Liquefied natural gas producers may earn smaller margins as low demand and new export plants lead to a record surplus and lower prices.
Liquefied natural gas producers may earn smaller margins as low demand and new export plants lead to a record surplus and lower prices, Wood Mackenzie Consultants Ltd. said. New projects in Qatar, Yemen and Indonesia may reach capacity next year, said Frank Harris, global head of LNG at the Edinburgh-based firm. Ventures planned for 2015-20, including those helmed by ConocoPhillips, Royal Dutch Shell Plc and Woodside Petroleum Ltd., may be forced to sell the fuel for less as supplies exceed consumption.
?There"s quite a lot of surplus this year,? Harris, who has advised international oil companies, said by telephone from Edinburgh yesterday. ?Next year will be worse and it may peak in 2011.?
The surplus may ease after 2012 as fewer projects were approved in the past three years, he said, declining to quantify the surplus.
Proposed LNG capacity of about 130 million metric tons a year is exceeding 80 million tons of uncontracted demand in the Pacific Ocean area over the next decade, Sanford C. Bernstein said in a report last month. Prices of the cleaner-burning fuel in the spot market have crashed from more than $20 per million British thermal units last year to less than $5 currently, based on data from Asian importing nations.
?There"s an awful lot of product chasing the market,? Harris said. ?There will be downward pressure on long-term contract prices.?
The discount for Asian buyers could be as much as 20 percent from contracts agreed last year, Harris said.
Qatar, the world"s biggest LNG producer, may change its marketing strategy, dropping prices to compete with new Australian projects as prices in the U.S., a target market, may be lower, Harris said. Qatar may have 38 million metric tons of capacity that can be diverted to Asia, Credit Suisse AG said in a note last month.
Chevron Corp."s Wheatstone and Gorgon along with those of Santos, Conoco, Origin, BG Group Plc, Inpex Corp. and Shell are among more than a dozen LNG projects proposed in Australia and Papua New Guinea to tap gas extracted from coal seams or conventional sources for conversion to liquid form.
Chevron and Exxon may approve ventures in Australia and Papua New Guinea this year while BG, Santos and Inpex may sanction projects next year, Harris said.
The rate of LNG project approvals has missed forecasts for the past two years, according to Wood Mackenzie, amid a jump in building costs, disagreements between project partners and delays in environmental approvals. About 5 million tons of new annual capacity was agreed, compared with demand growth estimated by Woodside of 15 million tons to 20 million tons a year, JPMorgan Chase & Co. said in January.
LNG is gas that"s cooled to a liquid to allow transportation on tankers.