Global liquefied natural gas markets will “remain tight” over the next few years with additions in LNG import capacity in China and India, and Japan facing nuclear plant outages, Bank of America Merrill Lynch has said in a report.
“With no major supply additions expected until 2015, we see LNG import growth substantially outpacing supply capacity growth,” BOAML said.
“What’s more interesting”, said BOAML, is that traditional LNG exporters are now starting to build new import regasification terminals.
In Indonesia, the country’s first floating storage and regasification unit (FSRU) in West Java recently started operating, despite some incomplete pipeline connections. Eventually, this plant should be able to handle 3mn tonnes per year (tpy) of imports a year, supplementing other efforts the country has undertaken to reduce LNG exports for the sake of domestic consumers.
In Malaysia, the 3.8mn tpy Melaka import terminal is expected to start in August and will enable the country to start receiving LNG in the west, as it continues to export from gas fields in the east.
Thailand is also a new importer, as it started importing LNG about a year ago, the report said.
Meanwhile, demand continues to roar ahead in both China and India as they continue to expand import capacity. Despite signs of softer economic growth, Asia continues to lead global LNG demand growth, offsetting falling imports into Europe and North America. The ongoing closing of nuclear power plants in Japan following the March 2011 earthquake/tsunami has been supporting demand growth in the region, the report said.
Japanese LNG imports grew by 4.7mn tpy year-on-year (y-o-y) during Q1, 2012, making up nearly 70% of Asian LNG demand growth. Further, Japan’s 10 utilities reportedly burned 20%-30% more natural gas for electricity generation in April and May compared to the same months a year ago as Japanese nuclear power fell to zero on May 5 for the first time since 1966.
However, BOAML said, the latest data suggests that import growth is starting to slow. In Japan, even though imports are 15% higher y-o-y in April, they are also down 15% from last month as warm weather reduced the need for gas in power and heating.
The same trend can be seen with China, India and South Korea, where imports have fallen to a combined 4.8mn tpy, from 7.8mn tpy in December 2011.
South Korea’s imports for the period between January and April are down 3% on the year. Imports into India fell to 967,000 tpy, falling below the 1mn mark for the first time in 11 months.
“With the coming monsoon season, demand growth may further be limited,” BOAML said.
Strong imports at the start of the year have likely been feeding into inventories in preparation for peak summer demand season. Now, supplies appear to be ample and buying should slow. Japanese natural gas inventories as of April skyrocketed and South Korean inventories are also comfortable.
Further, power generation demand in Asia has been slowing. In China, electricity generation fell dramatically in April, which is not surprising given recent headlines of a broader economic slowdown.
European LNG demand remains very weak, particularly given the region’s ongoing banking crisis. Over the last six months through March, European natural gas demand has fallen by an average of 12% compared to the same period last year, the report said.
Meanwhile, the UK continues to receive supplies from Qatar, importing just under 1mn tonnes a month over the past few months. This combined with weak demand and stabilising domestic production are keeping supplies relatively ample.
“With buying ahead of peak summer weather mostly complete and LNG imports already starting to slow, we do not expect LNG prices to see further upside until the winter. Fundamentals are also weakening. Supplies should rise with the start-up with two new liquefaction plants (in Australia and Angola) totalling 9.5mn tpy. Plus, the outlook for demand remains grim as the UK and peripheral European appear to be heading back into recession, and both North American and Asian economic indicators suggest further weakening ahead,” the report said.from gulf times.