Lower Asia demand growth and tumbling crude price signal weak liquefied natural gas market in 2015
Oil and gas exporters in the GCC are being hit by a double blow as the collapse in global oil prices is echoed by a drop in liquefied natural gas (LNG) export prices.
According to UK-based energy consultancy Wood Mackenzie, prices fell from a peak of more than $20 a million BTUs in late February 2014 to less than $10 a million BTUs at the end of November.
Spot prices into Asia hit a new low of $9.7 a million BTUs in early January 2015.
Qatar is especially vulnerable to the price drop as it generates the majority of its oil and gas revenues from LNG sales.
The UAE and Oman are also likely to be affected as they complement their crude sales with significant gas exports.
Driving the crash in prices was lower demand in Asia and an increase in LNG production in the Asia Pacific region.
The wave of new LNG supply in the Asia Pacific region included the PNG LNG project in Papua New Guinea, which ramped up to full capacity.
UK-based BG Groups Queensland Curtis LNG (QCLNG) project in Australia also came online, loading its first cargo in December.
Wood MacKenzie estimates that global LNG production increased by 5 million tonnes a year (t/y) in to reach 246 million t/y in 2014.
Over 2014, growth in demand for energy in China slowed as economic growth moderated, while in Japan, the countrys reliance on gas was reduced as it restarted nuclear reactors after the shutdowns that followed the Fukushima nuclear disaster in 2011.
The big surprise [of 2014] was that Asian LNG demand was much lower than expected, says Giles Farrer, principal analyst for global LNG at Wood McKenzie. Demand in emerging markets, such as China, failed to grow to the extent anticipated and demand in the established South Korean market fell considerably.
[LNG prices] then fell further, as Brent oil tumbled from $110 a barrel in August to below $60 a barrel in December.
Oil-linked LNG prices are expected to continue to fall in 2015, as contracts are renegotiated to reflect the weaker crude market.
The lower-than-expected demand growth in Asia is bad news for Qatar the worlds largest LNG exporter which sells the majority of its gas to the region.
As well as weaker demand growth in Asia, Qatar, along with the UAE and Oman, faces competition from significant emerging LNG industries in Australia, North America and elsewhere.
Qatar has an LNG capacity of 77 million t/y and has no plans to expand this while there is a moratorium on production at the offshore North Field.
Meanwhile, the UAE has limited potential to expand exports and Oman has been operating at less than capacity for several years due to a lack of gas supply.
With an estimated 100 million t/y of new liquefaction capacity forecast to hit the market in the next four years, the GCCs bargaining power in the LNG market looks set to diminish as new players fill the market.
A MEED Subscription...
Subscribe or upgrade your current MEED.com package to support your strategic planning with the MENA region’s best source of business information. Proceed to our online shop below to find out more about the features in each package.