Oil isn’t the only commodity whose price has crashed in recent months. Liquified natural gas (LNG), often linked to oil in its long-term contracts, has dropped off a cliff as well, and that could have some big geopolitical implications. It starts in Asia, where for years buyers have paid a premium over other regions for the hydrocarbon. But as Reuters reports, slack demand and slow growth have LNG producers looking elsewhere for buyers willing to pay top dollar for their cargo:
Asia’s spot LNG prices have fallen two-thirds since February 2014 as a 60 percent fall in oil prices undercut energy values worldwide. And analysts forecast that benchmark oil-indexed LNG contract prices into Japan will not start to recover until at least 2018…That has made it hard for new U.S. export projects to justify Asia as a destination market.“The euphoria has faded,” said Vivek Chandra, chief executive of Texas LNG, which will seek U.S. permits to ship 2 million tonnes a year of the super-chilled fuel and expects to take a final investment decision next year.“Now, the most exciting buyers for us are European utilities,” Chandra said…”The Baltics are a good market for us. They really want American gas and they have the political will to make it happen,” said…Chandra, referring to the eagerness to cut reliance on Russian energy because of Moscow’s role in Ukraine.
When Russia threatened to cut off gas to Ukraine last year, policymakers on both sides of the Atlantic began to call for American gas producers to start exporting some of the enormous new quantities of shale gas to Europe as a way to help allies reduce dependence on Gazprom. At the time we pointed out two flaws in that strategy: first, constructing the requisite infrastructure on both ends of the supply chain takes years, so this would be no quick fix; and second, Europe would only receive American LNG if it outbid Asia, which at the time was ponying up a great deal.That latter reasoning no longer holds, which changes the calculus somewhat. Already Europe is on track to double its LNG imports this year, though it’s still not sourcing that from America. That’s because the American LNG export infrastructure is still under construction. Just a few short years ago we were building import terminals; turning that completely around is neither cheap nor easy, and it won’t happen overnight.Still, if Asian demand remains slack, Europe’s medium-term energy future looks brighter. Diversifying away from Putin’s gas supplies is obviously a top priority there, and American gas can help.