Wood Mackenzie anticipates that the Pacific will experience a ramp up of 70 mtpa in new LNG supply from Australasia over the period to 2019, driven by production from Papua New Guinea and Australia.
This has been complemented by the outlook for Chinese demand – the country has contracted some 17 mtpa of new supply from Australasia, with an additional 2 mtpa of portfolio supply likely to be underpinned by projects in that region.
However, China’s LNG demand is now experiencing growing pains and the ability of the market to absorb all forecast contracted and spot volumes is in doubt.
For although the country’s overall outlook for gas and LNG demand growth remains unparalleled globally, 2014 has been a relatively challenging year. Gross domestic product (GDP) growth has slowed to 7.3% and the outlook suggests that new LNG into China will appear expensive compared to gas.
Changing market dynamics, such as competition from Central Asia, new domestic supply and infrastructural constraints are also having a serious impact.
The extent of these challenges is clearly visible. Wood Mackenzie analysis shows that the pace of overall gas demand is coming under real pressure, falling from around 20% per annum in 2011 to a very disappointing 6.8% for the first nine months of 2014.
While LNG demand is a little more robust, year-on-year growth has also reduced considerably, down from around 28% in 2011 to 17% in 2014.
This slowdown has led to a significant revision in the mid-term LNG demand outlook, with total LNG demand for 2017 now reaching just under 50 Mt – equivalent to a 7 Mt reduction over the H1 2014 view.
However, the factors driving lower LNG demand growth all have strong regional variances as China’s provincial gas markets develop at their own individual pace.
Even when simply looking between north and south, patterns are distinctly different. For instance, in north China (defined as provinces north of the Yangtze river), there is a huge seasonal swing driven by winter space heating. In the south, the seasonal profile is less pronounced yet there are some peaks in the summer driven by power generation for air conditioning.
Going forward, it will be imperative for sellers and buyers to have regional understanding of the Chinese gas market in order to accurately forecast the pace of LNG demand growth, taking into account trends and developments not necessarily replicated across the country.
Source: Wood Mackenzie