The state of play in the global LNG market—pricing, geopolitics and the potential impact on Asian gas markets
Jonathan SternChairman and Senior Research Fellow Natural Gas Research Programme, The Oxford Institute for Energy Studies
The APPEA Journal 55(3) - https://doi.org/10.1071/AJ14137
Published: 30 June 2015
Abstract
The repercussions of a transition away from a tight global LNG market, which began in the latter part of 2014, have yet to be fully appreciated, but with over 100 mt of new supply from projects nearing completion due to hit the markets over the period up to 2020, a period of price weakness looks likely over the next several years, with a major question being whether this period will see a decisive move away from traditional crude oil-linked (JCC) pricing.
A period of significantly lower prices would in turn raise questions of how many new LNG projects will be able to take final investment decisions unless there is a substantial fall in costs. These developments have occurred partly because of the decline in oil prices, but importantly also because of unexpected LNG and gas demand weakness in Asia—and especially in China. Reduced expectations of Chinese LNG demand have resulted partly from forecasts of lower GDP, but also because of competition from Central Asian and Russian pipeline gas.
Geopolitical developments in the Eurasian political and energy space, stemming from the ongoing crisis in Ukraine, have seen Europe seek to reduce its dependence on Russian gas, and Gazprom to diversify its exports to Asia and specifically China. Unless Asian (specifically Chinese) demand weakness proves to be short-lived, and Russian pipeline export initiatives fail, the surplus LNG supply cycle could extend to 2020 and beyond.
Jonathan Stern founded the OIES Natural Gas Research Programme in 2003 and was its Director until October 2011 when he became its Chairman and a Senior Research Fellow. He is Honorary Professor at the Centre for Energy, Petroleum & Mineral Law & Policy, University of Dundee; Visiting Professor at Imperial College’s Centre for Environmental Policy in London; Part Time BP Professor at the Moscow School of Management’s Energy Centre at Skolkovo; and a fellow of the Energy Delta Institute. Since 2011 he has been the EU speaker for the EU-Russia Gas Advisory Council. He is the author and editor of several books and many shorter works on energy and natural gas issues. His most recent edited book is The Pricing of Internationally Traded Gas (OUP: 2012). His most recent papers (co-authored with Howard Rogers) published in 2014 are: The Dynamics of a Liberalised European Gas Market: determinants of hub prices and roles and risks of major players, and Challenges to JCC Pricing in Asian LNG Markets, and are available to download from the OIES website at. |
