Global demand to keep LNG prices high: QNB

June 22, 2014 - 4:37:18 am

Doha: Qatar National Bank Group (QNB) said in its weekly report that the robust global demand on liquefied natural Gas (LNG) is likely to keep its prices high over the next few years.

Demand is growing both as a result of strong Asian economic growth and the switch to cleaner energy, particularly in China. This trend is likely to continue, notwithstanding the so-called US shale gas revolution and the coming into operations of the $400bn Russia-China gas pipeline signed on May 21, 2014. Overall, the future of the LNG market remains bright and is likely to result in high LNG prices for years to come. This will continue to support Qatar’s large current account surpluses.

The LNG market continued to tighten in 2013. Global LNG deliveries were an estimated 240 million tonnes broadly flat compared with 2012. Qatar continued to be the largest LNG exporter, with about one third of global supply. At the same time, demand from Asia and Latin America rose, with China, South Korea and Mexico registering the largest increase in LNG demand. In particular, China brought three new re-gasification terminals online as its switch from coal to LNG as a cleaner fuel for electricity production continued. This tightening of the market resulted in an average $1 increase in LNG prices per million British thermal units (mBtu), despite Brent crude oil prices falling $4.5 per barrel and lower LNG demand from Europe.

The outlook for the LNG market is likely to continue along similar trends in 2014. On the supply side, three new LNG trains in Algeria, Australia and Papua New Guinea are expected to come on-stream in 2014. This is likely to add about 10 million tonnes to global LNG production a 4.2 percent increase. On the demand side, continued growth in Asian demand and the need for Europe to diversify away from Russian pipeline gas may outpace the increased supply, leading to a small increase in LNG prices of about $0.5 per mBtu despite the expected decline in Brent crude oil prices. The ongoing violence in Iraq and Syria could, however, result in higher-than-expected LNG and crude oil prices in the second half of 2014. 

Over the medium term, global LNG exports are unlikely to meet the growing global demand, leading to higher LNG prices. On the supply side, the gradual ramp up in production in Australia (60m tonnes over the next six years) and Papua New Guinea (7m later this decade) is likely to result in global LNG exports reaching 300m tonnes by 2020 a 3.8 percent compound annual growth rate. 

Overall, robust LNG demand is likely to outpace global supply up to 2020. This is likely to imply higher LNG prices as demand from Asia remains robust. As the largest exporter in the world, Qatar is likely to benefit from higher LNG prices, resulting in large current account surpluses for years to come. The Peninsula

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