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Will Low Oil Prices Shatter LNG Hopes?

Introduction

As 2014 draws to a close, the oil markets are in free fall, leaving energy investors with few good options. Oil prices are now at five-year lows with no indication that they will recover in the short-term.

Even worse, the pain from low oil prices is rippling through other markets, including the global liquefied natural gas (LNG) trade. In fact, LNG investments are looking worse than they have in years.

That is because prices for LNG in Asia – where much of the global growth is expected to come from – are linked to the price of crude oil. So, as crude oil prices have collapsed, so has the LNG market. A huge backlog of LNG projects are expected to finish construction and come online in 2015, horrific timing considering the oil price collapse already underway.

Led by oil majors Royal Dutch Shell (NYSE: RDS.A) and Chevron (NYSE: CVX), companies have put an estimated $250 billion on the line building LNG projects over the last several years, investments that could turn sour if crude oil prices don’t rebound.

Moreover, there are two big bear trends underway in the LNG market. The first is supply. There is an excess volume of LNG set to hit the market in the coming years, with the majority coming from Australia. The second trend, which comes as more of a surprise, is the slowing economic growth in China. China’s once-insatiable appetite for all sorts of commodities now looks to be somewhat quenched.

China’s state-owned Sinopec (HKG:…




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