Mercury level has already started declining and fears of gas load shedding are rising, historically load shedding of gas has been a regular feature in Pakistan. Not only gas supply to CNG stations and industries is curtailed/suspended, but domestic consumers also have to face the brunt of low pressure. This year low international gas prices offer an opportunity to Pakistan to avoid load shedding of gas for the industries and keep them running on optimum capacity utilization. The reason is simple – excess liquefaction capacity coming on-stream has created supply glut as offtake is not increasing.
According to some media reports, Asian LNG prices are likely to remain at their lowest by the end of the year as rapidly rising production outstrips feeble demand, weighed down by a global economic slowdown and uncertainties about Sino-US trade war.
It is feared that spot price for Asian liquefied natural gas for December delivery to go no higher than US$6 per million British thermal units, which would be the lowest for that month. January and February prices are not likely to rise much above December’s level. US$6 per mmBtu is lower than the current price of financial LNG contracts, indicating traders see these overvalued.
Spikes in crude oil and European gas prices lately have failed in changing the bearish mood. Industry sources said low spot buying from Asia and full stocks in Europe were the major reasons for weak prices this winter.
Analysts don’t see any hike in price this winter. Japan is not growing, India’s buying is opportunistic, China was supposed to be the big place, but now it’s not. In Europe, once stocks are totally full there is no way this flow continues.
There is also a year-round seasonal impact. A mild winter generally gives way to weak summer pricing and a certain amount of residual LNG in tank. Buyers can fill up cheaply and enter the next winter season well stocked. Gas storage in Europe was full early this year, due to the availability LNG at low prices and a relatively weak drawdown over the previous winter. But it is on the mid-2020s to which LNG developers focus has turned, perceiving a demand gap as South Asian countries in particular ramp up their demand for LNG, adding to still strong annual gains from China.
According to reports, the US will add 156.9 million tons per annum (mtpa) of new liquefaction capacity by 2023. Not all of this capacity is certain by any means, but even when only projects which have taken Final Investment Decisions are counted, in the US and beyond, the expected demand gap now looks narrow to non-existent. Qatar plans an expansion from 77 mtpa to 110 mtpa for certain. Four 8 mtpa ‘mega trains’ are planned and expected on-stream at three to six-month intervals from 2024.
In Mozambique, two major projects have been initiated this year, in addition to the already under construction smaller Floating LNG Coral project. In total, Mozambique gas expect to go from naught to 31.5 mtpa capacity by 2024, although building two large LNG projects – Rovuma and Mozambique LNG – on the same site and at the same time is likely to create logistical challenges.
Russia’s Novatek has given a greenlight to its Arctic LNG-II project, which will boost Russian LNG capacity by 19.8 mtpa. The Company has plans to increase capacity to a total 70 mtpa by 2035, and Arctic LNG-II will get it halfway there. Exploration successes suggest ample gas resources, and Novatek and LNG, in general, has strong Russian government support. Novatek has already demonstrated its capacity to get foreign partners, particularly Chinese finance, on board.
Although, slow to free itself from dependence on the US market, Canada LNG project was a major step forward. The project is expected to give the country export capacity of about 13 mtpa from 2023, but there are a number of other LNG projects on both the west and east coasts, which could turn Canada into a significant market player by the mid-2020s.
US liquefaction capacity should rise from 55 mtpa currently to 116.5 mtpa by 2024. In addition to other projects, such as BP and Kosmos’s evolving West African LNG hub, and discounting the potential for existing site expansions, more than 160 mtpa of new LNG capacity can be expected on-stream by 2024. At no time has LNG demand jumped that much in a five-year period, although the largest leap since the millennium was in 2014-2018 when LNG imports rose 97.34 mtpa.
There is on paper enough regasification capacity to absorb the increase and more being built, but the huge rise in liquefaction capacity presupposes much higher utilization in regions which have not previously demanded so much LNG, such as Europe.
The availability of competitively priced LNG is itself a major demand stimulus, which will encourage new market entrants. But while in their initial phases LNG coming into, for example, India, Bangladesh and Pakistan, will meet existing gas deficits, the further out demand projections go, the more dependent they are on new infrastructure being built in-country.
All three south Asian countries have poor track records when it comes to the timely completion of major infrastructure projects. McKinsey forecasts LNG demand growth of 3.6% a year from 2018-2035, arguing that supply additions will create a ‘long’ market until 2025 and possibly 2027. Others, such as Shell, in its LNG Outlook 2019, argue that supply investment is still needed to meet continued LNG demand growth, which it notes has surprised on the upside in recent years.