LNG remains the fuel to take shipping into the coming decades. However, the “fog” of artificially low oil pricing has shrouded that passage. The drivers and incentives are still there, they just cannot be seen as clearly. This 5th annual LNG Perspective update on bunkers looks at the driving factors and possible consequences, and offers some vision.
LNG prices remain linked to the fortunes of oil. Current low oil and gas prices result largely from an oversupply in the market and the situation is not due to change anytime soon. Oil supply will continue to be buoyant in the short-term for as long as OPEC, and particularly Saudi Arabia, considers that defending its market share is more important than controlling supply and thus underpinning weak energy prices. Change will surely come though and for solid fundamental reasons.
Optimism drives investment in oil and gas production. Underinvestment in the current pessimistic climate is building problems for the future. Energy demand continues to grow and oil demand, which each year grows by more than a million barrels a day, will catch up with supply and leave behind those who are unprepared.
On the back of the shale revolution, the US has become the world’s biggest energy producer with annual natural gas production now exceeding 30 tcf. The longer term picture for gas is further compounded by the rapprochement with Iran, which will bring unlock the world’s 2nd largest proven gas reserves, at around 1,000 tcf, or 16% of the global total. The gas market itself continues to evolve, particularly LNG, where traded volumes continue to grow at the expense of long term contracts
We expect this runaway pessimism in the oil markets to hit the rocks, with demand and supply approaching balance by 2018 resulting in a return to higher oil pricing and a clearer economic incentive for gas.
This is the first part of the periodic paper realized by Tri-Zen, a Singapore-based business consultancy company with a strong emphasis on strategy, crude and petroleum products, LNG and gas. In the rest of the paper you can find the refiners’ perspective, the shippers’ perspective, regulation, the current activity of China, South Korea, Singapore, Europe, North America and much more!
Source: TRI-ZEN International