Qatar, be jolly: why LNG prices are about to stay at a record high for years to come
The robust global demand being spearheaded by Asian major China is likely to keep liquefied natural gas (LNG) prices high over the next few years, according to a report.
Demand is growing both as a result of strong Asian economic growth and the switch to cleaner energy, particularly in China. This trend is likely to continue, notwithstanding the so-called US shale gas revolution and the coming into operations of the $400 billion Russia-China gas pipeline signed last month, stated Qatar National Bank in its review.
Overall, the future of the LNG market remains bright and is likely to result in high LNG prices for years to come. This will continue to support Qatar’s large current account surpluses, it stated.
The LNG market continued to tighten in 2013. Global LNG deliveries were an estimated 240 million tons - broadly flat compared with 2012. Qatar continued to be the largest LNG exporter, with about one third of global supply.
At the same time, demand from Asia and Latin America rose, with China, South Korea and Mexico registering the largest increase in LNG demand. In particular, China brought three new re-gasification terminals online as its switch from coal to LNG as a cleaner fuel for electricity production continued.
This tightening of the market resulted in an average $1 increase in LNG prices per million British thermal units (mBtu), despite Brent crude oil prices falling $4.5 per barrel and lower LNG demand from Europe.
The outlook for the LNG market is likely to continue along similar trends in 2014. On the supply side, three new LNG trains in Algeria, Australia and Papua New Guinea are expected to come on-stream in 2014. This is likely to add about 10 million tons to global LNG production thus regisering a 4.2 per cent increase.
On the demand side, continued growth in Asian demand and the need for Europe to diversify away from Russian pipeline gas may outpace the increased supply, leading to a small increase in LNG prices of about USD0.5 per mBtu despite the expected decline in Brent crude oil prices, said the QNB report.
The ongoing violence in Iraq and Syria could, however, result in higher-than-expected LNG and crude oil prices in the second half of 2014, it added.
Over the medium term, QNB said the LNG exports were unlikely to meet the growing global demand, leading to higher LNG prices.
As the largest exporter in the world, Qatar is likely to benefit from higher LNG prices, resulting in large current account surpluses for years to come, it added.