“We expect LNG demand to increase by 4 bill cu m this winter led by growth in China, Japan, and South Asia,” Refinitiv predicted last week during a lecture.
LNG supply is expected to grow by 3 bill cu m led by the US. This could lead to the LNG market being slightly tighter than last winter by 1 bill cu m.
Speaking at the GECF Monthly Gas Lecture via video conference on 6th October, Refinitiv analysts, Anne Kat Brevik, Director - LNG Research & Forecasts, Laura Page, Lead LNG Analyst, and Mr Hengky, Senior Analyst (LNG), went through the demand and supply outlook and their relationship with market’s balance and pricing dynamics.
However, there remained several risks to the forecasts, they admitted, foremost of which were the winter temperatures and coronavirus pandemic. Northern Hemisphere temperatures were unusually warm last winter, dampening LNG demand, while the full-blown effect of COVID-19 remained unclear, particularly as it is currently worsening in many countries and levelling off in others.
Recognising the importance of scientifically drawn forecasts GECF Secretary General, Yury Sentyurin said: “In many ways, COVID-19 has highlighted the importance of data, so we can map and understand the economic and social effects of pandemic-related measures.”
Accurate planning for the period ahead depended on not just weather but a myriad of factors, such as government policies that can often change the course of LNG demand and pricing.
For instance, the lecturers said that LNG played out vastly differently last winter in Japan and South Korea, the world’s largest and third largest LNG buyers, respectively.
In Japan, LNG import declined by about 4%, due to the mildest winter on record in addition to an industrial demand that was hit by COVID-19 in the first quarter of this year.
By contrast, South Korea saw a rise of about 7% in LNG imports, due to the government policy of switching off coal-fired power plants between December and March this year to improve air quality - March alone witnessed the closing of 28 coal-fired power plants, stimulating gas for power demand.
“That said, while the economic recovery is still very slow in Japan, we do see the La Nina weather pattern emerging for this winter and that will mean colder temperatures than last winter, boosting demand for heating,” the speakers said.
Meanwhile, South Korea, may see a 10% decline in LNG imports, due to higher availability of nuclear power and the assumption that government-mandated coal-fired plant closures may not be as numerous as last year.
“In terms of pricing dynamics, as the markets move into a period of oversupply, due to the growing convergence of global gas prices, it is important to keep an eye on the direction of gas hubs like the Henry Hub, TTF (Title Transfer Facility) and Asian spot price,” the speakers stressed.