The current margins for LNG coming to Europe this winter are almost at $50 and even as the forward curve declines, the margins are still very healthy out to 2025, providing strong incentives for new FIDs, Trend reports with reference to Oxford Institute of Energy Studies (OIES).
OIES report reveals that it is not just the margin which will be needed for FIDs to be forthcoming.
“Even if the economics look good, most new LNG developments still require the backing of long-term contracts. This now appears to be happening with multiple announcements of new long-term contracts, especially with US developers. Many of these have been to the Asian markets, including China, but we have also seen a few for European buyers. As is widely reported, the LNG FIDs taken a year or two ago – pre-COVID – will result in an enormous surge in LNG export capacity from the mid-2020s onwards,” reads the report.
OIES analysts predict that by 2028, global LNG export capacity is likely to be 50 percent higher than in 2021.
“With more long-term contracts being entered into and continuing high margins, the prospects for more FIDs in the next 18 months or so look very promising, especially from the US. By 2024 the TTF and ANEA forward curves are in the mid-$20 and by 2025 in the mid-teens. What is changing between now and 2025 that is causing the market to ‘believe’ that prices will decline by such large amounts? The big surge in LNG supply is really post-2025. For prices to decline, either pipeline supply from Russia to Europe needs to rebound strongly, from the current very low flow rates discussed below, or there needs to be a sharp fall in gas demand across all sectors, and not just in Europe, to offset the large decline in Russian pipeline supply to Europe. At the moment, there seems little sign of either happening,” the report says.