With the demand for natural gas and liquefied natural gas (LNG) dropping down from the highs previously observed, Wood Mackenzie, an energy intelligence group, has outlined in its new report that high storage levels coupled with a mild Northern Hemisphere winter will enable global prices to remain relatively weak in 2024. Aside from European gas prices being down 45%, the forecast indicates that flat global demand is on the horizon this year.
Wood Mackenzie’s most recent report, ‘ Global Gas and LNG: 5 things to look out for in 2024 ,’ points out that the market sentiment for gas and LNG will “remain bearish” into 2024 with European prices having fallen by 45% to $10 per million British thermal units (mmbtu) in the past three months.
Massimo Di Odoardo , Vice President of Gas Research at Wood Mackenzie, highlighted: “[Wood Mackenzie] has been forecasting lower 2024 prices for much of last year, especially compared to forward curves, amid weak market fundamental expectations. Global LNG supply growth will remain limited at 14 million tons (Mt), but with Asian LNG demand still weak, competition for LNG is unlikely to heat up.”
While the global gas and LNG market rebalanced throughout 2023, weak demand has been the biggest driver, according to Wood Mackenzie, which adds that momentum for LNG investments and contracting activity remained strong as players continued to position for a market with limited Russian gas to Europe and increasing Asian LNG demand. The company’s main gas and LNG market predictions for 2024 indicate:
The energy intelligence player explains that European gas demand reduced by 7% in 2023, as a result of mild weather. Even though normal weather dynamics and a possible economic rebound would support demand, the firm predicts that European gas demand will remain flat at best, with renewable supply increasing by more than 100 terra-watt hours and nuclear production in France continuing to come back.
Although the report anticipates a more positive view on gas demand in Asia with expected growth of 12.5 Mt, or 5% compared to 2023, it still underlines that 2024 demand will be almost 3 Mt lower than levels in 2021.
Furthermore, the report forecasts that the global LNG shipping market is at risk of oversupply, with 60 LNG carriers due to be commissioned in 2024.
Di Odoardo noted: “Altogether, the 60 new vessels equate to 10.4 million cubic meters of LNG shipping capacity, sufficient to move 54 million tonnes per annum (mmtpa) of LNG between the U.S. Gulf Coast and Europe.
“There will be limited organic LNG supply growth and the bulk of U.S. LNG is still expected to be routed to Europe, rather than Asia, limiting demand for shipping and putting pressure on freight rates.”
Based on Wood Makenzie’s predictions, portfolio players, which are perceived to be the key LNG players that aggregate supply from across the world and sell to multiple customers, have been the major drivers of LNG activity over the two past years. After signing 72 mmtpa of long-term contracts in 2022 and 2023 and with most Qatari equity deals now finalized, the report expects these portfolio players to feel comfortable with their positions and be more selective in building their portfolio further.
In addition, the end-user activity is anticipated to ease with Chinese buyers already signing fewer contracts after a hectic period in 2021 and 2022 where several deals were struck with sellers in the U.S. and Qatar. The report underscores that some buyers might take a more opportunistic approach.
In this context, U.S. independent players, leveraging on low Henry Hub prices, may seek more exposure to global LNG prices by taking long-term LNG capacity positions, or more activity emerging in price-sensitive Asian markets if contract prices fall further.
“[Wood Mackenzie’s] expectation is that overall contracting activity will soften in 2024 compared to the huge number of deals signed in 2021, 2022 and 2023,” concluded Di Odoardo.