HOME         WEBSITE         SUBSCRIBE           E-GREETINGS   
                               

Tuesday, June 24, 2014

Robust Global Demand to Keep LNG Prices High-QNB Group

Robust global demand is likely to keep LNG prices high over the next few years. 

Demand is growing both as a result of strong Asian economic growth and the switch to cleaner energy, particularly in China. This trend is likely to continue, notwithstanding the so-called US shale gas revolution and the coming into operations of the USD400bn Russia-China gas pipeline signed on May 21, 2014. Overall, the future of the LNG market remains bright and is likely to result in high LNG prices for years to come. This will continue to support Qatar's large current account surpluses, said QNB Group report. 

The report stated that the outlook for the LNG market is likely to continue on the 2013 trends in 2014. On the supply side, three new LNG trains in Algeria, Australia and Papua New Guinea are expected to come on-stream in 2014. This is likely to add about 10m tons to global LNG production--a 4.2% increase. On the demand side, continued growth in Asian demand and the need for Europe to diversify away from Russian pipeline gas may outpace the increased supply, leading to a small increase in LNG prices of about USD0.5 per mBtu despite the expected decline in Brent crude oil prices. The ongoing violence in Iraq and Syria could, however, result in higher-than-expected LNG and crude oil prices in the second half of 2014. 

The LNG market continued to tighten in 2013. Global LNG deliveries were an estimated 240m tons--broadly flat compared with 2012. Qatar continued to be the largest LNG exporter, with about one third of global supply. At the same time, demand from Asia and Latin America rose, with China, South Korea and Mexico registering the largest increase in LNG demand. In particular, China brought three new re-gasification terminals online as its switch from coal to LNG as a cleaner fuel for electricity production continued. This tightening of the market resulted in an average USD1 increase in LNG prices per million British thermal units (mBtu), despite Brent crude oil prices falling USD4.5 per barrel and lower LNG demand from Europe. 

Over the medium term, global LNG exports are unlikely to meet the growing global demand, leading to higher LNG prices. On the supply side, the gradual ramp up in production in Australia (60m tons over the next six years) and Papua New Guinea (7m later this decade) is likely to result in global LNG exports reaching 300m tons by 2020--a 3.8% compound annual growth rate. Additional exports are unlikely to materialize before then. In particular, the so-called shale-gas revolution in the United States is not expected to materialize in additional LNG exports before 2020 as this would imply a convergence of US domestic gas prices (Henry Hub) to international LNG prices, something current and future US administrations are likely to resist (see our Economic Commentary dated November 28, 2013). Moreover, the recently-signed agreement for Russia to provide 38bn cubic feet a year of pipeline gas over the next 30 years to China is likely to imply a displacement of gas supplies from Europe to Asia, thus pushing up prices in Europe while reducing prices in Asia. While this is likely to bring about convergence in global LNG prices, it will not change the aggregate global gas supply. 

On the demand side, two factors are likely to make global demand continue to outpace global supply. First, energy demand in Asia is expected to remain robust, even after taking into account a slowdown in Chinese growth. Countries like China, India, Indonesia, Malaysia, Pakistan and Thailand have just started to rely on LNG supplies for their energy needs and this trend is likely to grow over the next few years. Second, China's rising pollution will mandate a switch away from coal to cleaner energy sources, particularly LNG and pipeline gas. These two factors are expected to lead to global LNG demand growing steadily by 5-7% a year up to 2020, thus outpacing global supply. 

Overall, robust LNG demand is likely to outpace global supply up to 2020. This is likely to imply higher LNG prices as demand from Asia remains robust. As the largest exporter in the world, Qatar is likely to benefit from higher LNG prices, resulting in large current account surpluses for years to come.

Blog Archive

____________________________________________________________________________________________

Disclaimer - All investments in Mutual Funds and securities are subject to market risks and uncertainty of dividend distributions and the NAV of schemes may go up or down depending upon factors and forces affecting securities markets generally. The past performance of the schemes is not necessarily indicative of the future performance and may not necessarily provide a basis for comparison with other investments. Investors are advised to go through the respective offer documents before making any investment decisions. Prospective client(s) are advised to go through all comparable products in offer before taking any investment decisions. Mutual Funds and securities investments are subject to market risks and there is no assurance or guarantee that the objectives of the fund will be achieved. Information gathered & material used in this document is believed to be from reliable sources. Decisions based on the information provided on this newsletter/document are for your own account and risk.


In the preparation of the material contained in this document, Varun Vaid has used information that is publicly available, including information developed in-house. Some of the material used in the document may have been obtained from members/persons other than the Varun Vaid and which may have been made available to Varun Vaid. Information gathered & material used in this document is believed to be from reliable sources. Varun Vaid however does not warrant the accuracy, reasonableness and/or completeness of any information. For data reference to any third party in this material no such party will assume any liability for the same. Varun Vaid does not in any way through this material solicit any offer for purchase, sale or any financial transaction/commodities/products of any financial instrument dealt in this material. All recipients of this material should before dealing and or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice.


Varun Vaid, shall not liable for any loss, damage of any nature, including but not limited to direct, indirect, punitive, special, exemplary, consequential, as also any loss of profit in any way arising from the use of this material in any manner. The recipient alone shall be fully responsible/are liable for any decision taken on the basis of this material. All recipients of this material should before dealing and/or transacting in any of the products referred to in this material make their own investigation, seek appropriate professional advice. The investments discussed in this material may not be suitable for all investors. Any person subscribing to or investigating in any product/financial instruments should do soon the basis of and after verifying the terms attached to such product/financial instrument. Financial products and instruments are subject to market risks and yields may fluctuate depending on various factors affecting capital/debt markets. Please note that past performance of the financial products and instruments does not necessarily indicate the future prospects and performance there of. Such past performance may or may not be sustained in future. Varun Vaid, including persons involved in the preparation or issuance of this material may; (a) from time to time, have long or short positions in, and buy or sell the securities mentioned herein or (b) be engaged in any other transaction involving such securities and earn brokerage or other compensation in the financial instruments/products/commodities discussed here in or act as advisor or lender / borrower in respect of such securities/financial instruments/products/commodities or have other potential conflict of interest with respect to any recommendation and related information and opinions. The said person may have acted upon and/or in a manner contradictory with the information contained here. No part of this material may be duplicated in whole or in part in any form and or redistributed without the prior written consent of Varun Vaid. This material is strictly confidential to the recipient and should not be reproduced or disseminated to anyone else.


Varun Vaid also does not take any responsibility for the contents of the advertisements published. Readers are advised to verify the contents on their own before acting there upon.


Published Credits goes to following sources & all the mentioned sources as footer below the published material- Bloomberg, Valueresearch Online, Capital Market, Navindia, Franklin Templeton, Kitco, SBI AMC, LIC AMC, JM Financial AMC, HDFC AMC, The Hindu, Business Line, Personal FN, Economic Times, Reuters, Outlook Money, Business Standard, Times of India etc.