BAKU, Azerbaijan, Jan. 16
By Leman Zeynalova – Trend:
Global LNG prices look set to be capped over H1 2020 due to the effects of slowing demand in certain major markets, next to a persistent, growing LNG supply surplus, Trend reports with reference to Fitch Solutions Macro Research (a unit of Fitch Group).
In addition, warmer-than-normal winter forecast across the northern hemisphere is expected to reduce gas demand for residential heating, abating a typical seasonal surge in prices, according to the outlook published by Fitch Solutions.
“LNG demand growth in the world's three largest markets for the fuel appears to be slowing and paints a lacklustre short-term outlook for prices. The return of nuclear power stands to compete with LNG for shares in the power mixes of Japan and South Korea, next to growing efforts to boost renewables capacity. The outlook for LNG demand in Europe remains relatively strong, and this will provide limited support for global LNG prices. However, the region’s role as a ‘global gas sink’ may come under scrutiny, next to slowing growth, high stockpiles and power generation capacity constraints,” the company believes.
Fitch Solutions predicts that a wave of new LNG supply additions will keep the global LNG market firmly oversupplied over the coming years, even as demand for the fuel remains robust throughout.
“Indeed, global liquefaction capacity is projected to grow by more than 148 bcm in the period out to 2023, should all projects in the pipeline, including those in the planning and pre-FID phases, pan out as planned. This compares with a forecast demand expansion of 85 bcm over the same period. Supply additions will be driven by new projects coming online in the US, which will account for 78 percent of total growth in global supply, next to smaller additions across Australia, Indonesia, Mozambique and Russia. Possible delays to project s tart-ups and unplanned supply outages pose obvious risks to these projections. Both have been recurrent features of the market in recent years, and given the scale of the project pipeline, have the potential to significantly alter the global balance,” reads the report.
The company analysts forecast that Asia will continue to be the engine of global LNG demand growth, in spite of structural headwinds forming in the region’s largest markets as aforementioned, due to the presence of large, growing EMs that are increasingly reorienting their energy mix towards gas.
“The view for demand outside Asia is mixed, largely on account of improving domestic production and availability of pipeline gas in Latin America, and still limited penetration in the Middle East and SSA. The European power sector’s flexibility in switching between coal and gas-fired power would continue to provide a strong floor for gas prices, although prices and availability of storage will be more crucial than ever in dictating the region's capacity to absorb surplus volumes of LNG from the global market,” reads the report.
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