What’s going on with Qatar?

Well, it’s been a bit hectic on the LNG desk this past week. And that’s the question we’ve been asked the most.

Along with: “Can Qatari LNG tankers use the Suez Canal?”, “How is it impacting the LNG market?”, and “What else do I need to know?”

And my personal favourite: “Can you explain the situation to me in less than 10 seconds?”

Well, I’ll try. But it is fair to say that we don’t have all the answers. And it will definitely take longer than 10 seconds.

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Is the LNG market oversupplied or not?

Shell gave its outlook for the LNG market during a media briefing yesterday. Afterwards, a number of news reports emerged saying that Shell predicted no oversupply in the LNG market.

I nearly choked on my coffee.  What are they talking about?

Well, we listened to Shell’s comments again.  It seems like the company said something more nuanced.

“In 2016, we didn’t see an oversupply… for the rest of the decade we expect strong supply growth but also strong demand growth and to the extent that there’s an imbalance between the two, we believe Europe can easily absorb those volumes,” Shell gas marketing and trading executive Steve Hill said.

So is the LNG market oversupplied?  Perhaps it depends on the definition of oversupply.

It is true that all LNG produced in 2016 found a home.  But that is true every year because of the way expensive liquefaction projects are financed and because regasification capacity is underutilised. Even if the LNG price is below the breakeven price, it is still better to claw back some of the investment than to shut down the export facility.  And because liquefaction facilities are so expensive to build — or were built so many years ago that the project has been paid off, or makes all its money from associated condensates anyway — they are never shut down because of low LNG prices.  Continue reading