LNG use surging while idled spending may trigger next spike

Dan Murtaugh and Stephen Stapczynski January 16, 2017

SINGAPORE (Bloomberg) -- Liquefied natural gas prices falling to the lowest in a decade last year spurred fresh demand while suppressing investment in new production, potentially leading to shortages and price spikes next decade, according to a new Bloomberg New Energy Finance (BNEF) report.

Global annual LNG consumption is seen rising to 422 million tons by 2030, almost two-thirds higher than last year and almost 13% above BNEF’s previous forecast in June. China, India and a swarm of smaller countries sped up buying after prices fell and as they sought to shift to the cleaner-burning fuel amid air pollution from burning coal, BNEF analysts including Maggie Kuang said in the report published Monday.

Buyers are poised to take advantage of an array of under-construction projects expected to come online over the next few years, which will keep fuel prices low. That poses a long-term danger, though, as producers may continue an investment drought that may eventually result in future supply deficits, Kuang said.

“Healthy long-term demand growth prospects and very few final investment decisions expected before 2020 are posing a supply shortage risk which can drive up LNG prices massively post-2025,” Kuang said in the report.

Small LNG buyers are key to the new demand growth. Countries that imported less than 5 million tons a year accounted for 19% of total consumption last year, up from 15% in 2014. Those nations will account for 31% of global use by 2030, larger than the combined volume from China and India, Kuang said.

Conversely, demand from the world’s two largest users, Japan and South Korea, is expected to decline or remain flat through next decade. Japan in particular, with several supply contracts from the U.S. about to go into effect, will emerge as an important LNG merchant as it redirects unneeded cargoes elsewhere.

While demand is seen growing faster than previously forecast, the recent price crash has left about about 250 million tons a year of supply projects shelved or delayed indefinitely. BNEF estimates that beyond the projects already in development, only about 40 million tons a year worth of new plants will be sanctioned through 2020.

LNG spot prices in Singapore fell 0.6% to $9.119/MMbtu on Thursday, according to a Singapore Exchange Ltd. assessment. Prices averaged $5.655 last year.