Outlook for liquefied natural gas (LNG) spot market has been bullish due to millions of tons in developed capacity coming on stream in 2019 and fears about possible glut but energy analysts at Wood MacKenzie disagree.
According to the Wood MacKenzie report, over 60 million tons in annual production capacity was due for final investment decision this year. This is a record number and a significant increase on the 21 million tons in capacity sanctioned in 2018. This could tip the market into oversupply, but not this year because LNG projects take years to build.
Rising LNG spot market activities usually point to availability and possible oversupply, which in turn imply downward pressures on prices. However, energy experts in Nigeria suggest this may not impact significantly on Nigeria’s LNG exports because Africa’s largest crude oil producer has long-term sale and purchase agreements (PSAs) on its cargoes with buyers.
This will not have much impact on Nigeria Liquefied Natural Gas (NLNG) Limited’s exports unless it persists for a long time.
Traditionally, the LNG market was dominated by long-term off-take contracts. Without such arrangements it would not have been possible to make the significant capital investments in extraction, transportation, storage and re-gasification that are all necessary to build the LNG supply chain.
“Global LNG market is currently soft due mainly to natural gas supply glut in the United States of America. Economic growth in China, India, South Korea and South East Asian countries are also critical factors. Slow economic growth in Asia will dampen the market” Wumi Iledare, professor of energy economics at the Centre for Petroleum, Energy Economics and Law, University of Ibadan, said on a phone interview. “The spot market will not replace futures market in the long run though.”
In terms of LNG suppliers, in addition to the traditional resource-back suppliers such as Qatar, Australia, Indonesia, Trinidad and Nigeria, increasing numbers of multi-national oil companies, national oil companies and investment banks are setting up trading houses in major trading hubs such as London, Houston and Singapore to service LNG spot cargo customers from Europe and Asia.
The purchase of spot cargoes in the last couple of years was mostly by Northwest Europe (in particular, the United Kingdom) and Asian countries such as Japan, Korea, Taiwan and China. Japan has been scooping up large quantities of LNG since 2011 for power generation, after the Fukushima earthquake paralysed several of its nuclear power plants. Korea, requiring cargoes mainly for heating during winter months, has been a major participant in the short-term and spot market.
“Our forecast for 2019 is for title transfer facility (TTF) to average US$6.9/mmbtu (from US$8/mmbtu in 2018) and Asian LNG spot prices to average US$8.5/mmbtu (from US$10.3/mmbtu in 2018) assuming normal weather patterns” energy analysts at Wood MacKenzie stated in a recent report.
Last year saw some large-scale additions to production capacity such as Shell’s Prelude and Inpex’ Ichthys, both offshore Australia, and Novatek expanded its Yamal LNG facility. U.S. LNG production is also at a record high, with S&P Global Platts reporting LNG plant feeds hit 5.12 billion cubic feet daily in the last week of 2018.
The LNG spot and short-term market has increased exponentially over the last 10 years and now represents 20 per cent of the total global market for LNG.
STEPHEN ONYEKWELU
