Supply Outstripping Demand
August 2019
Asian demand for LNG has fallen short of expectations, particularly for Japan, in which the downturn is attributed to lower imports for power generation—partly driven by the gradual return of nuclear reactors. However, nuclear power reactors that have resumed operations could be forced to temporarily shut down again if back-up safety measures are not in place by specified deadlines under new rules approved by the country's Nuclear Regulation Authority (NRA).

Delays and suspended operations could likely cause a reversion back to LNG. In Asia and Europe, seasonal demand growth during summer months is expected to increase the month-on-month demand in Asia.

The impact of low spot prices on the revenues of LNG producers who sell oil-linked long-term contracts so far have been modest due to sustained oil prices. The sales contracts of these producers with Asian buyers are linked with oil prices, that have been more resilient in comparison to the fall of Asian LNG prices. However, the main implication of falling LNG prices is with the increasing differential between oil-linked contract price and spot prices, which is expected to put downward pressure on prices when producers start renegotiations of contracts.

Ongoing trade tensions between the US and China have seen China’s imports of US LNG cargoes continue to fall. In response, the US turned to European and South American suppliers, delivering additional LNG shipments to Spain, France, and Chile. In Q1 2019, the US saw an overall increase of 52% (compared to Q1 2018) for worldwide LNG deliveries, indicating that it was not particularly affected by the loss of Chinese business. Cheniere Energy has announced the first commissioning cargo of Corpus Christi’s Train 2. With the completion of this milestone, Train 2 is now set to be completed in full later in 2019, followed by Train 3 of Corpus Christi in 2021.

In the short term, new LNG projects are expected to add 36Mt of production by 2020. Approximately 32.5Mt will be derived from the US as new trains are completed. Now that Cove Point in Maryland has started, all other starts are in the US Gulf states of Louisiana, Georgia and Texas. This will include 2.5Mtpa from Elba Island, 15Mtpa from Cameron and 15Mtpa from Freeport’s three trains that will be commissioned over 2019-2020. In the US, capacity additions from commissioning at Corpus Christi (4.5Mtpa) and Cameron LNG (4.5Mtpa) are expected imminently. Except for the mid-scale Prelude FLNG, Australian projects are now all ramping up, after the recent start of Ichthys LNG.