LNG supply shortfall in 5 years as low prices hinder investment

LNG supply
A looming LNG supply shortfall may occur at a time when reducing emissions from coal and oil may be crucial in the fight against global warming.  Tellurian image. 

LNG supply surplus began in 2014

This week at the Gastech conference in Chiba, Japan, major liquified natural gas producers warn that an LNG supply shortfall is looming because low prices have discouraged investment in new production.

Executives with international gas majors said without investments in new LNG facilities, within five years suppliers may not be able to meet the needs of buyers at a time when reducing emissions from coal and oil will be crucial in the effort to fight climate change.

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“We are facing global overcapacity that is putting pressure on prices,” Total SA Chairman and CEO Patrick Pouyanne told the Gastech conference on Tuesday.

He added “the industry is entering a period of reduced investments … (that) could result in a lack of supply in five years. We must carry on investing for the future.”

Recently, low gas prices have changed the way buyers and suppliers do business.  Customers in Japan and other Asian countries have been pushing for lower prices and better contract terms, sometimes working as a block in order to lower costs.

Spot LNG prices in Asia were over $20 per million Btu in 2014, but with the recent LNG supply glut, prices have dropped to less than $6/mmBtu.

This driving down of costs and changing of traditional contract terms may mean some LNG producers will be unable to acquire financing for projects which can often require billions of dollars.

Some already planned projects have been deemed unfeasible.

A number of executives at the Chiba conference concur, including Peter Coleman, CEO of Woodside Petroleum who told reporters “Sellers are looking for prices above $7 per mmBtu; somewhere between $7 to $8 would get most projects going, and I think also that’s a sustainable level for buyers.”

Reuters reports Tellurian Inc said it will guarantee delivery from its LNG facilities along the US Gulf Coast to Japan for $8/mmBtu from 2023 under five-year contracts, including shipping.

“I’m going to take the volatility out of the market,” Tellurian Chairman Charif Souki told Reuters, after announcing his offer from the stage at Gastech.

Tellurian is planning to build the Driftwood LNG terminal near St Charles in Louisiana and has filed an application with the US Federal Energy Regulatory Commission to build the terminal which will have capacity of 26 million tonnes per year.

Gas supplies for the Driftwood terminal would come from a 96-mile link to interstate pipelines.

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