Commodities 2023: Asian LNG markets to brace for extra uncertainty, macro dangers

JKM costs anticipated to common $27.40/MMBtu in 2023: S&P International

Macro backdrop, recession dangers affect LNG demand progress

LNG provide/demand investments reassessed amid value volatility

Asian LNG markets will grapple with one other yr of uncertainty in 2023 as each provide and demand fundamentals are impacted by a variety of macroeconomic, geopolitical and weather-related components, in line with economists, analysts and merchants.

On the macro degree, rising rates of interest and efforts by central banks to regulate inflation will instantly affect financial progress and vitality demand in most economies, together with electrical energy consumption and pure gasoline demand. International forex reserves and the energy of the greenback shall be overarching considerations for the LNG imports of most Asian economies, whilst governments combat to stave off a looming recession.

S&P International Rankings expects international GDP progress of two.2% in 2023 in contrast with 3.4% in 2022, adopted by a rebound of three.1% in 2024.

“2023 shall be a revelatory yr. We’ll learn the way a lot financial tightening is required to curb inflation, how deep any recession shall be, and the early contours of the submit COVID-economy. We suspect the post-COVID world will differ from the pre-COVID world throughout a number of dimensions,” Paul F Gruenwald, International Chief Economist at S&P International Rankings, wrote concerning the outlook for 2023.

China’s dampened financial exercise was one of many key components capping spot LNG costs in 2022.

“All eyes shall be on China’s tempo of restoration because it lifts its restrictive COVID measures. We’re cautiously optimistic that demand restoration will materialize within the second quarter of 2023 because the wave of inflections slows. Nevertheless, excessive unstable spot LNG costs and a weak international financial system will nonetheless dampen China’s urge for food for LNG,” stated Zhi Xin Chong, Director, Gasoline, Energy, and Local weather Options at S&P International Commodity Insights.

The Platts JKM has averaged $34.002/MMBtu to this point in 2022 in contrast with $15.034/MMBtu in 2021.

“JKM costs are forecast to common $23.0/MMBtu in summer season 2023 and $27.40/MMBtu throughout the entire yr,” stated James Taverner, Analysis and Evaluation Senior Director, Gasoline Energy & Local weather Options at S&P International.

Commodity analysts at Citi Analysis are extra bullish on LNG costs and forecast the JKM to common $36/MMBtu in 2023 of their base case, $24/MMBtu of their bear case and $60/MMBtu of their bull case, citing the provision shortfall in Europe that can lead it to maintain bidding LNG away from Asia, with JKM costs decrease than TTF.

S&P International’s Chong stated that 2023 would be the first time Europe should deal with minimal Russian provide for the complete calendar yr.

“Therefore, the power to satisfy demand and nonetheless refill storage shall be essential. We count on the state of affairs to proceed to stay tight and demand restriction shall be essential to steadiness the market,” he added.

LNG outlook for 2023

Regional gasoline inventories submit winter and the affect of sanctions and value caps on Russian LNG provide to Asia shall be issues to look at within the close to time period.

Nevertheless, in 2023 the true scale of the affect of excessive LNG costs on the pure gasoline sector will turn into clearer — within the type of choice making round Asia’s LNG provide and regasification tasks, gas switching, gasoline market reforms and liberalization, and long-term contracts.

Market individuals count on stalled upstream investments by nationwide oil corporations in India, China and Southeast Asia, together with Petronas, PTTEP and Pertamina, in gasoline tasks to maneuver forward. In the meantime, demand-side investments in regasification will grapple with long-term gasoline provide points, comparable to international locations planning to turn into new LNG importers — Philippines, Vietnam and Sri Lanka — or these increasing present capability like India and China.

India’s LNG imports are anticipated to say no barely in 2023 from 2022 ranges as a consequence of decreased time period deliveries below a contract impacted by Russian sanctions, however the share of spot LNG is anticipated to extend if spot costs common $23/MMBtu in summer season 2023, stated Ayush Agarwal, LNG analyst at S&P International.

“For markets which have but to import LNG, the power to safe LNG cargoes at reasonably priced ranges are dim. Therefore, we count on to see quite a few delays to the commissioning of regasification terminals as FSRUs are chartered out within the interim,” Chong stated.

He stated the LNG business has responded to the vitality disaster with improvements like mid-scale liquefaction capability that may be rapidly deployed, and the success of such floating liquefaction vegetation in 2023 will add one other dimension to scale back the lengthy lead occasions of LNG tasks and increase international provide.

Governments intervening in vitality markets to scale back the worth affect on end-consumers is a rising development that can speed up in 2023, with long-term affect on downstream demand.

“We count on much more rivalry between governments and gasoline suppliers that might result in higher uncertainty for companies and affect long-term investments on LNG. Coupled with rising rates of interest, elevated price and a possible slowdown within the international financial system, the outlook for recent funding on LNG services is fraught with much more uncertainty,” Chong added.

The Financial institution of America famous an uptick in international oil and gasoline capex funding of $70 billion in 2022 to only over $400 billion. “But it’s also vital to contemplate that the final yr oil averaged greater than $100/b, in 2014, oil & gasoline capex totaled $761 billion,” the financial institution stated in a notice to purchasers in December.