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BHP Commentary and Outlook for Liquified Natural Gas

Gasoil News - Published on Tue, 25 Feb 2020

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The Japan Korea Marker price for LNG averaged USD 5.20/MMbtu DES Japan in the first half of 2020 financial year, more than 10 per cent lower than the prior half, with the price ranging from $4.10 to USD 7.00/MMbtu. Prices were weighed down by large increments of new supply coming on–line just as Asian demand growth was pausing for breath after the frenetic expansion of the two prior years. That put the onus on Europe to absorb the excess cargoes, which in turn led to a material increase in the utilisation of European storage in advance of and through the northern winter. Beyond the reporting period, against the backdrop of the Covid–19 situation, the forward curve has been pricing shoulder season JKM close to USD 3/MMBtu. It is important to note that this is not necessarily where all producers and consumers will transact. The majority of LNG molecules still change hands under long term oil linked contracts, although the proportion has been declining in recent years.

Looking ahead, within our generally constructive outlook for LNG demand growth the key uncertainties are Chinese energy mix policies and the scale of competing supply of indigenous and pipeline gas; the level of investment in new gas infrastructure in India; the timing and scale of nuclear restarts in Japan and energy mix policies in South Korea. Outside Asia, the amount of Russian pipeline gas supplied to Europe also represents a swing factor for the outlook.

On the supply side, a large increment of new production came to market in calendar year 2019, with an overflow from incomplete ramp–ups expected to influence fundamentals in 2020. That will add to the already large pipeline of projects where first gas is anticipated in calendar 2020. Similar to the impact of the 2019 overflow on 2020, 2020 ramp–ups are expected to have a substantial shadow effect on 2021, in our view.

Despite the strong LNG demand growth that BHP projects for the medium–term, current and committed capacity is likely to supply the market fully until the middle of next decade, with considerable overflow from Asia to Europe expected at times. Beyond the mid–2020s new projects will be required in a global gas market where the marginal supply looks likely to come from North American LNG exports under a range of scenarios.

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Posted By : Rabi Wangkhem on Tue, 25 Feb 2020
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