowered estimates for global LNG supply growth to 4 bcfd in 2010.

Delays also smooth out the arrival of new LNG supplies from what looked like lumpy growth for 2010 to now more balanced increases in 2010 and 2011 (Fig. 2). The following section focuses on the dynamics affecting LNG output from the top five producers and presents an outlook for global LNG supply in 2011.


Already home to the largest concentration of liquefaction capacity in the world (as of 2009), Qatar continues to add capacity this year and next. From 1.9 bcfd in 2000, the country's liquefaction capacity has grown to 8.3 bcfd currently, 24% of the world's LNG production capacity. The upcoming launch of Qatargas Train 6 and Train 7 will increase that share to 30%.

Output has grown, although not commensurately with capacity (Fig. 3). Although last year's production increases lagged capacity additions owing to the late-year timing of the launch of some of the new plants, this year's underperformance has been related to various delays in the start of the new facilities and also to a wave of maintenance outages that severely limited output during the seasonal trough of demand (Fig. 4). Note that train maintenance is usually carried out during the shoulder season, when demand is at its lowest. Still, the outages were instrumental in keeping the market balanced during April-July, at times curtailing more than 2 bcfd of supply.

The last two Qatari liquefaction train additions are currently expected to start operating in first-quarter and second-quarter 2011, although mechanical completion could come sooner. Earlier this year, the apparent delay of these facilities, along with the maintenance outages discussed previously, prompted us to lower expectations for US LNG imports in 2010. Our conclusion that a global oversupply is likely to be avoided and excess LNG volumes would not hit US shores as a result has so far been borne out.

At present, all existing Qatari trains are operating, and the country is gearing up to mark the achievement of 77 million tonnes/year (tpy; 10.1 bcfd) of LNG production capacity in late 2010. Although no ramp up of Qatari production into the end of 2010 seems likely, which could pressure LNG prices globally, a seasonal pickup in consumption in Europe and Asia should meet the supply increase, leaving few cargoes sailing to the US outside the immediate need for imports. While historically (including in 2009), Japan, South Korea, and India have been the leading buyers of Qatari LNG, the ramp up of the South Hook regasification facility in the UK, part of the Qatargas 2 integrated chain, has put UK takes far ahead of Japanese ones in first-half 2010.


Declining production at Arun and Bontang is being offset by growing volumes from Tangguh, and LNG supplies originating in Indonesia in aggregate have increased 0.6 bcfd vs. last year and 0.4 bcfd vs. 2008 for first-half 2010. Arun's production should decline further in 2011, owing to falling source-gas production, with 31 cargoes to be produced in 2011, down from 36 cargoes in 2010. Japan remains the largest consumer of Indonesian LNG, accounting for 55% of first-half 2010 sales, and Japanese takes have been similar to 2009 levels so far.

Contractual obligations to Japan will drop next year as two large contracts are set to expire at the ends of 2010 and 2011, leaving Indonesia with excess spot cargoes. In the long run, the country is diverting increasing amounts of gas for domestic consumption and has said it will not renew some of its long-term supply commitments upon their expirations to facilitate domestic industry use of natural gas.

Indonesia is also looking to build regasification terminals, which would take some of the existing plants' LNG production, with the first facilities possibly ready to receive LNG as soon as late 2011 or 2012. In the meantime, for first-half 2010, South Korea has doubled its take of Indonesian LNG, while China and Mexico have emerged as new buyers.


Malaysian LNG exports are fairly stable and little changed from last year's export levels of about 3 bcfd (Fig. 4). Deliveries originating in Malaysia have run 100 MMcfd short of last year's (roughly one cargo per month), according to Waterborne Energy data for first-half 2010. The Department of Statistics of Malaysia, however, reports that through May of this year the country exported 3.6% more LNG than in the first 5 months of 2009. In the longer run—by 2014—Malaysia anticipates a shortfall of natural gas supply for domestic needs and is exploring the possibilities to build a regasification terminal. Supplies for the terminal will likely come from Gladstone LNG in Australia, the final investment decision for the first train of which is expected in second-half 2010.


LNG exports from Australia are running near capacity at 2.4 bcfd and are 3% higher than last year for the first 6 months of 2010. In first-half 2011, Australia will launch its seventh liquefaction train with the Pluto LNG project (photo), which will be able to produce 4.3 million tpy (about 560 MMcfd).

This will put the country's total LNG production capacity at about 3.2 bcfd and make it the third largest LNG producer after Qatar and Indonesia. Further additions to Australia's plants are expected later this decade, about 2014-16.


The steady recovery of Nigerian LNG production from its 2009 lows has offset a large part of the Qatari production declines in the first 6 months of this year. Although still not running at full capacity, Nigerian output grew by 0.7 bcfd in the first 6 months of the year, as the Soku gas plant restarted operations and restored feed gas supply to the Bonny liquefaction plant. The main beneficiaries of the increased output have been Spain and France, both of which have long-term contracts with Nigeria, although the US has also picked up incremental Nigerian volumes.

Security in Nigeria remains fragile as the country prepares for presidential elections in January 2011. The election could bring new violence in the oil and gas producing areas of the country and threaten operation of the liquefaction plant. Barclays Capital assumes that Nigerian production continues running at current levels throughout 2011 but takes note of the downside risks to this assumption if security deteriorates.

Other countries

Two other LNG producing countries are important to note.

Peru has entered the ranks of LNG producers since June with the launch of its Camisea liquefaction plant. It started operations on schedule and has been producing smoothly, adding about 660 MMcfd of capacity to the global market.

In Russia, the Sakhalin liquefaction plant has been running at or above capacity, putting Russia second only to Qatar in terms of year-over-year supply growth so far in 2010 (Fig. 5).

2011 growth

A tally of the upcoming liquefaction plants points to 2011 global LNG production growth of about 3 bcfd. This pace again raises the question of whether next year the world might face oversupply, a deja vu of market expectations in both late 2008 and 2009.

But experience in the past 18 months has highlighted the flexibility of the supply chain in adapting to the pace of demand increases. Although 2009 brought low prices around the world, an oversupply large enough to push LNG volumes into markets that cannot absorb it without a local price collapse (such as the US) was avoided. In a large part, this was due to more moderate growth in production than what planned capacity additions had in store.

The same dynamic is now in the works for 2010, aided of course by cold weather earlier in the year. Thus, while we project global LNG production to grow by 3 bcfd in 2011, we highlight the responsiveness of the aggregate supply complex to fluctuating demand and the resulting possible range of outcomes for supply growth.

In our view, global LNG markets will be adequately supplied in 2011, but unlikely to run into oversupply. We will discuss demand-side dynamics in subsequent publications.

The authors

Biliana Pehlivanova ([email protected]) is vice-president for natural gas and power research at Barclays Capital, New York. She joined Barclays Capital in 2008. Before that, she was a commodity strategist at Bank of America, a senior consultant at Washington Policy and Analysis Inc., and an analyst with Enron Corp. Pehlivanova holds a BBA in finance from the University of Houston.
James R. Crandell ([email protected]) is assistant vice-president for natural gas and power research at Barclays Capital, New York. He joined Barclays Capital in 2008 from Lehman Bros., where he began his career. At Lehman Bros., Crandell was a commodities research analyst covering crude oil and refined product markets. He holds a BA in economics from Dartmouth College.
Michael Zenker ([email protected]) is director for commodities research at Barclays Capital, San Francisco. Before joining Barclays Capital in 2007, Zenker was a managing director at Cambridge Energy Research Associates and earlier led the gas and power trading organization for Southern California Edison. Zenker holds an MBA from the University of California, Irvine, and a BSc in nuclear engineering from the University of California, Santa Barbara.

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