Swamped with gas
Both demand and prices will need to pick up to ease the oversupply
The global glut of liquefied natural gas shows no signs of dissipating as over 70m tonnes more exports are expected to reach markets over the next two years.
Global supply of LNG will reach 319.4m tonnes in 2018, according to Energy Aspects, up from 249.2m tonnes this year and 234.1m tonnes in 2015.
Most of the new gas arriving by end-2018 will be from projects in Australasia and the US, which together will account for 53.5m tonnes a year of capacity additions-around 76% of the total. Next year alone global LNG capacity will rise by 51m t/y, up from the 39m t/y added this year.
The consultancy says that the "relentless" growth means that around 58m t/y of capacity will be seeking a home. Most of this-around 48m t/y-will be "lacking identifiable demand".
Europe will certainly not be able to pick up all the slack. Last year, the continent imported just 40.1m tonnes of the LNG. This year, Energy Aspects expects it to take miserly 2.5m tonnes more.
Mild winters, high import prices and a general economic slowdown have all helped to curb demand for seaborne gas in Asia, historically the global driver of LNG consumption.
Asia's demand growth will slow next year, increasing by just 3.5m tonnes (around 3%) to reach 179.9m tonnes. That's down from a 6m-tonnes rise in imports this year.
Import requirements in North America will be flat over the next two years, at just 2.2m t/y and in Latin America they will fall, Energy Aspects forecasts.
Anyone watching the LNG market will know what this has done to prices. The slump has been severe.
In mid-September, spot LNG cargoes in Southeast Asia were trading at around $5.40 per million British thermal units, according to pricing agency Argus Media. That's down from average prices of around about $7.50/m Btu last year and about a third of the price from just a few years ago.
Next year, Energy Aspects says prices will average just $4.50/m Btu in Japan, India, Spain and Argentina.
But the price weakness could affect supply. Without an improvement in the market outlook, around 5m t/y of anticipated North American production could fail to materialise in 2018. Some of the high-cost Australian coal-bed methane projects, such as Santos's Gladstone project, could ramp down.
Many projects have already been shelved. Petronas and Shell both recently postponed final decisions on whether to invest in their Canadian LNG projects. Development of the Alaska LNG project has been handed back to the government as the project developers found it too costly.
A dearth of projects being sanctioned could result in a global supply shortfall of around 125m-150m t/y, according to the Oxford Institute for Energy Studies. But for exporters pumping into a glutted market, that looks a long way away.