Too Much, Too Little, Too Late - The Challenges Facing New LNG Suppliers

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.

Consider for a moment how much has changed, and how quickly. Only eight years ago, U.S. natural gas prices were spiking, gas production was declining, and much of the market was anticipating a boom in LNG imports. Now, pipelines are being reversed to bring gas from the Marcellus and Utica basins to Louisiana to be super-cooled into LNG.  Already natural gas is being loaded on ships and floated to Brazil, India and other far-off places to fuel power plants and heat homes and businesses. Tens of billions of dollars of additional U.S. liquefaction capacity is under construction.

But all is not well. The international LNG market faces flat demand, a flood of new supply, and remarkably low spot prices. As a result, LNG sellers have been forced to rethink their strategies, LNG buyers have been given the upper hand, and plans for another round of liquefaction projects have stalled. Given the positive effect that robust LNG exports would have on U.S. gas producers (who are eager to find new markets), we’ve blogged extensively about the international LNG market (A Whole New World and There Will Be an Answer, L-N-G) and about the commercial start-up of the first train at Cheniere Energy’s Sabine Pass liquefaction/LNG export facility in Louisiana, the first facility of its type in the Lower 48 states (Begin the Sabine, Commencing Countdown, Engines On, and Southern Cross(ing)). We also delivered a full-blown Drill Down Report on LNG (LNG Is a Battlefield) that is available for purchase (free for RBN Backstage Pass subscribers).

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