'Currently, a golden age for LNG buyers,' says global energy analyst.

• Author: Persily, Larry
• Position: OIL & GAS

A global oversupply, low prices, and market uncertainty have combined to make life difficult for gas producers and liquefied natural gas (LNG) project developers. Demand for LNG will grow in time, but "it is a very competitive market out there right now," said Deepa Poduval, senior managing director at Black & Veatch Management Consulting.

"Development of new greenfield LNG mega-projects will be challenging worldwide in the near-term as pricing and supply overhang gets played out," Poduval said at the 19th annual BC Natural Gas Symposium in Vancouver. "There are a large number of sources of potential LNG supply.... It is currently a golden age for LNG buyers."

Examples of changing market conditions are the LNG supply contracts signed by buyers several years ago in anticipation they would need the gas. Japan's Osaka Gas and also Chubu Electric Power, which is now part of the Japanese LNG-buying consortium called Jera, struck deals in 2012 to buy gas from the Freeport LNG project under construction on the Texas coast, with a scheduled start-up in 2018. But with weaker demand at home, both Jera and Osaka Gas are looking to sell volumes they have under contract from Freeport.

Buyers are becoming sellers, and buyers are also renegotiating for lower prices under their existing contracts, as India's Petronet did ten months ago when it succeeded in cutting almost in half what it pays for Qatari LNG by negotiating for new terms under the contract's oil-price indexation.

In addition to multiple other clients, Poduval during the past ten years has advised the state of Alaska, providing information to help state officials and the public better understand the economics of LNG projects. She did not offer any comments in her Vancouver presentation on the proposed Alaska LNG development or the state's effort to take over control of the project from the three major North Slope oil and gas producers.

The state has said its target market is Asia, where Japan, South Korea, and China are the big customers.

Oversupply Is Growing

Buyers in those countries and elsewhere in the world can count all the new LNG export projects coming online in the past couple of years and in the next few years, especially in Australia and the United States, with even more hopefuls lined up for the next decade. As they count up all the oversupply, they see the opportunity to negotiate for lower prices. While annual global LNG production capacity utilization was about 85 percent...