Supply growth will soon outstrip demand in the liquefied natural gas (LNG) market, preventing a rebound in prices and squeezing industry margins, a new report suggests.
Although LNG demand began growing again last year after four years of sluggish consumption, research released today by the Boston Consulting Group (BCG) said the market is set to be oversupplied by 2019 following the largest supply increase in LNG history.
Fourteen LNG projects are due to become operational before 2020, with a combined capacity of nearly 200bn cubic metres per annum (cma).
"LNG suppliers should be prepared for a bearish market over the next several years We expect substantial oversupply, driven by the 190bn cma of additional capacity projected to come online in the next three to five years. That oversupply will keep LNG spot prices at low levels and put pressure on industry margins, while increased liquidity in the market will squeeze marketing margins," the report said.
New sources of demand growth are also posing problems for the industry. So-called niche markets, such as Egypt and Pakistan, are emerging, but they tend to involve smaller, shorter term, higher risk contracts.
"In this challenging environment, the industry will need to assume bigger risks, with shorter and smaller contracts with buyers in niche markets. Suppliers will need to up their game in risk management while also moving aggressively to reduce development costs for new projects in order to ensure that they are economically viable," the report said.