Global LNG market to remain tight in 2014.
Demand for liquefied natural gas (LNG) has been rising for years, driven mostly by booming Asian demand and a loss of nuclear power in Japan and more recently South Korea. Import needs are set to rise further in 2014 as China and Latin America are becoming increasingly active buyers.
"Looking towards 2014 ... rising Chinese import capacity and continued strong demand out of Latin America suggest global LNG markets are heading towards another tight year," Bank of America Merrill Lynch (BoAML) said in a research note this month.
While demand for LNG is expected to rise, analysts say that big supply additions are not expected before 2015.
"On the supply side, there is plenty to be concerned about. Projects in Angola, Algeria and Nigeria have been underperforming. Major Australian projects should start to hit the market in 2014, but we continue to see a dearth of new liquefaction projects coming online until 2015," BoAML said.
As a result of the tight market in 2014, the report said that Asian spot prices could rise above last winter's highs of almost $20 per million British thermal units (mmBtu) this winter, up from a current price of $18.30 per mmBtu.
While some new supply sources are expected to ease the market somewhat by 2015, driven largely by new exporters from the US and Australia, analysts say that a rise in LNG demand of around 7 per cent a year until 2020 will still result in a tight market for most of the decade.
"Global gas demand is surging, which is driven by a preference towards lower carbon fuels, a shift away from nuclear and emerging market growth. As a result, we expect international gas markets to remain 'tight' through to 2020," Bernstein Research said this month in a global gas market study.
Beyond an overall tight market outlook, large regional supply and demand differences are expected to remain in place.
North America, where the shale gas boom has pulled down prices, will benefit from low domestic prices and an opportunity to export its excess gas to Asia, where prices are expected to rise further on the back of booming demand and a lack of significant gas production of is own.
"Gas markets will remain fragmented, divided between North America, where gas is abundant and prices are low and international markets where gas will be supply constrained and prices continue to rise," Bernstein said.
The researchers added that this imbalance would result in a sharp rise in global LNG trading activity, as producers and shippers try to take advantage of regional price differences.
Beyond a tight market, LNG trading is set to become more diverse, with several new buyers and sellers entering the stage.
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