Gas Glut
A Sated China is Bad News for US LNG

We’re just two months away from the first liquified natural gas (LNG) cargoes leaving the U.S. for foreign buyers, but the market isn’t exactly chomping at the bit to get at the new supplies. Thanks to flagging demand in China, U.S. exporters are not only losing out on a major potential customer, but they also seem to be gaining a competitor as Beijing looks to offload cargoes that it’s already purchased. Bloomberg reports:

The Asian nation will accept only 77 percent of contracted cargoes in 2015 as the slowest economic growth since 1990 cuts demand, according to industry consultant IHS Inc. The rest of the supply will be put up for sale amid a worldwide glut that Goldman Sachs Group Inc. says is likely to force U.S. export projects to operate at half capacity.

The U.S. and China are seeking to sell cargoes just as new output equivalent to more than a third of global demand is set to flood the market over the next three years.

The LNG market has seen its fair share of swings in recent years. Just a decade ago the U.S. was looking to become a major LNG importer, and companies were investing tens of billions of dollars in import terminals to help bring in those supplies. Now, thanks to the shale boom, a number of export terminals are being constructed, with the goal of unleashing the domestic glut of natural gas here on the global market.

But while Asian markets were snatching up LNG at $15 per million BTU as recently as the beginning of this year, today that price is hovering between $7 and $8, pinching and in some cases completely erasing the price incentive to liquify, ship, and regassify U.S. shale gas. And with China’s thirst for the energy source apparently slaked, there’s little reason to expect demand to drive prices back up anytime soon (sound familiar?).

For buyers, however, these are heady days. Japan, which shut down its reactors in the wake of the Fukushima disaster and has had to rely heavily on LNG imports to make up that loss, is relishing half-price imports. Europe, too, will be pleased at the state of the global market, as it looks to snatch up LNG to help it diversify away from Russian gas.

Whether it’s oil or gas, it’s a buyer’s market today—and a decidedly bad time to be in the business of selling hydrocarbons.

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