WorldOil

Uncertain supply and demand outlook for LNG

Global demand for LNG is growing at its lowest rate in more than a decade due to global economic recession, falling oil and oil product prices, high and volatile natural gas prices relative to competing fuels (which have prompted some consumers to switch to more stably priced fuels) and increased confidence in US gas production and reserves. The slowdown in LNG demand is happening as the LNG industry is about to increase supply capacity by some 50% over the next three years, with about half of the new capacity located in Qatar. A short-term supply glut seems inevitable. Many of the suppliers of short-term cargoes with destination flexibility-who benefited from the very high unit prices that Asian buyers were prepared to pay between July 2007 and October 2008-will find difficulty in landing such cargoes at premium prices in 2009. The reason that the industry is underpinned by long-term Sale and Purchase Agreements (SPAs) will again become evident. This change in market conditions is likely to lead to some liquefaction development projects being delayed or cancelled.