Asian LNG market faces price volatility risks, warns Wood Mackenzie VP

Mangesh Dilip Patankar, Vice President, APAC Gas and LNG Consulting at Wood Mackenzie, has cautioned that the Asian liquefied natural gas (LNG) market is delicately balanced, and any disruptions in supply or increases in demand could lead to significant price fluctuations. Patankar made these remarks during the Gastech 2023 conference in Singapore, highlighting the uncertainty in the LNG market, which has impacted pricing and contract terms and created a gap between buyer and seller expectations.

Many LNG buyers in Asia are facing the challenge of ensuring a secure supply of LNG while keeping procurement costs competitive and contract terms flexible. Simultaneously, LNG sale and purchase agreements (SPAs) are evolving as LNG trading grows. According to Wood Mackenzie Lens, Australia and Qatar are expected to be the largest LNG suppliers to Asia from 2023 to 2030, accounting for nearly 60 per cent of the total LNG delivered to Asia during this period.

Asia's LNG interest

Patankar believes that the LNG market, which has cooled off from its peak in the previous year, is now attracting interest from emerging buyers in Asia. However, he advises that these buyers must understand the complex fundamentals of LNG and monitor its price volatility closely.

"As (LNG) buyers contemplate their options, it becomes crucial for them to evaluate the mix of pricing indices in their portfolio such as oil or Henry Hub and whether they should also take some exposure to spot pricing/spot purchases," Patankar said. He also notes that the new wave of LNG projects is not expected to significantly increase supply until 2026, suggesting that the market will remain tight.

Global LNG trends

Wood Mackenzie Lens data indicates that LNG supply is expected to grow by an average of 40 million metric tonnes per annum (mmtpa) annually from 2026 to 2028, helping to rebalance the global market and potentially lower prices. Patankar believes this will enhance the affordability of gas, increase LNG availability in Europe, and boost demand in Asia.

However, Patankar also highlights that the LNG market's outlook beyond 2028 depends on factors such as final investment decisions for liquefaction projects in the next 1-2 years, the pace of energy transition, and various supply-demand dynamics.

(With PTI inputs)