| SINGAPORE, Sept 8
SINGAPORE, Sept 8 The liquefied natural gas
(LNG) industry has morphed from energy's golden child to black
sheep in the last two years, with demand slumping just as
While low prices are a boon for consumers, the lack of
demand and lowered revenue will threaten the efforts of
companies to recoup investments in LNG export terminals in the
United States and Australia. Further, future projects will have
a hard time gaining approval.
Asia demand was expected to soak up this supply but the
region has turned to alternative and cheaper fuels. LNG imports
to Japan, the world's biggest consumer of the fuel, are down 5.3
percent for the first seven months of 2016, government data
shows. Meanwhile, South Korea's imports in July dropped 15.2
percent from the same time a year ago.
These numbers mirror the lacklustre global LNG demand growth
that Dutch bank ING said was only 1.5 percent over the past five
At the same time, ING said existing LNG exporters from the
U.S., Australia, and Qatar plan to add 190 billion cubic metres
(bcm) per year of liquefaction capacity by 2020, a 50 percent
increase from current levels, taking total global capacity to
600 bcm a year.
"To maintain current LNG utilisation rates, we need to see
LNG demand grow at 7.6 percent between now and 2020," the bank
said in a report on Wednesday.
While coal and oil, LNG's competitors, have risen this year,
LNG's ties to the fuels limit its gains. LNG's common price link
with crude oil keeps a lid on gas while coal is a cheaper
alternative for power generation than LNG.
Once one of the hottest commodities, Asian LNG spot prices
LNG-AS almost tripled between 2010 and 2014 to over $20 per
million British thermal units (mmBtu), attracting huge
investment and triggering new LNG trading desks opening from
London to Singapore.
But soaring output from Australia and the United States, as
well as the general commodities slump, pulled LNG prices back by
almost 75 percent to under $5.50 per mmBtu.
MORE TO COME
Even with the current LNG oversupply, there is more to come.
Huge reserves off Africa's east coast, in the eastern
Mediterranean, and in Canada are waiting to be developed, and
current exporters like Qatar, Russia, Australia, and the United
States have large reserves they could ramp up.
Traders hope the glut will create a liquid LNG spot market,
a much talked about affair that has not happened.
Yet there are stumbling blocks here too. While some buyers
including Japan's Jera - the world's biggest LNG importer - have
said they want to reduce their long-term contract volumes in
favour of more spot LNG trading, other importers remain
"We need security of supplies as we rely entirely on LNG
imports, so long-term supply contracts suit us well. We don't
like trading," said Jane Liao, Deputy Chief Executive at
Taiwan's CPC Corporation, a top five global LNG importer, and an
event in Singapore last week.
Yet not all is doom and gloom. Sustained low prices along
with spreading environmental awareness against the use of coal
mean that LNG demand will rise, especially in economically
"We're expecting total LNG demand to double by 2030, and for
Asia to account for 40 percent of that demand growth," Steve
Hill, Executive Vice-President for Gas and Energy Marketing and
Trading at Shell, said at the FT Commodities Summit in Singapore
"China has the most significant upside potential in terms of
gas demand. China's gas share is only around 6 percent. But that
share will only grow from now so that's the market to watch in
Asia," he added.
(Additional reporting by Sarah Plattes; Editing by Christian