Despite rising demand for liquefied natural gas (LNG) from China and rising imports from Europe, the global LNG market has been oversupplied in the past few months. Industry insiders expected global LNG supplies will continue to rise over the next two years and the LNG demand eased in Asia, mainly due to lower demand from Japan and South Korea. At that time, imports of European LNG need to continue to rise to balance the market.

In terms of supply, compared with the first quarter of this year, LNG supply in the second and third quarters was relatively stable, and the impact of new projects on the market will mainly be shown in the fourth quarter. It is expected that the supply in the second and third quarters of this year will increase by 21 million tons year-on-year, and the annual supply will increase 38 million tons. Along with operation of U.S. LNG projects, Global LNG supply is expected to reach 395 million tons (up 8%) by 2020.

In terms of demand, LNG demand in Asian will remain depressed in 2019. Increased coal and renewable power generation in Japan and the opening of three nuclear facilities in South Korea have led to weak demand in the two major importing countries. LNG imports had increased rapidly in Europe since the fourth quarter of 2018, and this trend will continue in 2019 and 2020. The decline in local natural gas production will create some space for imported LNG. Whether European can use these LNG depends on whether it can switch from coal to gas more quickly.

Asian and European spreads will narrow in the second and third quarters of 2019, with demand mainly supported by India. Buyers began preparing goods for the winter in the third quarter, which will raise the premium to attract U.S. LNG into Asia. Because of the influx of LNG from the US, Asian buyers don’t need to transship LNG from Europe in the fourth quarter of 2019. Generally, when Asian markets tighten and LNG imports from the Atlantic Basin are needed, the price differential with European markets needs to be increased to attract sellers. In the second and third quarters of 2020, the Asian market will not need to import too much LNG from the Atlantic Basin, and the premium of LNG in Asia and Europe is expected to be capped at $2.50/MMBTU.