LNG demand

Listen to Paul Simon’s “The Sound of Silence” and you hear the words of a teenager coming to terms with the disconnect between the world his parents promised and the real world yet to come. In the LNG market, there’s a similar generational divide. A business built on long-term contracts, rigid trade patterns, and the promise of substantial growth potential is being met with a more skeptical outlook, one in which a large amount of incremental LNG supply has been locked up but serious questions remain about LNG demand. As we discuss in today’s RBN blog, an entire generation of LNG supply is being built on the presumption of selling it for $10/MMBtu or more, but a shortfall in demand growth could leave it selling for considerably less. And if that happens … sunk-cost economics, here we come. 

The Federal Energy Regulatory Commission (FERC) issued two new statements of policy February 17 regarding the certification of new pipelines and the assessment of greenhouse gas (GHG) impacts. Together, the two updates reflect a more meticulous regulatory environment and a stricter adherence to policies that midstreamers must comply with in an effort to avoid lengthy and expensive court challenges that have become more commonplace recently. The guidelines will affect most new projects within FERC jurisdiction and, among those, some of the biggest impacts will be felt in the U.S.’s rapidly expanding LNG sector — the terminals themselves and the pipelines that deliver feedgas to them. That could be cause for concern as Russia’s war on Ukraine has exacerbated an already precarious gas situation in Europe and a global LNG supply crunch. In today’s RBN blog, we explain the impact of FERC’s latest guidance on pipeline certification and GHG policy with regard to the LNG sector.

Last year was the best for global LNG demand growth since 2011, and a combination of ample LNG supply, new buyers and relatively low prices suggest that demand will continue rising at a healthy clip in 2017. That’s good news not only for LNG suppliers, but for natural gas producers and for developers planning the “second wave” of U.S. liquefaction/LNG export projects. Before those projects can advance, the world’s current—and still-growing—glut of LNG needs to be whittled down, and nothing whittles a supply glut like booming demand. Today we discuss ongoing changes in the LNG market and how they may well work to the advantage of U.S. gas producers and developers.