Aggressive LNG buying will be driven by competition between Europe and Asia this year.
European gas storage volumes have benefited from a mild winter, although storage will need to remain around 90% full, said Drewry’s lead gas shipping analyst, Aman Sud, in a webinar.
However, industrial demand for LNG worldwide has fallen by 26% year-on-year.
Very little Russian gas will arrive in Europe this year, while an El Nino affect could cause hot summers and cold winters worldwide, thus affecting energy usage, which could deplete storage volumes. As a result, Europe could stock up again in the second half of this year, he said.
In 1Q23, the main European buyers - Spain, UK and Italy - imported 10.8 mill tonnes, compared to 13.9 mill tonnes in 1Q22 - a volume, which is expected to remain much the same for the rest of this year.
Asia’s top buyers - Japan, China, India, South Korea and Taiwan - also showed a drop, importing 55.5 mill tonnes during 1Q23, compared with 61.3 mill in 1Q22.
US exports to Europe rose by 121% to 58.5 mill tonnes last year but declined to Asia by 40% to 19 mill tonnes. Russian exports to China increased by 66% year-on-year. This year could also see rising Russian imports into India and Pakistan.
In addition, US LNG exports improved by 6.1% in 1Q23, mainly due to better terminal utilisation and operations.
Sud forecast that between 2023 and 2028, LNG trade will increase to 632 mill tonnes, compared to 416.5 mill tonnes. Asia will account for over half of this increase.
As for supply, there is a very positive final investment decision (FID) scenario for 2023/2024 with over 200 mill tonnes per annum of extra capacity due to take FID, especially in the second and third quarters of this year.
Three projects have already reached FID this year - Plaquemines LNG Phase 2 (10.7 mill tonnes), Port Arthur LNG (13.5 mill tonnes) and Gabon LNG (0.7 mill tonnes per annum).
By 2028, liquefaction capacity is forecast to reach 798.2 mill tonnes, compared to today’s 470.5 mill tonnes, while regasification capacity is expected to rise by 2.9% CAGR to reach 1,397 mill tonnes per annum by the end of 2028.
Shipping markets should remain tight this year and next until the new batch of projects come on line from 2025 onwards. Sud also said that buyers were moving towards longer term contracts, in contrast to 2021 and 2022.
LNGC newbuildings are at an all time high with another 90 contracts forecast to be placed this year. The newbuildings will mainly be placed on the back of the Qatar phase 2 project, plus others.
However, rising newbuilding prices and shipyard capacity problems could play a part when deciding on newbuilding projects. Europe and Asia will compete for newbuildings and converted FSRUs, due to only a few being available.
Daily charter rates will remain relatively weak and could fall still further in 2Q23 to around an average of $59,000 per day before recovering in 2H23. There should also be a decrease in the number of spikes this year, compared with 2022.
In general, charterers are looking to fix newbuildings on long term business, especially ships due to be delivered in 2024/2026. Extra demand could be seen in 2025 with new projects coming online, although the number of newbuilding deliveries will also increase.
Due to the number of steam LNGCs still in operation, several of which are due to come off charter in the next few years, recycling could increase, as could conversions for storage and regas projects.
Another factor that could impact the market in the short term is vessel speed reductions, due to regulatory factors, Sud said.