Record year for gas liquefaction investment lights a path towards market flexibility

An increasingly more mature, liquid and secure global gas market

A record of nearly $65 billion was set in 2019 for investment decisions in liquefied natural gas (LNG) liquefaction facilities, setting the stage for global capacity to increase by over 16%. Much of this investment has been supported by trends in deal structuring that are enabling developers to reach project milestones at a more rapid pace than in the past.

In this context, and thanks to continued demand growth driven by emerging economies and an increase of players in the market, the global gas market is becoming increasingly more mature, liquid and secure.

Riding a wave of liquefaction

After little activity in 2016 and 2017, the market has transitioned to a new phase in the investment cycle. This began in 2018 with a strong increase in final investment decisions (FID) for liquefaction facilities, totalling 29 billion cubic metres per year (bcm/y): Corpus Christi LNG train 3, LNG Canada, Greater Tortue FLNG 1 and Tango FLNG.

This surge in investment continued into 2019, with last year seeing the most liquefaction capacity ever sanctioned in a single year at 96 bcm, eclipsing the previous peak of almost 70 bcm in 2005. Projects reaching FID in 2019 included Sabine Pass LNG train 6, Golden Pass LNG trains 1–3, Calcasieu Pass, Mozambique LNG trains 1 and 2, Arctic LNG 2, and Nigeria LNG train 7. Some of these projects have the largest capacities ever sanctioned and in many cases, could end up being be the largest private sector investments in the history of their respective countries – four projects sanctioned over the past two years report that total capital expenditures will exceed $20 billion.

This additional infrastructure will produce gas equivalent to the LNG import needs of the entire European Union in 2019 – even more impressive considering last year’s higher than average LNG imports to the EU.

Liquefaction capacity additions and project capacity taking final investment decision, 2014-2024


Long-term market confidence has been a key support for these decisions as a liquefaction project can take 10 or more years from initial planning to the first deliveries of gas to market. For projects that have moved beyond the planning stage, investment milestones are critical if they hope to capture medium-term demand and beyond. In a market with many competitive projects, investors have been eager to ramp up activity and sanction projects before this door of opportunity closes.

Much more could be coming. Considering projects that are expected to come online before the end of 2024 and have already completed front-end engineering and design, the first half of 2020 may account for another 80 bcm of sanctioned capacity from Rovuma LNG in Mozambique, Driftwood LNG in the US and the proposed expansion by Qatargas (Qatargas V-VIII). At over 40 bcm, the size of the Qatargas expansion project is equal to the entire global capacity sanctioned in 2015, 2016, and 2017 combined. This next wave of new liquefaction capacity1 represents additions of more than 150 bcm by 2024.

Capacity additions from 2020 onward are expected to be lower, yet the high capacity which will come online in 2024 makes it likely that 2019-24 additions will still be greater than the total capacity added from 2012-17, the most recent phase of capacity additions.

New structures in the spotlight

This rapid increase in LNG investment over the last two years has also taken place in parallel with a shift away from traditional approaches for developing LNG liquefaction facilities. Under traditional offtake models, developers take FID once the project offtake is secured through long-term supply contracts with third parties. This traditional approach provides investor confidence, but arranging offtake for an entire project with multiple counterparties is time consuming and costly for developers.

In comparison, most newly sanctioned capacity is employing a different financing model that does not rely on such long-term deals, allowing parties to take final investment decision sooner – a shift identified in World Energy Outlook 2017 as necessary requirement for a new gas order to emerge.

This equity-lifting model allows the developer and other equity partners to have access to the project’s LNG volumes proportionate to their equity stake. As such, it secures both the economic viability of the project and the volumes contracted under long-term agreements. Since the beginning of 2018, more than 75 bcm out of 115 bcm have been sanctioned under this model.

FID-enabling contracts, 2014-2019


LNG Canada in Kitimat, British Columbia and Greater Tortue in offshore Mauritania and Senegal were the first examples of this model in the current investment phase, followed by others in the United States, Russia and Nigeria. Mozambique’s Rovuma LNG, which may take FID in early 2020, also plans to develop under an equity-lifting model.

… amidst the growing role of portfolio players

Under this more “articulated” system, large developers and portfolio players are enabling a more flexible market that grows larger by the year. In one way or another, portfolio players participated in all liquefaction projects that took FID during 2018 and 2019. As portfolio players and equity owners have greater stake in these equity lifting projects, they have a greater standing in - and contact with - the fundamentals of a consolidating global market.

In contrast, 2016 and 2017 exemplified how a period of low FID activity can affect the flexibility of contracts signed. In these two years, volumes were mostly sourced from secondary sellers (portfolio players and over-contracted buyers) under short-term contracts with fixed destinations. Destination restrictions can influence market liquidity by limiting demand response to price signals. This stage highlights a market phase where sellers who have procured from the primary market seek to re-sell to end users.

But now destination flexible volumes in the market are growing given the increasing role of portfolio players and new capacity coming online. In 2018, almost 70% of all contracts signed are destination flexible while in 2019, almost 90% of contracts linked to an FID project are destination flexible. That said, term contracts are still crucial for funding new liquefaction under traditional models, not to mention critical to buyers and those monitoring security of supply.

The shale revolution in the US is helping enable this new stage in the LNG markets. The US, which exported almost no LNG in 2015, is projected to become the top exporter by 2024, surpassing Australia and Qatar. In contrast to legacy exporters, over 80% of contracted volumes from the US are destination flexible and in 2019, almost half of volumes exported from the US ended up on the spot market, mostly due to portfolio players selling volumes from long-term supply contracts with US liquefaction facilities. This new market adaptability may well suit upcoming global demand growth, in which we see emerging buyers who are diverse in their location, pricing, and purchase requirements.

This positive outlook for supply and flexibility of LNG is good news for the development of a more flexible and secure international gas market. Yet recent events caution us against complacency. As gas markets go global, and as electricity security becomes more closely tied to gas security, we need an all-fuels perspective to ensure that governments can carry out their energy transitions predictably, safely and securely. 

  1. Corpus Christi LNG train 3, LNG Canada, Greater Tortue FLNG 1, Tango FLNG, Sabine Pass LNG train 6, Golden Pass LNG trains 1–3, Sengkang LNG, PFLNG Dua, Portovaya LNG, Vysotsk LNG train 2, Yamal LNG, Cameron trains 2 and 3, Tangguh train 3, Freeport LNG, Elba Island LNG, Coral South, Calcasieu Pass, Mozambique LNG trains 1 and 2, Arctic LNG 2 trains 1 and 2, and Nigeria LNG train 7.