This summer, the Europe/Asia price differential has widened, enabling a surge in re-exports from north-western Europe regasification terminals, Wood Mackenzie said in its global and European LNG fundamentals analysis.
However, WoodMac expects this trend to be short-lived.
Global LNG supply availability in winter 15/16 is forecast to be up 3.5 Mt on the previous year, driven by new Australian CSG LNG projects and up 10 Mt in summer 2016 with ramp-up from Gorgon, Sabine Pass and an assumption of volume resumption at Angola and Yemen.
Winter supply will effectively be absorbed by higher demand in Egypt, South East Asia and South Asia – so much so that imports in north-western Europe are forecast to be down by 4.3Mt compared to last winter. Asian LNG spot prices will trade close to crude parity through Q4 at US7.50-8.00/mmbtu but then soften with declining contract prices from Q1.
Despite limited LNG imports, Wood Mackenzie foresees a downside risk to the current UK National Balancing Point forward curve. Comfortable storage inventories built up through the summer and flexibility within cheap Russian oil-indexed contracts will result in pricing being slightly short of US$7/mmbtu.
Looking ahead to summer 2016, WoodMac forecasts that ex-Europe markets will fail to absorb the LNG supply growth and Asian LNG prices will continue to soften, down to US$6.50-7/mmbtu. As a result, year-on-year LNG imports into north-western Europe will be 2.2Mt higher than summer 2015.
Combined with Russian oil-indexed prices hitting their minimum during summer 2016, this will result in further pressure on European spot prices which we forecast to be below the summer 2016 forward curve, currently set at US$6.2/mmbtu – with potential for some coal-gas switching in the UK.