COVID-19 construction delays push LNG oversupply scenario to 2025: Expert

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Coronavirus-induced delays to construction of new liquified natural gas (LNG) infrastructure will push an expected oversupply of the market a year further out than previously expected to 2025, Samer Mosis, team lead EMEA LNG at S&P Global Platts Analytics told Al Arabiya.

The LNG market, along with the oil market, saw severe disruption in 2020 as the coronavirus pandemic upended normal supply predictions and hit global commodity flows. Earlier this year, China’s biggest buyer of LNG told suppliers that it would not be taking delivery of cargoes because of the impact of COVID-19, declaring force majeure on some contracts.

“Given what we’ve seen in COVID, the biggest outcome really is construction delays because of COVID-induced manpower issues. We see a year delay in Qatar, we see a year delay in Senegal, a year delay in Mozambique relative to our base case and this really pushes the oversupply from 2024 to 2025,” Mosis told Al Arabiya’s Naser El Tibi.

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Despite the impact of COVID-19 however, prices for LNG soared throughout the winter, hitting record highs. Prices skyrocketed up around 1,000 percent over July 2020, leaving some analysts to comment that ships were “piling up” on major routes as buyers were found short of supply amid an unseasonable cold winter.

“This winter we really saw a perfect storm a bullish factors. We had outages on the supply side: Qatar, Nigeria, Australia. On top of that we had the need to draw in marginal supplies all the way around the Cape of Good Hope from the US – that is a 30-day journey per cargo. And then on top of that, we had weather hitting, making very cold temperatures and inducing prompt demand,” Mosis explained.

He went on to note that this scenario was likely a “one in a hundred event,” but noted that this does not preclude it happening again, adding that some factors that contributed to the price spike were not going to go away anytime soon.

Most importantly, Mosis noted that with demand for LNG in Asia likely to keep rising, additional supply will continue to be absorbed by the Atlantic basin – namely the US, Qatar, and Nigeria. This is a logistical and shipping problem that will likely lead to winter LNG prices in Asia to be at a premium compared to global gas prices elsewhere.

“There is just no new production to meet that demand on the net basis in Asia. What that means is that journey times take longer and thus any squeezes in prompt demand are going to incentivize higher pricing because shipping is more expensive. That’s not going to go away,” he said.

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