Too Much, Too Little, Too Late - Can a New Set of Buyers Reinvigorate the LNG Market?

With liquefaction capacity and supply of liquefied natural gas on the rise and LNG demand flat, prices for super-cooled, liquefied gas are low and may well stay low into the early 2020s. That’s a concern for LNG suppliers, who (like all suppliers) would prefer it if demand was soaring and supply was a little tight. There are some rays of hope, though, in what many have seen as a gloomy time for the LNG sector. After all, with spot LNG prices below $5/MMBtu (far lower than they were 30 months ago) and ample supplies of LNG available, a growing list of nations are looking either to become LNG importers or to significantly expand their LNG imports. Today, we continue our review of the LNG market with a look at the new demand that may be spurred by supply surpluses and low prices.

So far in this blog series, we’ve kept our focus on the three “toos” in our song-related title, namely the facts that there’s too much new liquefaction capacity coming online worldwide, that there’s been too little growth in LNG demand, and that it’s probably too late to prevent a multiyear period of LNG supply glut and low LNG prices. In Episode 1, we discussed the 140 million tonnes per annum (MTPA; 7.82 MTPA equals 1 Bcf/d) of new liquefaction capacity coming online in 2016-20 (boosting worldwide capacity by 45%, to 448 MTPA), and the growing roles that Australia (which is adding 50 MTPA, or 6.4 Bcf/d) and the U.S. (adding 62 MTPA, or 7.9 Bcf/d) will play. We also noted that, for a variety of reasons (mild weather, weak economies, etc.), LNG demand grew by only 1% in 2014 and 2.5% in 2015 –– far less than the anticipated 5 to 7% annual growth rate on which many of the decisions to build new, multibillion-dollar liquefaction plants and LNG export facilities were based. As a result, the gap between available liquefaction capacity and LNG demand will likely continue growing through the rest of this decade, even if demand growth were to move up toward those original expectations. Excess capacity and weak demand growth have weighed down LNG prices. As recently as early 2014 they were well above $15/MMBtu range, but now they are well below $10/MMBtu for oil-indexed contracts (thanks to the collapse in oil prices since mid-2014) languish below $5/MMBtu on the spot market.

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