Korea

The international market for liquefied natural gas (LNG) is in the midst of a wrenching transition. The old order, founded largely on long-term, oil-indexed contracts that called for certain volumes of LNG to be delivered by specified Point A to specified Point B, is being replaced by a new order characterized by intense competition among suppliers, new sources of supply (and demand), a glut of liquefaction capacity expected to last at least a few years, more spot purchases, and contracts incorporating destination flexibility—and, for many, tied to natural gas (not oil) prices. Today, we continue our exploration of the industry’s fast-changing dynamics with a look at the fierce battle now under way among LNG suppliers for market share, and at new approaches to pricing LNG.

There’s too much new liquefaction capacity coming online worldwide, too little growth in liquefied natural gas (LNG) demand, and it’s probably too late to prevent a multiyear period of LNG supply glut and low LNG prices. That’s not welcome news to those who have committed to long-term, take-or-pay deals with the new liquefaction “trains” set to come online in the U.S. and Australia in 2016-20, but it’s the reality. What’s making things worse yet is that new entrants in the LNG market are facing push-back from entrenched LNG and natural gas suppliers (Qatar, Russia and Norway) eager to retain market share (much like Saudi Arabia’s been doing in the crude oil market). There’s cause for longer-term optimism, though. Today, we begin an update on the international gas market.

There’s been at least some progress the last two years on Alaska’s ambitious plan to pipe huge volumes of North Slope-sourced natural gas to the state’s southern coast, supercool it into liquid form, and ship the resulting LNG to Asia. Over that same period, however, the international LNG market has been rattled by weak demand, rock-bottom prices and an impending supply glut. Alaska is itching to become a major LNG supplier by the mid-2020s, but is anyone willing to buy what it’s selling? Today, we provide an update on Alaska’s LNG plan, including a newly approved state buy-out of TransCanada’s interest in key elements of it.