Global liquefied natural gas market review

• Date: 01 May 2020
• DOI: http://doi.org/10.1111/oet.12772
• Published date: 01 May 2020

GAS AND POWER

Global liquefied natural gas market review

1|CORONAVIRUSCUTSDEMAND

IN OVERSUPPLIED MARKET

Oversupply last winter saw liquefied natural gas (LNG) prices

tumble, only to be made worse by the impact of the corona

virus, which has been destroying demand across the world

since February, leaving the industry in survival mode. With

limited storage capacity, there is almost no buffer (unlike oil),

so output must be cut quickly to balance the market; this

begantohappeninQ1,drivenbyrecordlowprices.

Sentiment in LNG markets was already weak com-

ing out of winter, with mild weather in the United

States, Europe, and Asia leaving stocks at record highs,

and more new LNG supply coming onstream in

Australia and the United States. This has since been

made worse by the Covid-19 corona virus, which has

depressed gas consumption. In China, LNG imports fell

7% to 4 mn t in February, while Asian spot prices

dipped to record lows.

However, LNG imports were up in February in Japan,

South Korea (the world's first and third biggest importers),

and Taiwan, which imported 13 mn t between them—an

11% increase compared to February 2019 as buyers

switched from coal to gas burning in power generation.

Other markets in Asia also grew to 4.7 mn t in February, a

39% increase on the previous year, with India the biggest

growth market.

India's Q1 imports rose by 29 mn m

3

/d or about 30%

over 2019 levels, but by late March, deliveries had fallen

back close to last year's levels. Since then, force majeure

and lockdowns have put up to 50 mn m

3

/d of Indian

imports at risk according to Platts, and imports in Q2 are

widely expected to fall below last year's levels of

93 mn m

3

/d. The expanding demand destruction saw

Asian spot prices dip to a new record low of below $2.30/

mn Btu in early April.

Term crude-linked LNG prices, as well as spot LNG

prices, have come under pressure over recent weeks as

crude prices slumped. The falls in Brent mid-April to

below $30/bbl has seen these term LNG prices sink to

$4.20/mn Btu and below. On the demand side, buyers in

South Korea and Japan are postponing term deliveries,

despite the low prices.

News and pricing service, ICIS, projects a fall for 2020

Japanese imports to 76.2 mn t, down 1.1% year on year,

and South Korean imports to 38.5 mn t, down 4.7%—

despite the fuel switching away from coal.

2|CHINA RECOVERY

Looking ahead, Chinese LNG imports had already ret-

urned to normal (2019) levels by late March, indicating a

relatively rapid recovery, although it was mostly driven

by smaller buyers. Sinopec, which has room available in

its storage tanks for spot cargoes, was also buying, but

CNOOC (China's biggest buyer) has high-stock levels to

clear, and has yet to return to the market. CNOOC and

PetroChina invoked force majeure on LNG deliveries in

February and early March.

The main risk in China now appears to be from

slowing economic activity related to a weakening global

economy, and ICIS expects that 2020 Chinese LNG

imports will fall to 58.1 mn t in 2020, down 5.2% year on

year (down from double-digit growth expectations at the

beginning of the year), although others are still predicting

a rise.

“The forecast weakness in over half of the world's

LNG import markets for 2020 will only exasperate the

current oversupply and keep pressure on key natural gas

and LNG prices,”said ICIS LNG Analyst Tom Marzec-

Manser. “While Japan and South Korea have been con-

tracting as LNG markets for a few years, a shrinking Chi-

nese market will cause major headaches for those

producers looking to find demand for their increasing

output.”

3|EUROPEAN DEMAND HIT

FROM LATE MARCH

LNG imports to Europe had also been growing in

February despite relatively high levels of storage, with

low prices supporting coal to gas switching. European

LNG imports were 9 mn t, slightly higher than January

and a whopping 46% up on February 2019. But from

March onwards, there has been a sharp drop as lock-

downs were imposed.

The slump in demand in Asia and now Europe

has caused prices to fall below the level required to

DOI: 10.1111/oet.12772

8© 2020 John Wiley & Sons Ltd Oil and Energy Trends. 2020;45:8–9.wileyonlinelibrary.com/journal/oet