U.S. gas exporters eye Baltic region, Poland as Asian LNG boom fades
U.S. LNG exporters are looking to Europe’s tiny Baltic states and Poland to sign buyers keen to cut their reliance on Russian supplies as hopes have faded that Asian demand for cheap North American natural gas will fire another sales boom.
Asia has traditionally taken more than 70 percent of annual global liquefied natural gas (LNG) demand, and exporters developing new projects in the United States, Canada and Australia had been looking to China, Japan and South Korea – the world’s top three buyers – as the most reliable outlets.
But Asia’s spot LNG prices have fallen two-thirds since February 2014 as a 60 percent fall in oil prices undercut energy values worldwide. And analysts forecast that benchmark oil-indexed LNG contract prices into Japan will not start to recover until at least 2018.
Explosive Asian growth in LNG consumption has also stalled as the region’s economic growth cools, in China in particular. Nuclear energy, coal and fuel oil use are expected to pick up in Japan and South Korea.
That has made it hard for new U.S. export projects to justify Asia as a destination market.
“The euphoria has faded,” said Vivek Chandra, chief executive of Texas LNG, which will seek U.S. permits to ship 2 million tonnes a year of the super-chilled fuel and expects to take a final investment decision next year.
“Now, the most exciting buyers for us are European utilities,” Chandra said.
To be sure, demand for LNG from the small Baltic states of Lithuania, Latvia and Estonia, along with Poland, is small compared to the huge volumes going into Asia.
Together, demand from the Baltics and Poland would be about 6 million to 7 million tonnes a year, judging from the size of import terminals due on line this year in Lithuania and Swinoujscie, Poland.
Still, with Asia’s demand to 2018 covered by the 100 million metric tonnes of LNG capacity coming online in Australia and the United States – including from the first U.S. LNG export terminals outside of Alaska – there are few other destinations for new consumption.
“The Baltics are a good market for us. They really want American gas and they have the political will to make it happen,” said Texas LNG’s Chandra, referring to the eagerness to cut reliance on Russian energy because of Moscow’s role in Ukraine.
The same factor could open up other markets too, since Europe may reduce annual piped gas imports from Russia by a quarter – about 45 billion cubic metres (bcm) a year, equivalent to more than 30 million tonnes of LNG – over the next five years.
SWING TO EUROPE
Asian LNG demand is expected to rise by 7 percent to 187 million tonnes this year, according to consultancy Energy Aspects, before falling 2 percent – about 4 million tonnes – in 2016 as Japan and South Korea turn to other fuels.
In comparison, it forecasts European demand jumping by two-thirds next year to 61 million tonnes. And while the continent’s demand is expected to be flat this year, it has attracted twice as many LNG tankers in January and February as in the same two months last year, Reuters data shows, suggesting imports may rise as soon as this year.
“Dynamics have changed in quite dramatic fashion since the summer of 2014,” Timera Energy said, with the rapid decline in Asian spot free-on-board LNG prices LNG-AS putting them at about a $1 discount to European hub delivery prices of around $8 per million British thermal units (mmBtu).
“As the global LNG market tips into a state of oversupply, surplus LNG cargoes are flowing back into Europe and European hub prices are acting as a key global price support,” the consultancy said.
ANZ bank said this month a stabilisation in crude prices would mean benchmark Japan contract LNG prices settle around $10/mmBtu in 2016, a level that would still be too high for U.S. exporters to sell into Asia profitably.
In Asia, LNG supplies are expected to be in surplus until a shortage of 3 million to 5 million tonnes a year starts to open over 2018-2020, according to ANZ and Credit Suisse estimates.
https://in.reuters.com/article/2015/02/26/lng-asia-europe-idINL4N0VN4BO20150226
