Ratings agency Moody’s expects global liquefied natural gas (LNG) prices to remain constrained beyond 2020 as a wave of fresh supply capacity comes online at a time when demand from the world’s largest importers is weakening.
Strong LNG demand growth from China, India and new markets would not be enough to absorb the fresh supply capacity coming online, particularly with demand falling in the largest importing countries, Japan and Korea, Tomas O’Loughlin , a Vice President – Senior Credit Officer at Moody’s said in a report.
“The market will not rebalance until the early years of the next decade, when global demand and LNG import infrastructure catches up with supply,” added O’Loughlin.
Imports into Japan, the world’s biggest market, which consumes over one-third of global LNG, would fall to 80 million tonnes per annum (mtpa) by 2020, a 9% reduction from its 2014 record, as nuclear power production slowly restarts, Moody’s said on Wednesday.
Demand from South Korea is expected to be flat over this period.
At the same time, new global supply will jump 44% by 2020 to 455 mtpa versus 2015 as LNG construction projects in Australia, the US and Russia, costing more than a quarter of a trillion dollars to build, come online, according to Moody’s.
These projects were boosted by a spike in demand from Japan following the 2011 tsunami and subsequent nuclear shutdown, as well as abundant US shale gas supplies.
“Until the market rebalances, investment returns for developers of Australian projects will be weak and US LNG offtakers will struggle to recover all of their liquefaction costs,” said O’Loughlin.
Global oversupply will continue to expand, peaking at around 55 mtpa in 2019. During this period, significant volumes of US LNG could be destined for Europe, the rating agency noted in the report.
Moody’s expects that global LNG demand growth will continue to be robust, boosted by low prices, environmental concerns and the build out of infrastructure in new markets allowing the import of greater LNG volumes.
This demand growth, coupled with a pause in supply capacity development, would allow the market to rebalance in the early 2020s, it added.