LNG is the new shale oil with the US as disruptor-in-chief

An LNG tanker passes boats along the coast of Singapore. Much has been written about how the expected glut in LNG supply is unlikely to materialize, given the rapid growth of demand for the super-chilled fuel in Asia. (Reuters)
Updated 14 March 2018
0

LNG is the new shale oil with the US as disruptor-in-chief

LAUNCESTON, Australia: Crude oil is likely to spring to mind if one is asked to name a commodity where the US is disrupting the market by becoming a swing producer and challenging traditional trade flows, especially in fast-growing Asian markets.
But it is increasingly likely that the US is about to play the same role in liquefied natural gas (LNG), as it ramps up production in an already well-supplied market.
Much has been written about how the expected glut in LNG supply is unlikely to materialize, given the rapid growth of demand for the super-chilled fuel in Asia, especially in China, which is now second only to Japan as an importer.
Major producer Royal Dutch Shell warned last month of an impending supply gap that will need more than $200 billion of investment by 2030 as the natural gas market grows faster than that for any other source of energy.
There is nothing wrong with Shell’s bullish forecast, and there is renewed interest around the world in developing LNG projects to meet forecast demand.
Investment in LNG projects fell off a cliff in recent years as the industry dealt with the ramifications of rapid supply growth, which has seen Australia add eight new large-scale plants, while the US is busy commissioning the second of its new export projects, with five more to come by 2019.
While Shell and others may be correct about the need for new plants, it is the next couple of years that could prove challenging for the LNG industry. Most of the new capacity built in Australia was done under the old industry model where long-term offtake contracts, often linked to crude oil prices, allowed for the financing of billions of dollars of investment with extended payback terms.
The model has been different in the US, with far less of the upcoming production committed to buyers, meaning more will be sold at spot prices linked to US benchmark Henry Hub natural gas.
This is where the role of the US in LNG starts to look eerily similar to the role its shale oil producers are playing in crude oil markets.
Traditional exporters, such as Saudi Arabia and Russia, have found it tougher than expected to push crude oil prices higher, mainly because customers, especially in Asia, have been able to turn to alternative suppliers.
OPEC and its allies, including Russia, have had success in draining excess global crude inventories, but it has come at the expense of market share in Asia. In 2017, for example, Saudi Arabia’s share of China’s imports was 12.4 percent, a drop from 13.4 percent the year before. The share enjoyed by the US rose from 0.13 percent to 1.84 percent. While the US is far from a major threat to Saudi Arabia in Asia, when you add gains by other smaller exporters not part of the OPEC and allies output-cutting deal, it starts to add up.
Just as shale roiled crude oil markets, it is likely that US shale gas will have the same effect, at least until demand growth eliminates the coming supply surplus.
The US will add about 50 million tons of annual capacity by 2020. Overall, the LNG market is going to have to adapt to the arrival of US production, but where liquefied gas differs from crude oil is in not having an established producer group that can coordinate a response.


First Abu Dhabi Bank to start commercial banking in Saudi Arabia this year

Updated 23 October 2018
0

First Abu Dhabi Bank to start commercial banking in Saudi Arabia this year

  • FAB is the latest foreign bank attracted by openings in Saudi Arabia
  • It had already completed its first debt capital markets transaction in the kingdom through its investment banking business

DUBAI: First Abu Dhabi Bank (FAB), the largest lender in the UAE by assets, said on Monday it will launch commercial banking operations in Saudi Arabia by the end of this year.
The bank, which was granted a commercial banking license in Saudi Arabia earlier this year, has been expanding its staff in the kingdom as it seeks to benefit from the government’s drive to move the economy beyond oil revenues.
It appointed Abdullah Abubakr as head of private banking in Saudi Arabia as of this month, according to his LinkedIn page.
FAB did not respond to a request for comment on his appointment.
FAB is the latest foreign bank attracted by openings in Saudi Arabia. The bank said it had already completed its first debt capital markets transaction in the kingdom through its investment banking business. In February, it was granted a license to conduct arranging and advising activities in the securities business. The bank also on Monday reported a 16 percent rise in third quarter net profit as net interest income and fees and commissions edged higher.
FAB made a net profit of 3.02 billion dirhams ($822 million) in the three months ending Sept. 30, up from 2.61 billion dirhams in the prior-year period, it said in a statement. SICO Bahrain had forecast FAB’s quarterly profit at 2.87 billion dirhams.
FAB’s performance was helped by lower net impairment charges during the quarter, with impairments falling 23 percent to 435 million dirhams. Loans and advances rose to 354 billion dirhams as of Sept. 30, up 8 percent from the same period of last year. Deposits totaled 455 billion dirhams, up 20 percent from a year earlier.