The long-awaited surge of new global LNG production has not led to the widely-expected and sustained oversupply in the market, at least so far in 2016.
The expected end of European reloads as a result of more production starting up in both Atlantic and Pacific basins has also not come to pass.
ICIS spot prices for delivery of LNG into East Asia have steadily risen in the past two months back to $7.00/MMBtu.
From a seller’s perspective the fall in price close to $4.00/MMBtu back in March was potentially a sign of things to come: weak East Asian demand and a ramp up in new Australian production.
But the global market has actually been much more balanced and, at times, even in short supply.
For sure, the industry is not even one third of the way through the additional 150 million tonnes/ year due to come on line between 2015 and 2020, creating a 400 million tonne/year market.
But in 2016 delays to new train start-ups, a reduction in operating rates at several existing plants and the ongoing emergence of Middle East demand have all contributed to an often well-balanced market.
Outages at Yemen, feedgas restrictions in Trinidad and a slow restart at Angola mean overall operating rates have sunk to the low 80s%, according to data from ICIS LNG Edge.
The recent return of Egypt to the short-term market, pitching for almost 100 cargoes from 2017 to 2018 will offer multi-cargo deals at prices likely to be in line with premium markets further east.
At this time of narrowing margins, European reloads could remain an attractive alternative to other Atlantic basin supply if priced at a discount to West African supply and with limited volumes so far supplied from the US Gulf.
Looming in the background, however, is the concern over global growth rates.
Financial markets may have recovered, supported by low interest rates in many countries. But concerns persist over GDP growth, especially in China, and a lack of demand from industry and power generation.
In this respect the broader outlook looks weak, and even another reduction in prices, possibly in 2017, may not yield a significant rise in LNG demand. ed.cox@icis.com