Wood Mackenzie: Europe to Asia LNG Re-Exports Just a Summer Fad

This summer’s surge in re-exports of liquefied natural gas (LNG) from regasification terminals in north-western Europe to Asia was fuelled by increased price differential and the trend will be short-lived, according to energy research consultancy Wood Mackenzie.

Global LNG supply availability in winter 15/16 is forecast to be up 3.5 Mt on the previous year, driven by new Australian CSG LNG projects and up 10 Mt in summer 2016 with ramp-up from Gorgon, Sabine Pass and an assumption of volume resumption at Angola and Yemen.

Winter supply will effectively be absorbed by higher demand in Egypt, South East Asia and South Asia – so much so that imports in north-western Europe are forecast to be down by 4.3Mt compared to last winter, Wood Mackenzie says.

Asian LNG spot prices will trade close to crude parity through Q4 at USD 7.50-8.00/mmbtu but then soften with declining contract prices from Q1.

Despite limited LNG imports, Wood Mackenzie foresees downside risk to the current U.K. National Balancing Point forward curve. Comfortable storage inventories built up through the summer and flexibility within cheap Russian oil indexed contracts will result in pricing being slightly short of USD 7/mmbtu.

Looking ahead to summer 2016, Wood Mackenzie forecasts that ex-Europe markets will fail to absorb the LNG supply growth and Asian LNG prices will continue to soften, down to USD 6.50-7/mmbtu. As a result, year-on-year LNG imports into north-western Europe will be 2.2Mt higher than summer 2015.

Combined with Russian oil indexed prices hitting their minimum during summer 2016, this will result in further pressure on European spot prices which are forecast to be below the summer 2016 forward curve, currently set at USD 6.2/mmbtu – with potential for some coal-gas switching in the U.K.

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