China Is Erasing The Gas Glut
China and other countries in Southeast Asia are helping erase the LNG glut, which was thought to last well into the next decade.
China is in the midst of a radical overhaul of how many of its citizens heat their homes. The government has made an aggressive push to scrap coal burning, particularly in smoggy cities, replacing home coal furnaces with natural gas. The effort has been so successful, arguably too successful, that there has been natural gas shortages this winter.
At the global level, China is helping to eliminate the glut of LNG, which many analysts predicted would stretch into the 2020s after a series of high-profile LNG export terminals came online in recent years.
Several of them, including Chevron’s Gorgon LNG facility in Australia, saw tens of billions of dollars’ worth of investment, massive bets on the future of LNG demand in Asia.
At the start of 2017, there was an estimated 340 million tonnes of annual LNG capacity (mtpa) around the world, up by more than a quarter since 2012. But all of the new capacity helped crash prices. At the start of 2014, for instance, spot LNG prices in Asia – the Platts JKM marker – traded at about $20/MMBtu. A year later, spot cargoes were down by two thirds.
The long lead times for LNG export terminals make it hard for the markets to respond nimbly to changes in supply and demand. Sudden large additions of export capacity leave the market drowning in supply, while demand increases at a more gradual pace.
So many new terminals have already come online, but with 114 mtpa of LNG under construction, the LNG markets are thought to be under threat from still more waves of new supply. An estimated 57 mtpa was under construction in Australia, as of last year, with a further 31 mtpa in development in the U.S.
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