Page 7 - NorthAmOil Week 18

NorthAmOil COMMENTARY NorthAmOil
Despite this, IHS Markit has said it anticipates LNG demand still increasing slightly this year, with volumes projected to be up 4.4mn tonnes y/y. If this plays out, it would make 2020 the ninth consecutive year of LNG demand growth.
The consultancy noted that it is pipeline gas, rather than LNG, that generally feels the brunt of reductions in demand. As a result, while it expects overall gas demand to decline 4% y/y in the main LNG-importing markets this year, it projects that reduced pipeline volumes will account for around two-thirds of this reduc- tion. This is primarily anticipated to play out in Europe, where numerous lockdowns are cur- rently in place, exacerbating the glut of gas in storage and the impact of a mild winter.
“LNG is often the lower-priced option thanks to a strong supply push. Major pipeline suppli- ers, such as Russia to Europe, are choosing not to flood the market any further,” commented IHS Markit’s chief strategist for global gas, Michael Stoppard. “It all adds up to LNG being relatively resilient in the face of gas demand declines,” he said.
However, the consultancy notes that the competitiveness of LNG will vary by region. It projects that imports to Europe will still rise, and sees the potential for increases elsewhere, including China and Brazil. It warns, however, that LNG volumes may decline modestly as new domestic production comes online in the middle of this year.
What next?
In the immediate term, profitability remains a major concern as spot prices for LNG sink ever lower. On April 28, Reuters cited traders as saying a cargo from Australia’s Ichthys LNG
terminal for loading in May had been sold at a record low price of $1.70-1.75 per million Brit- ish thermal units ($47.02-48.41 per 1,000 cubic metres). However, in line with IHS Markit’s assessment, such low prices encourage buyers to turn to the LNG spot market in preference to more costly pipeline gas deliveries.
Beyond the immediate term, the impact of capital spending and drilling cuts being announced globally in response to COVID-19 and the collapse in oil prices will also come into play. At the same time, China is leading the way in reopening after battling COVID-19, and other countries are set to follow suit – albeit gradually and cautiously – in the coming weeks. While future lockdowns remain a risk, they are more likely to be implemented on a country-by-coun- try basis as governments around the world try to balance containing the virus with restarting their economies.
These forces on both the supply and demand sides of the equation should go at least some way to alleviating the global gas glut. And in the longer run, the LNG industry appears likely to continue booming, with COVID-19 simply slowing its momentum temporarily rather than derailing it altogether. In its 2020 World LNG Report, released last week, the International Gas Union (IGU) said LNG trade had increased by 13% to a total of 354.7mn tonnes in 2019. This marks its sixth consecutive year of growth, according to the group.
Countries around the world continue to favour gas as a significant part of their energy mix, and LNG imports provide significant flexi- bility in sources of supply. Thus there appears to be no reason why LNG growth should not regain momentum in the post-COVID-19 world.™
In the immediate term, profitability remains a major concern as spot prices for LNG sink ever lower.
It is pipeline gas, rather than LNG, that generally feels the brunt of reductions in demand.
Week 18 07•May•2020 w w w . N E W S B A S E . c o m
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