GDF Suez Says LNG Prone to Spikes Before Output Gain

Liquefied natural gas will be vulnerable to price jumps over the next two years from weather or political shocks before a wave of new projects increases supplies, according to the trading arm of utility GDF Suez SA.

Demand peaks may boost prices in Asia, the world’s biggest consuming region, after they fell from a record in February, according to Edouard Neviaski, chief executive officer of GDF Suez Trading. Northeast Asian prices have dropped 32 percent from the all-time high and are 24 percent lower than a year earlier amid forecasts for a mild winter in Japan, according to New York-based World Gas Intelligence.

LNG output capacity will grow by 10 percent a year from 2016 to 2020 as projects start in Australia and the U.S., according to Neviaski. European hub prices would at least double should a conflict between Russia and Ukraine lead to a sustained disruption of pipeline flows to the region and force it to compete for LNG cargoes, Energy Aspects Ltd. said last month.

“Right now there’s a decrease of price because of more supply, but you could go back to tight markets in the next two years, depending on what happens to the Russia-Ukraine crisis, and also on winter conditions,” he said in an Oct. 28 interview in London. “After 2016, things might change significantly.”

Northeast Asian LNG reached a record $19.70 a million British thermal units on Feb. 3 before falling to $10.65 in July, the lowest since 2011, according to assessments by World Gas Intelligence for cargoes delivered in four to eight weeks. Prices declined 90 cents to $13.30 a million Btu in the week to Oct. 27, compared with $17.50 at the same time last year. Temperatures in Japan, which imports more than a third of the world’s LNG, will likely be above usual levels this winter, according to the nation’s Meteorological Agency.

Global Trade

Global LNG trade is set to expand to 450 billion cubic meters (16 trillion cubic feet) a year by 2019 from 322 billion cubic meters in 2013, the International Energy Agency said in its medium-term gas market report in June. Trade will start to surge in 2016 as a large part of the Australian projects under construction start and the U.S. starts to boost shipments.

Natural gas use worldwide will rise 3 percent annually in the next five years, a much slower pace than liquefaction capacity, Neviaski said. LNG demand would need to rise 9 percent a year to balance markets, he said. Rising production will ease market tightness and create more competition between gas shipped via pipelines and the liquefied kind transported by sea, he said.

“It’s not only the U.S. liquefaction story, it’s the growth of liquefaction on a worldwide basis that will have some impact in the market,” Neviaski said. “These volumes will have to find markets and there are two markets, Asia and Europe.”

Asian Imports

LNG imports to Asia rose 6.5 percent from a year earlier to 75 percent of global volume in 2013, with almost half of that in Japan, according to the International Group of Liquefied Natural Gas Importers, a Paris-based lobby group. Deliveries to China jumped 23 percent to 7.9 percent of the total while shipments to Europe fell 29 percent to 14 percent of global imports. GDF Suez is the largest importer in Europe, according to its website.

China’s appetite for gas will double by 2018 as the world’s biggest energy user seeks to replace dirty coal-burning power plants, according to the IEA. The nation earlier this year signed a deal to buy pipeline gas from Russia, an accord which may mean some LNG export projects are less likely to be built as more supplies into China put pressure on prices, according to Societe Generale SA and Sanford C. Bernstein & Co.

“For me the big story for LNG over the next five years is China,” Neviaski said. “Clearly, the big competition will be between LNG or Russian piped gas in China.”

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