Natural gas developers are confident about 2021 due to the sharp increase in natural gas and LNG prices, driven mostly by the surging demand in Asia that prompts long-term deals. Optimism about LNG in 2021 persists in the market, even when analysts, and the overall industry expects a difficult 2021.
As we have reported previously, natural gas prices in Asia and Europe have climbed to high records, due to a sharp increase in China and India, as these countries look froward to fade out the use of coal.
Nevertheless, the increase in demand only happened in late 2020; especially after the demand destruction that took place in April, when the pandemic was at its peak. Before that, there was great concern over the LNG market, and because of that, numerous projects in North America were delayed.
According to a Reuters analysis, concern was dissipated when production of LNG dropped in Australia, Malaysia, Norway and Qatar, some of the world’s largest producers. This drop opened an opportunity window for U.S LNG.
Now, with spot prices in Asia hitting six-month highs, operators are looking more and more for long-term supply deals that, in turn, will allow developers the construction of new export plants.
Recommended for you: Weaker dollar pushes oil; U.S stocks cap further gains
More natural gas demand for 5 years to come
Quoted by Reuters, Tom Mason, president of LNG at Energy Transfer, said on this regard that the rise in prices “has translated into a pickup in traction with customers for long-term commitments for LNG purchases.”
Many developers announced final investment decisions for 2020, to build new projects of the liquified gas in Canada, Mexico and the U.S. Instead, only one of those projects went forward: Sempra Energy’s Costa Azul, in Mexico, with a $2 billion investment.
“All other proposals were delayed because not enough customers were willing to sign long-term deals to finance the multibillion-dollar projects with spot prices so low,” Scott DiSavino, Reuters analyst explains.
As to now, there are almost 14 LNG projects waiting for final investments decision in 2021, most of them, of projects of 2020. Demand for fossil fuels and natural gas crashed in April-May; nevertheless, since then has started to pick up, and it has risen 10% each year for the last three.
Some market watchers consider the demand will keep growing at a rate of 3 or 4% all through 2025.