LNG export investments plunge amid global glut

 

A worldwide glut of liquefied natural gas has pushed investments in new export projects to a 17-year low.

This year, just 3.8 million metric tonnes per year of new LNG export capacity received a final investment decision, according to Barclays Plc. That compares with an average of 23 million tonnes in the previous six years.

The pullback comes as new terminals from the U.S. to Australia ship LNG across the globe, leaving the market awash in supply and sending prices for the fuel plummeting. While the glut has made developers reluctant to commit the billions of dollars needed to build a single export project, the current slowdown may set the stage for an investment rebound after 2020.

 

With the drop in price, we have seen an uptick in demand, but not at the level to soak up the huge amount of supply.

“2017 could be a difficult year for companies developing new LNG projects,” Nicholas Potter, an analyst at Barclays in New York, said in a note to clients Wednesday. Still, “the seeds are being sown for the next LNG market tightening.”

Since the beginning of 2014, the WGI Northeast Asia Spot LNG Assessment, a benchmark for the price of global LNG, has dropped by nearly 50 per cent. Meanwhile, global supply of the fuel may expand more than 40 per cent from 2015 to 2020, Barclays said.

“The market foresees an LNG supply glut coming up in the 20192022 time frame,” Het Shah, a Bloomberg New Energy Finance analyst, said in an email. “With the drop in price we have seen an uptick in demand, but not at the level to soak up the huge amount of supply hitting the market.”

If the LNG market recovers, investors may favour projects in the U.S., where export terminals can be built more quickly, Barclays said.