LNG market headed for ‘structural oversupply’ that will cap prices

(Bloomberg; Aug. 20) - The golden age of gas lost some of its luster this month. Japan, the world’s biggest LNG buyer, restarted is first nuclear reactor Aug. 11, re-embracing atomic power to shrink its energy-import costs. A week later, a production milestone was marked at Santos’ Curtis Island plant in Australia, a new LNG plant that’s part of a record capacity increase in that country. Japan’s return to nuclear power and China’s economic slowdown are fouling up the plans of companies that sank hundreds of billions of dollars into new LNG supply. A glut will cap prices for years, Citigroup said.

“Japan is going to do very well out of this,” Christopher Haines, a senior oil and gas analyst at BMI Research in London, said Aug. 20. “Australia will probably be hit the hardest, there is a lot of new (LNG) capacity coming online.” Meanwhile, utilities have applied to restart 25 of Japan’s 43 reactors. Next year, 11 units may restart, according to Polina Diyachkina, an analyst at Macquarie Group.

“Japan has certainly not been positive for global LNG” even as the pace of nuclear restarts has been slower than anticipated, said Trevor Sikorski, an analyst at Energy Aspects in London. “It looks like the market is going into structural oversupply.” LNG producers are forecast to add 50 million metric tons of new capacity next year, the largest single annual increase in history and equivalent to a fifth of current global demand, according to Sanford C. Bernstein & Co.