- A strong rise in prices in Asia and record US exports show how demand for LNG is bouncing back.
- LNG prices in Asia have risen from lows around US$2 per million British thermal units to over US$9 this month.
- It is driven by disruptions to supply from some large projects, including Gorgon and Prelude, and by a robust recovery in demand.
- The growth in China’s gas demand has slowed to 4% this year, but LNG is increasing its share of the market and continues to grow at more than 11%.
According to a recent news article in Wood Mackenzie, LNG market is bouncing back and making hay as the sun shines. Thanks to Ed Crooks, Vice Chair, Americas for sharing his expertise in Wood Mackenzie.
How about the LNG market in the world
Worldwide LNG imports, which in the second and third quarters of 2020 were running below last year’s levels, have jumped back to about 3% above 2019 in the fourth quarter.
Spring and summer US export volumes
For US LNG exporters, the rebound in demand has transformed the immediate outlook. In the spring and summer US export volumes plunged, as prices in Europe and Asia fell to levels that meant offtakers could not cover their variable costs of production and shipping.
It is estimated that more than 150 US LNG cargoes were cancelled between April and November, and in July and early August, supplies of gas to US export plants dropped to about a third of their liquefaction capacity.
LNG prices and surge in US exports
Now that position has reversed completely, with the rise in LNG prices driving a surge in US exports.
This year the US has added capacity to export an additional 2 billion cubic feet per day, with new trains at the Freeport, Cameron and Corpus Christi plants entering service, and Elba Island starting full commercial operations.
And with US Henry Hub benchmark gas down at around $2.60 per million BTU, the economics of exports look attractive again.
Feedgas deliveries to US terminals have hit new record highs and were running this week at about 11.2 bcf/d, easily surpassing the previous high point of 9.5 bcf/d in March.
Long-term outlook
The long-term outlook for LNG demand depends on global climate policy.
In Wood Mackenzie’s base case forecast, representing what we think is the most likely outcome, by 2040 the world needs an additional 450 billion cubic metres of LNG supply, above the output of plants already in service or under construction.
In a scenario with the world on course to limit global warming to 2°C, as opposed to the 3°C implied by our base case, the new LNG supply needed by 2040 could be only about a third as much, at about 145 bcm per year.
Short term outlook
In the short term, however, the LNG market is giving us a foretaste of what we can expect for energy demand and prices more generally.
Oil faces somewhat different market dynamics.
The hit to demand will be longer lasting for oil than for LNG.
Wood Mackenzie’s latest long-term Macro Oils outlook projects that world liquids consumption will not return to 2019 levels until the second half of 2022.
The large amount of potential supply still being held off the market by the OPEC+ countries, waiting for the right opportunity to bring it back, will weigh on prices.
But the price of oil has also been recovering: this week Brent crude nudged over $50 a barrel for the first time since March.
As Covid-19 vaccines become widely available, global economic activity, and hence energy use, will rise, which will have the general effect of putting upward pressure on prices.
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Source: Woodmac
