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Record new LNG supplies to pull prices down further, boost demand: Bernstein
[SINGAPORE] The next two years will see the biggest ever additions made to liquefied natural gas (LNG) supplies, almost all in Asia, putting further pressure on prices that have halved over the past year.
Over 60 million tonnes of new LNG production will start up in 2015 and 2016, industry data shows, slightly more than in the previous record years of 2008 and 2009. This will lift capacity by around 20 per cent to 345 million tonnes a year.
Analysts say this means that LNG prices LNG-AS , which have fallen from 2014 highs to US$9 per million British thermal units (mmBtu), are likely to remain low this year.
"In the short to medium-term, we see downward pressure on prices as new projects start up in Australia and Japan starts up its new nuclear facilities," Alliance Bernstein said in a report on Wednesday.
All 48 of Japan's reactors were switched off following a massive earthquake and tsunami in 2011 that triggered reactor meltdowns at Fukushima. And while analysts expect some of those reactors to restart this year, there is still public resistance and no plants have been given restart dates.
Still, despite weakening economies and the likely return of nuclear power in Japan, the supply growth and cheap fuel prices will boost demand, especially in southeast Asia.
"We expect demand in 2015 to increase by 9.8 per cent to 268 mtpa (million tonnes per annum) as new LNG projects start up and lower prices stimulate demand," Bernstein said, noting that demand was 244 mtpa in 2014 and 231 mtpa in 2013.
In the longer-term, Bernstein said prices would pick up as demand continues to rise and as LNG projects that have yet to take final investment decision (FID) get cancelled or delayed.
Bernstein said the combination of delays and rising demand could push the market from its current surplus into deficit early next decade, unless 90 million tonnes a year of new LNG export capacity is built by 2020.
Not only are LNG volumes rising, the supply map is also changing. Australia, source of most of the new production, will move ahead of Malaysia as the world's No 2 LNG exporter this year, and by 2018 will become the biggest supplier ahead of Qatar, data from Wood Mackenzie shows.
Also, a newcomer to LNG exports in 2015 is the United States, although the current low prices will make it difficult for its LNG to come to Asia.
"Spreads in gas price between Asian LNG and US gas have fallen by 50 per cent from US$12 to 6 (per mmBtu). With liquefaction and shipping costs of US$6.50, arbitrage margins are now negative," Bernstein said.