Posted: 06 Oct 2016

Nexant’s latest issue of World Gas Analytics foresees a continuing oversupply in the market until the 2020s.

In the longer term consumption is expected to grow from 3.5 tcm in 2014 to over 5.1 tcm by 2040, driven by strong growth in Asia, especially China and India and some of the new LNG importers, and power generation use in all regions of the world.  Europe is expected to show some recovery from current depressed levels.

Production growth is strongest in North America, the Middle East, and the Former Soviet Union countries – the latter as exports to China increase.  Shale gas drives the growth in North America but elsewhere it is predominantly conventional production.

Available LNG capacity rises from 363 bcm in 2015 to 567 bcm in 2020.  This increase is almost all in the US and Australia.  Although installed capacity increases markedly through 2020, throughput only rises by about 160 bcm.  The global load factor falls from 95% in 2014 to less than 88% in 2020.  Capacity and throughput rise in line until 2030, when the market starts to tighten.

In pipeline trade, Nexant projects strong growth in Former Soviet Union gas flows to Europe – principally from Russia and smaller amounts from Azerbaijan – via the expansion of the South Caucuses pipeline and the startup of Nordstream 2.  Asia will be an increasingly important pipeline import destination.  Recent years have seen a rapid build-up of pipeline trade into China following the construction of new pipelines from Turkmenistan.  Russia will also begin pipeline exports to China during the period to 2040 via two new pipelines.

In respect of gas and LNG prices in the short term, a projected crude oil price recovery to $70 a barrel in 2020, drives the Japan average LNG contract price to over $10 per MMBTU in 2021.  Henry Hub rises to over $4 per MMBTU in late 2021, as the rise in LNG exports pushes up the marginal cost of supply.  Both NBP and Japan spot prices are expected to remain in the $5 to $6 range, which is only $2 per MMBTU above Henry Hub over the forecast period, making US LNG exports profitable only on a marginal basis.

In the longer term LNG contract prices in Japan, are expected to level out at around $11.40 per MMBTU with oil prices at $80 a barrel in real 2014 prices.  Japan spot and NBP track each other to 2030.  NBP rises to over $9 per MMBtu by 2030 and just over $10 per MMBtu by the late 2030s.  Henry Hub prices remain in the mid to high $4 range between the mid-2020s and mid-2030s before rising above $5 per MMBtu in 2036 as US shale production capacity starts to decline.

The latest WGAS issue highlights can be downloaded here and for further information on subscribing to the detailed WGAS projections contact Mike Fulwood.

The projections were generated with the latest Version 4 of Nexant’s World Gas Model and for more information on that please visit the WGM webpage and download the WGM brochure.

Source: Mike Fulwood, Director, Global Gas & LNG
Energy & Chemicals Advisory
Nexant Ltd.