T&T is likely to benefit from high prices for Liquefied natural gas prices well into 2024 according to the latest predictions from Morgan Stanley.
According to the investment bank Morgan Stanley, high prices in the European Union (EU) have attracted record LNG, refilling storage ahead of the 2022 winter. It said looking into 2023, lack of Nord Stream flows from Russia raises Europe’s call on LNG, while the rest-of-world changes are more mixed.
“We refresh our LNG balances - near-term price forecasts are unchanged, but we raise second half 2023 and 2024 A(2H23-24).” Morgas Stanley revealed.
Both Prime Minister Dr Keith Rowley and Energy Minister Stuart Young boasted in the budget debate that they had renegotiated that county’s LNG arrangements to remove our dependence on the US Henry Hub to ensure wee benefited from the record LNG prices in Europe.
T&T remains a major exporter of LNG even though its capacity was reduced by 25 per cent with the closure of Train 1.
Morgan Stanley noted that as geopolitical pressures persist, its forecast is for the global LNG balance to tighten. The Investment Bank said since its last global gas update, record European LNG imports and falling industrial consumption have helped normalize EU storage levels despite further declines in Russia pipeline flows.
It noted that globally, these high LNG flows into Europe have been supported by weak demand from buyers in Asia, with China being the biggest outlier.
“We are refreshing our global LNG supply/demand forecasts to account for the latest market developments, including an assumption of zero flows on the Nord Stream 1 pipeline going forward (consistent with EU gas strategist Martijn Rats’ base case).
“While the near-term setup into this winter seems manageable due to adequate global inventories, we see a rising deficit next year, and our 2023 supply shortfall is increasing from ~30 mt (7% of demand) to ~58 mt (13% of demand),” Morgan Stanley predicted.
Accordingly the investment bank its near-term price forecasts are unchanged but it is raising 2H23-2024 price projection, as it sees the need for prices to remain elevated for longer to continue constraining demand.
2023 tightens further
Looking into next year Morgan Stanley has predicted ~20 mt of additional supply, but the global “call on LNG” is likely to rise much more than this. In Asia, it said the situation is mixed.
China’s reopening should tighten up the market (+10 mt y/y), but it predicted some offsets due to lack of growth in more price sensitive markets in India and South East Asia and the potential restart of nuclear power plants in Japan.
“That said, this is outweighed by Europe’s additional LNG import needs (+49 mt y/y). Europe: So far this year, over 25% of the world’s exported LNG has ended up in the EU, up from an average of 16% during 2021.
“Record LNG imports, combined with significant demand destruction (down ~18% y/y in recent weeks, led by a ~28% decline in industrial consumption), have helped refill EU storage levels to ~90%. Looking into next year, Martijn Rats expects total gas demand ~5% below 2022, though this is outweighed by falling production in the Netherlands and lower pipeline imports, particularly from Russia. On a net basis, the call on LNG rises by nearly 50 mt, and Martijn sees below-normal inventories for winter 2023-24 under most scenarios” the report read.
In relation to China, higher EU imports have been offset by lower demand from China, which is down over 20% year on year (y/y). Historically, China has been an active buyer of uncommitted spot LNG, procuring ~25 mt in 2021 alone. This year, however, China’s imports have been roughly equal to its ~60 mt of contracted supply, largely eliminating the need for spot purchases and freeing up gas for Europe. Looking into 2023, Morgan Stanley updated prediction is for a 10 mt (14%) rise in Chinese demand y/y, tied in-part to a broad reopening in spring 2023 .
Morgan Stanley has noted that India’s LNG imports have fallen by ~17% largely due to lower price-sensitive demand from the power and industrial sectors.
Accordingly the investment bankers are now forecasting 1 mt lower imports in 2023 vs 2022 .
Elsewhere in SE Asia its demand estimates are moving ~5 mt lower in 2023 relative to its prior forecast, largely led by lower growth in Bangladesh which has seen reduced imports amid high prices.
“In total, we have India/SE Asia demand rising +4 mt in 2023 vs 2022.”
In Japan, the restart of additional idled nuclear reactors could lower LNG demand next year, reducing Morgan Stanley’s 2023 estimates by 5 mt to 64 mt (vs 75 mt in 2022).
In South Korea, import volumes through September are only ~0.5 mt below last year’s levels.
