Cheap gas fuels emerging markets' newfound appetite for LNG

MILAN/LONDON - Cheap gas is tempting out new importers in Africa and South America, helping stave off a deeper price rout hurting producers' bottom lines.

A near-80% drop in spot LNG prices since February 2014 comes as Asian demand falls and competing new supply from the US and Australia attracts poorer countries for long shut out of the gas trade.

Around 400 metric MMt, or a third more of the fuel, will be produced annually by 2020, according to industry estimates. That opens doors to overlooked regions considered too risky when Asia markets offered the best growth opportunity.

Cheaper than fuel oil and cleaner-burning than coal, LNG suits emerging economies racing to bridge electricity shortfalls and support growth on tight budgets.

New technologies, such as floating LNG import terminals, have also shaved years off the time needed for new customers to access supply.

Terminal vendors including Golar, Hoegh, Excelerate Energy and BW Gas are thriving.

Market debuts by buyers Egypt, Jordan and Pakistan last year were bright spots in an otherwise depressed trading environment.

"There is an increase of up to 17 metric MMt in LNG supply in 2016 and terminals commissioned in 2015 and 2016 could account for 50% of that," independent consultant Andy Flower said.

Aside from new supply flooding global markets, traditional Asian buyers such as Japan are having to hone a new skill—selling—as local demand disappoints.

GATE CRASHERS

Colombia is to become the 36th LNG-importing country later this year, a number expected to near 50 by 2025, according to an International Gas Union report.

Japanese trader Mitsui and Co. will supply the country's first cargo to start Hoegh's floating storage and regasification unit (FSRU), trade sources said.

The terminal is due to arrive in Cartagena in 3Q and start commercial operations in 4Q, a Hoegh LNG spokesperson said.

As with most South American importers, Colombian gas needs will be highly sensitive to rainfall given the preponderance of hydroelectric power.

Eventually, up to 4 cargoes per month could be absorbed.

Abu Dhabi follows. Its FSRU, provided by Excelerate, should absorb up to 4 cargoes per month, traders said.

The path to becoming an importer is not always smooth, even with the barriers to entry being reduced, as infrastructure costs fall and timelines shorten.

In Africa, the next big market is Ghana, where there are two import projects planned. However, while Golar's LNG terminal Tundra has already arrived, sources said there are logistical delays causing uncertainty over the time frame of its startup.

The second project, led by Israel's Quantum Power, looks set to slip far into 2017 or 2018, industry sources said.

Countries including Jamaica, Malta, Uruguay, Panama, Philippines, Morocco, South Africa, Bangladesh and Hong Kong are next in line to emerge as importers of LNG. 

"It won't absorb the glut in supply, volumes are too small, but it helps in energizing the market, reducing inefficiencies and encouraging a more regionalized focus," a trader said. "It's a natural progression for the market."

(Writing by Oleg Vukmanovic and Sarah McFarlane; editing by William Hardy)

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