According to analytics company Eclipse Energy, from 2016-2020 LNG prices in Europe, Asia and the Americas are set to converge, allowing European gas buyers to compete more easily for cargoes which are typically absorbed by the higher-priced Asian market.
“The startup of BG Group’s Australian Queensland Curtis project late last year marked the start of the largest build-up of LNG supply capacity since gas year 2008-2009, with 10 to 12 trains due online by next summer,” said Eclipse Energy head of gas analytics May Mannes.
“With demand struggling to keep pace with supply, we believe this will mark the start of a transformation of the global gas market, and drive European gas prices well below where the current forward curve indicates,” Mannes said.
Analysts at Eclipse Energy said the glut of LNG due to enter the European market will push prices down to a level that incentivises coal to gas switching in the power generation market, adding that there is already evidence of this in the UK market where carbon costs are higher.
UK demand for gas-fired power will increase in the short term as gas prices fall, but post-2018, power demand for gas will begin to drop off as the market price strengthens and new renewable, interconnector and nuclear capacity comes to market, the analysts said.