Global Push for LNG Creates 'Gas Bubble' That Could Bust
...
Much of the rationale is falling apart. The world has changed dramatically since many LNG projects originally received the go-ahead. The price of LNG in Asia — the so-called Japan-Korea Marker, or JKM —collapsed to just above $2 per MMBtu this year, while U.S. natural gas prices (using the Henry Hub benchmark) have traded at roughly $1.80/MMBtu. After factoring in the cost of liquefaction and transport, the window to export American LNG on the spot market has temporarily closed.
But deteriorating economics pre-date the pandemic. The market was already souring last year as a wave of new projects came online and demand failed to keep up. Market prices in Europe and Asia declined by roughly 45 percent in 2019 as export capacity swelled, according to the International Energy Agency (IEA).
If the market was already weakening, the pandemic decisively pushed it into a depression. Even contracted cargoes have been canceled in growing numbers in recent months as the worldwide glut deepens. For July and August, LNG buyers overseas canceled around 80 cargoes from the U.S., and export terminals on the Gulf Coast are only operating at a fraction of typical capacity. The more exports decline, the more gas becomes trapped within the United States, deepening the glut.
Despite the negative direction, the gas industry and its financial backers continued to pour capital into new LNG terminals, at least until recently. Last year was a record year for investment and the trend continued into the early part of 2020. Globally, spending on LNG infrastructure soared to $196 billion between April 2019 and May 2020, up from $82 billion in the year prior, according to the Global Energy Monitor study.
The spending spree is now hitting turbulence. At least 11 major LNG projects from around the globe have run into some form of disruption, with problems stemming from low natural gas prices, heightened protest from impacted communities, as well as disruptions due to the spread of COVID-19, according to Global Energy Monitor. Delays and canceled investment decisions are mounting.
...
However, others warn that the downturn is not transitory. Global Energy Monitor warned that the “gas bubble” could pop. Massive LNG projects carry multi-billion-dollar price tags, with very aggressive assumptions about demand growth. China stands at the very core of every long-term demand forecast. If China pursues alternatives, or even finds gas supplies via pipeline from its neighbors, the rosy scenarios could badly disappoint.
“China is like the single point of failure for the LNG industry,” Clark Williams-Derry, an energy finance analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), told DeSmog. “In order to really inflate this market, it doesn't work without China.”
...
https://www.desmogblog.com/2020/07/13/global-energy-monitor-report-lng-gas-bubble