LNG macro analysis, page-1527

TIGHTENING LNG MARKET SETS THE SCENE FOR A MAJOR SHORTFALL

December 19, 2018
Liquefied natural gas (LNG) buyers’ willingness to commit to new long-term contracts has increased significantly during 2018 amid expectations of a tighter LNG market. Looking ahead to 2025, Rystad Energy argues a major shortage of liquefied natural gas is looking increasingly likely.
2018 was another bumper year for LNG with strong demand growth driven by Asia. While the market is projected to see very strong supply growth centered on flexible US LNG volumes over the next two years, global demand is growing even faster.
“Rystad Energy forecasts heightened risk of an emerging deficit of LNG supplies post 2022,” says Sindre Knutsson, senior analyst on Rystad Energy’s Markets team.

By the end of November 2018, contract volumes of long-term sales and purchase agreements (LT SPAs) were up by 38% on a year-on-year basis. Three quarters of these volumes were signed after 1 August, signaling expectations of tighter market among buyers.

The average duration of contracts has also increased, indicating that LNG buyers are less confident that they can get adequate LNG supply from the spot market. This represents a reversal from the trend seen in recent years.
“We expect LNG buyers to continue to seek flexible contracts, but that the large established Asian buyers – such as Japan, South Korea, Taiwan and China – will continue to rely on long-term contracts to ensure security of supply,” Knutsson adds.
The increased activity in commitment to new LT contracts will help developers to reach final investment decisions and to secure financing for new LNG projects, but such projects need to be firmed up very soon in order to avoid a shortfall. Assuming even a four-year construction period from investment decision, the market could tighten significantly from 2023.
While the increased commitment to new SPAs and higher average durations are indications of increased tightness in the LNG market, Rystad Energy still forecasts excess volumes over the next three years, driven by new US supplies. Less than one-third of the current US wave of supply has started up, leaving the lion’s share of new LNG production to flood the market over the next two years. This could turn around quite rapidly in 2022, as LNG demand growth outpaces sanctioned supply.
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Contacts:
Sindre Knutsson
Senior Analyst, Markets
Phone: +47 24 00 42 00
[email protected]
Morten Bertelsen
Media Relations
Phone: +47 951 98 742
[email protected]

About Rystad Energy
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