After several years in which oil and gas companies moved quickly to plan, fund, and build LNG export facilities around the world, the LNG market is starting to show cracks.
As with most projects based on the whims of commodity prices, there are boom and bust cycles. First off, LNG prices have crashed in part because of the crash in oil prices. But, LNG is also experiencing a bust of its own.
Although there is no single market for LNG, there is suddenly an embarrassment of riches in terms of liquefaction capacity around the world…a trend that will only grow worse with time.
This should not take astute investors by surprise. After several years in which new LNG supplies only came online at a trickle (LNG export capacity grew by just 1.6 percent in 2014, for example), a wave of projects are set to hit the market at the same time in the years ahead. With huge expansions planned in Australia and the United States in particular – and many more on the drawing board – LNG export capacity is expected to skyrocket by more than 40 percent before the end of the decade, according to the International Gas Union: from just around 300 million tonnes per year (mtpa) to around 420 mtpa by 2020.
(Click to enlarge)
The only problem is that even before all that new capacity reaches the market, LNG prices have already hit multiyear lows. The Platts JKM Marker – the benchmark price for LNG landing in East Asia – for September 2015…