BAKU, Azerbaijan, May 11
By Leman Zeynalova – Trend:
Global liquefied natural gas (LNG) prices will see nadir in 2020 for amid a deepening glut in the global LNG market and given the large declines in crude oil and gas hub prices, Trend reports citing Fitch Solutions Country Risk and Industry Research.
“The disruptions arising from responses to the global Covid-19 pandemic also look set to add to the former, as demand and sentiment across major markets endure substantial hits. Our economists expect new Covid-19 cases globally will peak in late-May or June, which will see the more stringent containment measures relaxed over the coming two months,” the company said in its report.
The report shows that LNG demand growth in the world's three largest markets for the fuel have shown signs of fatigue even prior to the outbreak of Covid-19, which contributes to a lackluster short-term outlook for prices.
“Indeed, while the three of South Korea, Japan and China combined to import 65.9bcm over Q1 2020, an increase of 2.8 percent on year and a marked improvement from the 5 percent contraction recorded in the same period, in the previous year, the figure pales in comparison to average growth of 13 percent recorded over 2017-2018,” said Fitch Solutions.
After bottoming out in 2020, the company expects global LNG prices to slowly rebound over subsequent quarters, as economic activity gradually normalizes, although any gains would likely be measured as global supply continues to see strong growth.
“The negative backdrop of the Covid-19 pandemic, coupled with the collapse in oil and gas prices and sharp cutbacks in capex, likely spells delays for some of the projects in the global pre-FID projects pipeline. With demand for LNG set to remain on an uptrend for the foreseeable future, this could help to curb the excess supply in the market over the course of the next few years.”
However, the relief from spending pullbacks and project delays would prove temporary, as deferred projects are gradually returned to the fold, as market conditions improve, according to the report.
“Based on current estimations, global liquefaction capacity is set to see a near 70mtpa (95bcm) expansion in the period out to 2024, 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 84mtpa or 115bcm 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, East Africa, Qatar and Russia,” the report says.
Further delays to project start-ups and unplanned supply outages are possible, as 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, according to Fitch Solutions.
“Strained bilateral relations with China continue to pose risks to pre-FID LNG liquefaction projects in the US, as the potential loss of China as off-taker of US LNG would remove a significant destination for developers seeking long-term financing. A 'phase one' trade deal signed in January 2020 could see halted LNG flows resume between the two countries. Indeed, China’s SOEs have reportedly lined up LNG purchases from the Cameron LNG, Corpus Christi LNG and Sabine Pass LNG to be delivered sometime in April-May, which would mark the first LNG shipments from the US since March 2019,” reads the report.
Fitch Solutions points out that the growth outlook across Asian emerging markets ex-China continues to be positive, and low prices provide the ideal time for many of these markets to chart a path away from more-pollutive energy sources towards natural gas and LNG.
“Indeed, for many countries within the region, raising LNG imports remains the only viable option to meet long-term gas consumption goals, with domestic production facing structural declines and construction of cross-border pipelines hampered by geopolitics and geography,” reads the report.
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