Softening demand combined with the damage caused by the Covid-19 pandemic will depress the global LNG market into 2021, writes Jason Feer
LNG is being hit by two competing storms: the demand destruction that we are beginning to see caused by the Covid-19 outbreak; and the softening demand that pre-dated the outbreak. Layered on top of this are very high storage levels in Europe and China, and a very mild winter across those regions.
Last year there was a surplus of LNG, but storage space was available. Now there is depressed demand and storage levels are full. That means there are fewer places to park surplus LNG.
While Chinese economic activity is picking up, it will take some time to recover because major consumer markets in the US and Europe are shut down amid the Covid-19 pandemic. LNG demand in Spain is expected to be down 10% in April and possibly more in May and Italy is even worse, down 23%.
As a result, Poten & Partners expects some new LNG projects will be delayed and FIDs on others will be deferred.
It is very clear to us that there is going to be some kind of supply response needed to balance the market. The supply response will most likely land in part on the shoulders of US LNG export facilities, translating into possibly some liquefaction train capacity being shut in. Also, with capex being cut, progress on LNG projects under development will slow and FIDs on new ones will be deferred.
“There is going to be some kind of supply response needed to balance the market”
We expect global demand growth or demand will be depressed outright by the Covid-19 outbreak.
Our best-case scenario envisions a 0.5% growth in 2020 and slightly more in 2021. Poten & Partners’ LNG Market Outlook projects LNG demand will rise from 363M tonnes in 2019 to 365M tonnes in 2020 and 369M tonnes in 2021. A gloomier view of global demand will see it drop of 4.7% to 347M tonnes in 2020, edging up to 351M tonnes in 2021.
Those looking to China as a saviour will be disappointed. Chinese economic activity is coming back slowly but it will take a long time to recover to pre-crisis levels. Poten’s best case scenario sees flat demand of 61M tonnes in 2020, with a modest growth of about 5% to 64M tonnes in 2021.
Compounding the LNG market’s woes will be the collapse in oil prices that will make pipeline natural gas imports far more competitive with LNG. As a result, China’s LNG demand could fall to 57M tonnes in 2020 and rise modestly to 60M tonnes in 2021, still below 2019 levels.
Mr Feer is the global head of business intelligence at Poten & Partners. Mr Feer recently presented his analysis in a webinar ‘LNG Markets and Covid-19’, produced by Poten & Partners
© 2023 Riviera Maritime Media Ltd.