Market sentiment for natural gas and LNG will remain bearish into 2024, with European prices having fallen 45% to $10/MMbtu in the past 3 months, a Wood Mackenzie report said.
Wood Mackenzie's report, ‘Global Natural Gas and LNG: 5 Things to Watch in 2024,’ said high storage levels coupled with a mild northern hemisphere winter will keep global gas prices relatively weak this year amid subdued global demand.
“We have been forecasting lower 2024 prices for much of last year, especially compared to forward curves, amid weak market fundamental expectations” said Massimo Di Odoardo, vice-president of gas research at Wood Mackenzie. “Global LNG supply growth will remain limited at 14 million tonnes, but with Asian LNG demand still weak, competition for LNG is unlikely to heat up.”
In 2023, European gas demand decreased by 7% due to mild weather. Normal weather dynamics and a possible economic rebound would support demand. However, with renewable supply increasing and nuclear production in France continuing to come back, European gas demand will remain flat at best, according to the report.
Wood Mackenzie anticipates a more positive view on gas demand in Asia with expected growth of 12.5 million tonnes, or 5% compared with 2023, but 2024 demand will still be almost 3 million tonnes lower than levels in 2021.
LNG freight rates set to soften
The report predicts a potential oversupply risk in the global LNG shipping market as 60 LNG carriers are set to be commissioned in 2024.
“Altogether, the 60 new vessels equate to 10.4 million cubic meters (cu m) of LNG shipping capacity, sufficient to move 54-million tonne/year (tpy) of LNG between the US Gulf Coast and Europe,” Di Odoardo said.
“There will be limited organic LNG supply growth and the bulk of US LNG is still expected to be routed to Europe, rather than Asia, limiting demand for shipping and putting pressure on freight rates.”
More selective portfolio players
Portfolio players, the key LNG players that aggregate supply from across the world and sell to multiple customers, have been the major driver of LNG activity over the past 2 years, according to the report.
However, having signed 72 million tpy of long-term contracts in 2022 and 2023 and with most Qatari equity deals now finalized, the report said the companies will likely feel comfortable with their positions and be more selective in building portfolios further.
End-user activity is also expected to ease with Chinese buyers already signing fewer contracts after a hectic period in 2021 and 2022 when several deals were struck with sellers in the US and Qatar.
However, the report said some buyers might take a more opportunistic approach, with US independent players leveraging on low Henry Hub prices to seek more exposure to global LNG prices.
“Our expectation is that overall contracting activity will soften in 2024 compared to the huge number of deals signed in 2021, 2022, and 2023,” Di Odoardo said.