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LNG market risks oversupply from new export projects: CEOs

The LNG market could end up with excess supply in the next decade as companies race to build a new wave of LNG export projects, even without finalizing customers, senior executives said Tuesday at an industry conference in Australia.

The oversupply will result in lower prices and affect profit margins, in a similar way to how the LNG market has been overwhelmed by excess supply from Australian and US projects starting in the last couple of years outpacing demand growth, they said.

The S&P Global Platts JKM — the benchmark price for spot LNG in Northeast Asia — for July cargoes was assessed at $4.497/MMBtu Friday, as spot markets remained bearish with a supply overhang from multiple projects ramping up production.

“What we are seeing in the market is a number of projects going to final investment decision without having pre-sold all of their volumes,” Peter Coleman, chief executive of Woodside Energy, told reporters at a press conference.

He said the trend is a concern because it signals that everybody expects the market to start tightening in 2023-24, and companies are holding onto their volumes until the market tightens.

“If too many projects do that, of course there will never be a tightening because everybody will be trying to get in at the same time,” Coleman said. “So that has been a change over the last 12 months as we’ve seen LNG Canada go to FID, for example, with only a small amount of its volume sold, and we expect others are going to start to do similar things.”

Industry executives said while this reflects the classic peaks and troughs of a commodity cycle, LNG could miss out on the peak prices, resulting in an extended period of low prices.

ConocoPhillips CEO Ryan Lance said it was a buyer’s market, and buyers want shorter terms and favorable pricing models to take advantage of spot market swings.

GREENFIELD GROWTH “As for the long term, we expect the current oversupply to tighten by the mid-2020s,” Lance said at the APPEA 2019 conference in Brisbane Tuesday. “By then the brownfield supply options will be gone and the greenfield projects will be needed.”

But the greenfield projects are adding up quickly, with many project developers proceeding without firm offtake agreements in place.

“Global LNG demand growth has averaged 6% annually over the last decade,” Lance said. “About 4% annual growth is expected over the next decade. World demand topped 310 million mt last year and will likely pass 500 million mt by the early 2030s.

“Not many industries can look forward to growth like that. It is the very definition of opportunity for most exporting nations, and the companies that serve the market,” he said.
Source: Platts

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