The supply growth of liquefied natural gas (LNG) on the global market is set to slow down later this year and in 2021 when the last of the new projects currently under construction will be completed, Shell said in its latest LNG Outlook 2020 published on Thursday.
From the second half of this year, Asia will absorb the excess supply and Europe will stop being the 'balancing market' to absorb the supply growth coming from new projects in the U.S. and Australia, according to Shell, which has one of the strongest LNG trading businesses among the oil majors.
"Europe absorbed the majority of 2019 supply growth as competitively-priced LNG furthered coal-to-gas switching in the power sector and replaced declining domestic gas production and pipeline gas imports," Shell said in its outlook today.
LNG imports in Asia grew modestly in 2019 compared to the previous two years due to milder winters and increased electricity generation from nuclear power in the major LNG importers Japan and South Korea, Shell noted.
"In the short-term, supply growth is expected to slow down as the last of the new LNG projects under construction will be completed by 2021, restoring equilibrium," the supermajor said.
Over the past few months, LNG prices hit a decade low due to warmer winter weather in many parts of Asia, booming new LNG supply, and slower import growth in China.
Last week, spot LNG prices in Asia plunged to a new all-time low of $2.70 per million British thermal units (MMBtu), down by $0.25 from a week earlier, due to low demand from China amid the coronavirus outbreak, industry sources told Reuters on Friday.
"While we see weak market conditions today due to record new supply coming in, two successive mild winters and the Coronavirus situation, we expect equilibrium to return, driven by a combination of continued demand growth and reduction in new supply coming on-stream until the mid-2020s," Maarten Wetselaar, Integrated Gas and New Energies Director at Shell, said in a statement.
In the longer term, Shell expects global LNG demand to double to 700 million tons by 2040.
By Tsvetana Paraskova for Oilprcie.com
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