The “Golden Age Of Gas” Flames Out

It seemed like only yesterday – it was 2011, in fact – that the International Energy Agency (IEA) published a report on the bright future of natural gas.

Titled Are We Entering a Golden Age of Gas?, the report said how great everything looked for gas and liquefied natural gas (LNG) thanks to soaring Asian demand for the fuel.

And for a few years demand did boom. In response, a number of LNG projects in the United States, Australia, and elsewhere were brought to the fore.

But today, demand for LNG in key Asian markets is falling, sending prices spiraling downward. And major LNG projects around the world are under threat.

It was a mere two years ago that spot LNG prices in North Asia were above $15 per million British thermal units (Btus). But today prices are around $6.60 per million Btus, with no bottom in sight.

Noel Tomnay, Head of Global Gas Research at Wood Mackenzie, toldThe Wall Street Journal that LNG prices are like “a train wreck happening in slow motion.”

So what the heck happened?

Too Much Supply on the Horizon

At the moment, the gas market isn’t vastly oversupplied. However, prices are already anticipating the huge supplies coming onstream from Australia and the United States by the end of the decade.

Australia alone sank $200 billion into LNG projects, and its exports are soaring. In fact, they’re expected to triple by 2020, reaching 86 million metric tons. Australia is even set to surpass Qatar as the world’s biggest LNG exporter.

Wood Mackenzie says that, over the next five years, about 130 million metric tons per year of new supply will come online.

It all adds up to a good old-fashioned supply glut.

Demand Flaming Out

With demand evaporating, all this supply coming online at the same time isn’t a good thing.

Chinese LNG imports, for example, have fallen from annual double-digit growth to a 3.5% drop so far this year.

Part of the reason is that Asians are turning to another, cheaper fuel source: coal.