McKinsey Energy Insights (MEI) predicts LNG oversupply will last until 2024, leading to few new projects reaching final investment decision (FID) in the next 12 to 18 months.
MEI’s research shows global LNG supply glut is exacerbated by the 100 million tonnes per annum (mta) of new export terminal capacity under construction in the US and Australia. It expects oversupply to peak at 60 mta in 2019.
The company has modelled 10 upcoming LNG projects at FID stage – including the east Africa-based projects Coral FLNG and Mozambique LNG – against its Energy Insights LNG cost curve.
“Our research shows the current market oversupply is creating challenging conditions for operators hoping to take FID on projects in the near term,” says MEI specialist James Walker.
“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 expenditure.
“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 expects the market to remain oversupplied unless low prices stimulate a demand recovery. To date, however, the demand response to the low LNG prices seen in the past two years has been limited.