Those whose toast is buttered by higher domestic gas prices have been watching growing liquefied natural gas (LNG) supply with unease. However, fear of a flood of LNG imports might be misplaced as demand weakness is not universal across Asian markets and Europe is experiencing demand growth, according to analysts at Barclays Capital.
The analysts said imports of LNG to the United States will pick up in the second quarter by about 1 Bcf/d to average about 2.1 Bcf/d during the quarter. The third quarter is likely to see imports average 2.6 Bcf/d. With global liquefaction ramp-ups, the fourth quarter will see the greatest oversupply of LNG, but volumes delivered to Europe are expected to increase, and imports to the U.S. are expected by Barclays to stay steady at 2.6 Bcf/d. For 2009 overall, imports should average 2.1 Bcf/d.
Sendout from U.S. regasification terminals has been averaging 1.3 Bcf/d so far in April versus 0.9 Bcf/d a year ago, according to Tudor, Pickering, Holt & Co. Securities Inc.
Demand declines in Asia are not as bad as some feared, the Barclays analysts said in a research note Tuesday. "Pockets of strong demand do remain in Asia despite the economic slowdown, with India and China increasing takes by 0.4 Bcf/d and 0.3 Bcf/d, respectively, in March," the analysts wrote. "Each of these countries has recently added regasification capacity, and both are expected to see growth in LNG demand throughout this year."
"This recession has no effect on demand of natural gas in India," Upendra Datta Choubey, chairman of gas distributor GAIL India Ltd., told Bloomberg this week. "Currently we're meeting hardly 60% of gas demand in India."
India and China's continued thirst for LNG is good news for U.S. gas producers, who find themselves foundering in an oversupplied domestic gas market where a plummeting drilling rig count is having little effect. Last week Moody's Investors Service reset its gas price assumption lower, partly due to growing LNG supply (see Daily GPI, April 17). One Rocky Mountain driller recently told NGI that the U.S. could see 6 Bcf/d of LNG hitting its shores this summer (see Daily GPI, April 20). That would be on the high end of import estimates, the range of which is "unusually wide" this year, according to Barclays.
While economic recession has raked Europe as well as the U.S., regasification capacity in the United Kingdom (UK) is expanding by nearly 2.5 Bcf/d in the first half of this year, according to Barclays, and the country took 0.4 Bcf/d more LNG in the first quarter than it did during the year-ago period.
"[W]e expect the UK's receipts to remain strong for the rest of the year," the Barclays analysts wrote. "Belgium has also picked up incremental volumes as storage levels in northern Europe are historically low, and at current price levels LNG is cheaper than oil-linked pipeline gas."
Gas-fired power generation in Europe also should soak up more of the world's LNG, the analysts said. "At current levels, natural gas in many parts of Europe is competitive with coal, and the new plants will likely displace coal-fired generation, which could add as much as 0.4 Bcf/d to natural gas demand on average over the course of the year."
Of course, LNG price differentials in the Atlantic Basin also will determine how much LNG comes to U.S. shores. "To that end, we look to the forward curves for Nymex and the UK's National Balancing Point (NBP) as an indicator of where LNG should go," the Barclays analysts wrote. Right now NBP prices are higher than those at Nymex. "However, some LNG originating in the Atlantic Basin, from Trinidad for example, has better netbacks sailing to the U.S. even when Europe pays a slightly higher price."
For insight into which way Atlantic cargoes will go, Merrill Lynch analysts recently recommended watching oil prices. Low oil prices would narrow the Nymex-NBP spread, sending more LNG to the United States, they said (see Daily GPI, April 14).
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