Shifting the bulge
An onslaught of new supply will continue to pressure LNG prices in 2017
Another 36.1m tonnes of new liquefied natural gas supply will be shipped in 2017, worsening the global supply glut. Total LNG exports will soar to 282.5m tonnes during the coming 12 months, according to consultancy Energy Aspects.
Liquefaction capacity additions in 2017 will rise even more steeply, growing by 51m tonnes a year to a total of 393m t/y. That comes on top of 39m t/y of capacity added in 2016. LNG shipments in Australia and Asia will reach 118m tonnes, a rise of 18%, or 21.3m tonnes, compared with 2016. Australia alone will add 26m t/y of new liquefaction capacity (to reach a total of 86m t/y), as new projects including Chevron's 8.9m-t/y Wheatstone project come on line.
Demand won't keep pace. Emerging Asia will be the main locus of growth, helping the region's imports reach 186.6m tonnes. But falling demand from Japan and South Korea means overall consumption will rise by just 4.4m tonnes, or 3%.
The excess will find its way to Europe, where imports will surge by 36% from a year earlier, reaching 65.5m tonnes. Coal-to-gas switching in the power sector will soak up some of this. But prices will have to fall to accommodate this much supply.
Energy Aspects says average spot LNG prices will drop below $5 per million British thermal units in 2017 in key markets including Japan, India, Spain and Argentina. By 2018, they are expected to fall even further, to under $4/m Btu. Japanese and Indian buyers paid around $7.50/m Btu in 2015.
Only in the US are natural gas prices expected to rise. But US gas will still be cheap: Energy Aspects expects Henry Hub to average around $3.30/m Btu, up from around $2.60/m Btu in 2016.
Coal prices will be a wild card next year. Prices surged towards the end of 2016 owing to China's reduced production capacity. If the country relaxes constraints on coal mines-to limit the rise in imports and soften prices-Asian LNG imports will weaken.