LNG market to remain tight in 2014 and beyond
London, November 18, 2013
The global market for shipped natural gas is entering key years of change in 2014 with several new buyers emerging while big new supplies will only slowly become available from 2015, resulting in a tight market for years to come.
Demand for liquefied natural gas (LNG) has been rising for years, driven mostly by booming Asian demand and a loss of nuclear power in Japan and more recently South Korea. Import needs are set to rise further in 2014 as China and Latin America are becoming increasingly active buyers.
"Looking towards 2014,... rising Chinese import capacity and continued strong demand out of Latin America suggest global LNG markets are heading towards another tight year," Bank of America Merrill Lynch (BoAML) said in a research note this month.
While demand for LNG is expected to rise, analysts say that big supply additions are not expected before 2015.
"On the supply side, there is plenty to be concerned about. Projects in Angola, Algeria and Nigeria have been underperforming. Major Australian projects should start to hit the market in 2014, but we continue to see a dearth of new liquefaction projects coming online until 2015," BoAML said.
As a result of the tight market in 2014, the report said that Asian spot prices could rise above last winter's highs of almost $20 per million British thermal units (mmBtu) this winter, up from a current price of $18.30 per mmBtu.
While some new supply sources are expected to ease the market somewhat by 2015, driven largely by new exporters from the United States and Australia, analysts say that a rise in LNG demand of around 7 percent a year until 2020 will still result in a tight market for most of the decade.
"Global gas demand is surging, which is driven by a preference towards lower carbon fuels, a shift away from nuclear and emerging market growth. As a result, we expect international gas markets to remain 'tight' through to 2020," Bernstein Research said this month in a global gas market study.
Beyond an overall tight market outlook, large regional supply and demand differences are expected to remain in place.
North America, where the shale gas boom has pulled down prices, will benefit from low domestic prices and an opportunity to export its excess gas to Asia, where prices are expected to rise further on the back of booming demand and a lack of significant gas production of is own.
"Gas markets will remain fragmented, divided between North America, where gas is abundant and prices are low and international markets where gas will be supply constrained and prices continue to rise," Bernstein said.
The researchers added that this imbalance would result in a sharp rise in global LNG trading activity, as producers and shippers try to take advantage of regional price differences.
Beyond a tight market, LNG trading is set to become more diverse, with several new buyers and sellers entering the stage.
On the demand side, China is fast emerging as a major buyer, with six LNG import terminals likely to become operational between November 2013 and the end of next year..
China, which is already the world's top energy user but is so far only a small LNG player, is keen to curb use of dirtier coal and aims to triple the use of natural gas to top 300 billion cubic metres (bcm) by 2020, with nearly a third of that having to be imported to China via LNG.
In the Americas, import demand is also rising especially in Mexico and Argentina where domestic production is dropping while demand is on the up.
Reacting to rising demand, new sellers are slowly emerging.
Russia, the world's biggest supplier of pipeline gas, has so far been slow to enter Asia's booming LNG market, but the government passed legislation this month towards allowing rivals of state-controlled Gazprom to export LNG in a move to enter growing Asian markets.
In North America, the U.S. will begin to export LNG from 2015 and most analysts say that volumes will reach over 50 bcm by 2020, and Canada also has plans to begin exports this decade.
But the biggest new exporter is likely to be Australia, which could challenge the world's top LNG shipper Qatar by reaching annual export volume of almost 100 bcm by 2020. Qatar exported 105.4 bcm of LNG in 2012.
However, most of this LNG will become available after 2015 and at minimum costs of almost $15 per mmBtu, so it will act more as a price stabiliser rather than help bring down prices.
Other major LNG export sources, such as East Africa or the East Mediterranean, are not expected to come to market before 2018 at the earliest. – Reuters