Asian LNG market to enter deeper glut as demand falters, supplies soar

[SINGAPORE] Asia's liquefied natural gas (LNG) glut is set to deepen in 2016 as long-planned new production comes to the market just as demand from top buyers Japan and South Korea as well as China wanes.

While analysts say that new consumer demand may offset dwindling use from established buyers, new supplies will outweigh overall orders, resulting in a low gas price outlook for years to come. "From having been an import basin, Asia will next year be going to have excess supplies and worse so in 2017," said David Hewitt, co-head of global oil and gas equity research at Credit Suisse.

While most volumes from Australia's 13 new LNG supply-trains will be delivered to term buyers, the commissioning cargoes over the next two years totalling 14 million to 15 million tonnes will go into the spot market, adding pressure to prices.

Hewitt said he expected Asian LNG spot to fall to "eye-watering low" levels of below US$5 per million British thermal units (mmBtu) in early 2016 and to hit a low of US$4 during the year.

Because of the emerging glut, Asian spot LNG prices LNG-AS have already plummeted by almost two-thirds since 2014 to around US$7.30 per mmBtu.

NEW DEMAND, EVEN MORE SUPPLY

With a wave of supply coming, even a rise in demand from new customers that will outweigh the dips in demand from established importers will not be enough to balance the market.

Japan imported 6.06 million tonnes of LNG last month, down 12.8 percent from a year ago, while South Korea's average monthly LNG imports this year of 2.7 million tonnes is the lowest since 2009, customs data showed.

China's LNG demand could dip by around 300,000 tonnes this year, according to analysts, although most expect this to be a short-term dip rather than a long-lasting trend.

While a dozen new buyers - including Morocco, Poland, the Philippines and Bangladesh - are expected to start importing LNG by 2020 with some 13 million tonnes a year of new demand, this will be outpaced in the next two years alone by the 14 million to 15 million tonne commissioning cargo supply rise.

Along with consumption from existing buyers, newcomers are expected to add 50 million tonnes per annum of demand by 2020, yet a huge 120 million tonnes a year of new LNG is scheduled to come online by then, according to industry expectations.

With such an overhang in supplies, many analysts and industry members say that some planned production will have to falter in order to rebalance the market.

REUTERS