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MEI: LNG oversupply could last until 2024

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LNG Industry,

In its latest research, McKinsey Energy Insights (MEI) predicts that LNG oversupply could last until 2024. As a result, the data and analytics specialist concludes that this could mean that few LNG projects will 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 tpy of new export terminal capacity currently under construction in the US and Australia. By 2019, oversupply is expected to peak at 60 million tpy.

MEI modelled 10 upcoming LNG projects at FID stage, including Coral FLNG and Mozambique LNG, against its Energy Insights LNG cost curve.

Challenging conditions

James Walker, Specialist at MEI, said: “Our research shows that the current market oversupply 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 oversupplied market. Even if projects do manage to progress to construction, the LNG supply will be hitting the market at a bad time.”

MEI adds that the market will remain oversupplied unless today’s low prices can stimulate a demand recovery. However, the demand response to the low LNG prices has been limited so far.

The research was modelled using MEI’s Global Gas Model software, which provides clients with McKinsey’s global reach and local insights to develop their own view of the future.

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