Analysts don’t foresee any material improvement in global market conditions for Liquefied Natural Gas (LNG) in the next few years.
According to financial services company Standard & Poor’s, global supply is expected to increase by nearly 40% by 2020 – from roughly 330 million tonnes per annum (mtpa) to 460 mtpa.
However that is based on projects already under construction.
Its report states: “We see the broader LNG market a bit like the proverbial oil – or LNG – tanker, slow to change direction. Given the volume of new supply, mostly contracted but also uncontracted, it would take a material event to shift market expectations in 2016.”
LNG prices are said to have plummeted more than 75% in the last two years amid a glut in global supply.
The report adds a weak price outlook and lower operating cash generation have resulted to around 30% to 50% cuts in capital investment outlays by oil and gas companies when measured from 2014 peak levels versus 2017 forecast spending.
It believes companies are now typically focusing on projects “with a relatively rapid payback rather than the multiyear investments like LNG”.
The report states: “The critical point for producers is that most new supply is already contracted. Their uncontracted or deferred cargoes may be exposed to spot LNG prices but the long term supply contracts mean the revenues are more closely linked to oil prices or other benchmarks. These are not necessarily linked to the LNG spot index.”