LNG Prices Expected To Stay Low On Oversupply Worries

LNG Prices Expected To Stay Low On Oversupply Worries

With global supplies expected to rise 50 percent by 2020, Liquefied Natural Gas (LNG) prices – which already hit their lowest level in almost two decades earlier this year – will continue to struggle for the foreseeable future, states a new report from the Australia and New Zealand Banking Group Limited (ANZ).

The rise in supply will come mainly from as much as 130 million metric tonnes per year of approved new LNG capacity from Australia and the U.S., write Daniel Hynes and Natalie Rampono, strategists for ANZ Research; this will make Australia the world’s largest LNG producer by 2020 with 82 million tons produced annually, and the U.S. third at 36 million tons yearly (Qatar is the second highest producer).

Left unsaid in the report is what impact this massive surge of product will have on the shipping community: while the low prices are bad news for LNG producers, they may presumably be good news for those who are considering switching to LNG as a marine fuel.

Also not mentioned is whether the low prices will compel some LNG players to suspend production projects currently in development.

As is the case with the oil market, the authors point out that LNG supply could very well outstrip demand, at least in China, even though that country’s annual LNG import growth is expected to increase as it decommissions400,000 small-scale industrial coal boilers by 2018.

ANZ notes that China’s imports will still fall behind those of Japan and South Korea, and that the demand outlook for those countries is weak: the former’s imports were down 6 percent in the first seven months of this year compared to the same time in 2015, partly due to the restarting of five nuclear power reactors; additionally, contract prices are forecast to decline to $6.9 per one million British Thermal Units, compared to $16 per mmBtu in 2015.

And while South Korean imports of LNG rose 3 percent in the first eight months of this year, a restart of a nuclear plant and new coal-fired power plants coming on line will keep demand flat-to-weak in the foreseeable future.

Earlier this year, Grace Quinn of Baringa Partners reported in Ship and Bunker that while the expansion of global LNG supply over the next five years “will support the already growing appetite for LNG as a bunker fuel, the short-term picture is one of oversupply as global demand will not increase at the same pace, particularly if current oil price levels remain.”


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