BG: Europe to Continue to Balance Global LNG Market

Europe received net imports of only 35 million tonnes of LNG in 2013, the lowest volumes for nearly a decade as the rapidly increasing appetite for energy in Asia and Latin America drew supply, according to BG Group’s annual Global LNG Market Overview.

Andrew Walker, BG Group Vice President of Global LNG, said volumes diverted from Europe allowed the global LNG market to balance. But it also left European LNG imports down more than 45% on the peak of 66 million tonnes in 2011.

“In 2013 gas supply to Europe via pipelines increased, while at the same time overall gas demand remained subdued, allowing LNG volumes to feed growth markets including China, South Korea, Mexico and Brazil,” Walker said. “In 2014 we expect Europe will continue to balance the global LNG market by ceding volumes, but it’s not clear how much more can be diverted before we reach the minimum level of imports.

“When that floor is reached, LNG will likely be drawn from other, more price-sensitive markets in periods of peak demand. In time, we may see these markets assume Europe’s position as the balancing market for global LNG demand and supply,” Walker said.

Walker said total LNG supply had “stalled” at around 2011 levels as the industry awaits the addition of new production capacity. On current industry estimates, 240 million tonnes of LNG was delivered globally in 2013, a negligible rise year-on-year as new production was offset by unplanned outages, declines in output from existing plants and new projects ramping up slower than anticipated.

“Today we are in the midst of an LNG supply hiatus; developing new supply, rather than demand, is the principal challenge the industry faces,” said Walker.

New LNG trains in Australasia with combined capacity of 67 million tonnes per annum, including BG Group’s Queensland Curtis LNG project, represent the start of the industry’s next major wave of production. But the outlook for 2014 is for only a modest increase in global supply; once again overall performance will depend on unplanned outages and declines in output from existing plants.

Respite from tight supply is unlikely in the medium term, too; BG Group expects global LNG demand to grow at a compound annual growth rate of 5% to 2025, twice as fast as for gas overall, driven by Asia and Latin America.

“Limited supply growth in 2013, the prospect that overall production will remain stalled in 2014 and strong demand growth in Asia suggests the global LNG market will continue to tighten, in line with our long-held view,” Walker said. “Reflecting the tight underlying market, we expect LNG spot prices, assuming normal weather, to remain robust through 2014”.

“In fact, we believe the global LNG market will be tighter for longer than many assume, until the end of the decade at least,” Walker said.

Walker said that, in addition to the weather and the potential for European LNG imports to hit bottom, the industry will keep a close watch in 2014 on the rate of gas and LNG demand growth in China, the operational performance of LNG suppliers and the return of nuclear units in Japan.