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Liquid Natural Gas Market To Crash With Oil?

  • The sudden oversupply has crashed the oil price. Since LNG pricing is tied to oil in the biggest LNG markets, this has potentially serious ramifications in that market as well.
  • If present prices persist, many, perhaps most of the proposed new LNG plants will be unprofitable so many will not be build.
  • However, underlying LNG demand is much stronger compared to oil so sooner or later this will turn into a supply shortage of LNG.

LNG (liquid natural gas) was experiencing a boom until it was caught in the crossfire between OPEC and American shale oil. The link is the fact that the price of LNG is usually tied (with a lag up to half a year) to the price of oil. What are the prospects for the LNG market now?

Strong demand
First, one has to recognize that demand for natural gas has been very solid:

Total global natural gas demand is estimated to have grown by about 2.7% per year since 2000; however, global LNG demand has risen by an estimated 7.6% per year over the same period, almost three times faster. []

You can see this in the graph below (JKT stands for Japan, Korea and Taiwan):

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