LNG macro analysis, page-29

Global LNG market to tighten from 2024, QNB says

April 17, 2018

Global liquefied natural gas (LNG) markets are expected to be oversupplied until 2022 with capacity utilization forecasted to be in the range of 81-88% on average between 2019-22, but become undersupplied thereafter, according to a report by Qatar National Bank.

New LNG supply is expected up to 2020 mainly from the US and Australia, boosting global production by up to 96.5 mmtpa (million metric tons per annum) – or about 30% compared to the 2017 level, QNB said in the report issued on Sunday.

However, around 2024, the market is expected to tighten with supply broadly flat as few new LNG projects, which take about 5-7 years to complete, have been given the green light since the sharp decline of prices in 2014, the report said.

At the same time, global demand is expected to grow by a compound annual growth rate of about 5% over the period 2023-30 as domestic production in Europe and South East Asia declines, and the demand for clean energy in economies such as China gathers pace, it said.

Nonetheless, there are a number of potential projects waiting on the side-lines.

The report, citing Bloomberg New Energy Finance data, said that about 362 mmtpa additional capacity at the pre-FID (final investment decision) stage has some chance of coming online before 2030.

On the other side, Japan LNG spot import prices have risen from a low of $4 per million British thermal units (MMBtu) in mid- 2016 to an average of $10 for the first three months of 2018.

Hence, “now is a good time” for Qatar, the world’s lowest cost major producer of LNG, to step back into the market to deter new investments elsewhere given its comparative advantages, the report said.

Qatar previously announced a new development from the giant North Field which would produce 23 million tonnes per year by 2024 – an increase of 30% from current total LNG production levels to about 100 million tonnes per year.

“The total cost of new production is estimated to be $2-5 per MMBtu, below the level at which other potential new projects are viable. Second, as the world’s largest producer, Qatar already has the reputation for reliability and the relationships to agree long-term supply agreements with importers,” the report added.

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This our current reality and another example of why I remind myself to ignore daily share price gyrations. It is a long game we're playing but an exciting one.

Without a doubt LNG SP will run hard over several price sensitive phases from where our SP currently sits unless we are taken over first. Each phase I expect to run just as hard or harder than LNG has before. For anyone who's been on this journey long enough, you will have a clear indication of just how hard and quickly the LNG share price can gallop. The charts are there for all to see. I don't pretend to be an expert on how things may transpire but I suspect these price sensitive rerating events may look something like what follows.

1st phase - significant BTA signing
2nd phase - second and subsequent BTA signings
3rd - Final Investment Decision at MLNG
4th - construction begins at MLNG
5th - construction finalised at MLNG
6th - First revenues from MLNG
7th - revenue growth for LNG Ltd
8th - BTA signing at BHLNG
9th - second and subsequent BTA signings at BHLNG
10th - FID at BHLNG
11th - construction at BHLNG
12th - construction finalised at BH
13th - first revenue at BHLNG and ongoing revenue at MLNG
14th - first dividend
15th - Panorama retired before 40

It will be hard to predict when first dividend would be received, it might be distributed after Magnolia or once both sites are developed.

In any case, it could be argued that each phase listed above would drive our SP north and hard, to varying degrees of course. I don't think it's unfair to suggest that once all phases listed above have been completed that the SP will be 20x where it is now.

That is what I'm waiting for. 43c is a gift, another buying opportunity for those well researched individuals who believe in what LNG have started. I strongly believe it will be achieved.