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Goldman Sachs Bearish on the Spot LNG Market in 2016 – 2017

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February 19, 2013

(Bloomberg) — Global liquefied natural gas prices on the spot market will enter a bearish cycle from 2016 to 2017 as new supply comes online before Asian buyers drive a bullish cycle starting in 2020, according to a Goldman Sachs Group Inc. report today.

Global liquefaction capacity will increase to approximately 660 billion cubic meters a year in 10 years from current capacity of 400 billion, Samantha Dart, a London-based analyst for the firm, said in a note to clients today.

“Although the bulk of liquefaction capacity additions are expected in 2015, a real softening of the market is only likely once these projects start ramping up their volumes, which may roll into 2016,” Dart said. LNG prices “will likely be under pressure, so that these volumes can be accommodated” before transitioning to a bullish spot market on increased demand from Asia, especially China and India, starting in 2020, she said.

Goldman estimates that about 70 billion cubic meters a year of liquefaction capacity will be built in the U.S. between 2016 and 2020 and another 48 billion in Canada. A Mozambique LNG export project may add 21 billion cubic meters a year by 2022.

Increased demand from Asia will absorb some but not all of the LNG projects being proposed in North America, Dart said.

The market does not need more than 80 billion cubic meters a year of U.S. liquefaction capacity additions for the next decade, she said. Additional builds would “leave global markets in surplus beyond 2020” and weigh on spot LNG prices, Dart said.

– Naureen S. Malik and Matthew Brown, Copyright 2013 Bloomberg.

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