Global LNG supply hit a record in 2018, with much of the new gas soaked up by imports to China and South Korea. This latest piece in our commodities outlook series considers the 2019 LNG market outlook in light of recent falls in Asia spot prices.
- LNG supply grew by 36 billion cubic meters (bcm) in 2018, with 46 bcm of additional gas due to be exported this year, including from projects that started production last year.
- China and South Korea imported an additional 31 bcm of LNG, soaking up a phenomenal 85 percent of the new LNG supply last year. China boosted imports by 41 percent.
- The 2019 LNG market outlook is examined in detail in our on-demand webinar, which includes Chinese LNG demand scenarios, forecasts for the 2019 market balance, and an assessment of the Asian spot price.
Global LNG supply soared to a record 432 billion cubic meters (bcm) in 2018, up nine percent year-on-year, as nine liquefaction trains with a total capacity of around 60 bcm/year started exporting.
Australia witnessed the largest increase in output. Production growth in the United States came in second, while Russia was a close third.
The market absorbed the ramp up in supply through the first nine months of the year, with China, South Korea, India and Pakistan all taking in more cargoes than ever before, and keeping the wave of LNG to northwest Europe at bay.
However, in the typically busy fourth quarter, the volume of new supply started to overwhelm the market as new liquefaction trains ramped up briskly. Supply growth was further heightened by Egypt turning to a net exporter in October amid the ramp up of the huge Zohr field.
China and South Korea together imported an additional 31 bcm of LNG, soaking up a phenomenal 85 percent of the new LNG supply last year. The world’s second largest LNG importer, China, boosted imports by an astonishing 41 percent to reach 73 bcm of gas.
The northeast Asia LNG spot price averaged at a four-year high of US$9.68/MMBtu in 2018, up from $7.04/MMBtu in 2017. Prices peaked above $11.50/MMBtu in January, June and September due to strong spot buying from China, high oil prices and pre-winter stock building, respectively.
Low points were witnessed in the spring shoulder season due to above-average temperatures in the northern hemisphere curtailing heating demand and at the end of the year due to a strong ramp up in LNG output.
The price ended 2018 at a two-year low of $8.75/MMBtu, down $2.45/MMBtu from a year earlier.
LNG demand outlook in 2019
Northeast Asian LNG imports are expected to grow by four percent, or about 11 bcm, to reach 281 bcm in 2019. This is in stark contrast to last year’s strong growth rate of 13 percent. China will continue to take in more LNG this year, but import growth is expected to slow down.
While China’s LNG uptake is expected to grow by 16.8 bcm under our base case scenario, shipments to Japan and South Korea are anticipated to drop by a combined 6.5 bcm.
In 2019, Chinese LNG import growth is expected to slow down from last year’s growth rate of 41 percent to about 23 percent, taking total LNG imports to 90 bcm. Only a handful of U.S. cargoes have been imported to China since the 10 percent duty on U.S. LNG was introduced in September 2018. Beyond that, the market impact has been limited. However, if the trade dispute is not resolved or further escalates, this will potentially hamper new U.S. LNG export projects, which need firm off-take agreements in order to secure financing.
Meanwhile, LNG imports into Japan, the world’s single largest importer, were largely flat last year at 113 bcm, we expect to see a decline of about three percent to 110 bcm this year.
After strong import growth of 18 percent or 9 bcm last year, taking total imports to a staggering 60 bcm, we expect South Korean imports to fall back to 57 bcm in 2019. In South Asia, LNG imports rose by 8 bcm to 55 bcm in 2018, driven by higher demand from India and Pakistan.
The region is expected to import an additional 11 bcm this year, taking total imports to 66 bcm, with the majority of the growth coming from India, Pakistan and new importer Bangladesh.
2019 LNG supply outlook
Last year, LNG supply grew by 36 bcm, and 46 bcm of additional gas is expected to be exported this year. This includes projects that started production last year and those due to switch on this year.
Yet again, the U.S., Russia and Australia are contributing the most to the supply growth.
New projects in the U.S. are expected to add almost 20 bcm of supply this year, followed by Russia’s Yamal at 12 bcm. With its second wave of LNG projects up and running, Australia is anticipated to increase exports by 9 bcm this year.
Asian spot price
Last year, the northeast Asian LNG spot price averaged at a four-year high of $9.68/MMBtu, up from $7.04/MMBtu in 2017.
During periods when market fundamentals were tight, such as early winter and late summer, the spot price climbed towards the oil-parity price, which has been working as a ceiling to the spot price.
In periods of loose market conditions, such as early spring, the price typically finds support from European hub prices.
The northeast Asian spot price has taken direction from UK’s NBP and the Dutch TTF hub prices over the last few months.
And, based on current futures prices, the market expects this to continue through 2019. While the delivered spot price for March to December last year averaged $9.65/MMBtu, the current average swap price for the same time period stands at $8.10/MMBtu, $1.55/MMBtu lower.
This corresponds well to our base case assessment of the market balance for 2019, which indicates a significant surplus of LNG.
Moreover, even in our high demand scenario, where Chinese gas demand is assumed to grow by 16 percent, the market will remain comfortably supplied compared with last year.
Since the start of 2019, the Asian spot price has been on a continuous descent amid strong supply and mild winter temperatures in the region. Currently the price stands at $6.30/MMBtu, a 17-month low.
This piece is part of Refintiv’s 2019 commodities outlook series.
As one of the largest importers, Chinese LNG demand is inherently uncertain due to slowing economic growth and uncertainty over the government’s coal-to-gas switching commitments.
Read the previous blog in this series as we examine the coal market outlook in 2019 and anticipated Chinese coal imports in 2019.
Interested in what’s next in the 2019 commodities outlook series? Read our latest special report on Venezuelan crude exports following the introduction of U.S. sanctions, which forms part of our 2019 Oil Market Outlook.