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LNG Another Casualty Of Low Oil Prices
Submitted by Nick Cunningham via OilPrice.com,
The oil industry is facing rising debt from collapsing oil prices, but there could be another sector that becomes a casualty of the low oil price environment: liquefied natural gas (LNG).
Much of the global LNG trade occurs in Asia, where buying and selling occurs according to long-term fixed contracts that are indexed to the price of oil. As a result, when oil prices were high, so were LNG prices. That is exactly why there has been a rush along the U.S. Gulf Coast to begin exporting cheap American natural gas to take advantage of high prices in Asia.
The practice of indexing LNG contracts to the price of oil was something that Japan, the world’s largest consumer of LNG, had hoped to change. High oil prices were inflicting an economic toll on Japan, which had radically increased energy imports after shuttering its nuclear reactors. However, oil-indexed contracts cut both ways. Now with oil prices hovering around $50 per barrel – less than half of what they were last summer – spot cargoes for LNG have seen their prices collapse as well. Japan is in no hurry to see the industry undergo dramatic reforms.
Not only are low oil prices pushing down LNG prices, but demand in Asia for LNG is much lower than anticipated. In fact, a new Wood Mackenzie analysis says that weak demand in China, Japan, and Korea helped push LNG prices below $10 per million Btu at the end of 2014, less than half of the $20/MMBtu spot cargoes were selling for earlier in the year.
Adding to the sector’s problems is the fact that new supplies are starting to come online. A massive build out of LNG export capacity is still underway, with earlier projects now reaching completion. Just as the shale boom led to oversupply and crashing prices, LNG markets are showing early signs of a similar bust.
Last year, ExxonMobil brought online its Papua New Guinea project and ramped up to full capacity, helping to supply Asian customers with 6.9 million tonnes of LNG per year (mtpa). But new supplies in 2014 were nothing compared to what is coming down the pike. An estimated 100 mtpa of new liquefaction capacity is set to hit the market between 2015 and 2018, which will be about a 35 percent expansion over last year’s total global capacity of 290 mtpa.
Demand may struggle to handle all the new supplies, which could keep prices much lower than expected. That spells trouble for the spate of projects under construction as well as the ones set to begin operations this year.
For example, Gladstone LNG, a massive project on the northeast coast of Australia that just began operations, is under pressure. The project involves producing natural gas from coal seams, and then liquefying and exporting the gas through a newly constructed terminal. Santos, the lead on the project, may be forced to writedown some of the losses, according to a Citi report. BG Group may also take a $2 billion impairment charge for its own LNG project nearby.
U.S. LNG projects are facing pressure too. Cheniere Energy is leading the pack with its Sabine Pass export terminal, which is expected to come online in late 2015. But the company has taken on a lot of debt to build and retrofit its export facility. Cheniere has about $9 billion in debt with just $791 million in cash. That may not be a problem since Cheniere has customers contracted out for much of its export volume, but if its customers choose to suspend deliveries, Cheniere will take in much less than expected.
Still, Cheniere is much better positioned than other LNG projects, precisely because it is at the front of the line. For many projects that have not achieved final investment decisions, they could be scrapped altogether. At current prices, most greenfield LNG projects are not economical.
Without a rise in oil prices, 2015 is looking like a grim year for LNG exporters.
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Links are bogus.
Natty is under $3.00 as we speak, as in almost free, in the middle of a naionwide deep freeze.
Plan accordingly.
Almost seems like all the financialization is being removed from comodities,
prior to a currency reset.Just thinking aloud.
The financialization is still there. It's just butting up against reality, and reality is going to win out eventually. Fun times to be had for all!
Everything always sounds like a good idea...in theory....
<-Everything always sounds like a good idea...in theory....->
Especially right at or in the earlier stages of higher risk and volatility...
Then the real trouble begins with the ancillary damage caused by the market swings, price deflation and uncertain actions by the major players.
We talked about this a couple of weeks ago in a similar article.
Nothing new under the sun!?!?!
DaddyO
LNG does not work in a scenario driven solely by economics.
Natural gas delivered by pipeline rules economically.
You want to supply Europe with natural gas, you'll need a pipeline.
Advantage Russia.
LNG would have to be subsidized i.e. corporate welfare. Subsidies are a political decision. And if the subsidies get removed, your LNG bet goes into the dumper.
--
Winston, there may not have been a Lehman's collapse drama this time, but it's becoming rather palpable that thing's are redlining in both financial and economic arenas, good luck.
"Almost seems like all the financialization is being removed from comodities,"
Correct so far.....
"prior to a currency reset"
Uh, no. Just because the rotating depression has come to your neck of the woods (commodities) doesn't mean it's all going down.
You're going down.
Fucking hell, it takes a significant portion of the energy stored in natural gas to liquefy it and we were a net natural gas importer in 2013. Somehow we're going to ramp up our production enough to supply Europe? Fucking bullocks. We produce a fuckton of the stuff because we use a fuckton of the stuff, plain and simple.
The funny thing is we have all the NatGas we need but you can't build a pipeline to move it anywhere especially in the northeast where they are going to need it most.
They're in the middle of building and upgrading pipelines in the northeast right now.
Yep. Cheniere should have left its LNG import facility as it was. It's stupid to expect to export LNG when the US is a net NG importer.
But hey, at least Cheniere's investors still have a glossy color prospectus filled with unicorn-shat skittles.
Cheniere is very iffy at the moment... not a stock I'd want to be in long term for sure...
exactly. and Id bet they have a lot more than $9 billion in debt
the larger the train the more efficient it becomes... even in the early 90's trains were using ~10% of the gas energy input for liquefaction... things have improved since then, it wouldn't surprise me of some of the very large trains can approach ~5% as is seen in CNG cycles... so yes, it does take a portion of the energy but the number isn't huge or, more importantly, unprofitable...
all that said, LNG trains and contracts require very large amounts of capital and political stability to be viable... it's not a market for the faint of heart
where is your info from? last I heard they burned 25% of the natural gas in turbines, to drive the refridgerant cycle to liquify the gas, and the heat produced by the refridgeration cycle is mostly lost, it isn't sufficiently high grade to do anything with.. unless you want to put these things in the middle of a city and provide the city with free 120F hot water. remember, we're trying to get to nearly liquid nitrogen temps here.
Heat is going to be mostly lost in just about any internal combustion engine. It's a thermodynamics thing.
i think i found the corporate bullshit that says 5-6% is possible. http://www.kbcat.com/insights-reports/newsletters/item/339-the-new-parad...
short answer is we are far from that.
currently we're sitting at 12.5% based on some information i found that detailed a dozen improvements they have made over the last 40 years that has resulted in a 30-40% decline in energy needed for the refridgeration cycle. the other 10% can be gained by efficiency improvments in the natural gas turbine feeding the compressors.. gear box efficiency improvments, bearings, better computer control, etc. so, a 50% decline fits the corporate bullshit saying they are getting 10%, and what i said earlier that last i heard was 25%. I can believe 10% is possible. but it will take another 40 years of improvements to get down to 5%.
the key there is "typical"... as I stated, the larger the train the more efficient it will be... if "typical" is ~10-12% then you can be assured that "atypical" is better and, in fact, approaches CNG efficiencies...
this isn't bs, it's simple physics... W = dH - TdS
My natural gas is a only problem when mixed with natural gas liquids.
"Without a rise in oil prices, 2015 is looking to be a grim year for LNG expoters."
Let's rephrase that:
Without screwing the general public with higher prices wealthy energy barons won't be able expand their fiefdoms.
lol excellent translation, a decline in plated banquet dinners is forecasted.
Damn, the political fundraisers are getting nervous. Too 'effing bad for them.!!!!!!
Bwahahahahahahah. ;-D
European utilities cannot switch to heavy fuel oil because for thr most part the capacity does not exist.
You don't need to do that.
You're swimming in coal too.
This happens in energy all the time.
they can't do that because carbon is the devil in the EU... never mind that German scrubber tech is light years ahead of everyone and they could make coal fire plants emit rose petals if they wanted to... too much political drama on the Green side of the house...
Dude...coal prices have collapsed not only in the USA but China as well.
How much "free energy" do you want?
here's a hint... prices have collapsed because a) coal can be found all over the place, and b) demand has fallen over time... I leave as an exercise to the reader as to why that may be the case, but if you head down to your local coal fire facility and happen to see a large farm of nat gas turbines put in for "peak" demand (ha ha), you can guess why... it's more like "let's legislate coal use out of existence as much as we can"...
Here in the good 'ol U.S.A., can anybody say EPA??? They are killing coal.
Emissions are not the only issue with coal. There are also green concerns with mining it.
this is very true, excellent point
Sweet light crude is fungible with sweet light crude. It is not fungible with coal, however. Liquid fuels are mighty convenient. Solid fuels have some disadvantages where mobility is concerned.
Coal liquefaction can solve that somewhat.
That's one helluva way to turn a 100 year supply of coal into a 10 or 20 year supply of coal;)
European utilities cannot switch to heavy fuel oil because for thr most part the capacity does not exist.
A lot of people are going to be casualties of the oil crash, it's called World War 3 (or 4 depending on your numbering). Invest in non-GMO popcorn.
10 things the media won’t be talking about after the Paris terror attack
WTF News put the Charlie Hebdo ISIS cartoon in the site header… Because…
Zero Hedge must be generating some real traffic, based on the fact that everyone and their brother wants to shill their suck-ass blogs in the comments.
Hey guys, here's a tip: ZH accepts ADVERTISING. Pay for your promotion or shut the hell up.
If only harvestors ran on LNG. What the fuck is up with deisel?
At least in my neck of the woods, taxes guantee that Diesel will be more expensive than gasoline. Thank you Bill Richardson for that!
Good question. I noticed this morning it's a buck higher than regular. I know the taxes were raised, but something looks crazy there.
I obviously agree on the taxes contributing to it, but we must also remember that the cost of crude and taxes are not the only cost factors in getting diesel or gasoline to the pump.
Also note the difference between grades went from ,10 cents to .20 cents and Shell stations add .22 - .25 cents per gallon between Mid and Super. Americans screwing americans.
this along with those "terrorists" in France explains the v-shaped recovery of losses in the Fraud markets that is underway - right????
Bad news? Derivative implosion? TERRORISTS!!! BOOGEDY BOOGEDY BOOGEDY
Yep, If you remember when Putin did his Gazprom deal with China we were talking about 350 $/Million ScM gas.
Lng is much more expensive than that for Korea or Japan at delivery.
And then, the Oil equivalent to that gas price was 100$/bbl. Oil of course is more expensive than gas as its transport cost C&F is negligeable compared to gas (either in pipeline or in LNG form).
So, as Oil falls below 50$ imagine what it does to LNG !
Not shipping until mid 2016.
The current price then will be the issue.
Yes but Qatar sells today. It hurts Iran, Qatar and Algeria (unless the contracts are re-indexed every year and not every month).
and to whom do qataris export ? europe ? Its quite less . moreover us lng exports cant even fulfill japan's demand let alone europe .
Well get ready, the D.C. cesspool will be going for an increase in gasoline/diesel sales tax.
They'll say it's to rebuild roads and as always it will not be enough to get the job done!
It's funny. If gas and diesel taxes were earmarked towards maintaining the infrastructure that the vehicles use them, I doubt even ZHers would be terribly pissed off. Have a big, heavy vehicle that burns a lot of fuel and causes more wear and tear on the road? You pay more to maintain that road.
But no, that shit has to go into general funds where it can be spent on anything. Have a big, heavy vehicle that burns a lot of fuel? You get to pay for more war, or more state budget bullshit.
*applause* well said, that money is NEVER used solely for the purpose it's meant to be... you can't keep a politician out of someone else's pocket guaranteed and fuel taxes are living proof of that...
Clinton discovered that fuel taxes are an excellent way to raise revenue for whatever pet project is at hand.
"Cuis bono?" (Who benefits?) Never forget that the people/countries* that benefit from low Resource and Energy prices are those people/countries who need it but don't have enough of it.
As long as they keep using the USD, all is well, and their stock markets will do well accordingly. The minute one of them 'turns' on the USD (or GS debt instruments), they are... toast.
* E.g. China, Japan, Europe, Israel.
25 year supply contract. Virtually all the new coal and gas coming on line in Oz has 25 year supply contracts.
The pain will be in royalty revenues until the sector shakes-out and we find out who can produce cheapest and supply reliably in bulk, and has the biggest markets, and the shortest delivery route. In those terms I seriously doubt Australia's producers will be the ones closing shop.
Customers!!!
Hundreds of North Carolina landowners affected by a proposed natural gas pipeline cutting across their properties can learn about the $5 billion project this week in public forums organized by the pipeline developer.
Dominion Resources, which is designing and building the Atlantic Coast Pipeline, has scheduled informational sessions in Fayetteville, Smithfield and Jackson in advance of Dominion’s planned application this summer for federal regulatory approval to build the 550-mile project.
http://www.newsobserver.com/2015/01/05/4452222_developer-to-hold-open-ho...
Or
Proposed LNG facility off N.J. coast draws criticism from hundreds - againhttp://www.nj.com/monmouth/index.ssf/2015/01/liquefied_natural_gas_facil...
any commodity which becomes ubiquitious, or the standard, gains premium in that role. once NG is the standard in autos (it is in mass transport, busses and trucks) the value will actually go higher. and once crude supplies vanish its value will be at a discount. tear up those supply demand charts, they're wrong. in a mass market the more of something there is, the more it is worth. right now they have to prove there is enough NG to supply a mass market, and the LNG distributor model will help do that.
I'm hanging onto my Teekay,TGP, I dig owning ships with great big golf balls on them!
Plus a 6.75% yield in fiat that I can use to buy money.
Your friend,
Dog
Baker rig count for Jan 9 just came out...down to 1750 from 1811 last week...at this rate it will be down to 1100 in March and then let's see oil prices stay where they are...
demand in Asia for LNG is much lower than anticipated
All the more reason for that dream of shipping LNG to Europe to shut down Russian gas exports. Even though Russian gas is cheap and no contract in history has ever not been met by the USSR and the now Russian Federation. Southern Europe was just screwed by the United States. A large Black Sea pipeline was about to be built and run direct into Southern Europe's stagnant economies. A flood of easily accessable cheap gas for all. But NATO demanded that the EU stop this pipeline. And it happened that Russia cancelled it. So Southern Europe does not get unlimited cheap gas, while to the North, Germany is the entry point for North Stream, unlimited cheap gas for Germany. You wonder why southern EU nations are upset!
The EU in Brussels is a communist soviet of corrupt American puppet states whose rulers answer to Washington DC, not the people of Europe. Long live the Soviet of EU Commissars!!
A whole new economic development plan was being put in place in South Eastern Europe to take advantage of their own new cheap gas supply. By America used it's puppet NATO to pressure it's puppet EU to stop the project. See the real benefits of an EU run from Washington DC?
get ready, remember, one of Obamas first speeches, we in america can't expect to set our thermostats at 72, we can't just waste water, when in other countries, citizens can't afford to heat their homes, and don't have clean water.
oil is a national security risk, many oil, and gas co.'s in america are faltering, and it's expected the majority of the fracking fields will not pass, new, and mandatory epa inspections, this is of real concern.
we'll be rolling out the first steps of Obama-power, we'll be enforcing the installation, into all structures in america, Obama-thermostats, and they will be monitored at your sub-hub, this has been in implementation for 6yrs, across america, and will be deemed mandatory, to make this national security risk equally enforced.
those in america that didn't take advantage of the Obama-insulation program, 6 yrs. ago will be having an seiu worker come to your residents, giving you estimates to get your structure up to Obama-power standards in your sub-hub region.
during the seiu visit, they will do measurements, this is to make sure there will be optimal usage of power, per person per sq. ft., (if your a retired couple living in a 2500 sq. ft home you will pay a premium price for power usage deemed above the limits allotted for 2 people).
we'll try not to inconvenience you, so the seui workers will be installing your mandatory water meter, and water-testing equipment, of all structures in america, we deem this prudent, as the epa, and environmental groups have given overwhelming evidence that in order to ensure un-contaminated water to everyone in america, and world-wide, we in america have to make sacrifices.
we in america can't expect to water our gardens, water non-pet animals, and wash our cars, when others in the world can't.
your power, and water meter readings will be passed to the irs on 9-1, of each year, where fines will be processed, and applied to your account.
I'm living in a country that is nothing the same as 50 yrs. ago, and don't see the impossibilities of any govt. actions anymore.
the grubers are running america, and the Obamas are the enforcement arm of america.
Okay children,,, STOP with the negativity and just buy the dip please!