'Homeless LNG' likely to keep market oversupplied this decade.

• Author: Persily, Larry
• Position: SPECIAL SECTION: Oil & Gas

Speakers at an annual Asian LNG conference in Singapore talked about "homeless LNG"--new supplies of liquefied natural gas (LNG) coming into the market without enough buyers willing to sign long-term deals to guarantee a destination for all the potential cargoes.

With LNG export projects coming online in Australia and the United States, with demand on the decline in Japan and uncertain prospects elsewhere in the Far East, and with cheap coal a price-competitive energy source, the world has more capacity to make LNG than it needs for the next several years.

"This excess in supply will have to find a home," Antonio Cailao, president of the Philippines National Oil Co. said at the annual LNG Global Congress in Singapore March 2-3. He said it will be a "beauty contest" based on price and contract terms.

Spot-market and short-term sales volumes are up as buyers take advantage of low prices in an oversupplied market. And the longer-term contracts that buyers are willing to sign are for smaller volumes, said Houston-based Jason Freer, head of business intelligence at Poten & Partners, a global energy advisory firm.

"Very few people out there in the market are signing long-term LNG contracts ... and why should they," said Leigh Bolton, founder and principal of Holmwood Consulting, a global energy consulting firm based in the U.K. Spot-market prices in Asia are under $5 per million Btu--down three-quarters from the record high two years ago when supply was tight--and are cheaper than many oil-price-linked long-term contracts.

The market oversupply will likely grow until 2020 before demand begins to catch up, said Desmond Wong, the London-based managing editor for LNG Platts news service.

Low Costs Will Win

Vivek Chandra, CEO of Texas LNG, a smaller-scale project proposed for the Texas coast, described it as: "The new world. The realization that the customer is king."

The low-price, oversupplied market is not hopeless, just sobering. "The really sound, commercially economical projects will go ahead," Bolton said. Many of the projects coming online in the near term were built on the premise that the high-priced Asian market would take all that the world could supply, he said. "Well, that's gone." Chandra offered a similar view: "The low-cost project is always going to win."

Anything that might come next will be based on market demand, he said. The first US export project in the Lower 48 states--the Cheniere Energy plant at Sabine Pass, Louisiana--shipped its initial cargo earlier this month. Construction continues on additional liquefaction capacity at Sabine Pass, and four more LNG plants are under construction in Texas, Louisiana, and on Chesapeake Bay in Maryland...