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Angola’s LNG risk from weak global LNG market

Hydrocarbon Engineering,


According to Business Monitor International (BMI), Angolan natural gas production will rise from an estimated 1.1 billion m3 in 2014, to 4.5 billion m3 in 2019 and 7.0 billion m3 by the end of the forecast period in 2024. This compares to BMI’s previous forecast of 6.0 billion m3 and 7.6 billion m3, respectively.

Mounting supply to loosen LNG markets

The downward revision reflects BMI’s belief that the global LNG market will continue to loosen in the coming years. A wave of liquefaction capacity is slated to come online in the period 2015 – 2017, boosting supply, while demand growth in the core Asian markets, which accounts for approximately 75% of global consumption, has begun to slow.

A sharp fall in global oil prices, to which the bulk of LNG contracts are indexed will help make LNG imports more competitive. But the impact of lower prices on demand will be limited by a host of other factors in the region, including continued energy efficiency gains, the return of nuclear power generation in Japan and an increase in gas pipeline imports into China.

ALNG most at risk from global demand slump

Strong growth in supply and weakening growth in consumption will strain the industry more generally, but BMI sees Angola LNG (ALNG) as particularly vulnerable to these trends. ALNG is currently offline, undergoing repair of a number of technical faults. Repairs are schedule for completion in Q215, but given the high probability of delay, BMI have not factored production into its forecast until Q415. Critically, the facility has no long term sales contracts to anchor its production, but sells on a spot and short term contract basis.

With the slowdown in global consumption growth, the call on spot purchases will be significantly lower and BMI believes that ALNG will struggle to secure the capacity off take. As such, BMI sees ALNG, which has capacity of 7.2 billion m3, as being underutilized throughout its 10 year forecast period.

Domestic consumption offers limited upside

The impact on gas production growth will be significant, given the low level of gas consumption domestically. The Angolan power sector offers major upside, as the country looks to reduce its reliance on unreliable hydropower generation. However, while BMI power analysts forecast an increasing role for thermal generation in Angola’s overall power mix, oil and not gas will remain the dominant feedstock.

The major gas production centres in the north are remote from the key demand centres in the south. There is a critical lack of gas pipeline infrastructure and it would demand heavy investment to connect the two. Angolan utilities are in a weak position financially and would struggle to raise sufficient funds. It is also worth noting that oil products in Angola remain heavily subisidised, and so there is little financial incentive to switch to gas, especially in lower price environment.

There is also limited demand from the industrial sector. A number of projects have been proposed, including methanol and urea plants and gas to liquids, but BMI sees neither the market conditions nor the pricing dynamics as supportive of these projects. As such, BMI forecast domestic consumption to remain limited throughout the forecast period, rising from an estimated 0.8 billion m3 in 2014, to 1.1 billion m3 in 2019 and 1.5 billion m3 by 2024.


Adapted from a report by Emma McAleavey.

Source: BMI

Read the article online at: https://www.hydrocarbonengineering.com/gas-processing/16022015/angola-lng-market-249/


 

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