LNG demand will need to increase substantially in Europe, or global spot prices for LNG could fall dramatically below current winter forecasts, according to Bentek Energy, a unit of Platts.
Coming fresh off a summer in North Asia in which the Platts JKM has been falling, as lower-than-expected demand for power generation led to lower buying of spot cargoes from Asian utilities, sellers have been moving cargoes to "secondary" markets in Europe.
"In August, similar lower-than-expected North Asian demand caused cargoes to flow into secondary markets, with nearly 70 Bcf of Qatari gas flooded into the UK market as Asian markets were unexpectedly oversupplied," Bentek Energy analyst Ross Wyeno said.
Particularly concerning will be the ability of "secondary" LNG markets, like Europe, to absorb this surplus LNG from the "primary" markets in North Asia.
"Over the last 30 days, however, Qatari exports have fallen by 1.4 Bcf/d from last year and exports to the UK have slowed back to the lowest levels seen since 2010," Wyeno said.
Traditionally, Qatar and other large producers have reacted to cross-basin demand imbalances, by maintaining their production, even at the cost of potentially flooding secondary markets, Wyeno said.
"However, with an excess of gas currently creating an overhang in the spot market, additional production from primary producers could serve to put the global LNG spot market into free-fall," Wyeno said.
Wyeno added that Indonesia, Malaysia, Oman, and Russia have also curtailed production over the last 30 days, bringing aggregate production down by another 2.2 Bcf/d from 2011.
The vast amounts of LNG that have flowed into Europe have been met with weak demand, and it will be difficult to move many more surplus cargoes into Europe this winter, where LNG inventories are above 90% in most countries, Wyeno said.
LNG carriers using the Suez Canal decreased 15.2% in September from the same period last year, with only 67 LNG ships passing along the canal this year, data released Thursday from the Suez Canal Authority showed.
Market participants are eagerly looking to see whether North Asian LNG demand will return this winter. So far this year, Japan, South Korea, and China have accounted for around 56.5% of global LNG demand. In the last 30 days, demand from these three countries has dropped around 7.6%, with around 1.3 Bcf/d less gas being delivered, Bentek data showed.
However, with long-term weather forecasts suggesting that North Asia may experience above normal temperatures this winter, and near term forecasts largely pointing a moderate start to winter, North Asian demand expectations may remain tempered through to winter, Wyeno said.
Most regions in Japan are likely to experience above-average temperatures over October 6-November 5, the Japan Meteorological Agency said Friday in its weekly forecast, and most regions in Japan are also likely to experience above-average temperatures in December, which is the start of the peak winter demand season in Japan, which typically runs from December-February.
