The first half of 2013 in the global LNG market has been characterized by weakness – in both supply and demand. However, the ebbing of demand through H1 13 trumped the declines in supply and spot LNG prices tumbled from January highs of around 19 $/mmbtu to trade around 15 $/mmbtu by the end of June.
Going forward, we are forecasting that:
The global LNG market trade shrinks in 2013 by 7.4 Mt (-3%), as supply-side issues and low demand from the first half of the year are only gradually addressed in the second half of the year.
There is a further easing of market conditions as we progress through 2013 and into early 2014 as the liquefaction facilities at Angola and Algeria, both commissioned, move into commercial operation and some of the other supply problems are addressed.
A gradual tightening of market conditions as we go through 2014 as more and more regas comes on-line and provides new demand for those export volumes. The global LNG market increases by 9.2 Mt (4%) in 2014 as supply and demand both rebound.
Prices are left to be volatile, although stabilisation in the next few months is likely unless the Asian summer gets really very hot. Further out, it all becomes about the timing of when new liquefaction and new regasification capacity kicks in. We think liquefaction will trump the demand-side first, allowing prices to ease as we progress into the beginning of 2014. However, as next year progresses, so will the demand side and price pressure will be upwards as we head through H2 14. Timing here is key and risks do abound as these projects are rarely easy and almost never finished on time.
Although full 2015 balances have yet to be completed, the year is shaping up to be more supply led with a number of big liquefaction projects due to come on-line. A number of the large Australian projects should be on-line (Gorgon, Queensland Curtis) while the first exports of US shale gas as LNG should be seen from Sabine Pass. So while that year should start as a tight market, that should be eroded as 2015 progresses.
While the future of US LNG exports, beyond the first two projects that have received export licences to non-free trade agreement (FTA), remains uncertain, we think there is little basis to believe that only 6 bcf/d will be approved and be operational by 2020. Having approved the second project, the US government will now be under considerable pressure to make decisions on the remaining projects – some that have been in the waiting queue for now three years. With the DOE having no studies to support the contention exports will not be in the public interest of the US economy, we expect more approvals and that US exports of LNG could easily reach 10 bcf/d by 2020. For the global LNG market, the timing of approvals and the move to exports will be all important.