Commodity prices have crashed over the past year, and the market for LNG is no different.
Over the past five years or so, there has been a flurry of construction for LNG export terminals, as natural gas exporters hoped to take advantage of the sky-high prices for LNG in Asia. LNG prices jumped following the Fukushima meltdown in Japan – Japan was by far the world’s largest LNG importer before it was forced to shut down more than fifty nuclear reactors in 2011, and its dependence on imported natural gas spiked immediately after the disaster.
China, despite voracious demand for all sorts of commodities, has not been a huge consumer of natural gas. It uses coal for most of its electricity generation. Nevertheless, due to an effort to clean up its terrible air pollution, China has been central to corporate forecasts for huge annual increases in global LNG demand. As a result, LNG export projects proliferated around the world.
But a funny thing has happened along the way. LNG prices have crashed, with landing prices in Asia dropping from a high of $20 per million Btu (MMBtu) in early 2014 to around $8/MMBtu today. The bonanza for LNG exporters is not playing out due to a variety of factors. First is the collapse in oil prices. LNG prices are still largely linked to the price of crude, so plummeting oil prices have dragged down LNG as well.
…China’s slowing economy has put a dent in its demand for imported LNG, with imports down 3.5 percent in 2015 compared to a year earlier.
…Also, Japan is slowly returning to nuclear power. It brought its first nuclear reactor back online in August. More nuclear power generation will cut down on the need to import LNG.
…Then there is supply. The scramble to build LNG export terminals in recent years is leading to way too much supply. Companies proposed and broke ground on new facilities in the U.S. Gulf of Mexico, Australia, East Africa, Russia, and more. Global liquefaction capacity stood at 301 million tonnes per annum (mtpa) at the end of 2014, according to the International Gas Union. But there was 128 mtpa under construction – meaning global LNG export capacity will jump by more than 40 percent in the next few years. Demand doesn’t appear to be able to keep up…
Read also:
Buyers Market for LNG Turns Tables on Producers Amid Supply Glut, Bloomberg Business, Oct 5, 2015
Is the B.C. LNG industry sailing away?, CKNW, Oct 7, 2015
IN-SIGHTS 
Very timely Norm.
http://commonsensecanadian.ca/REPORTED_ELSEWHERE-detail/petronas-likely-to-put-bc-lng-project-on-hold-says-malaysian-business-paper/
LikeLike
David Bond makes too much sense. After all, this is what Grant has been saying for the last three years, or more. Heave Steve and send Chrispy back to school.
LikeLike
“But there was 128 mtpa under construction – meaning global LNG export capacity will jump by more than 40 percent in the next few years.”
Not included in that number are any proposed LNG projects in BC. Despite all the talk over the last few years, no LNG related construction in this province is assured, unless you count the billions of dollars for Site C and the huge electricity distribution spending by BC Hydro in northeast B.C.
The classic end cycle of a pump and dump scheme is to build excitement that attracts the suckers and gets them to pour in assets that soon turn to dust. As latecomers, BC can only participate by putting huge dollars and free resources into the game. The only return will be empty promises.
LikeLike
God! Somebody shoot me! I mean, I'm probably becoming major tiresome the way I go on about seeking court injunction against further development of Site-C, just for starters, and, in the longer term—like after the BC Liberals get bounced— convene a public inquiry into the dys-management of our BC Hydro. Yes, it's maddeningly complex (the perfidy, that is), but I try to keep it simple: the attack on BC Hydro absolutely has to stop, period—and maybe, maybe some punishment can be meted out as deterrent—somewheres down the road. First things first.
I thought I had a pretty good handle on this issue—until I saw Norm's graphic of how much IPPs are soaking BC Hydro and my brain almost exploded. It's almost as if a window of opportunity to kill off this public enterprise (the neo-right goal for all public enterprises) appears to be immanently) about to close, and the poison has to be dosed-up. It's mind blowing when you look at it graphically.
First, understanding that no judge would speculate on the behaviour of world LNG market prices, it would, on the balance of probabilities, appear that probable price, global competition which exists in fact, and various domestic circumstances, legal and Constitutional, in aggregate, suggest the massive Site-C outlay is extremely imprudent, to put it mildly, and more time is now needed to complete careful due diligence.
Next, add to the above the consistent and conspicuous malfeasance surrounding BC Hydro policy—starting with parasitic IPPs, and including a myriad of other suspicious manoeuvres, like knackering the Utilities Commission, should be examined forensically. Again, on the balance of probabilities, massive breach of public trust has to be shown to be fact, not partisan opinion.
I can see evidence such as Norm has compiled, in conjunction with other expert testimony, being enough to convince a judge of the necessity of injunction to prevent serious damage to the public weal; only then on to the matter of culpability which, I think, could not happen realistically for another 19 months—that is, begin to happen.
How high does the evidence of massive government malfeasance have to pile up before ignoring it becomes itself an offence?
The inquiry will be expensive, certainly, but it's tiny in comparison to what's at stake, and only unfortunate that the BC Liberals have intentionally left us with this task. I'm only interested in punishment insofar as it would deter others from attempting such a scam ever again. Otherwise, I just want to save BC Hydro from certain destruction if Site-C and IPPs are permitted to stand.
LikeLike
Well said Scotty!
LikeLike
Free enterprise proponents regularly claim the private sector is best equipped to make investment decisions and it should be able to do that without interference from government. BC's Minister of Graft and Corruption has often railed against socialists and socialism. Yet, here we have a ruling political clique determined to dedicate tens of billions of tax dollars to grow the fossil fuel industry against the advice of both economists and scientists.
British Columbia would be better off if we gave $100 million as severance pay to each of the 49 Liberal MLAs, provided they cancel Site C and the entire LNG program and resign.
LikeLike
Norm, I appreciate your tongue-in-cheek estimate of $100 million, but please don't even hint that it would take anywhere near that much to buy off those 49 stalwarts.
Sadly, based on some of your previous graphs, their giveaways of provincial resources can be had for less than a penny on the dollar, and that in the form of “donations” to the Liberal party.
These clowns aren't even astute enough to get fair value to the party for their unconscionable selloff of British Columbia's assets.
So far, nobody has been convicted of lining their personal pockets as a result of corporate giveaways, but if it walks like a duck, quacks like a duck etc…………
I welcome the inquiry, if it ever happens.
LikeLike
If we want an inquiry that get attention, it has to be a real, ad-hoc citizens' movement. The opposition gets little time in the Legislature and get almost no attention from the corporate press whose loyalties lie not with the citizens but with the elites who fund them.
LikeLike
Hey Norm…… could you be wrong ? According to big Rich, he's been meeting with the major players and it's still on track. Big Rich makes it sound like Petronas is just itching to get moving after the 19th so the Federal environmental review can proceed.
Big Rich say's the article was “false”. Now am I correct that it was you Norm whp broke this story and the MSM avoided it until they could get something positive from Rich ?
PS…. the first line is me being funny.
Guy in Victoria
LikeLike
And big Rich also believes in “Santa Claus”…Chrispy must be a big fan of the ” Easter bunny”.
Sadly, this mentaility has led the rest of us into the BC liberal nightmare.
Bring on the enquiry…time to get rid of the “fairy tale governance” we have.
The MSM as always is in denial and I don't mean the river, although it might be a good place for them.
LikeLike
Canadian taxpayer to pay $5.3 billion to help dairy and auto sector due to losses from TPP:
http://www.theglobeandmail.com/news/politics/tpp-trade-deal-reached/article26648472/
http://www.cbc.ca/news/politics/canada-election-2015-harper-auto-sector-tpp-1.3258339
LikeLike