(EnergyAsia, March 26 2014, Wednesday) — Amid surging global demand and the Russia-West confrontation over Crimea, analysts expect liquefied natural gas (LNG) prices in Asia to soon recover from last month’s dip.
According to separate analysis by consultant Wood Mackenzie and UK gas producer and trader BG Group, the global LNG markets could swing in favour of sellers in the coming months. Prices for April cargoes to Asia fell 6.7% to an average $18.113 per million British thermal units (mmBtu), after reaching a record US$19.85 for March, according to Platts.
Using two separate scenarios for gas supply disruptions lasting two months this spring and for six months in winter, Wood Mackenzie said LNG prices would rise if Russia follows through on threats to turn off its pipeline flows to Europe through Ukraine.
Last year, Europe imported 155 billion cubic metres (bcm) of gas from Russia to meet 30% of its total gas demand. Some 82 bcm of that Russian gas flowed into Europe through Ukraine.
“If there is a two-month disruption to the Ukrainian transit route in spring 2014, the Southern European countries of Turkey and Greece will require additional LNG, but this should be less than two million tonnes,” said Noel Tomnay, Wood Mackenzie’s Head of Global Gas Research.
If the disruption lasts six months during the 2014/15 winter, Mr Tomnay said he expects Spain to join in the call for additional cargoes, raising southern Europe’s total short-term LNG demand to up to five million tonnes.
Stephen O’Rourke, the company’s senior global gas analyst predicts Central and Eastern Europe to be most affected by a Ukraine transit disruption due to insufficient eastward-flowing pipeline capacity. The region’s strategic storage stockpiles will not be able to fully meet demand.
But, North West Europe will not suffer any supply disruption as it has direct access to Russia’s Nord Stream pipeline, he said.
Europe’s supply problems will add to an already tightening global LNG markets brought on by rising LNG demand in Asia and Latin America, and the recent stagnation in global supplies.
“A tighter market would place upward pressure on global LNG prices, including those in Asia. Southern European markets would need to compete with Asia and Latin America for these additional LNG cargoes. This would push spot prices in some Southern European markets higher to levels equivalent to Asia, allowing for shipping differentials,” said Mr Tomnay.
In an attempt to alleviate the impact of a winter supply disruption, Ukraine would tap its strategic stockpiles and ration domestic gas demand. Eastern Europe might also be affected if the EU decides to provide short-term gas supplies to Ukraine.
In a separate analysis, BG Group reached the same conclusion that the global LNG market will tighten this year as demand growth continues to exceed supply.
The UK company expects global LNG demand to grow by 5% per year to 2025, twice as fast as for gas overall.
“In 2014 we expect continued growth in demand for LNG from Asia, albeit at a slower rate than in previous years. Japan’s demand is now limited by the capacity of both its LNG importing infrastructure and combined-cycle gas-turbine power stations. The return of some nuclear capacity looks likely this year,” said BG.
The company said 240 million tonnes of LNG were delivered last year, little changed from the previous year.
Asian and Latin American markets continued to grow with China, South Korea and Mexico leading the charge. The newer Southeast Asian markets of Singapore, Malaysia, Thailand and Indonesia were also important, with volumes to those countries increasing by a total of 3.7 million tonnes.
Demand also increased in Latin America with Mexico and Brazil showing the third and fourth strongest year-on-year growth respectively.
China, the world’s fastest growing energy market, started up three new re-gasification terminals in 2013.
BG said the world added 10 re-gasification terminals and three new LNG importing markets in Israel, Singapore and Malaysia last year.
Asia’s ability to pull volumes is reflected in long-haul trade which continued to flow from the Atlantic Basin to the Pacific Basin; 22.7 million tonnes was transported via this route in 2013, a slight increase of 400,000 tonnes over the previous year.
In line with the tightening market, Asian spot LNG prices were on average US$1 per mmBtu higher than in 2012 despite a lower crude oil price.
But supply has stalled at 2011 levels after a large increase in production of 59 million tonnes from 2009 to 2011.
Over the past year, BG said increases from several important exporters, notably Qatar, Malaysia, Australia and Yemen along with the addition of two new production trains in Algeria and Angola have been offset by unplanned outages in Nigeria and decline in Egypt.
“Australia benefitted from a full year of production from Pluto LNG and Yemen had fewer attacks on its pipeline infrastructure,” it said.
However, the new LNG trains in Algeria and Angola did not add to any increase in global supply. Production in Algeria remained at 2012 levels while Angola’s plant experienced start-up delays.
On a delivered basis, BG said global LNG production represented 87% of nameplate capacity in 2013.
Looking ahead, BG predicts new production trains in Australia and Papua New Guinea represent the next wave of the industry’s expansion.
Australia is constructing or commissioning 60 million tonnes of new capacity while Papua New Guinea will start up seven million tonnes over the next few years.