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LNG Glut To Get A Lot Worse This Year

LNG Glut To Get A Lot Worse This Year

Another LNG train is up and running in Australia, adding to the growing abundance of capacity.

BG Group announced that its second LNG train at its Queensland Curtis LNG (QCLNG) facility in northeastern Australia is now up and running. When the facility ramps up and reaches its highest production level – expected in mid-2016 – it will be able to ship 8 million tonnes of LNG per year (mtpa), or the equivalent of ten ships per month.

The $20 billion LNG project is not the only one expected to come online this year. Santos is planning on starting up its GLNG facility later this year, a unique project that will turn natural gas from coal seams into LNG. Santos is joined by its partners Petronas, Total, and KOGAS. GLNG will have the capacity to ship 7.8 mtpa of LNG. Origin Energy, another LNG producer, is expected to bring its Australia Pacific facility online this year as well, another coal seam gas project. Related: Dodging The Export Ban: U.S Condensates Export Flourishes

But the long list of projects nearing completion will only add more capacity to a marketplace that is relatively well-supplied. Spot LNG cargoes in Asia have seen their prices fall precipitously over the past year. The collapse in oil prices has contributed to weaker LNG pricing, as LNG prices are often linked to the price of crude oil. However, soft demand in Asia for LNG has also tempered prices. China, although expected to be a major consumer of LNG over the longer-term, has disappointed producers. Related: Noose Tightening On Coal Industry

Lower prices could cut into revenues of LNG suppliers, who built their facilities on the assumption that prices would be higher. With that said, however, LNG export facilities are planned for decades of operation, so short-term price weakness won’t necessarily alter long-term returns on investment.

Nevertheless, with a wave of LNG export capacity hitting the market this year – with even more slated to begin over the next two to three years – LNG prices may stay weak for some time. Related: The Next Fracking Boom May Be Closer Than You Think

There are a few variables to watch out for, which could have a major effect on prices. The extent to which Japan returns to nuclear power, which would slash gas imports, could cut into demand. China’s stock market turmoil could offer an even more dangerous downside risk. And of course, the movement of oil prices will also affect the trajectory of LNG spot cargoes.

By Charles Kennedy of Oilprice.com

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