Full Title: Global LNG: Will new demand and new supply mean new pricing?
Author(s): Ernst & Young
Publisher(s): Ernst & Young
Publication Date: 3/2013
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The report looks at the evolving market dynamics for global LNG. The “Global LNG report – Will new demand and new supply mean new pricing” indicates the near-consensus view of strong LNG demand growth over the next 10-20 years, but with a growing role for more price-sensitive buyers who are likely to be less willing to pay supply security premiums.
With the start-up of the world’s first commercial-scale liguiefied natural gas (LNG) plant at Arzew in Algeria in 1964, the modern global LNG industry is approaching its 50th birthday in 2014.1 A massive amount of new LNG capacity has been proposed — as much as 350 million (metric) tonnes per year (mtpa) — which, if all were built, would more than double current capacity (of less than 300 mtpa) by 2025. Even with reasonably strong demand growth, this implies growing supply-side competition and upward pressures on development costs and downward pressures on natural gas prices. Nevertheless, the very positive longer-term outlook for natural gas is driving investment decisions, both in terms of buyers’ willingness to sign long-term contracts and sellers’ willingness to commit capital to develop the needed projects.
LNG demand growth is front-loaded, but in the wake of a capacity surge over the last few years, capacity growth is now back-loaded. We are seeing a post-Fukushima squeeze, as well as a slowdown in near-term capacity additions, pointing to relatively tight markets over the next few years. LNG development costs have been rising at a torrid pace, and with LNG demand shifting to new, more price-sensitive customers just as the supply side battles with rising costs and increasing competition, sellers must adapt.