Global LNG:Surging Asia drives strong end to 2016-volume and pricing
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摘要:After a lacklustre start to 2016, surging Asian and Middle Eastern buying hasseen demand growth in LNG markets improve markedly. Led by a strong pickupin Chinese activity, global demand now looks to have risen by an impressive7% through 2016, near..

After a lacklustre start to 2016, surging Asian and Middle Eastern buying hasseen demand growth in LNG markets improve markedly. Led by a strong pickupin Chinese activity, global demand now looks to have risen by an impressive7% through 2016, nearly triple the level seen in 2015 (<3%). Moreover, withAsian interest high and Pacific Basin spot prices moving north of $9/mmbtu,basin differentials have expanded materially in recent weeks widening to over$3/mmbtu. Admittedly, given continued capacity build spot strength feelsunlikely to last much beyond Q1'17. A nice near term fillip, however, for thosewho can play not least global market leader, Shell.

At 7% global LNG demand growth stronger than expected

For a market that but a year ago was presumed to be in the doldrums withdemand stagnating at a time of rampant supply growth the global LNG markethas over the past six months seen unexpected strength. Despite theintroduction of some 16mtpa of new, predominantly Australian supply –material in the context of a 250mtpa global market - a marked pick-up in buyerinterest across both Asia and the Middle East has seen demand growth rallysimilarly. Following a particularly strong second half to a year in which Asiandemand (c190mtpa) has rallied by 11% and that in the much smaller MiddleEastern market (c18mtpa) by towards 50%, annual demand now looks to havegrown by around 7% to 265mtpa, a stark improvement on the sub-3% growthachieved in 2015 let alone the 1% delivered in supply-constrained 2014.

Snug markets, strong Asia, basin differentials highest since 2014

No doubt a significant part of the demand improvement reflects the greateravailability of supply and, with several facilities continuing to ramp, demandwill need to continue to appreciate at a similar clip if it is to offset expected2017 capacity additions. Of particular encouragement to producers at this timemust, however, be the very marked widening of the price differential for spotproduct between Asian and European markets. Supported by the NorthernHemisphere winter and modest supply outages (Gorgon T1) recent weeks haveseen post shipping diversion margins move to over $3/mmbtu, their highestlevel since December 2014. Unsurprisingly, the result has been a marked 15%reduction in the volume of LNG delivered into Europe over the final quarter ofthe 2016 year, a pull back that judging from preliminary data, Gazpromappears to have readily backfilled via a c20%, 9bcm (6mtpa) uplift in its Q4’16European pipeline volumes (thereby containing European price appreciation).

Temporary, we think, but suggestive of a near term windfall not least at Shell

Looking into the 2017 year and as discussed in this brief note encapsulatingour thoughts on the overall outlook for global LNG and European gas over the2017 thru 2020 period, annual average pricing in spot LNG markets will in ouropinion remain constrained. In the nearer term, however, with the end2016/early 2017 supply/demand balance evidently ‘snug’ our expectation isthat those IOCs with the ability to divert LNG cargoes, some notable cash flowand profit windfall is likely. Most significant here is clearly Shell (Buy 2450p)which post its acquisition of BG boasts some 60mtpa (3bn mmbtu) ofcontracted and own supply, of which c10% is indicated as available for spotsupplies followed by Total (Hold ?49) whose c14mtpa portfolio includesc3mtpa spot availability. BP (Hold 505p) appears to us largely committed.


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