“The LNG market is facing another oversupply which is likely to be deeper and will persist for some years. Prices in Asia will be lower than in Europe, and at their worst, between 2017–19, while prices in Europe will not reach a low point until 2020. The key question the industry is wrestling with is: how low will prices go?” Mr Tomnay said.
Wood Mackenzie’s report, titled ‘Global gas prices – what will set the floor?’ asserts that China’s market policies will be key. While more new LNG markets will emerge with lower gas prices, particularly if oil prices climb, more liberalised market conditions in China could enable it to absorb a lot more LNG, mitigating the impact of the LNG oversupply on price. This includes improved regasification infrastructure access, reductions in regulated gas prices and allowing the curtailment of high cost indigenous gas.
New demand for gas and LNG could be created through the displacement of coal in power generation, Mr Tomnay said, determining a soft floor for gas prices.