This is due to lower oil prices and corresponding lower earnings for the majority of Australia's oil-linked contracts. However, this is offset by a currently lower Australian dollar and higher exports. 

 

"In 2019-20, growth in export volumes is expected to partially offset the impact of lower oil-linked contract prices, as the Prelude and Ichthys projects continue to ramp up production," it said. 

 

The value of Australia's LNG exports is forecast to decline from $50 billion in 2018-19 to $49 billion in 2019-20 and fall back further to $47 billion in 2020-21.  

 

 

Overall the LNG spot price has risen since September's 10-year lows but is still 40% down over the same time last year. 

 

"The overarching narrative for LNG markets remains unchanged: the long-anticipated overcapacity in LNG markets has arrived, placing downwards pressure on LNG spot prices, which remain at multi-year lows," it said. 

 

It also said the difference between spot and long-term contracts has recently narrowed again but "is still very large in historical terms. There are potential implications for long-term contracts if this gap persists for a sustained period of time". 

 

Not mentioned in the REQ is that Woodside Petroleum's two great hopes in the Scarborough and Browse LNG projects due for final decision next year and the year after will be searching for long term contracts at a time of low prices in both markets and more US LNG coming online. 

 

"Buyers are reportedly reducing purchases on long-term contracts — and increasing purchases of spot cargoes — where their contractual flexibility permits and pushing to have contract prices lowered during the periodic price reviews that are built into long-term supply agreements.

 

"In the longer term, low spot prices relative to oil-linked prices may encourage buyers to push for shorter, more flexible contracts and gas-based pricing (as opposed to oil-linked pricing)."

 

Gas-linked contracts and other forms of indexing are relatively new, but interest is growing. This year saw the first coal-linked contract signed though the deal drew interest more for its outlier status than as a portent of things to come, according to analysts and some energy CEOs. 

 

"Average LNG spot prices in 2020 are forecast to be similar to 2019 levels, at an estimated average of US$5.40 per million British thermal units (A$7.40/GJ)," this morning's report said. 

 

It sees a spot price rise to US$7.10 by 2021 but as supply growth slows "dramatically" early next decade and the ramp up of new capacity in Australia, the US and Russia ends demand will "begin closing the gap on global production capacity in 2021, driving spot prices higher". 

 

 

By the middle of next decade, it expects both Qatar, which has plans to ramp up exports to 126MMtpa, and the US to overtake Australia as LNG exporters. 

 

Japan will decrease imports as more nuclear power plants come back online, something noted through 2019 but despite political will and legislation the timing remains largely unknown. 

 

"Japan's LNG imports are forecast to fall by 6 million tonnes over the outlook period to 75 million tonnes in 2021," it said. 

 

China's LNG import growth has "considerably" but overall the REQ sees China's gas demand rising through the next decade. Similar to a Wood Mackenzie note published this week it does not see the massive Power of Siberia gas pipeline as a direct threat to LNG imports, despite its planned capacity of 38 billion cubic metres per year. 

 

"China's LNG imports are forecast to rise from an estimated 57 million tonnes in 2019 to 72 million tonnes 2021," it said. 

 

"Beyond the outlook period, China's LNG import capacity could more than double from current levels by the mid-2020s, based on project development plans, and China is likely to overtake Japan as the world's largest importer of LNG."

 

In the shorter term it also doesn't see another rush on LNG and gas more generally as China enters winter, in contrast to two years ago when tough coal-to-gas switching laws, not enough infrastructure  and a particularly brutal winter saw gas demand and prices rise steeply. 

 

Australia has supplied the majority of China's increase in demand but the REQ is careful not to attribute this to the US-China trade war and resulting 25% retaliatory tariffs on US LNG. 

 

"It is difficult to attribute this increase directly to the effect of tariffs, given China's rapidly growing LNG demand and the ramp up of new Australian projects over the same period."

 

Nuclear power will increase in South Korea also but the longer-term plan under left-leaning President Moon Jae-in are to switch the power mix to renewables and gas, and in April the government lowered taxes on LNG imports and raised on them thermal coal imports. South Korean LNG will rise. 

 

It also sees rising demand across large emerging Asian economies like India. Pakistan, Bangladesh, Indonesia, Malaysia and Thailand.

 

"While these countries are relatively small importers of LNG individually, collectively they are expected make a substantial contribution to rising global LNG demand," it said. Collectively they will surpass Chinese demand by 2021. 

 

Indian imports may rise from 22MMtpa this year to 28MMtpa in two years and the government wants to increase gas share of the power mix from 6% now to 15% by 2030, despite it being considered an ambitious target. 

 

Australia has been working to capture this market with a ministerial-level meeting in India earlier this year between Australian resources minister Matt Canavan and counterpart Dharmendra Pradhan.

 

Australia's exports are broken down to 43% from Japan, 35% from China, 11% from South Korea, 5% from Taiwan, 2% from India and 5% to the rest of the world. 

 

Last year Qatar had a 25% of world LNG exports and Australia 21%. The US and Malaysia both had 7% and Nigeria 6%. 

 

Japan imported 26% of the world's LNG, China 16%, South Korea 13%, India 7%, Taiwan 5% and the rest of the world 32%