The Worst Is Behind Us For Liquified Natural Gas Markets

COVID-19 and the ramping up of LNG export capacity has weighed on gas markets this year. However, with demand recovering, and limited further export capacity coming online over 2021 we believe regional gas prices will be well supported (UNG).

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Soggy demand and growing capacity

As seen with most markets this year, liquefied natural gas (LNG) was unable to escape the COVID-19 related demand hit, with industrial gas demand weighed down by lockdowns. 

This saw LNG prices in Asia trading to record lows, which also weighed on regional gas hub pricing around the globe, and in particular Europe. This only added to what was already set to be a bearish year for LNG markets, following a mild winter, along with the fact that around 24mtpa of LNG export capacity was scheduled to start up over the course of the year, with the bulk of this capacity coming online in the US.

Therefore the market witnessed a large number of US LNG cargo cancellations over the summer, with the price collapse in Asia and Europe making it uneconomical for buyers in the region to take delivery of cargoes. Nearly 175 LNG cargoes were cancelled between April and November 2020, with the majority of these cancellations taking place in June-August 2020 - a seasonally softer period for gas demand.

If we look at export data from the US, volumes collapsed over the summer months as a result of these cancellations. Volumes hit a low of below 1.9mt in August, which is the lowest monthly number seen since 2018, and well below the roughly 5.5mt exported in February. However since then, and with cancellations easing, we have started to see volumes pick up once again. Due to the recovery we are seeing, along with strong export volumes at the start of the year, total exports from the US over the first 11 months of this year are still up around 32% YoY according to IHS Markit, and full-year exports will still see very impressive growth.

In Asia, while LNG imports over April and May fell YoY, we have seen quite the recovery in demand since. Data from IHS Markit shows that LNG imports into Asia over the first 11 months of this year totalled a little over 233mt, which is still up almost 7% YoY.

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Disclaimer: This publication has been prepared by ING solely for information purposes irrespective of a particular user's means, financial situation or investment objectives. The information ...

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