In this article, Zach Allen, President of Pan EurAsian Enterprises and Publisher of the NATS Data and Analyses Services, explains why buyers will lead the LNG industry this year.
Barring any kind of “Black Swan” event in 2015, the markets are like to be more of a buyers’ than a sellers’ market.
The tightness experienced over the past 4 years was caused mainly by the accident at Fukushima, plus some growth in consumption by newer consumers of LNG. The newer consumers were China and South America.
Japan’s need to replace nuclear power generation with other fuels added about 9 million tonnes of demand to the market. Most of that increase occurred in the 2011, 2012 time frames and caused significant disruption to the markets.
Brazil and Argentina added about 6 million tonnes per year of demand between 2011 and 2014. China added another 6 MTPA. Altogether that is 21 MTPA of additional demand in a market that had little additional production capacity additions.
So, how did the markets adjust?
Reduction in demand for LNG in Spain and the UK between 2011 and the end of 2014 released about 20 million tonnes per year of LNG. With a small amount of production increase, the markets moved to balance.
Assuming that the newly commissioned Queensland Curtis (BG) LNG plant, another (about) 4 million tonnes comes on line. The new PNG LNG (Exxonmobil) plant came on line in mid 2014 and appears to be running smoothly. The Snohvit plant appears to have become more reliable, adding more production, perhaps, in 2015 than in past years, and the new plant at Skikda in Algeria appears to be running smoothly as well, adding another 4+ MTPA of LNG to the markets.
2015 will be a year of recovery for a number of countries’ economies that were bruised by the high energy prices following Fukushima. It is likely they will rebound slowly, especially Japan. But, they will rebound.
This would suggest that:
- 2015 is a recovery year and,
- 2016 a year for new demand growth.
Do you agree with Zach? Will 2015 "be more of a buyers’ than a sellers’ market"? Let us know your thoughts below.
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