In the latest edition of the Numbers Report, we’ll take a look at some of the most interesting figures put out this week in the energy sector. Each week we’ll dig into some data and provide a bit of explanation on what drives the numbers.
Let’s take a look.
1. China’s appetite for LNG not as big as expected
- Japan is by far the largest importer of LNG in the world, but there isn’t big potential for growth. LNG exporters are betting overwhelmingly on China.
- China’s economy is slowing, and so is its demand for imported LNG. It will only accept 77 percent of the cargoes it contracted for in 2015. It will resell the rest, adding further supply on the spot market.
- With an onslaught of new LNG capacity expected – major projects are coming online in the U.S. and Australia (more on that below) – LNG spot prices could remain depressed for the next few years. Worldwide LNG supply is expected to grow by the equivalent of 38 percent of 2014 demand over the next three years.
- Spot prices for JKM – the Asian benchmark – are down from ~$20/MMBtu in early 2014 to less than $7.50/MMBtu for January delivery.
2. LNG export capacity set to explode in Australia and U.S.
- A flood of LNG export projects began construction a few years ago as JKM prices skyrocketed.
- Prices are already low on slower Chinese demand and rising supply, but several major projects, particularly in Australia and the U.S., will cause LNG export capacity to rise quickly through 2018.
- Australia will become the single largest LNG exporter by the end of the decade.
- Several major players involved in Australian LNG include Chevron (NYSE: CVX), Santos (ASX: STO), Woodside Petroleum (ASX: WPL), ConocoPhillips (NYSE: COP), Total (NYSE: TOT), BG Group (LON: BG) and Shell (NYSE: RDS.A), the latter two of which will soon be merged.
3. Rising LNG capacity changing markets
- Greater LNG capacity is transforming a market that used to depend mostly on long-term fixed contracts.
- More supply means more reselling and more diversity. That is making LNG markets more liquid, and spot sales and short-term sales are rising.
- That will increasingly, although perhaps gradually, erode the practice of long-term contracting. In turn, that could undermine the practice of linking LNG prices to crude oil prices.
- Natural gas will continue…