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Wave of supplies to drive global LNG prices to new lows - Wood Mackenzie

Published 27/10/2015, 07:36 pm
© Reuters.  Wave of supplies to drive global LNG prices to new lows - Wood Mackenzie
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* 130 mln T a year to be added to LNG supply in next 5 years

* Faltering demand from China to depress market amid supply glut

SINGAPORE, Oct 27 (Reuters) - World liquefied natural gas (LNG) prices will test new lows towards the end of the decade as a wave of supply hits the market over the next five years just as demand in China slows, consultancy Wood Mackenzie said on Tuesday.

Producers will add as much as 130 million tonnes per year (tpy) of new LNG in the next five years, nearly three times the volumes added by Qatar between 2008 and 2010.

The new supplies - mainly from Australia and the United States - will hit the market just as gas demand in the world's top energy consumer China falters.

"The LNG market is facing another oversupply, which is likely to be deeper and will persist for some years," said Noel Tomnay, Wood Mackenzie's head of global gas and LNG research, in a statement issued during Singapore International Energy Week.

Prices in Asia will be lower than in Europe and at their weakest between 2017 and 2019, while the European prices will not hit their bottom until 2020, he said.

Spot LNG prices in Asia LNG-AS have already tumbled by half from a year ago, while gas prices in the U.K. and Netherlands TRGBNBPWKD TRNLTTFD1 are near their lowest in a year.

Producers' reaction to low prices and China's policies on market liberalisation and domestic pricing will be key to determining how far the market will fall before stabilizing, Tomnay said.

Gas prices in Europe and Asia would have to hold higher than $5 per million British thermal units (mmBtu) to prevent U.S. LNG from being shut in, Tomnay said.

In China, "it is likely that output from some high-cost gas will be curtailed but protectionist measures will restrict China's willingness to fully replace indigenous gas with lower priced LNG, dampening the potential supply response," he said.

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