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.


Saudi Arabia and UAE launch a new joint cryptocurrency

Updated 51 min 14 sec ago
0

Saudi Arabia and UAE launch a new joint cryptocurrency

  • The cryptocurrency will be limited to banks during its first stages
  • The program will also help the two countries evaluate the monetary policies of a centralized currency

Saudi Arabia and the UAE have launched a joint cryptocurrency during the first meeting of the Saudi-Emirati Coordination council Saturday in Abu Dhabi, UAE’s national press agency WAM said.

The cryptocurrency will be limited to banks during its first stages, until the governments have a better understanding of how Blockchain technology operates cross-borders.

The currency operates on the use of a “distributed database between the central banks and the participating banks from both sides,” aiming to protect customer interests, set technology standards and assess cybersecurity risks. The new program will also help evaluate the impacts of a central currency on monetary policies.

During the meeting, representatives of Saudi Arabia and the UAE also signed the Joint Supply Chained Security Cooperation program, which tests the two countries abilities to provide vital supplies during times of crisis and national emergencies, as well as share expertise and knowledge in the field.

All 16 members of the executive committee of the council followed up on the execution of the initiatives mentioned in the Strategy of Resolve.

Representatives also set five other initiatives to enhance the cooperation between the two countries, such as facilitating the traffic between ports, improving airports to make it easier for people with disabilities to travel, creating a financial awareness program for children aged 7-18, starting a joint platform to support local SMEs, and the integration of civil aviation markets,

The committee was headed by Mohammad bin Abdullah Al-Gergawi, minister of cabinet of affairs and the future of UAE, and Mohammed bin Mazyad Al-Twaijri, minister of economy and planning in Saudi. The committee will also monitor the implementation of the initiatives.