Data and analytics specialist McKinsey Energy Insights (MEI) predicts in its latest research that LNG over-supply could last until 2024, with few projects expected to reach final investment decision (FID) in the next 12 to 18 months.
MEI’s research shows that the current global LNG supply glut is exacerbated by the 100 million tonnes per annum (mtpa) of new export terminal capacity currently under construction in the US and Australia.
Further still, by 2019 over-supply will peak at 60 mtpa, the company suggests.
MEI has modelled 10 upcoming LNG projects at FID stage – including Coral FLNG and Mozambique LNG – against its Energy Insights LNG cost curve. The research highlights that the market will remain over-supplied unless today’s low prices can stimulate a demand recovery.
To date, the demand response to the low LNG prices seen in the past two years has been limited.
James Walker, specialist at MEI, explained, “Our research shows that the current market over-supply is creating challenging conditions for operators hoping to take FID on projects in the near term. For these projects to be viable they would require an assumption of either a sustained high LNG price post-2024 or a cost optimisation strategy to reduce projected capital expenditures.”
“Many projects will struggle to secure enough firm buyers in an over-supplied market. Even if projects do manage to progress to construction, the LNG supply will be hitting the market at a bad time.”
Energy Insights is a specialist data and analytics unit within McKinsey.
McKinsey & Company’s Dr. Michael Glaschke & Dr. Claus Benkert will provide a dual presentation tomorrow at gasworld’s Europe Industrial Gas Conference 2016 in Düsseldorf, Germany, discussing the Industry Drivers in Europe as they see them for the gases industry.
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