Booming LNG faces major swings in supply-demand balance

33919674328 3e4aa20faa zThe global LNG market is set to see major swings between excess demand and excess supply over the next five years

This is according to a report by Bloomberg New Energy Finance (BNEF), which suggested that the market has grown rapidly in recent years with export and import volumes rising by 10 per cent in 2018 alone, and expansion is set to continue in the years ahead.

However, growth rates of LNG exports and imports are seen moving out of sync in 2019-2023, with exports increasing faster than imports in 2019, putting downward pressure on prices unless unusual temperatures in import markets lift demand, and then imports outstripping exports in 2022-2023.

The report sees LNG supply jumping by 33 million metric tonnes per year (mmtpa) in 2019, reaching a record 358mmtpa, with the US Gulf Coast, Australia and Russia commissioning or expanding export facilities.

Ashish Sethia, head of commodities at BNEF, said, “This year’s expected excess supply of 16mmtpa will be hard for the market to absorb unless we get a dose of ‘wild demand’ for either a hotter summer or colder winter in North Asia or Europe. If not, the pressure will be on LNG prices.”

According to BNEF analyst, the prospect of short-term oversupply does not dissuade investors. A further seven multibillion-dollar LNG export projects, including three in the US in Louisiana and two in Mozambique, are close to a final investment decision and are likely to place extra supply on world markets post-2023.

Last year’s jump in LNG demand, totalling nearly 30mmtpa, reflected a 41 per cent increase in China’s commodity purchases and other significant percentage increases in imports in South Korea, India, Pakistan, and Europe. Egypt was one of the few countries to see a large percentage reduction in demand.

One important symbolic change for LNG is the gradual shift from using crude oil as the price benchmark for contracts to using a gas index, highlighting how the LNG market has matured as an alternative to coal for electricity generation and industrial, business and residential heating. New US projects are pushing the mix towards gas indexation, the BNEF report concluded.

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