The LNG markets will recover rapidly in 2021
According to a January 1 report by Rigzone, LNG traders expect demand for LNG to recover rapidly in 2021 after the new corona pneumonia outbreak caused significant price volatility in 2019.
Due to the cold weather in the main importing countries, power outages in the main production centers, and the congestion on global roads, Asian spot prices reached their highest level since 2014, more than six times as low. April record-making Asian LNG one of the best performing raw materials in 2020.
As countries look for cheaper, more reliable, and cleaner alternatives to coal, demand for this fuel for heating and power generation is growing faster than any other fossil fuel. The epidemic has hurt growth in 2020, and China and India are becoming the main sources of demand.
Tom Holmberg, the partner at Beckbots law firm in Washington, said, "There are many countries looking to import LNG and I still believe the LNG market will grow."
The key factors expected to affect the LNG market in 2021 are listed below.
1. Resumption of unbalanced demand.
According to Bloomberg ship-tracking data, global LNG imports in 2020 will be roughly at the level of the previous year. This is a big shock to an industry that has grown 10% annually since 2016. However, global demand for natural gas is expected to grow again in 2021. Manas Satapathy, executive director of the energy business at Accenture, said LNG demand makes up 10% of total demand. Demand could recover more quickly depending on the performance of Pakistan, India, and Bangladesh.Since the worst part of the epidemic, most of Asia's LNG production capacity has recovered, and demand for LNG in the region is set to recover strongly over the next year. On the last day of 2020, Asian LNG spot prices (Japan-Korea benchmark) recovered for the first time since April 2014 to over USD 15 per million British thermals. Holmberg said, "The rapid growth in demand in Asia is exciting."
However, the situation in Europe is very different and countries are struggling to cope with the rise in new infections and the slowdown in energy demand. Senapati said the African continent would begin a slow recovery in 2021.
With Europe largely reliant on the storage and transportation of natural gas by pipeline, a new pipeline in Azerbaijan and the upcoming Beixi 2 project can fuel the growth of natural gas capacity.
2. Problems related to the offer.
Unscheduled maintenance work on the Australian LNG export facilities to Qatar and Malaysia made the market tighter than expected in the second half of the year. Travel delays through the Panama Canal limited shipments to Asia. If these supply disruptions persist through 2021, prices could still be much higher than they are now.The Forum of Natural Gas Exporting Countries, which accounts for 60% of global LNG exports, predicts that supply will increase from 2% in 2020 to 2.5% and from 6% to 7% in 2021. In his near-term outlook, he also said that LNG trading will be more resilient compared to gaseous fuel imports in the 2021 crisis.
According to Vitol SA and Trafigura Group Ltd., the two largest trading companies active in the LNG sector, the LNG market could still exceed demand in 2021. They also expect the market to decline.
At the same time, traders will be watching closely whether U.S. LNG buyers will abandon all cargo in 2021. This summer, around 200 shipments were canceled after the spot prices erupted in Europe and Asia. While this is unlikely to happen again in 2021, traders are expecting some order cancellations to help balance the market.
US natural gas exports break new records every month with new plants coming online. However, a drop in demand can force suppliers to stop exporting. The country has become a reluctant supplier as it is allowed to terminate contracts so that exports can react quickly to turbulent markets.
3. Transformation and improvement of energy.
Environmentalists are increasingly viewing natural gas as the main source of pollution. After focusing on coal and oil for many years, they began to think about how to get rid of all fossil fuel emissions. This change has prompted suppliers, buyers, and freight forwarders to consider environmentally friendly measures to remediate activities related to methane and greenhouse gas emissions.According to Fusco, half of the life cycle carbon footprint of LNG cargoes comes from the upstream sector. The LNG manufacturer is pushing for increased transparency of carbon emissions from fuel and says, "Our customers want to make sure they can review and verify the CO2 emission characteristics we have specified."
This year, the world's first supply contract that requires a CO2 declaration was signed. At the same time, so-called carbon neutral products have started to enter free web content in China and Japan, and the countries have set ambitious goals to be effectively emission-free.