Thoughts from The Carnrite Group

Thanks to the shale revolution and the need to find higher priced outlets for the seemingly endless supply of natural gas, companies in the United States plan to significantly increase current LNG export capacity. The new capacity will transform a region once known for its reliability as a net importer and place it in direct competition with Qatar and Australia as one of the world’s largest LNG exporters.

 

The transformational shift in the United States (when they increase current LNG export capacity), paired with Australia’s Gorgon and Wheatstone “mega-facilitiesundeniably poses the threat of oversupply in the future. As oversupply lingers, market prices will continue to be exposed to downward pressures forcing suppliers to re-think longstanding business models and call into question project economics. The latter has led to the postponement of Final Investment Decisions (“FID”) on numerous projects, which poses the question of whether delayed FIDs will lead to the supply crunch some majors are predicting. However, with the increasing scalability of LNG liquification facilities and the increasing range of regassification solutions, FIDs should become more financially manageable and mitigate some of this volatility. The pendulum of concern of over- or under- supply of LNG in the market continues to swing back and forth and will continue to do so for the foreseeable future. Projects will need to keep up with the increasing demand for LNG, particularly from the Asian markets who are also now hedging LNG. Continued shifts in market dynamics will continue to alter the market equilibrium.

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