The Asia Pacific LNG market is likely to continue to loosen this winter, favouring buyers however, this outlook would rapidly change in the event of a cold winter, energy consultancy group Wood Mackenzie said in its forecast of winter 2014/15 gas demand.
Gavin Thompson, Head of Asia Pacific Gas & Power Research for Wood Mackenzie explained that this was a reversal of the defining feature of the last several years in which the market continued to tighten.
“It turned in favour of buyers in summer this year, with the growth of Pacific LNG supply outpacing that of demand. Assuming normal winter weather patterns in the region from October to March, we expect that trend to continue this winter too.
Storage inventory levels remain high, due primarily to mild weather through the past year. We now forecast that Pacific LNG imports will only grow by a modest 1 million tonnes (Mt) during the traditional peak winter season.
LNG supply from within the region, on the other hand, will be 3Mt higher this winter than last mainly due to new volumes from PNG LNG, with minimal supply disruptions expected. Due to this comfortable demand-supply outlook, we expect Pacific LNG prices to be notably softer compared to the same period last year. With global oil prices also expected to remain soft through this period, LNG prices will struggle to match previous year highs,” he said.
According to Mr Noel Tomnay, Head of Global Gas Research for Wood Mackenzie, colder temperatures in Northeast Asia could increase Pacific LNG demand by 7Mt, requiring additional sources of supply.
“Most of this additional demand would need to be served by increased diversions from Europe, as Asia will struggle to access sufficient Pacific LNG supply. This has the potential to transform a currently loosening market into the tightest Pacific market we’ve seen yet. With growing regasification capacity in north China supporting higher Asian winter LNG demand potential, this is now a risk that is getting bigger.”
Speaking of the impact on global gas market, Mr Tomnay said: “This is about cause and effect; higher winter demand for LNG in Asia will lower LNG imports in Europe. However, North West Europe has insufficient storage inventories to cope with a cold winter in both Europe and Asia, thus forcing it into a greater reliance on Russian gas. But any disruption of Russian gas supply to Europe via Ukraine, would increase pressure on European buyers to secure additional LNG to minimise demand losses.
Cold winter weather in both Asia and Europe, combined with Ukraine transit disruption, would create 12 million metric tonnes (mmt) of additional LNG demand, 5 mmt of it in Europe. Such a ‘perfect storm’, combined with limited global LNG supply availability would mean some of that demand, including in Asia, would not be met.”
Source: Wood Mackenzie; Image: Hoegh LNG