The Australian Government said that given the inherent seasonal variability in European natural gas consumption driven by heating demand, there remains a risk of further price volatility in 2023 as seasonal conditions change.
The European Union currently lacks the firm liquefied natural gas contracts needed to fully offset lost Russian pipeline gas volumes, which will force the bloc to source its marginal LNG supplies from global spot markets when needed, according to the latest Australian “Resources and Energy Quarterly” from the Office of the Chief Economist.
“As such, LNG markets are expected to remain in moderate shortfall over 2024 and early 2025, as Europe continues to replace lost Russian pipeline gas with LNG imports,” stated the report.
“Our base case is for Asian spot prices to average US$14/MMBtu over the outlook period, with risks skewed to the upside for the reasons mentioned above,” added the report.
“While this price is well below levels averaged over 2022 (US$33/MMBtu), it is still double the five year, pre-2020 average of US$7/MMBtu,” stated the report.
Export plants
Australia itself has 10 LNG export plant and in 2022 shipped 82 million tonnes of LNG valued at A$91 billion (US$60.55Bln).
The report forecasts that national LNG income will fall through fiscal 2024-2025 to A$60Bln (US$40Bln), with volumes also easing to 79MT over the same period.
“While volatility in LNG markets could re-emerge over the Northern Hemisphere winter and boost spot sale earnings, the base case is that lower energy prices will cause the value of Australian LNG exports to fall,” said the report.
The cargoes last year were mainly delivered to Asia and with 80 percent of volumes being unloaded in Japan, China and South Korea.
Around 75 percent of the cargoes were sold under long-term contracts.
The Australians believe that global LNG trade is expected to grow by 13 percent, or 51MT, over the two-year outlook relative to 2022.
Almost half of the growth (24MT) will come from newly commissioned US LNG plants, while facilities in Nigeria will also contribute 7MT.
Forecasts indicate that most of the new production should be sold to Europe, which is expected to increase its LNG imports from 121MT to 147MT between 2023 and 2025, respectively.
ASEAN volumes
“But ASEAN, Australia’s closest export market, will likely be the second-largest source of demand growth as Vietnam and the Philippines start importing LNG, with total ASEAN demand rising by 11MT over the outlook (two-year) period,” added the report.
The report explained that despite the favourable environment for LNG producers, the outlook for Australia was mixed.
“Australian LNG exports are forecast to fall marginally, as existing facilities face difficulties back-filling their operations with gas from new reserves,” said the report.
“At the same time, investment in offshore exploration remains low despite high commodity prices, which could impact Australian gas production beyond the outlook period,” it declared.
