Some 4.1m tonnes of LNG — or around 60 cargoes — will be looking for a home in an oversupplied market in the next two months that looks set to roll on into next year and beyond, according to shipbroker and consultant Poten & Partners.
Speaking at an LNG breakfast forum held in Houston ahead of the big Gastech meeting this week, Poten’s global head of business intelligence Jason Feer said European demand is expected to flatten as storage is 93% full.
He described this as “an extraordinary situation” as it “never happens” and is occurring several months earlier than it should.
Feer said over the next two months Poten is expecting “a very difficult time for the market.”
Brutal situation
He said that even with a very cold winter this will still not draw down storage by March 2020 to alter the picture.
Feer described this as a “very brutal situation to unwind” and said this year’s surplus of LNG is setting the scene for a repetition of these conditions for one to two years.
The Poten research chief painted a bearish picture for LNG demand globally.
He said the company sees weaker growth in China, where domestic gas production has risen and where, according to Sophie Tan from Poten's business intelligence, the government has withdrawn its support for coal to gas switching in the weaker economic climate.
Feer said in a high case scenario the market could see 50-60-million tonnes per annum of additional LNG demand from China and India over the next 10 years – “steady growth but not spectacular”, he said.
He highlighted that the market has seen a wave of final investment decisions for LNG projects this year from major players like Qatargas, ExxonMobil and Shell but in advance of developers selling their volumes.
He said that while this creates growth it also adds uncertainty as to where volumes are going.
Feer also sees flat to lower demand growth for LNG from areas like the Middle East and Latin America and choppier demand from smaller buyers.
Rocky
He said overall demand is getting harder to predict as LNG transitions to a more commoditised market where infrastructure is constrained.
Identifying shipping as one of these constraints, he said, there are not enough vessels for floating storage to be viable.
"Once those in the market feel there is 'a play' on cargoes, 20 to 30 ships disappear and rates go up," he complained.
“That transition has proven pretty rocky," Feer said.
LNG was like a Rolls Royce – stuffy, expensive, reliable but very expensive, he added, but now it has turned into Frankenstein’s monster.
He said the market now has “relentless volumes” of LNG coming but has yet to see a supply response. But he added that this may be tested this year if buyers start turning down US cargoes.
Looking further out, Feer detailed that 190 mtpa of long-term LNG contracts are expiring in the period through in 2030, representing two thirds of the entire 320 mtpa of global production. Almost none of this will be renegotiated as 20-year contracts, some will be for shorter terms or not renewed at all, Feer said.
By 2029 up to 70% of global LNG could be available for sale under more flexible terms, he added. “That is something that is going to drive change over next 10 years,” Freer said.
