Australian LNG operators are facing a difficult outlook with low commodity prices and high supply. How long do you believe it will take until the market will correct itself?
The general consensus is that it will take until at least 2020 before the current surplus/low price cycle turns around. It is difficult to imagine circumstances in which the turnaround could happen more quickly, unless for some reason a major gas or LNG supplier drops out of the market.
However, lower gas and LNG prices may restart demand growth, particularly in regions such as South East Asia, Latin America and the Middle East which are relatively new LNG markets and have considerable growth potential.
However the biggest LNG demand potential is probably in China where a combination of lower than expected economic (and hence energy demand) growth, combined with high domestic gas prices, has slashed Chinese gas demand growth rates from the double digits of the early 2010s. A revival of Chinese GDP growth combined with concern over urban air quality could result in increased demand for gas and LNG which, given the size of the country would translate into substantial LNG requirements.
In addition, the current low prices will result in substantial restriction of new gas and LNG supply developments, and possible accelerated decline in production in older provinces such as the North Sea with high operating costs. The combination of reduced supply and increased demand will eventually lead to supply/demand balance and higher prices. The critical question is when that will be.
How do you believe the United States’ emerging LNG industry will alter the dynamics of the international LNG industry?