Australia predicts global LNG recovery but gap remains

Global LNG trade will increase by 1.1pc from a year earlier to a forecast 349mn t in 2020, according to the Australian government's commodity forecaster, a sharp slowing of previous growth because of the impact of the Covid-19 pandemic. But it sees a recovery in global demand under way as Asian economies resume activity in the wake of the pandemic and forecasts of a cold northern hemisphere winter.

Global LNG trade is expected to continue to recover in 2021 and 2022, rising by around 4pc/yr, the Office of the Chief Economist (OCE) said in its latest Resource and Energy Quarterly (REQ) report.The global LNG market is expected to tighten, as demand recovers and absorbs the available supply capacity, it said. "However, given the large-scale expansion of global LNG capacity in recent years, demand is expected to continue to fall short of total supply capacity."

China's LNG imports are expected to grow by 8.8pc to reach an estimated 65mn t in 2020, making it the world's second-largest LNG importer after Japan, the REQ said. China's gas consumption has been resilient in 2020, driven by robust demand from the industrial and residential sectors, along with continuing coal-to-gas switching.

China is expected to be a key driver of short-term global LNG demand growth, rising by around 11pc/yr over the next two years and overtaking Japan as the world's largest importer by 2022, the OCE said. Despite China's recent net-zero greenhouse gas emissions by 2060 pledge, gas is expected to play an important role in the country's energy mix.

Japan, the world's largest LNG buyer, will import 74mn t of LNG in 2020, down by 4.8pc from 2019, the REQ forecast. Japan's LNG imports are forecast to fall marginally in 2021 and 2022, with the impact of an expected economic recovery expected to be offset by the return of nuclear power generation from shutdowns and a longer term return of nuclear power after the 2011 Fukushima disaster.

Beyond the two-year outlook period, there is uncertainty about the extent to which LNG will be affected by Japan's recent pledge to achieve net-zero emissions by 2050, the OCE said.

But overcapacity in the sector is expected to remain for the foreseeable future. Global LNG capacity was estimated at close to 400mn t each year at the end of 2019, with another 125mn t/yr of capacity under construction or sanctioned for development, the OCE said. These new projects will contribute to significant growth in global LNG capacity over the next few years, albeit at a slower pace than in recent years.

There is more than 900mn t/yr of proposed LNG capacity in the pre-final investment decision stage, although much of this is unlikely to proceed, the REQ report said.

Australia's LNG exports are forecast to fall from 79mn t in the 2019–20 fiscal year to 30 June to 75mn t in 2020–21, reflecting the impacts of Covid-19 on demand, as well as technical issues at the 3.6mn t/yr Prelude floating LNG venture and the 15.6mn t/yr Gorgon LNG, both offshore Western Australia (WA). A gas processing unit was shut at the 8.9mn t/yr Wheatstone LNG in WA in early December after a fault was detected during routine inspections.

It remains unclear whether Wheatstone LNG production has been affected, presenting a downside risk to the forecast. LNG exports are forecast to rebound to around 80mn t in 2021–22, the REQ said. This reflects a recovery in demand, as economies return to growth, an assumed resolution of technical issues and Prelude ramping up towards its nameplate capacity.

By Kevin Morrison