Industry-related information
Global natural gas demand grows strongly but supply growth is limited
In mid-July, the International Energy Agency (IEA) released the "Natural Gas Market Report (Q3 2024)" (hereinafter referred to as the "Report"). The "Report" pointed out that after the natural gas supply shock in 2022 and the gradual restoration of balance in 2023, the natural gas market achieved more obvious growth in the first half of this year, with global natural gas demand increasing by 3% year-on-year, higher than the average growth rate of 2% between 2010 and 2020.
In the second quarter of this year, global liquefied natural gas (LNG) production performed poorly, while geopolitical tensions exacerbated price volatility. In the first quarter of this year, natural gas prices fell to pre-global energy crisis levels, but prices in all major markets have risen in recent months, reflecting the tightening of supply and demand fundamentals. Natural gas demand growth is expected to slow in the second half of this year. Global natural gas demand is expected to grow by 2.5% year-on-year this year, mainly driven by the fast-growing Asian market.
-
Strong demand growth in the first half of the year, mainly driven by the Asian market
The IEA pointed out that after contracting in 2022 and gradually returning to balance in 2023, the global natural gas market resumed more obvious growth in the first half of this year against the backdrop of lower prices and improved supply fundamentals. About 70% of demand growth was concentrated in the first quarter. In the second quarter, the slowdown in LNG supply growth put upward pressure on natural gas prices in major import markets, which in turn dragged down natural gas demand growth.
Data show that global natural gas demand increased by 3% (50 billion cubic meters) in the first half of this year. Asia alone accounted for about 60% of the increase in natural gas demand, mainly driven by China and India. Demand growth was mainly driven by increased industrial natural gas use, accounting for nearly 65% of demand growth in the first half of this year. The combined industrial natural gas consumption of China, Europe, India and the United States (accounting for about half of the world) increased by 6% (nearly 20 billion cubic meters) year-on-year. Natural gas power generation demand increased more modestly by 2% year-on-year, as strong growth in the North American and Asian markets was partially offset by a decline in gas-fired power generation in Europe. Gas demand in the residential and commercial sectors grew by just 1% year-on-year, as warmer than usual temperatures in the first quarter affected heating demand in Europe and North America.
In the first half of this year, gas demand in Asia grew by 8% year-on-year (over 30 billion cubic meters). China continued to drive gas demand growth in the region, with gas consumption increasing by 11% year-on-year (17 billion cubic meters) as gas use increased in all consumer end-use sectors. Lower gas prices continued to stimulate gas demand in India, with industrial gas use in India increasing by more than 20% year-on-year in the first five months of this year. In the first four months of this year, total gas demand in Japan and South Korea grew by 3% year-on-year.
The IEA expects global gas demand to grow by 2.5% year-on-year (just over 100 billion cubic meters) this year. Global LNG supply growth this year is limited, with only 3% year-on-year (15 billion cubic meters). As a result, growth in the import market will be limited. The industrial sector and energy industry self-use are expected to account for more than 55% of the increase in gas demand this year. This is partly due to the continued improvement in the fast-growing Asian market economy and the recovery of industrial gas demand in Europe. Assuming normal weather conditions in the fourth quarter of this year, natural gas demand in the residential and commercial sectors will increase by 2.4% this year. Gas-fired power demand is expected to grow only slightly, as increased natural gas consumption in fast-growing Asian markets and gas-rich countries in Africa, the Middle East and North America will partially offset the decline in European demand.
-
LNG supply growth remains weak, with supply falling in the second quarter
LNG market dynamics in the first half of this year show uncertainty about the global natural gas market balance before a new wave of liquefaction capacity comes online between 2025 and 2029. The IEA noted that global LNG supply grew by about 4.5% in the first quarter of this year, but supply fell slightly year-on-year in the second quarter - the first quarterly decline since the COVID-19 pandemic, resulting in a supply growth rate of only 2.3% in the first half of this year. However, demand-side trends are more stable than supply-side trends, as European demand for LNG continued to decline in the second quarter of this year, while Asian demand for LNG continued to grow.
In the first half of this year, the Asia-Pacific region was the largest contributor to year-on-year growth in LNG exports, with growth spread across almost all export markets in the region. Brunei and Malaysia - two markets facing a certain degree of uncertainty in feed gas supply, both achieved year-on-year export growth during this period. Indonesian LNG exports fell 11% year-on-year in the first quarter due to planned and unplanned work at the Tangguh LNG project (the country's largest LNG project), but recovered in the second quarter, resulting in an 8% increase in the first half of the year. Overall, Asia-Pacific LNG exports increased by 2.6% (2.4 billion cubic meters) in the first half of the year.
In terms of individual market size, the United States and Russia achieved large increases in the first half of the year, accounting for nearly 70% of the net increase in global LNG supply. US LNG supply increased significantly in the first quarter, mainly due to the restart of Freeport LNG plant operations, but fell by nearly 3% year-on-year in the second quarter as operational problems continued to plague Freeport LNG plant in addition to planned work. US LNG exports fell 16% in May before recovering in June. Despite the above problems, US LNG supply in the first half of the year increased by 4% year-on-year (2.4 billion cubic meters).
Russian LNG exports increased by 9% (2 billion cubic meters) year-on-year in the first half of the year. Although small projects also contributed to the export growth, the country's largest LNG project, Yamal LNG, remained the main growth driver. In the first half of this year, Middle East LNG supply increased by 1.8% (1.2 billion cubic meters), mainly due to export growth in the UAE, a regional LNG producer.
The IEA expects year-on-year growth in LNG supply to accelerate in the second half of this year as new natural gas liquefaction capacity comes online. The United States will provide most of the new export capacity this year as existing plants are expanded and new plants come into operation. This includes the expansion of the Freeport LNG plant, the increase in production at the Plaquemines LNG Phase I project in the summer, and the Corpus Christi LNG Phase III project, which is expected to start at the end of this year. The Tortue FLNG plant off the coast of West Africa will be put into operation in the fourth quarter of this year.
-
Market balance tightened in the second quarter and natural gas prices rose
The report pointed out that in the second quarter of this year, natural gas prices in all major markets rose from the previous quarter. Tighter supply and demand fundamentals and geopolitical uncertainties put upward pressure on spot prices. Reduced LNG supply, coupled with strong demand growth in Asia, has led to a tightening balance in the global natural gas market, while Russia's pipeline natural gas supply to Europe has once again become uncertain.
In Europe, the average spot price of TTF natural gas rose 15% month-on-month to $10/MMBtu in the second quarter of this year, more than double the average price in the second quarter of 2016-2020. Declining LNG inflows (down nearly 20% year-on-year), unexpected disruptions in Norwegian gas supplies, and renewed uncertainty in Russian pipeline gas supplies have put upward pressure on prices. On May 20, Austrian Oil and Gas Group (OMV) announced that its pipeline gas imports from Russia may be stopped due to legal factors. TTF prices rose nearly 15% to more than $11/MMBtu in the days following the announcement, reaching their highest level since late December 2023. Unexpected disruptions in Norwegian gas supplies exacerbated short-term price volatility in early June. In the second quarter of this year, the average volatility of TTF prices was 53%, still nearly 50% higher than the average volatility in the second quarter of 2011-2021. This relatively high volatility reflects the tight balance of the global natural gas market and market tensions amid geopolitical tensions.
In Asia, natural gas prices have shown a similar trend. In the second quarter of this year, the average Platts JKM spot LNG price rose 20% month-on-month to $11/MMBtu, more than twice the average price in the second quarter of 2016-2020. Strong demand growth, hot weather and weak LNG supply growth have put upward pressure on Asian spot prices. The premium of JKM to TTF more than doubled from $0.6/MMBtu in the first quarter to $1.3/MMBtu in the second quarter, resulting in more LNG cargoes being shipped to Asia. In the second quarter, Asian LNG imports increased by 13% year-on-year, while European imports fell by more than 25% year-on-year.
In the United States, natural gas prices have rebounded from multi-decade lows. The average Henry Hub (HH) natural gas spot price rose nearly 70% from $1.5/MMBtu in March to $2.5/MMBtu in June. Production cuts by upstream companies, coupled with a sharp increase in gas-fired power generation and increased exports, provided support for the upward trend in natural gas prices. In the second quarter, the average HH natural gas spot price was $2.1/MMBtu, close to the 2023 level.
008618150137569
0086 18150137569
sales23@htechplc.com