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London — The global LNG market has avoided a supply "glut" thanks to strong Asian demand, but the dearth of new project approvals is set to lead to a supply crunch around 2022-23, analysts at HSBC said in a report published Tuesday.

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HSBC backs the standpoint of Shell, which last year defied most industry commentators by dismissing the perception of an oversupplied global LNG market.

Shell last month said it expected the growing LNG supply to be "comfortably" absorbed by rising demand, but also warned of a supply crunch "in the early 2020s."

The startup of a slew of new LNG projects in the US, Australia and Russia was expected to result in a global supply glut since around 2016, with excess LNG cargoes forecast to end up in the liquid European markets of last resort.

But that wave has yet to materialize, and increasingly market observers are forecasting that demand will keep up with supply in the coming years.

HSBC's report -- "The glut abates, the crunch awaits" -- said there were reasons to believe the global LNG market would be well supplied, rather than oversupplied, to 2021-22.

"That's partly a reflection of seasonality -- the market may be oversupplied in summer, but undersupplied in winter," HSBC said.

This was a view also put forward last month by Pablo Galante Escobar, the head of LNG at trading house Vitol, who said the global LNG market was likely to see more notable swings in price between the winter and summer months as demand in countries such as China falls off in the summer and strengthens in the winter.

"Seasonality will be much more accentuated -- we expect to see weaker summers and stronger winters," Escobar said.


HSBC said it expects global LNG demand to grow at 4.5%/year, translating into demand growth of 50% by 2025, with consumption reaching some 425 million mt/year from last year's level of some 280 million mt.

Other forecasters have predicted stronger demand growth in the near term, with consultancy Bloomberg New Energy Finance last week saying global LNG demand was set to rise by 7.2% to 305 million mt in 2018 driven by increased imports in Asia and Europe.

The 305 million mt figure also tallies with S&P Global Platts Analytics' own forecast of global LNG demand for 2018.

Global LNG imports in the first two months of 2018 are already up 5 million mt year on year at some 54.3 million mt, according to S&P Global Platts Analytics data.

BNEF, meanwhile, said demand growth this year would be slower than in 2017 when consumption increased by 9.6%, with growth set to slow to 2022.

Nonetheless, the solid outlook for LNG demand, HSBC said, is underpinned by multiple factors including GDP growth, supportive government policy and climate and environmental concerns.

"Asia dominates demand growth to 2025, followed by Europe after 2025. By the mid to late 2020s we expect China to become the world's largest LNG importer, ahead of Japan," it said.

China was the surprise to the upside in 2017, with its LNG imports rising by more than 45% year on year.


HSBC said it believes the industry has run out of time to avert a crunch in the 2022-23 to 2025 period.

"Our view is that supply is not going to be able to meet this strong demand growth -- indeed we think a crunch is looming," HSBC said.

The market could become tight by 2022-23 as supply flat-lines -- a result of new project approvals having stalled for over two years -- while demand continues to grow.

It said its view was supported by strong emerging markets gas demand, the winter demand seasonality pulling up prices in the northern hemisphere winter and "inevitable disappointments" on the supply side, such as start-up delays.

It also pointed to upside risks to prices in Europe -- and global LNG by knock-on effect -- from transit issues of Russian gas through Ukraine around the end of 2019 and early 2020.

Gazprom's transit deal with Ukraine's Naftogaz expires at the end of 2019, although the Russian gas giant is looking to terminate the deal even earlier after the Stockholm arbitration court ruled against it.

All of these issues, HSBC said, are being "exacerbated by the reluctance of some buyers to sign the long-term contracts which are needed for project financing."

"We believe it is already too late to avoid a pending supply crunch given long project lead times," it said.

HSBC suggested the easiest solution to get FIDs moving again would be for project operators to reduce their project sizes to lower the barrier for investment.

Other options include: launching projects with lower sales coverage (50% or less); borrowing from banks based on spot indices such as the S&P Global Platts JKM benchmark; using creative financing, e.g. from project bonds or contractors; and having trading houses bridge the gap between buyers and sellers.

--Stuart Elliott,
--Edited by Jonathan Dart,