DLA Piper today launches its Global LNG Report 2019: a review of demand, supply and financing issues, in association with Petroleum Economist, looking at the forces and trends that will shape the global liquefied natural gas (LNG) market in 2019. The report considers three major themes:

1. Demand: As LNG supply continues its strong growth, where are the key markets?

Natural gas – the least carbon-intensive of the fossil fuels – is projected to be one of the fastest growing energy sources over the coming two decades. LNG is expected to grow at a much faster rate than natural gas overall because of the great distances between principal supply centres and demand centres, and because of its inherent flexibility to respond to demand in new markets. LNG volumes are likely to overtake inter-regional pipeline shipments in the early 2020s.

Growth is expected both in some traditional markets, notably the less mature markets of China and India, and in new markets such as Pakistan and Thailand. LNG growth in new markets has been facilitated by the rise of floating storage and regasification units (FSRUs), which have reduced the risks entailed in LNG import projects by reducing cost and accelerating implementation timescales.

China's LNG import growth since 2015 has been spectacular and the country is now the world's second-largest importer of LNG, behind Japan. Chinese LNG demand is expected to continue to grow strongly in the short to medium term, but over the long term there are questions as to how much of the growth in China's gas demand will be met by LNG.

2. Supply: Will 2019 see the expected stampede to sanction new supply projects?

2019 is expected to be a record year for new LNG supply projects. However, if all the projects that could reach final investment decision (FID) in 2019 were to come to fruition, we would see more than 230 million tons per annum of new capacity coming on stream around 2023/24. Even in the most bullish market projections, there is not enough demand to absorb such an increase in capacity.

This wave of potential supply could come from a diverse range of countries. Regions of particular interest in 2019 will be the United States, where a "second wave" of export projects is striving to get under way; Sub-Saharan Africa, where large onshore projects in Mozambique and Nigeria look close to reaching FID; and Qatar, where a proposed expansion would re-assert its position as the leading LNG producer by the middle of the 2020s.

3. Financing: Critical success factors in making an LNG project bankable

Liquefaction projects are large, complex, multi-billion dollar ventures. Raising sufficient capital means calling on many sources of finance. The universe of lenders has evolved to include export credit agency (ECA) direct lending, multilaterals and sponsor co-lending. At times, this has broadened to include sovereign wealth funds (as in Yamal LNG) or project bonds (as in RasGas 2 and 3).

Before 2013 almost all long-term offtake contracts were with investment-grade buyers. By 2016-17 almost half of new long-term contracts were being signed with sub-investment-grade buyers. Those buyers are also demanding greater flexibility, leading to significant reductions in average contract and contract size. The shift to shorter term offtake contracts and less creditworthy LNG buyers is the toughest challenge that sponsors have faced since the advent of LNG project financing.

Increasingly, portfolio players and traders are emerging as intermediaries between producers and consumers, with the ability to accommodate the needs of both project developers, who still need long-term certainty of offtake if they are to raise finance, and end-buyers looking for greater flexibility. These intermediaries today account for almost half of contracted volumes.

Commenting on the report, Charles Morrison, Finance & Projects partner at DLA Piper, said: "As our report shows, the rapid growth of LNG is having, and will continue to have, a transformative effect on how natural gas is traded around the world. This report includes insights from DLA Piper's Energy lawyers in London, Houston, Beijing, Shanghai and Lagos. It is this unique combination of global expertise, working together, that has allowed us to create this report. That is the hallmark of our firm."