LNG market set for more ‘accentuated’ seasonal price swings: Vitol

The global LNG market is likely to see more notable swings in price between the winter and summer months, the head of LNG at trading house Vitol said, as demand in countries such as China falls off in the summer and strengthens in the winter.

While reaffirming Vitol’s belief the LNG market is structurally oversupplied, Pablo Galante Escobar said at the IP Week conference in London that there would be increased pressure on LNG prices in the summer.

“Seasonality will be much more accentuated — we expect to see weaker summers and stronger winters,” Escobar said.

“The balance of the market is structurally oversupplied,” he said, though he conceded that the oversupply was not as marked as Vitol had expected.

Escobar said that there would be “a lot of pressure” on LNG prices in the next two seasons as an additional 15 million mt of global supply comes online in the coming months in addition to the 30 million mt of incremental supply that started up in 2017.

He pointed to the startup of Cove Point in the US, the Cameroon floating LNG production facility and the Ichthys LNG plant in Australia.

On the demand side, Escobar said there was a lower pull from Pakistan than had been expected, while Egypt was set to halt LNG imports altogether by the end of 2017 as it ramps up domestic production.

China, he said, was the big surprise in 2017 in terms of its LNG import growth, but that supplies to China were mostly concentrated on the winter period.

Escobar said China only had storage to meet some 5%-6% of its gas demand, so it did not have the capacity to replicate Europe in buying LNG in the summer for storage for sendout in the winter.

“We remain bearish,” Escobar said, referring to medium-term LNG prices.

‘NO OVERSUPPLY’

Vitol’s position is in contrast to other LNG market players speaking Wednesday at the IP Week event.

“We didn’t see [a glut] in 2016, we didn’t see it in 2017, and two months into 2018 we’re still not seeing it. We might see it in 2020,” Maria-Luisa Berlose, senior analyst at Total’s trading division, said.

Andrew Walker, vice president of strategy at US LNG producer Cheniere Energy, also dismissed the talk of global LNG oversupply.

“I’m not a believer in a glut. We are not in an oversupplied market at the moment — spot prices are touching oil parity and there is no oversupply coming into Europe, which is an indicator in the industry,” Walker said.

He pointed to an increasing trend for customers to look to secure new term deals for LNG post-2020, including three deals Cheniere signed already in 2018 — two with China’s state-owned CNPC and one with trader Trafigura.

Tor Martin Anfinnsen, senior vice president at Norway’s Statoil, also pointed to the lack of LNG supplies to Europe.

“Many of us, ourselves included, expected to be flooded by LNG by now. The consensus was the same in 2015 and 2016, but we’re not there yet,” he said.

“But we do expect increasing volumes of LNG to hit Europe, and Europe is going to need that source of supply,” he said.

MARKET ACTIVITY

In the meantime, LNG is becoming increasingly commoditized, with an increase in activity on the swaps market.

“We are starting to see JKM swaps start to increase, and it will really kick in in 2019 and 2020,” Cheniere’s Walker said. “We are directionally becoming more commoditized,” he said, adding however that there was still a place for term deals.

“We are very far from the position where long-term, and large-scale contracts are dead,” he said. “We will see 3 million mt/year contracts in the future.”

Vitol’s Escobar added Vitol was still interested in long-term LNG contracts, pointing to its deals with Russia’s Gazprom and Angola LNG.

Vitol is also interested in investing in LNG infrastructure, as it did in the oil market.

“We’re looking to invest into regasification in some places,” Escobar said.

Source: Platts

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