International spot prices have pursued a phenomenal decline in the first five months of the year due to the combined effects of milder weather, COVID-19 driven demand destruction and the ongoing LNG overhang leading to record-high storage levels.
In the second quarter of 2020, the lockdown-induced demand shock combined with LNG oversupply pushed international spot prices to new record lows.
Preliminary estimates indicate that world LNG supply weakened in the second quarter, mainly due to the downward flexibility of US LNG.
LNG is being supplied to Europe at a discount vs. oil-indexed contract prices. Given the extent of oversupply in the LNG market, major pipeline gas suppliers are losing market share.
The US has been the only market to reduce LNG production in a significant manner in response to the weakening of international LNG prices in the second quarter, emerging as a marginal or “swing” supplier for the global LNG market.
The forward curve suggests prices facing continued downward pressure throughout the summer, despite a likely decline in world LNG supply.
European[1]gas imports by pipeline were relatively stable in H1 2020 but down 19% year on year
Monthly pipeline gas flows to Europe were surprisingly quite stable in the first half of 2020, with a minimum estimated at 20.6 bcm in May against a maximum 23.1 bcm in March. However compared to last year, pipeline imports were down by 18% in the first quarter and 20% in the second quarter. Overall, European pipeline imports stood at 130 bcm in the first semester of 2020, an estimated 30 bcm (-19%) decline compared to the same period last year. Remarkably, daily flows remained below the minimum recorded in the 2016-2019 period on almost every day of the semester.
Global LNG trade remained stable year on year in May 2020 amid extremely depressed prices
Global LNG net imports* were up 0.46 Mt in May 2020 compared to April and essentially stable year-on-year (-0.2%) after a 2% Y-o-Y decline in April. These figures contrast with the 11.5% Y-o-Y growth recorded in Q1. Global net imports in May were 13% below January’s which demonstrates a certain level of supply response to low prices but is also largely a seasonal phenomenon. Indeed, in the five year period between 2015 and 2019, the decline in monthly imports from January to April has varied from -20% in 2015 to -6% in 2017.
LNG exports in May 2020 represented approximately 82% of the global liquefaction installed capacity which was only marginally lower than the average capacity utilization at this time of the year over the 5 previous year. They increased by 1% compared to May 2019, with the largest increases in the United States, Nigeria, Algeria and the Russian Federation, reflecting higher capacity utilization in the latter three countries and the launch of a number of new liquefaction trains in 2019 and early 2020 in the United States, where nominal liquefaction capacity increased from 34 to 65 Mtpa between May 2019 and May 2020.
