Be careful what you wish for: The LNG market in 2015
What a difference a year makes. The LNG market has flipped from short to long in the past 12 months – from worrying about a lack of supply to meet surging demand, it now faces a period of strong supply growth but a faltering need for the fuel.
Four new LNG plants could be online in Australia by the end of this year, starting with Queensland Curtis LNG, which loaded its first cargo in early January. In the United States, Sabine Pass will start up and bring the first LNG from the lower 48 states, while in Colombia Pacific Rubiales is racing to install the world’s first floating liquefaction plant.
However, some existing plants are still out of action – principal among them Angola LNG and Egypt’s two facilities – and others are under threat from domestic turmoil (Yemen LNG) or changing demand dynamics (Indonesia).
On the demand side, the market’s two key buyers – Japan and South Korea – appear to have reached a peak. Japan’s gas imports have grown steadily since the Fukushima accident in 2011, from 70 mt in 2010 to a record 88.5 mt last year. But as the first of the country’s nuclear reactors are due to restart this year – and overall energy demand weakens – 2014 looks likely to have been the high point.
There are signs South Korean demand could also be waning, Chinese growth is not looking as strong as expected, and the signing of two pipeline supply deals with Russia has furthered dampened forecasts for China’s LNG appetite. Europe remains a gas demand graveyard, while the prospect of imports to North America never even got off the ground before the shale revolution took hold.
On the bright side
There are positive signs. South America is becoming the star region in the global market and remains an engine for demand – although Argentina’s continuing economic difficulties threaten its ability to pay for cargoes. It appears demand could pick up in India – a huge market, with significant import capacity and a government that seems willing to reform energy subsidies to make investment more attractive.
Meanwhile, Indonesia and Malaysia have turned their attention to supplying domestic gas demand and are gradually moving from being net exporters to net importers.
But despite this, on balance many expect the LNG market to remain well supplied for the next couple of years. The danger is that this short-term market balance will affect long-term investment decisions about new projects. The global LNG trade is still expected to grow strongly in the coming decade, and with a typical lead time of more than five years between FID and startup date, negative sentiment now could hurt supply growth around 2020.
Elephant in the room
Of course, feeding into all of the uncertainty is the dramatic drop in oil prices seen in the past six months.
LNG buyers and sellers will want more clarity on the future direction of prices before they commit to long-term oil-linked contracts. Economists are split on how long oil prices will stay low – some more optimistic observers predict a year or less of low prices, while pessimists have forecast a slump of up to three years and even advocate a more structural, rather than cyclical, shift in the market.
https://www.hellenicshippingnews.com/be-careful-what-you-wish-for-the-lng-market-in-2015/
