The year 2019 is set to be a record year for supply in terms of both production growth and new project FIDs, according to the research and consultancy group Wood Mackenzie.
In terms of natural gas prices, WoodMac forecast the title transfer facility (TTF) to average US$6.9/mmbtu (from US$8/mmbtu in 2018) and Asian LNG spot prices to average US$8.5/mmbtu (from US$10.3/mmbtu in 2018) assuming normal weather patterns.
Asian LNG demand growth will not keep pace with LNG supply and Europe, northwest Europe in particular, will have to absorb the surplus, especially during the summer. But Europe needs additional imports and flexibility, given its increased reliance on maxed-out Russian and Norwegian imports, WoodMac said.
While there will be more LNG imports than required, providing competition to pipe imports and putting pressure on prices, WoodMac believes this will unlikely bring the level of oversupply that some fear.
However, it is expected that a recession would also bring gas/LNG demand and oil prices down, delay FIDs and push the global LNG market back a few years.
But there could be a worse scenario for the gas market: a major economic downturn happening in 2020 or 2021, just after 60-100 mmtpa of LNG has taken FID. The consultancy said that would wipe out its forecast price recovery post-2020 and make its forecast that prices soften a little around 2025 look a lot worse.
FIDs galore in 2019
Despite a rebalancing global LNG market, 2019 will be a record year for LNG project sanction, with in excess of 60 mtpa of capacity likely to take FID, well above the previous 45 mtpa sanctioned in 2005 and a tripling of the 21 mtpa sanctioned in 2018, WoodMac says.
Frontrunners in the race to hit FID include the US$27 billion Arctic LNG-2 in Russia, at least one project in Mozambique and three in the US.
WoodMac expects the projects to be sanctioned in the United States during the year to be Golden Pass, Calcasieu Pass and Sabine Pass Train 6. The small Woodfibre project in Canada may also get the green light in 2019 as well.
Other projects in the US, Qatar, Papua New Guinea, Australia and Nigeria are targeting FID in 2019 too, providing upside to the consultancy’s already bullish view.
China’s LNG demand growth to ease off
Economic slowdown, a more considered approach on coal-to-gas switching and increased domestic infrastructure availability will mean LNG demand will slow in 2019, from the 40-45 percent growth seen in 2017 and 2018.
But China will still grow at around 20 percent, by far the largest source of LNG demand growth in the global market, WoodMac says.
However, China brought a series of gas policies in 2018, aimed at relieving supply tightness and import dependency.
In 2019 there will be more clarity on the level of ambition of Chinese domestic supply growth and the ramp-up of Power of Siberia. Wood Mackenzie is bullish about both and the competition they will provide for LNG growth potential post-2020.