The cost of liquefied natural gas (LNG) is expected to recover from low levels due to coronavirus-related weak demand by the end of 2020, according to a London-based Capital Economics report on Thursday.
Due to rising supply from Russia and Australia and greater gas exports from the U.S. to overseas markets, LNG prices were expected to remain low throughout this year.
On the demand side, however, the coronavirus outbreak in China has lowered demand from the world's second largest LNG importer, and caused prices to significantly drop.
Spot LNG prices were below $3 per million British thermal units (Btu) this week, down more than 55% from $6.8 per Btu a year ago.
"Reportedly, Chinese buyers are rejecting pre-contracted shipments, claiming force majeure [a legal clause invoked when unexpected events lead to contracts being breached]," Capital Economics said.
But, when restrictions on economics activity in China are lifted, the country's LNG demand is expected to recover quickly, it added.
"That said, we still expect markedly slower growth in China’s [gas] imports this year owing to the relatively mild winter so far, rising domestic production and increasing access to pipeline gas from Russia," the report said.
Although Europe absorbed much of the global gas oversupply in 2019, that is unlikely to happen this year since "[gas] stocks are high and demand growth is lacklustre," it added.
Yet, India, a growing gas market who lowered the tariff on LNG, or other countries that have Floating Storage Regasification Units to import LNG, can take some of the oversupply in the market.
As for China, its LNG demand is forecast to remain low until the impact of the coronavirus outbreak on the economy subsides, which in turn is anticipated to keep a downward pressure on LNG prices.
"Prices should revive a little later in the year as global GDP growth gradually picks up and energy generation continues to move away from coal," the report concluded.
By Ovunc Kutlu