GasLog Partners’ LNG market update and outlook

Thursday, 02 May 2019
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GasLog has taken its usual look at the state of play in the first quarter 2019 presentation with the help of leading analysts. 

Despite LNG demand in 1Q19 being negatively impacted by warmer than usual weather in the Northern Hemisphere winter, global LNG imports during the period totaled 88 mill tonnes, compared to 79 mill tonnes in the first quarter of 2018, or 11% growth, according to Poten & Partners. 

The longer-term outlook for natural gas demand continued to strengthen in 1Q19. In its recent LNG Outlook 2019, Shell predicted that natural gas would satisfy 41% of global energy demand growth over the 2018-2035 period, with renewables satisfying 30%.

Shell forecasts that LNG will be the fastest growing gas supply source, with demand potentially reaching around 700 mill tonnes in 2035, compared to delivered volumes of 319 mill tonnes in 2018.

According to Wood Mackenzie, the global LNG supply hike was principally driven by new supply additions in the US, Australia and Russia. For 2019, supply is estimated to be 365 mill tonnes, or 38 mill tonnes (12%) higher than 2018, driven by the continued ramp-up of 2018 supply additions and new project start-ups in the US (Cameron, Freeport, Elba Island and Corpus Christi Train 2) and Australia (Prelude).

After a brief lull following the elevated levels of new offtake agreements seen in the second half of 2018, activity recently picked up with nine new long-term supply agreements agreed or signed for over 10 mill tonnes per annum, the analyst said.

Wood Mackenzie estimated that, in addition to the Golden Pass project, which reached final investment decision (FID) in February, 2019, 50 mill tonnes per annum of new capacity should be sanctioned in 2019, including Arctic LNG-2 (Russia), Mozambique Area 1, Calcasieu Pass, Sabine Pass Train 6 (both US) and Woodfibre LNG (Canada). A further 90 mill tonnes of capacity could also reach FID in 2019 or 2020.

Weak markets

In contrast to these positive longer-term trends, 1Q19 saw relatively weak LNG commodity and shipping markets. Low LNG prices, particularly in North Asia, reduced the incentive to ship LNG cargoes from the Atlantic Basin to the Pacific Basin, thus reducing tonne/miles – a key driver of demand for LNG spot shipping.

Furthermore, front-end weighting of 2019 LNGC newbuilding deliveries and unscheduled downtime at facilities in Australia and Malaysia all added to prompt shipping availability.

According to Poten, there were 57 spot fixtures reported in 1Q19, a 19% decrease on the 70 spot fixtures for the same period in 2018.

As a result, there was ample prompt vessel availability, which impacted headline spot LNG shipping rates, fleet utilisation, positioning fees and ballast bonuses.

TFDE headline rates, as reported by Clarksons, averaged $60,000 per day in 1Q19, compared to $68,000 per day in 1Q18 and $150,000 per day in 4Q18. Headline TFDE spot rates are currently (late April) assessed at $34,000 per day, with rates having stabilised in recent weeks as charterers look to capitalise by locking in shipping capacity for the remainder of 2019 and into 2020.

We expect that prompt vessel availability will decline throughout 2019 and 2020 given the significant forecast LNG supply additions outlined above. As a result, rates are expected to rise from current levels, which will be dependent on several factors, GasLog said. 

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