Global demand for liquefied natural gas is set to fall 2.7 per cent year on year, or three million tonnes, in its first seasonal crunch since 2012, according to Woods Mackenzie.
Lockdown measures to contain the coronavirus pandemic have dealt a blow to demand for LNG, a cleaner fossil fuel increasingly used to power Asian economies such as China.
“Covid-19 will drive a global contraction in LNG deliveries through summer 2020 compared to the previous year," Robert Sims, Wood Mackenzie research director, said.
"This will be the first seasonal contraction in eight years. The coming winter season [2020 to 2021] could [result in] a modest five million tonne improvement in global LNG demand compared to the previous winter season.”
Demand in Japan, the world’s largest LNG importer, fell in the first quarter, with the decline continuing in April.
While the country has not enforced a full-scale lockdown, school closures, strict social distancing and remote working are expected to dent demand through the second quarter.
Japan’s second-quarter demand is expected to fall 3 per cent to 15.8 million tonnes compared to the second quarter of 2019.
China, which is pushing to revive economic growth, will now focus on industrial demand recovery. While the country reduced pipeline imports, its LNG demand remained sound.
"Coupled with a low spot price environment, the temporary waiver of US LNG import tariffs and industrial recovery, China managed to increase LNG imports in the first three months of 2020,” Wood Mackenzie said.
China’s second-quarter consumption is set to increase by 12 per cent year on year to 15 million tonnes as it focuses on economic recovery.
Consumption of the super-chilled fuel in India, another top importer, grew at record 19 per cent year on year, driven by low spot prices in the first quarter.
However, India's strict lockdown measures, which brought the country to a standstill, are expected to reverse this.
Demand is projected to fall to four million tonnes in the second quarter, a 24 per cent decline compared to the same period last year.
Meanwhile, LNG capacity utilisation in the US, the world’s largest producer for gas, fell to 65 per cent by mid-May, making the country a swing producer, according to IHS Markit.
A swing producer is a supplier of a commodity with significant spare capacity and the ability to respond to price volatility by increasing or decreasing supply rapidly in response to market conditions.
Wood Mackenzie anticipates that US terminals will be underutilised as margins for several energy companies remain negative.
"What is new is that our balances and price outlook suggest that some degree of underutilisation will now also happen through [the] summer [of] 2021,” Mr Sims said.
The decline in LNG demand will affect Australia and Qatar, the world's two largest exporters.
Australia became the largest exporter of LNG last year, shipping out about 77.5 million tonnes.
Qatar shipped 75 million tonnes while the US exported 34.3 million tonnes.
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Engine: 3.4-litre twin-turbo V6 plus supplementary electric motor
Power: 464hp at 5,200rpm
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Name: Kumulus Water
Started: 2021
Founders: Iheb Triki and Mohamed Ali Abid
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Why seagrass matters
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SPEC SHEET
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The specs: 2018 Nissan 370Z Nismo
The specs: 2018 Nissan 370Z Nismo
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Norwich 0
Watford 2 (Deulofeu 2', Gray 52')
Red card: Christian Kabasele (WatforD)