August 2022
AME’s Asian Composite LNG price forecast for the September quarter is US$38/MMBtu. Prices for LNG jumped 48% in mid-June after a fire at Freeport LNG and have continued to a steady climb as gas supplies to Europe dwindle, with the AME Asian Composite LNG averaging US$39.4 in July.

Lower imports into China have kept Asian pricing lower despite Freeport LNG’s outage. The ongoing realignment of Europe’s gas supply to LNG is increasing demand as pipeline gas flows to the EU shrink. AME’s European Gas Composite has switched to a premium against Asian LNG. The price for AME European Composite Gas was US$45.5/MMBtu in July and is forecast at US$40/MMBtu for the September quarter.

Small rises will continue over the remainder of the year as winter approaches. Europe remains focused on restoring its gas stocks, and it should have no issue with reaching its storage goals. Unfortunately, it will be at a significant cost, estimated around US$50-55bn to collect the remaining gas supply.

Market supply will remain tight, and prices are currently at unsustainable levels. Prices will remain high in 2022 and decline over 2023. The AME Asian Composite LNG price reaches year-averages of US$33.8/MMBtu and US$24.5/MMBtu respectively. Though European LNG demand will increase, oncoming US LNG will substitute Russian gas. Russia in turn will focus on supply into Asia, particularly China and India, but major changes require significant time and investment to develop infrastructure.

The energy transition continues its downward pressure on LNG prices, but the pressure is no match for current energy shortages. Logistics and supply chain constraints have kept LNG in high demand.

Seaborne LNG – FLNG, FSRU and carrier ships – may run into capacity problems over the next two years. Korea Shipbuilding & Offshore Engineering said in June it could not take any more orders. A ‘huge volume’ of new builds have been put into Chinese and South Korean shipyards but KSOE’s build orders out to 2025 are packed. KSOE typically builds around twenty LNG carrier ships a year.

On the other hand, sanctions on Russia appear to be having a suppressing effect on Russia’s international projects. Daewoo Shipbuilding & Marine Engineering has recently cancelled a second LNG carrier intended for the Arctic LNG 2 project, ordered in the second half of 2020. The shipyard cancelled the first order in mid-May after interim payments for construction were missed. The company has recently had similar cause to cancel a second ship out of the three initially ordered.

Several key FIDs and investments are due for FID in the latter part of 2022. Eyes are focused on Rio Grande LNG and Driftwood LNG. Both projects are looking for additional offtake contracts to secure their production finances. The two facilities, along with Woodfibre LNG, would be due for operations in 2026-2027. Woodfibre has also announced an all-electric construction to reduce emissions.