Global LNG prices will be in a summertime lull until wintertime following a price run-up caused by a pre-summer supply buying spree, according to analysts at Bank of America Merrill Lynch. Still, LNG markets will remain tight in the coming years as import capacity additions continue while liquefaction growth takes a breather.
LNG prices recently surpassed highs last seen at the beginning of winter 2011. Asian spot prices reached $18.50/MMBtu in mid-May before declining to mid-$17/MMBtu earlier this month. The analysts attributed the price run-up to increased buying before the peak summer demand season.
"...[B]eyond the respite of the coming months, we continue to believe that global LNG markets will remain tight, particularly in Asia," the analysts said. "After all, LNG import capacity in Asian countries continues to grow rapidly. What's more interesting to highlight is that traditional LNG exporters are now starting to build new import regas terminals."
Indonesia recently saw its first floating storage and regasification unit enter service in West Java. This plant could eventually take three million metric tons per annum (mtpa) of LNG, the analysts said. Malaysia is expected to bring online a 3.8 million mtpa terminal in August. The country will take imports in the west and export LNG from gas fields in the east, the analysts said. Thailand also started importing LNG about a year ago. And import capacity continues to grow in China and India, the analysts noted.
Latin America also will contribute to demand growth as Brazil, Argentina and Chile have built out import capacity.
"Thus, in the coming years we continue to believe that global LNG markets will remain tight," the analysts wrote. "In our view, LNG demand will grow strongly while supply growth will slow."
For now though, the big LNG demand growth engine of Japan is taking a rest. "More recently, the country has even reportedly started importing from nontraditional suppliers like Spain and Brazil," the analysts wrote. "However, most buyers have by now met July and August requirements. But even if they hadn't, imports are not likely to rise much further from these rates."
While Japan has nameplate regasification capacity of 185 million mtpa, infrastructure constraints cut this to 85-90 million mtpa, the analysts said. Constraints include limited berths, pipelines from terminals to utility pipelines and transportation capacity from terminals to gas-fired power plants. The country's gas-fired power plants are also seen operating at 85-95% of capacity.
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