LNG Market 'Delicately Rebalances': WoodMac
Fears about an oversupplied LNG market are easing, says consultancy Wood Mackenzie in a 2Q outlook – although for those on the buying side, it is more a case of 'hopes are fading.'
The consultancy had said late 2017 it expected a structural rebalancing of the global LNG market only “around 2023, possibly earlier on a seasonal basis” but acknowledged even then that Asia might surprise.
But in an analysis note issued June 7, a more bullish WoodMac now sees the market in the midst of a “delicate rebalancing act,” with a tight winter ahead likely to be followed by a more balanced summer 2019. Cheniere Energy strategy chief Andrew Walker already presented a similar more bullish analysis at IP Week back in February.
“Record demand from China absorbed a large part of the additional 33mn mt of LNG supply in 2017,” said WoodMac global gas and LNG vice president Massimo Di Odoardo June 7. He forecast that high seasonal demand from Asia will again support the market through this coming winter, followed by a likely market shift in summer 2019 when LNG prices would remain relatively sustained.
“LNG supply growth in 2018 slows a little, adding 27mn mt before accelerating again in 2019 to add 41mn mt in 2019,” added Di Odoardo. But as market conditions in Europe tighten, and with the oil and coal forward price curves remaining high, WoodMac believes that Russia will maximise its revenues by accommodating all LNG imports in 2019 – rather than fight for market share in Europe.
LNG prices in north Asia will trade again at oil parity, equivalent to $12/mn Btu in 2018 this winter, said WoodMac. But the rebalancing of the global LNG market into 2019 will result in more cargoes having to be absorbed in Europe, where local spot prices would fall to $6/mn Btu – about $1 less than the current curve; on top of this, the Asian LNG market will be sufficiently supplied with Pacific LNG supply, resulting in Asian LNG prices trading at parity to European spot price.
WoodMac however sees little risk of any shut-ins of US LNG export capacity in summer 2019, because Europe’s import dependency will continue to increase, as indigenous production reduces. Moreover, lower gas prices could spur additional demand through coal-to-gas switching in the power sector. It expects Europe to import an extra 35bn m3 of regasified LNG, 50% up on its 2018 forecast. Nonetheless Russian exports will remain sustained at around 170bn m3, albeit slightly down on last year’s roughly 190bn m3 record.
European gas prices will soften, with TTF averaging $6.6/mn Btu through to 2019, forecasts WoodMac, about $1/mn Btu less than in 2018 and the current forward curve for 2019.
Gazprom increased its share in the European market from 33.1% in 2016 to 34.7% last year, exporting 165bn standard m³ in 2017, or 193.9bn m³ if counted in m3 of Gazprom’s slightly lower calorific gas.