Asian LNG demand growth is the key variable driving the global gas market balance over the next 2 to 3 years. As a result, Asia’s demand for LNG cargoes is being closely watched in both European and Nth American gas markets. And recent data is showing an impressive demand resilience, despite the Covid shock.
There were some dire forecasts in Q1 as to the impact of Covid-19 on Asian LNG demand. This contributed to downward price pressure in European & US gas markets. In the current oversupplied LNG market, weak Asian demand means a higher global surplus of cargoes. This in turn pushes down European hub prices (TTF & NBP), signalling a greater requirement for ‘shut in’ of US LNG exports and exerting downward pressure on Henry Hub as gas is ‘pushed back’ into the domestic US market.
The two engine rooms of Asian LNG demand growth are China and India. The charts show the evolution of demand growth in 2020 (grey line) vs the last 5 years.
The impact of Covid lockdowns on Chinese demand was focused in Feb & Mar 2020, with demand falling below 2019 levels. But there has been a strong bounce back in Chinese demand in Q2, resulting in significant growth vs 2019, despite the ongoing economic impact of a global pandemic.
Indian demand surged in Q1 2020, before Covid caused a sharp decline in Apr 2020 (the Indian lockdown came later than in China). But India has seen a v-shaped recover in demand across May and Jun and is now back on a growth trajectory vs 2019.
Volume recovery across China and India also reflects demand response to what is historically cheap gas. With spot JKM prices having been trading below 3 $/mmbtu, imported LNG is a competitive fuel option e.g. for power sector and industrial use. Keep an eye on the path of Asian demand growth across H2 2020 as a key barometer of global gas price recovery.
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