Morgan Stanley with the note. There is no reason why gas (and coal) prices will not keep on falling.
After a ~50% decline in LNG YTD, there are some early signs of rising demand. That said, more consumption is still needed to absorb new supply and an eventual slowdown in EU imports (to prevent overfilling storage). We expect prices to bottom this spring, before recovering modestly in 2H23. Despitelower prices, demand is still muted…for now. As we highlighted in 2023 Global LNG Outlook, supply is set to outpace demand this year, meaning prices likely need to fall to levels that incentivize more consumption. Year to date, JKM (Asia LNG) prices are down ~50%, breaking below our prior forecast in recent weeks. While a mild winter across much of the Northern Hemisphere has certainly been a factor,as it reduced heatingneeds, demand trends have been weak even adjusting for weather. Asian consumption is still trending below what is needed to absorb surplus cargoes from new capacity (namely the Freeport restart)andan eventual slowdown in EU imports (which our team believes is needed to prevent overfilling storage).Looking ahead, we expect prices to remain under pressure until a more meaningful demand uptick is evident. Accordingly, we are reducing our price forecasts further, implying ~10%
more downside to 2Q futures followed by a modest recovery in 2H23.
There are early signs of rising consumption in Asia, but more is needed. Over the last month,LNG imports across the Pacific Basin are up 4% y/y, with China -1% y/y, India -18% y/y,and Japan -7% y/y, while Taiwan is up 9% and South Korea is up 34% (though off a low base). In Europe,LNG imports have remained strong despite demand that was ~15% below normal in February, leaving storage on pace to exit the winter ~57% full, >2x last year’s level. That said, there have been some indications of rising spot imports from India, China and Bangladesh. Taking this into account we now estimate that the LNG market is trending ~16 mt looser in 2023vs 2022,an improvement from our prior forecast of 23 mt.
