Never should have sold their light oil. A sharp fall in European and Asian gas prices this year will put liquefied natural gas (LNG) export projects worldwide under heavy cost pressure, and even kill some off, as expected returns on investments have to be revised down along with prices.
Benchmark British gas prices for delivery next month have almost halved this year as healthy supplies have been met by low demand following a mild winter and because overall gas use is dropping due to improving energy efficiency, rising competing fuels like renewables and low population growth.
Asian spot prices have also come off sharply this year, shedding over 40 percent in value as demand growth slowed and new supplies in the Pacific region became available, although prices remain almost twice as high as in Britain and around three times as expensive as in North America.
These price drops came despite ongoing gas disruption from Russia, the world’s biggest gas exporter, to Europe via Ukraine, and as Japan still has its nuclear power plant fleet switched off following the Fukushima reactor meltdown in 2011.
If gas prices remain low, analysts say many of the large and costly planned liquefied natural gas (LNG) export projects around the world, including in North America and East Africa, will face trouble as initially budgeted returns on investment have to be revised downward.