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LNG markets are at the crossroads-III: Prices may dip to $4/mmbtu or lower in second half of 2017
Mar 14:   How is the demand for gas going to increase against this rise in production in the second half remains a million dollar question.
8It is now assumed that Japanese demand for LNG will continue to decline on the assumption that Japan’s nuclear comeback goes as planned.
8The burden of pushing up demand will fall squarely on China and India.
8China’s imports rose by 33% in 2016, reaching 26 mt, increasing LNG’s share of the Chinese gas market. Some of the growth was due to the programmed start-up of new LNG supply from Australia, boosted by cut-backs in Chinese coal production and cold weather in the latter part of the year. But can the momentum be continued?
8Indian LNG demand was also a major growth area in 2016, with demand in the first three quarters of 2016 at 15.3 mt, up over 38% on the previous year. Indian demand is very price sensitive, with the majority of imports being on short-term and spot bases. How much Indian demand will grow in 2017 will therefore be a function of price. If, as seems quite probable, the build-up of new supply in 2017 causes a fall in LNG spot prices, India may well be one of the markets to profit from that.
8Overall, LNG demand is likely to grow substantially in 2017, but the key test of the global supply balance will be how much LNG ends up in Northwest Europe. As LNG’s market of last resort, it is the only LNG-importing gas market with real liquidity to dispose of a surplus.
8European LNG imports in fact increased by around 6% in the first three quarters of 2016, pretty much in line with the overall global increase in output. But Europe may end up taking a greater share in 2017 of a larger overall increase in output.
8All eyes will be on Q3 ‘17. With so much new production anticipated by H2 ‘17, sellers in over-contracted Asia may have to sink surplus volumes in the liquid markets of Northwest Europe. In that case there will indeed be downward pressure on prices.
8Should this need to sink volumes coincide with low seasonal demand in Europe, it could lead to a significant European price crash, which in turn could cause Asian spot LNG prices to fall back to April 2016’s USD 4/MMBtu levels – or even lower.
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