LNG outlook firms for 2018, dip still seen next year
Summary: Fresh signs have emerged that Australian LNG exporters should be spared the impact of a feared glut in supply this year, saved by record demand in China.....
But they may need to brace for a price shock next year, even if only temporarily.
Respected energy consultancy Wood Mackenzie is forecasting that the unexpectedly strong demand in China will continue to absorb new supply coming onto the world stage this year.
Even in 2019, LNG prices will remain "relatively sustained", said Massimo Do Odoardo, vice-president global gas and LNG at the firm, although Wood Mackenzie predicts the northern summer is likely to see a "market shift".
The view echoes the confident outlook given by Shell boss Ben van Beurden recently, who said the glut others had warned of was "conspicuously absent".
Wood Mackenzie's latest outlook for LNG envisages global markets remaining "tight" through this year, with high seasonal demand during the northern hemisphere winter soaking up expected increases in production from new plants coming online.
LNG prices are still expected to fall sharply in 2019, however. Wood Mackenzie expects LNG prices in north Asia to trade at parity with crude oil this year, at around $US12 per million British thermal units, before sinking next year to about $US6 due to plant start-ups. The lower prices should in turn spur some additional demand from power generators switching from coal to gas.
Wood Mackenzie does not expect the market will become so weak next year that prices will completely collapse, causing US LNG export plants to shut in until conditions improve.
"For a while commentators have been debating as to whether there was enough market space globally, and in Europe in particular, to absorb all this LNG," Mr Di Odoardo said of the impact of an expected 41 million tonnes of new supply coming online in 2019.
"However as market conditions in Europe tighten and with the oil and coal forward curve remaining high, our analysis suggests Russia will maximise its revenues by accommodating all LNG imports in 2019."
For Australia's growing number of LNG projects, most output is sold on LNG contract prices which are closely linked to crude oil prices, with a lag of about three months. Only remaining volumes are sold on the spot market, where prices are more driven by supply and demand for LNG.
Australia's own LNG production is due to surge this year with the ramp-up of Chevron's $US34 billion Wheatstone project in Western Australia, and initial production expected later this year from both Inpex Corporation's Ichthys project in Darwin and Shell's Prelude floating venture far off the Kimberley coast. Output is due to rise further in 2019 as both Ichthys and Prelude, the last of the country's new LNG mega-projects, get fully into gear.
Australia's LNG exports are due to grow from 61.6 million tonnes this financial year to 74.1 million tonnes in 2018-19.
According to Wood Mackenzie, Asian demand for LNG expanded by 15 per cent in the March quarter this year from a year earlier, with China accounting for the bulk of the increase.
China's imports surged 68 per cent in the quarter to 12.4 million tonnes, 1 million tonnes ahead of forecast, thanks to winter demand. But growth is expected to moderate, with imports into northern terminals already sharply down in March compared with January, the firm said.
Asian demand overall this year is forecast to grow by 10.3 per cent.