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The LNG bubble


LNG projects

The IEA warned in their monthly oil market report that the world “could drown in oversupply”. The situation in the gas market is not much better.

The IEA reports that oil supply is expected to exceed demand by at least 1.0 mbd for a third consecutive year in 2016, putting enormous strain on the oil system to absorb it efficiently. The situation in the gas market is not much better. Demand for gas is growing strongly, but a significant boost in LNG supply is currently coming on stream.

Over the next four years, projects under construction will add 165 bcm/yr of liquefaction capacity, which is a 50% increase on existing capacity. The biggest additions come from Australia and the US, where a number of projects will add around 80 bcm of capacity from each country.

Global LNG prices have fallen dramatically due to weak demand growth from northeast Asia and the boost in supply. Asian spot LNG prices have dropped from nearly 20 USD/mmBtu in the beginning of 2014 to 5.6 USD/mmBtu currently.

Gas prices are expected to fall further and remain low for several years. The falling cost of LNG technology and lower gas prices mean that demand could surprise to the upside.