LNG may be oversupply 10 years later

The United States will be a net Liquefied Natural Gas exporter after 2020, according to the Annual Energy Outlook 2013 by the US Energy Information Administration.
Massive LNG supply is expected in the future, while exports from the North America is still unlikely to be remarkable within the coming several years.

Traditional natural gas production in the US had peaked out below 20 trillion cubic feet at around 2000. Natural gas production has boosted by the shale revolution over the past several years following the declining until 2005. In 2011, the nation's natural gas output recorded 7.8% on year growth.

Although US gas production and consumption are forecasted to slowdown in 2013 and 2014, subsequent outputs are expected to exceed consumptions by about 1 percent point every year. The US currently imports 1.7 trillion cf per annum of natural gas, but it will turn to exporting country in 2020.

LNG is likely to be the main export. Currently the US re-exports imported LNG, however, it is scheduled to start exporting domestic sourced LNG in 2016. The nation's LNG exports is expected to grow to 1.6 trillion cf by 2027. Since total net natural gas export by the US is forecasted at 2.04 trillion cf in 2027, LNG will account for nearly 80% of total gas exports.

1.6 trillion cf of LNG is equivalent to 78 million tonnes.
Japan imported 8.73 million tonnes of LNG in 2012, while before the severe earthquake it imported 70 million tonnes in 2010.
The new US supply could cover almost 90% of Japanese LNG demand in the state in which to stop nuclear plants.

Since about one-half of US LNG exports will come from Alaska, it is apparent that the nation aims to develop the Asian market.

Current LNG prices in the North America is below $5 per million British Thermal Unit. The ample supply depresses natural gas prices in the region significantly. Meanwhile, LNG prices in the Europe are about $10 per mbtu. Europe is supplied natural gas both from Russian pipelines and Middle Eastern LNG. Asia doesn't have enough pipeline gas supply, so the region is depend on LNG supply from the Middle East, Southeast Asia and Australia. Prices in the area is about $15 per mbtu. Then prices in South America where is far from main LNG suppliers are the most expensive.

The big price gap makes people to think there is a enough business opportunities. However, consuming countries will also have to construct sufficient facilities to accept the massive new supply. Otherwise, large volume of LNG cargoes may flood in the market like current North American natural gas.

Demand in Asia, of course is expected to grow. But China seems not to convert existing coal-burning thermal power plants to gas-burning facilities broadly, because of the economic rationality.

Japan's imported LNG price in March was about 80 thousand yen per tonne, according to the Customs data. It is equivalent to 11.7 yen for the volume to generate 1 kilowatt-hour of electricity. Meanwhile, coal price was 3.5 yen and fuel oil price was 14.7 yen as well.

Even if massive supply from the North America depress the Asian LNG prices, the price level might not drop below European prices significantly. But LNG prices should decline to the current US price level in order to compete with coal prices.