Demise of LNG? | Russell T. Rudy Energy LLC
We tend to think of oil, natural gas, liquefied natural gas (LNG), coal and nuclear energy as separate markets. Domestically, and in the short term, this is true. However, globally, and in the long term, these are all interrelated. Economists correctly contend that when a commodity’s price changes, it affects the prices of compliments and substitutes. The recent crude oil price collapse has endangered many LNG export projects according to a recent article in “Rigzone”.
Just four years ago the International Energy Agency (IEA) predicted that global demand for fuel for heating and power generation would increase 16% by 2016. Now, the IEA has reduced this demand growth to 11%. Weakened economies in Asia are a major factor. In 2014 global demand for natural gas expanded only .4%, the smallest gain since 2009. This is largely a result of shrinking imports by Japan, South Korea, India and China. Consequently, spot LNG prices in Northeast Asia have slid 56% over the past year.
Weak demand is not the only reason LNG projects, especially those in North America, are in danger. The global glut of crude oil has driven down prices, and many Asian LNG contracts are tied to crude. Japan has started using nuclear energy for power generation again, and Australian LNG projects offer Asian buyers an abundant and stable supply which is relatively nearby. In fact, Australia has 7 new plants scheduled to start production over the next two years.
Five years ago 90 LNG export projects were in the planning stages. Now, it looks like only 5 of these might still be viable. Cheniere Energy Inc.’s Sabine Pass terminal is scheduled to start-up later this year and appears to be safe. Also under construction are Freeport LNG Development’s terminal in Texas, Dominion’s Cove Point Maryland project, and the Energy Transfer/BG Lake Charles joint venture. However, Excelerate Energy has postponed its floating terminal in the Gulf of Mexico, and more than half of 38 proposed LNG projects in the contiguous U. S. may never be built. An additional 20 LNG ventures in Canada may be canceled.
As James Taverner with IHS Consultants in Tokyo observed recently, “The global LNG industry now resembles a game of ‘musical chairs’ with far more projects than the market can absorb.”
To read the article in its entirety, please go to http://www.rigzone.com/news/article_pf.asp?a_id=141018 .
