Future of LNG: Oversupply or Shortage?
As the industry is stepping into the new year, the speculations and forecasts about the future of the LNG market are ranging from doom to boom. But which is the most likely scenario? Or will the market see both as it shifts from LNG oversupply to a shortage in a matter of a few years?
Signs of LNG Oversupply
The new supplies from the U.S. will provide excess LNG volumes in the next three years, forecasts Rystad Energy. The multiple projects that have received FID could help U.S. LNG to surpass 20-25 Bcf/d of capacity in the next seven years. Overall, there will be a record number of LNG project sanctions in 2019, says research and consulting company, Wood Mackenzie. The capacity will triple from 21 mmtpa sanctioned in 2018 to 60 mmtpa.
While it would be a great resource to satisfy the growing Asian demand for LNG, especially in China that had 40-45% growth in 2017 and 2018, a slowdown is predicted by Wood Mackenzie. The Chinese demand for LNG is expected to grow at around 20% this year, paling in comparison to the previous period. As the LNG demand in Asia slows, the LNG oversupply will be absorbed by Europe since it is moving away from increased reliance on maxed-out Russian and Norwegian imports, the company reports.
The LNG oversupply projection is echoed in an earlier report by McKinsey Energy Insights in its North American Gas Outlook to 2030, saying that the global LNG market will experience a period of excess from 2021 to 2024. No new projects in North America will be necessary as the lesser demand will be easily met with existing facilities.
Warnings of LNG Shortage
In recent years, the spot delivery trend has emerged from LNG buyers. For them, this setup allows more flexibility to buy the supply as needed. In 2017 such short-term contracts increased 17%, resulting in the highest ever amount of cargoes – 1,100. However, this development is hindering the investments in facilities for processing and shipping gas as sellers rely on long-term contracts for the capital. According to the Shell outlook, this underinvestment in new projects could cause LNG shortage by mid-2020s.
To mitigate the tightening of the market, long-term contracts fell into favour again in 2018, growing by 38% on a year-on-year basis. This signals the concern of buyers that the rapidly growing global demand for LNG could cause a deficit of supply post-2022, reports Rystad Energy. Buyers like Japan, South Korea, Taiwan and China are firmly holding on to long-term contracts to ensure the security of supply in case the lack of it could leave them without the precious resource.
The world’s leading LNG exporter Qatar is also preparing for a possible shortfall. The head of Qatar Petroleum, Saad al-Kaabi, has even warned that the shortage could come sooner and will be bigger than expected.
Which is more likely?
While analysts are not quite sure on which way the tide will turn, exporters and buyers with first-hand experience of day-to-day operations may have a clearer picture of the direction the market will take. Luckily, a great number of industry insiders, strategists, executives, and decision-makers will be at the Gas & LNG Summit Canada in Calgary on November 5th to discuss the emerging trends and the future of the whole industry. Tickets are still available, so register now to guarantee your spot and get informed answers to all your questions.