IEEJ：December 2016○ｃ IEEJ 2016

Special Bulletin
A Japanese Perspective on the International Energy Landscape (299)November 25, 2016

LNG Producer-Consumer Conference 2016
Ken Koyama, PhD
Chief Economist, Managing Director
The Institute of Energy Economics, JapanOn November 24, the LNG Producer-Consumer Conference 2016 took place at theShintakanawa Grand Prince Hotel in Tokyo. The annual conference has been sponsored by theJapanese Ministry of Economy, Trade and Industry and the Asia Pacific Energy Research Center
since 2012. A total of some 1,000 people participated in the fifth one on a registration basis. Amongthe participants were 12 energy minister-level representatives from liquefied natural gas producing
and consuming countries, including Japanese Economy, Trade and Industry Minister Hiroshige Sekoand Qatari Energy Minister Mohammad bin Saleh al-Sada who delivered opening remarks
respectively. In addition, LNG industry leaders and globally famed LNG experts attended theconference as speakers or moderators. Vigorous discussions came at the conference divided into sixsessions. The following summarizes the conference’s key points impressive to me:First, participants in the conference clearly shared the view that LNG market is over-supplied
now and will remain so for the immediate future. In the first to third LNG Producer-Consumer
Conferences, LNG consumers had predicted a loosening supply-demand balance for LNG while
LNG producers had denied or doubted the presence or possibility of oversupply. In this sense, LNG
consumers and producers had differed widely over market conditions. Since last year’s conference,
however, the situation has turned around. At the latest conference, participants commonly recognizedthat LNG market is over-supplied now and will remain so until around 2020. Particularly,representatives from both LNG producing countries and supplier companies frankly discussed
excessive LNG supply, leading me to feel changes of the times or the market.
Their speeches indicated that LNG supply could remain excessive or become even more
excessive as LNG supply capacity is planned to increase by more than 100 million tons withproduction being launched under U.S., Australian and other LNG projects. They also suggested thatthe oversupply could remain for several years beyond 2020 depending on a pace of demand growth.
The latest conference focused on how to address problems emerging from or related to oversupply atpresent and for the immediate future as recognized commonly.
Future problems that the present oversupply and weak prices would cause would include
supply shortages and a tight supply-demand balance in the future. While projects that are being
implemented with investment decisions made in the past to soon join the existing capacity arebringing about oversupply for the immediate future, the present oversupply and weak LNG prices
are preventing investment decisions from being made for new LNG projects. The present investment
shortages will prevent supply capacity from being expanded, leading to LNG supply shortages with1IEEJ：December 2016○ｃ IEEJ 2016

capacity failing to meet demand growth in the future. The deeper the trough is, the higher the nextmountain. At present, LNG producers are in difficult conditions as oversupply has resulted in abuyer’s market. If the buyer’s market is reversed, however, LNG consumers may be put into difficultconditions. If the current difficulties for LNG producers are more serious, the future difficulties for
LNG consumers may be more serious. Excessive market fluctuations are not favorable for anyone.
The energy market always fluctuates cyclically. At the latest conference, LNG producers andconsumers got conscious of and discussed future problems to be caused by the present oversupply.
Second, what is required to develop the Asian LNG market was an issue common to LNG
producers and consumers at the conference. Factors behind the present oversupply include not only
the substantial LNG supply capacity expansion as described above but also slower-than-expected
LNG demand growth. Natural gas is known as clean, emitting the least carbon dioxide among fossilfuels. Natural gas supply is stable, with abundant resources and supply potential. Given theseadvantages, natural gas and LNG are expected to play a greater role in the energy mix in the world
and Asia. A long-term outlook by the International Energy Agency indicates that LNG’s share ofinternational gas trade will expand from 26% in 2000 to a majority of 53% in 2040.
At the same time, however, LNG faces severe competition from coal in Asia and fromrenewable energy in Europe, making future demand expansion uncertain. Given the effectuation ofthe Paris Agreement, how carbon emission reduction initiatives in the world under the pact would
affect gas and LNG demand in the future is also uncertain. In such situation, participants in theconference pointed out that how to enhance LNG’s overall competitiveness is the key to sounddevelopment of the LNG market.
LNG’s price competitiveness against competing energy sources is the first issue in this regard.
The price competitiveness is surely important. However, LNG’s overall attractiveness including
flexibility and convenience responding to changing market conditions is also important. While LNG
consumers or users at the conference pointed to the importance of improving LNG supply flexibility
and market liquidity, producers provided views giving priority to responding to market changes andconsumer needs. If initiatives both by LNG producers and consumers contribute to improving theattractiveness of LNG and developing the LNG market, the purpose of the LNG Producer-Consumer
Conference will be achieved.
When the LNG market changes in the direction of increasing its flexibility and liquidity, one of
the biggest problems may be whether financing is available for large-scale investment required for
any LNG project. Interestingly, a live electronic poll at the conference found that about 50% of
respondents were confident of finding some solutions to financing problems even if the LNG market
becomes more flexible. The remainder made traditional responses saying that long-term contracts
would be indispensable for financing. The poll thus indicated that new solutions to the financing
problem involving LNG project investment could be explored during the course of future LNG
market changes.

2IEEJ：December 2016○ｃ IEEJ 2016

The LNG Producer-Consumer Conference aims to achieve the sound development of the LNG
market through dialogue. All LNG market stakeholders must gather their wisdom and enhancemarket initiatives to let LNG play a greater role in the energy mix, benefit both LNG producers andconsumers and contribute to the so-called Three E’s -- energy security, environmental protection andeconomic efficiency.

Contact: report@tky.ieej.or.jp
The back issues are available at the following URL
http://eneken.ieej.or.jp/en/special_bulletin.html

3