Evalueserve estimates that the COVID-19 pandemic could wipe off 13–30 MMT of LNG demand in 2020. The pandemic has added further stress to an already oversupplied LNG market; the industry is battling with depressed downstream demand, high storage levels, and low prices, as well as increased concern over the viability of projects and supply cuts.
However, the LNG market is also witnessing the emergence of opportunistic buyers, increased imports by new markets, and LNG competitiveness. These factors may offer some respite to the declining demand.
LNG Demand in 2020—How Much Will Be Wiped Off?
According to the IMF, the cumulative impact of the ‘Great Lockdown’ to the global GDP could be around USD 9 trillion over 2020 and 2021. The LNG industry has been dwindling this year due to the impact of depressed downstream demand across key demand centers (such as Japan, China, South Korea, and India, among others). Several prominent global LNG buyers, such as KOGAS and Petronet are battling with tank-top situation, and have requested for downward quantity tolerances (DQT), cargo deferment / cancellations, and force majeure to deal with it. Evalueserve estimates that ~3.5–8.0% of global LNG demand is at risk of being wiped off in 2020.
LNG Recovery in 2020—Mirage or Possibility?
In the best-case scenario, Northeast Asia will lead demand recovery in H2’20, with European storage space brimming with the influx of cheaper LNG and piped gas. However, only in 2021 can we truly expect significant recovery. In the current scenario, we foresee the following possibilities:
- Europe as Preferred Backstop: With record storage levels already achieved in Q1’20, the outlook for Europe absorbing excess LNG in 2020 remains bleak (storage levels could reach 96% in Aug). However, opportunistic buying in Turkey and underutilized storage facilities in Ukraine may offer some respite.
- Implications for Supply Projects: Over 110 MMT of planned FIDs are expected to be impacted by the pandemic in 2020. In the long run, ~87 MMT of liquefaction capacity addition is expected to be impacted by 2030.
- Threat for US LNG Projects: Lack of investor confidence and long-term commitment, primarily from Asian buyers, have raised concerns about the viability of several planned new projects.
Impact on LNG Suppliers—Who Will Blink First?
Portfolio majors, due to high net cost of LNG, business structure focused strategically more on oil market, greater greenfield investments (primarily in the US) with complex supply economics. Additionally, with LNG price markers facing headwinds, the viability of production from the US and Australian projects remains a concern, with several US-based suppliers finding it viable to procure LNG rather than producing it.
Is there a Silver Lining?
In the long run, with the increased availability of LNG and cost-competitiveness vis-à-vis other fuels, new markets and new buyers are set to join the LNG game. COVID-19 provides the much-needed time for suppliers to re-strategize and gain ‘Early Bird’ advantage for increase sales
Evalueserve has identified multiple new LNG buyers and emerging markets that may secure spot volumes in the short term and may even sign term deals in the long run. Read a detailed analysis of the Impact of COVID-19 on Global LNG Market.
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