LNG Export to Stagnate Over the Long-Run Amidst Sizeable Global Trade

Summary

• The global LNG market has witnessed a rapid growth with global LNG trade totalling ~ 348 million tonnes in 2019.
• Australia gained the LNG crown by surpassing Qatar and becoming the largest LNG exporter with 77 million tonnes of LNG export in 2019, which is now anticipated by many industry experts to witness stagnancy and lower growth over the long-run.
• Furthermore, on the demand counter, while China and Japan, the major LNG buyers, are poised to reduce their imports, creating a rebalance in the demand and supply dynamics.
• However, prices are anticipated to get supported over the long-term from the rising demand from emerging Asia, which is projected by the DIIS to import 121 million tonnes of LNG, collectively.

LNG trade across the globe has grown rapidly over the last few years with LNG trade totalling around 348 million tonnes in 2019, which marked a gain of 12 per cent or 38 million tonnes against the previous year.

The surge in LNG trade has prompted a surge in the supply chain with global LNG supply capacity growing by ~ 40 million tonnes per annum in 2019, outpacing demand and leading to a supply glut, which coupled with low oil-linked reference prices have presented strong headwinds for ASX-listed oil & gas stocks.

While the supply chain has been growing rapidly with Australia becoming the largest exporter of LNG in 2019 with a total supply of 77 million tonnes, surpassing Qatar, and the United States domestic LNG production booming, the demand has remained relatively weak.

To Know More, Do Read: Australia To Jostle Qatar for the LNG Crown; How Long Would the Reign Last?

Japan, which once remained one of the largest LNG importers amid a halt in nuclear generation, imported 75 million tonnes in 2019, down by 7.5 per cent against the previous year due to the rapid increase in nuclear generation over improved safety measures.

To Know More, Do Read: ASX-Listed Alternative Energy Stocks Under Investors’ Lens as Oil Risk Surmounts

Japan and China to Gradually Reduce LNG Export

However, many industry experts anticipate that the global LNG market would start reaching a demand and supply equilibrium in 2021 as global demand absorbs the new supply and over the long-run the demand would eventually surpass the supply with Australian LNG finally decelerating towards the end of the year 2025 as discussed below.

The Department of Industry, Innovation and Science anticipates that the Japanese LNG import to increase to 77 million tonnes during the year as nuclear reactors are temporarily closed to complete security upgrades; however, post that the demand in Japan is anticipated to slip again to stand at 72 million tonnes by 2025.

Apart from Japan, China which is at present the second largest consumer across the globe has also witnessed slower rate of growth during 2019 with an import of 60 million tonnes, up by 18 per cent from the previous year, which is slower than its previous growth rate.

The slower pace is LNG import growth was the reflection of both weaker economic growth and the relaxation of policies to encourage coal-to-gas switching, in order to support the local coal industry.

At the beginning of the year 2020, China witnessed a decline of 7.1 per cent on a y-o-y basis in LNG imports for February 2020 due to the impact of COVID-19 on domestic economic growth. However, over the long-term, the DIIS anticipates the Chinese LNG import to surge to 99 million tonnes by 2025.

LNG consumption, which was around 27 per cent of all the gas consumption in 2019, is estimated to surge and play a major role in meeting China’s rapidly rising needs for gas.

However, many industry experts anticipate that the demand for LNG in China would largely be met by the local LNG growth. China produced 10 per cent higher LNG in 2019 against the previous year at 17bcm, and China further plans to take the local production to 207bcm by 2020.

China Gas Consumption by Source (Source: DIIS)

While the overall Japanese import is anticipated to fall over the long-run and most of China’s demand is anticipated to be met by the local industry, the question now arises how is the Australian LNG industry placed in the future? Considering it being one of the top export revenue generators for the country’s exchequer.

The answer to this lies in emerging Asia, which is already anticipated to support the domestic coal industry as well amid the growing population, economy, and the energy demand.

Also Read: LNG Price Fall- A Much Needed Strategic Decline For Long-Term Impetus?

Emerging Asia includes India, Pakistan, Bangladesh, Thailand, and new LNG importers such as Sri Lanka, Vietnam and the Philippines are anticipated to import 121 million tonnes of LNG by 2025, collectively.

Australia LNG Position

On the domestic front, the wave of LNG investment witnessed an capital being deployed to the tune of USD 200 billion between 2009 to 2019 over seven new projects, ramping-up of which has positioned the continent to export 77 million tonnes of LNG in 2019, leading to an export revenue of $49 billion.

However, the LNG volumes are now forecasted by the DIIS to trend down post 2021 to reach 79 million tonnes by 2022–23, down by ~ 3.70 per cent from the estimated export of 81 million tonnes in 2020-21.

On the project counter, only Prelude and Ichthys are the last two remaining projects that are ramping up production with Ichthys almost reaching its full capacity. Furthermore, the Darwin LNG plant is expected to halt after 2021 over exhausting gas at the Bayu-Undan field, which would now require backfill from the Barossa project in order to continue the production, and at present, a final investment decision is pending related the Barossa project, first gas from which is anticipated by the operator in 2023.

Furthermore, in the status quo, the largest gas project across the continent- North West Shelf is also shifting towards being a tolling facility rather than a gas selling operation and recently Chevron has decided to offload its stake in the prospect.

To Know More, Do Read: Chevron to Offload its Stake in NWS JV; Market Sees Woodside a Potential Buyer

NWS is anticipated to witness a decline in production from 2022 onwards, which would further require backfill from Browse Basin project fields of Calliance, Torosa, and Brecknock, FID of which has been deferred from late 2020 to 2021 amid low LNG market price.

Australia’s LNG exports and export capacity (Source: DIIS)

Also Read: LNG-Hero or Hubris for ASX Energy Stocks?