• 4 minutes Is The Three Gorges Dam on the Brink of Collapse?
  • 8 minutes The Coal Industry May Never Recover From The Pandemic
  • 11 minutes China Raids Bank and Investor Accounts
  • 1 hour In a Nutshell...
  • 1 day Is OilPrice a cover for Green Propganda
  • 3 hours During March, April, May the states with the highest infections/deaths were NY, NJ, Ma. . . . . Today (June) the three have the best numbers. How ? Herd immunity ?
  • 3 hours Putin Paid Militants to Kill US Troops
  • 2 mins Why Wind is pitiful for most regions on earth
  • 2 days Victor Davis Hansen on Biden's mental acuity " . . unfit to serve". With 1 out of 5 Democrats admitting it. How many Dem's believe it but will not admit it?
  • 19 hours Putin Forever: Russians Given Money As Vote That Could Extend Putin's Rule Draws To A Close
  • 1 hour Joe Biden to black radio host, " If you don't vote for me you ain't black". That's our Democratic Party nominee ?
  • 20 hours Happy 4th of July!
  • 18 hours Apology Accepted!
  • 1 day Tesla Model 3 police cars pay for themselves faster than expected, says police chief
  • 2 days The Political Genius of Donald Trump
  • 3 days Per most popular Indian websites it was Indian troops not Chinese troops breach of LAC that caused the clashes. If you know any Indian media that claim to the contrary please provide the link
Big Oil’s Nightmare Is Coming True

Big Oil’s Nightmare Is Coming True

Royal Dutch Shell has followed…

Alberta Lays Out Plan To Recover From Oil Price Collapse

Alberta Lays Out Plan To Recover From Oil Price Collapse

Alberta's Conservative government is taking…

Tim Daiss

Tim Daiss

I'm an oil markets analyst, journalist and author that has been working out of the Asia-Pacific region for 12 years. I’ve covered oil, energy markets…

More Info

Premium Content

The Future Of Global LNG Is Here

Global liquefied natural gas (LNG) markets have evolved in just a few years, morphing from a somewhat limited supply of the super-cooled fuel as recently as four years ago to an ongoing supply glut that will likely last well into the next decade, perhaps shorter than that if China’s procurement of the cleaner burning hydrocarbon continues its current trajectory.

However, LNG markets will never be the same again. It all started with Australia’s massive LNG project development boom that added more volumes onto markets in the Asia-Pacific region, which accounts for a staggering 72 percent of all global LNG demand, with that number foretasted to tick up to 75 percent soon.

As Australian LNG projects came on-stream, extra supply forced prices downward. Projects in the U.S., Russia and elsewhere coming on-stream over the last few years have also added more than ample supply, creating an unprecedented supply overhang of the fuel.

In February 2014, spot prices for LNG in Asia breached the $20/MMBtu mark creating fiscal angst for major LNG importers, particularly Japan. Soon after, with prices trending downward, a market reversal for major LNG producers that were used to controlling the shots was underway. They had to scramble to make up for lost revenue as both prices spiraled downward and as LNG buyers were pushing for new shorter term contracts, the removal of restrictive clauses and even the renegotiating of these long term deals.

Robust secondary market

Concurrently, a secondary market for the super-cooled fuel was also developing, led by Japan and others who were taking advantage of their new found freedom amid a well lubricated market. In essence, buyers were now becoming sellers and creating trading houses, and making the super-cooled fuel trade more like a true commodity, in some aspects similar to the world’s top traded commodities crude oil and iron ore. While it will take several more years for LNG to continue to undergo both fundamental and systemic changes for that to happen, the movement is unstoppable.

In this light, Australian energy firm Woodside said last week that is signed a provisional deal with German commodities house Uniper to sell 2.4 million tonnes of LNG per year over a four year period, starting in 2019. The LNG will be supplied from Woodside’s portfolio sources to markets in Europe and Asia, Woodside Chief Executive Peter Coleman said in the statement. Related: Brent Oil Breaks Its Post-Crash High

A report in the Australian Financial Review said that this disclosure marked the Australian company’s ambitions to enter global trading, which has stretch well beyond its usual market foot print in the Asia-Pacific region.

Moreover, going forward the development of a more robust secondary market and shorter-term deals like Woodside and Uniper’s has both winners and losers. For producers, a secondary market can help them offload extra volumes that are not tied to existing formal contracts. For trading houses it provides ample supply of the commodity to help them gain their own market share. It also helps global LNG markets evolve as these trading houses can help LNG buyers fill in gaps in supply on an as needed basis.

This is a dynamic that can benefit China as the country continues to pivot away from dirtier burning coal-fired thermal power plants in favor of cleaner burning gas. Last year, Beijing energy planners were caught in an embarrassing situation as it moved too quickly to replace coal with gas, creating a troubling gas shortage in the northern parts of the country during the most bitter winter months.

On the other hand, the development of a more robust secondary market, with much of those volumes likely to be traded on the spot market, doesn’t bode well for new LNG projects that need to sign long term off-take agreements to finance their CAPEX-intensive facilities. (Think of the large number of new LNG project proposals being floated in the U.S.) For that to happen, a new model for financing LNG projects is needed, akin to an equity model that allows customers to become partial owners instead of signing restrictive long term off-take deals.

By Tim Daiss for Oilprice.com

More Top Reads From Oilprice.com:

Download The Free Oilprice App Today

Back to homepage

Leave a comment
  • Corvettekid on October 01 2018 said:
    The supply/demand forecasts I have seen show the glut ending by 2020 at the earliest, 2022 at the latest.

    There have been NO mega projects FID since 2014 so supply out from 2020 is practically nil.

Leave a comment

Oilprice - The No. 1 Source for Oil & Energy News