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Could the LNG Boom go Bust?

For the past decade, LNG traders have sold the idea that investing in billion dollar export projects was a good way to make fast profits. The growth in import markets to 37, with the addition of Bangladesh and Panama in 2018 and Asian demand, especially from China and South Korea, made LNG liquefaction export plants a great bet. In 2018, world trade in LNG reached a record 316 million tonnes (MT), an increase of 28.2 MT on the previous year. In February 2019, a further 101 MT was under construction or sanctioned. Not surprisingly, energy traders and analysts are now thinking the unthinkable; could the current boom in LNG go bust?

Market surplus

The world seems awash with LNG. Supply has been boosted by the emergence of U.S. and Russian LNG exports. Thanks to burgeoning U.S. shale gas production on the American mainland, five export plants have opened since 2016 (including Cove Point, which can handle Q-Max ships with a loading capacity of 266,000 cubic metres) and made the U.S. a serious player. Russia’s Yamal and Sakhalin plants opened in 2018 and 2017, respectively. Completion of new projects, new trains coming onstream and higher utilization of existing facilities have raised output in Australia, Cameroon and Qatar. The result is seen in lower prices and fears of an overhang of supply lasting to at least 2022. Rudolf Huber, President of LNG Europe, an advocacy organization, attributes the oversupply situation to “misinterpreted market signals over the last ten years. And it goes back until before the shale revolution, when the entire world thought the U.S. would be the biggest LNG importer in time.”

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