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Asian LNG demand forecast to recover sooner than expected
PERFORMANCE
The current wave of LNG facility construction is winding up, which is expected to help tighten the market
TRENDS in the global LNG market over the past year have led to concerns over a glut of LNG as new supply came online while demand growth stagnated.
However, analysts from at least one research and brokerage firm, Bernstein Research, are forecasting that the glut will end earlier than widely expected. They attribute this to an anticipated resurgence in Asian demand, as well as construction being wrapped up on the current wave of LNG projects. However, the analysts predict another period of oversupply will follow.
The Bernstein analysts, led by Neil Bever- idge, described Asian LNG demand growth of 2.1% in 2019 as “surprisingly weak”. However, this pattern has not been consistent through- out the whole year and there have been fluc- tuations. Indeed, Reuters reported this week that Chinese LNG import volumes hit a record high in December, according to ship-tracking data from the news service’s Refinitiv Eikon platform. This made China the world’s top LNG importer, ahead of Japan, for the second consecutive month.
The country is reported to have imported 7.198mn tonnes of LNG in December, up nearly 16% on November, while Japan imported 6.574mn tonnes last month, up nearly 7% month on month. Both countries have yet to release their official monthly data. But Reuters noted that analysts do not expect the reversal between China and Japan to last beyond this winter. Meanwhile, traders cited by the news service attributed the rise in Chinese imports to the arrival of term volumes that buyers commit- ted to previously and spot volumes purchased
earlier in the year, rather than a sudden increase in domestic demand.
Regardless of monthly fluctuations, Bern- stein is upbeat about the long-term demand growth potential in Asia. The firm bases this on policies in China and India to promote the use of natural gas, as well as rapid growth in emerging markets including Pakistan, Bangladesh, Indo- nesia and Thailand.
Meanwhile, the current wave of LNG facility construction is winding up, which is expected to help tighten the market. Bernstein predicts that only about 10mn tonnes per year (tpy) of new LNG production capacity will come online between 2020 and 2023, which would equate to just a third of the annual capacity additions over the last three years. This could help push up spot LNG prices in the medium term. In the longer term, however, another glut is thought to be looming, with Bernstein noting that the race to sanction new projects had intensified.
“The seeds of the next cycle are already being planted,” Bernstein warned.
A series of final investment decisions (FIDs) on new ventures have already been made over the past year, and Bernstein anticipates a fur- ther 70mn tpy of LNG capacity receiving the go-ahead over the next 18 months. Projects that are considered likely to reach FID include facil- ities in Australia, Papua New Guinea, Mozam- bique and on the US Gulf Coast – locations where LNG infrastructure already exists or is under development. Not all proposed develop- ments will go ahead, however.
“With a further 110mn tpy of potential pro- jects the competition for market space will be intense,” Bernstein said.™
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w w w. N E W S B A S E . c o m Week 02 15•January•2020