A spate of new liquefied natural gas (LNG) supply is slated to be brought online in the coming months, just when the market really doesn't need any more, which makes for a "frosty outlook for liquid gas," Bank of America Merrill Lynch said in a note last week.
With nuclear plants coming back online in Korea and Japan and China's economic growth weak, the destiny for LNG cargoes has tilted away from Asia and toward Europe as Asian prices have converged with those at the National Balancing Point.
"As a result, we believe the stars are aligned for lower European gas prices in 2H15 on higher LNG inflows, higher volumes from Russia and shrinking domestic demand due to efficiency gains," the bank's global commodity research analysts said.
Meanwhile, three Australian LNG supply projects are slated to come online during the third quarter with combined capacity of 12.6 million tonnes per annum (mtpa). "Outside Australia, two other export terminals are currently under construction," Bank of America said. "In Indonesia, the 2 mtpa Donggi Senoro project will begin production in 2H15. In the U.S., the Sabine Pass train 1 (capacity of 4.5 mtpa) is more than 80% complete and will begin exporting gas late this year [see Daily GPI, Feb. 25]."
With about 12 mtpa of supply coming on this year, 2015 will see the strongest rate of supply growth since 2011, according to the bank. Next year's supply growth is set be be even stronger.
All that gas won't be getting a warm welcome in the market. Spot LNG prices in Asia fell from about $15/MMBtu last September to about $7.50 currently. "Prices averaged just $9/MMBtu from November to March, a big step down from the average of $16+ realized in each previous winter since the 2011 earthquake shut down nukes in Japan." Bank of America said. "Global LNG supply has finally caught up with demand...and the recent price action was exacerbated by the sharp decline in crude oil prices."