Data: LNG supply to outpace demand
Research report by Moody's states market imbalance will continue beyond 2020, keeping a lid on prices
The much anticipated expansion in global LNG capacity is in full swing; 34mn tonnes per annum (mtpa) of new supply capacity came online in 2016. Construction and commissioning continues at five US and five Australian projects.
The US projects, Sabine Pass (Ba1 positive), Corpus Christi (Ba3 stable), Cameron LNG (A3 stable), Freeport LNG (unrated) and Cove Point LNG (unrated) are advancing well, albeit with minor schedule overruns for some of them. On the other hand, several Australian projects have been blighted by large cost and schedule overruns, which have been compounded by falls in oil prices, negatively impacting investment returns for sponsors such as Chevron (Aa2 stable), Origin Energy (Baa3 negative), Royal Dutch Shell (Aa2 negative), Santos (unrated), and Woodside Petroleum (Baa1 negative).
Nonetheless, Moody’s expects a further 105 mtpa of new global capacity by 2020, bringing the total to 455 mtpa, while anticipating demand from the world’s largest importers to weaken. Japan, the consumer of over one-third of global LNG, will reduce its imports to 80 mtpa by 2020, a 9% reduction from its 2014 record.
Similarly, demand from Korea, the world’s second largest consumer, will be flat in the period to 2020. While Moody’s forecasts strong demand growth from China and India, as well as from many smaller, emerging markets, this growth will be insufficient to absorb the new supply capacity. As long as global supply capacity exceeds demand, US LNG offtakers will base their offtake volume and selling price decisions on their marginal cost of production. US projects will earn fixed liquefaction fees, which are expected to cover their unavoidable costs, including debt service.