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Gas prices to fall further this year – WoodMac

Last year’s plunge in European gas prices will likely continue into 2020, according to consultancy Wood Mackenzie, as it forecasts growing volumes of LNG to struggle to find a market.

The firm’s research director Robert Sims estimates gas prices to average EUR 11.65/MWh on the Dutch TTF hub in 2020, after they tumbled roughly 40% last year to around EUR 13.50/MWh.

He forecasts LNG supply capacity to rise by 7% or 26m tonnes per annum (35bcm), with US projects accounting for around 80% of the growth and Australian facilities providing the rest.

This would continue to meet “stuttering” demand growth in the Asia Pacific, again leaving Europe the market of last resort, Sims said on Tuesday.

“On the demand side, the largest growth we expect to come from northwestern Europe, taking around 40% of all this new LNG, followed by 30% to China, with much of the remaining growth found in India and Thailand.”

Europe faced the added challenge of already starting 2020 with record high gas inventories, he said, noting there was little room to absorb additional LNG unless more gas demand was created in the power sector, or unless vendors – including pipeline suppliers – curbed their deliveries.

As a result, WoodMac forecast the Japan Korea Marker, a regional reference for spot LNG, to average USD 4.60/MMbtu this year – less than half where it stood in late 2018.

The JKM could see “a possible low of USD 3.60/MMbtu during summer as the full extent of the LNG oversupply takes hold… Much of this is driven by our fundamentally weak view of TTF.”

Asian prospects
In Asia, a slowdown in China’s gas demand growth was likely to continue in 2020.

WoodMac reckoned rapid gains in domestic production could combine with new pipeline supply from the country’s Power of Siberia link with Russia to limit next winter’s need to turn to LNG.

“The traditional large importers of South Korea and Japan are not expected to increase as strong nuclear performance [and] continued high usage of coal in the power sector continues to limit further upside for gas,” Sims said.

Yet several factors may also begin to weigh against these trends, not least the potential for low prices to stimulate their own demand, the company added.

Energy market liberalisation in southeast Asia has begun to break up traditional monopolies, loosening the dominance of major gas procurers in South Korea, Malaysia and Thailand.

Third parties have in recent months independently sourced cheap spot LNG cargoes, bypassing the more expensive long-term supplies typically contracted by companies like Kogas, Petronas and PTT.

Pollution concerns could also drive more ambitious coal-to-gas switching if curbs to coal generation in countries like South Korea and Taiwan this winter succeed in improving air quality without triggering blackouts, according to the consultancy.
Source: Montel

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