Toil ahead for oil, but expect double trouble for LNG Toil ahead for oil, but expect double trouble for LNG Date December 7, 2015 Read later Angela Macdonald-Smith Angela Macdonald-Smith Energy Reporter View more articles from Angela Macdonald-Smith Follow Angela on Twitter Email Angela in Share . submit to reddit Email article Print Reprints & permissions . The LNG market is facing oversupply for years, experts agree. The LNG market is facing oversupply for years, experts agree. Photo: Robert Shakespeare The crude oil market is seen as being in dire straits, but liquefied natural gas is much worse, according to experts. Hanging as a dark cloud over the market for the next several years are large volumes of LNG from committed US export projects that have firm sales contracts but have yet to be sold to end users. The oil market is not so bad. LNG is far worse. Fereidun Fesharaki, FGE founder Consultancy FGE says between 25 million and 35 million tonnes of the 65 million tonnes a year of US LNG export capacity under construction has been sold to "middlemen", traders or portfolio LNG players such as BG Group or Mitsubishi, which still need to sell the gas on. "Portfolio sellers and traders are not end users: they must find buyers," FGE founder Fereidun Fesharaki says. Advertisement In addition, about one-third of Qatar's export LNG volumes are unsold, while the three big Chinese national oil companies and one Indian national oil company have switched from buying to selling as they seek to resell LNG they have committed to buying, according to FGE. An example is Sinopec, the dominant buyer for Origin Energy's Australia Pacific LNG venture, which is on the cusp of starting production. It is reported to be offering to resell cargoes it has signed up to buy from the Queensland plant. That means about 70 million tonnes a year of LNG still needs a buyer, which will weigh on the oversupplied Asian market potentially through to the mid-2020s, the consultancy says. Dr Fesharaki describes those holding the contracts as "desperate sellers" that will provide stiff competition for producers seeking customers for new projects. LNG oversupply FGE's outlook points to bleak prospects for Woodside Petroleum's ambitions to give the green light in late 2016 for the construction of the Browse floating LNG venture, given it is still seeking customers for the gas. Dr Fesharaki names potentially only three new projects that could move forward in the next few years: Anadarko's Mozambique venture; expansion in Papua New Guinea; and Petronas' western Canadian venture. Australia's wave of new LNG projects, including three in Queensland, Chevron's two monster Western Australian projects, Inpex's Ichthys and Shell's Prelude floating project, are all starting production within the next couple of years. They make up a large chunk of the 90 million tonnes a year of new LNG capacity that Bernstein Research estimates will start up by late 2017, amounting to 35 per cent of current worldwide demand. Bernstein sees oversupply of 20 million to 30 million tonnes, or 10 per cent of demand, persisting through to 2018 as global LNG demand struggles to grow. Chinese demand growth has "collapsed" this year, with LNG imports likely to decline in 2015 for the first time since they began in 2006, Bernstein says. Yet it considers the chances of China defaulting on its LNG purchasing contracts, as suggested by some commentators, as "highly unlikely". The experts agree that the situation will create huge downward pressures on spot LNG prices, with FGE forecasting that prices will sink to just $US5 per million British thermal units in Asia, and could even plunge temporarily to $US3 or $US4. That compares with December prices of about $US7.28, which are already 42 per cent down from a year ago, according to pricing service Platts. FGE is expecting a decoupling of spot and contract LNG prices, which FGE expects to remain in the $US8 to $US9 range through to 2017, based on its forecast for crude oil to which Asian contract LNG prices are linked. "The oil market is not so bad," Dr Fesharaki says. "LNG is far worse." Yet existing Australian LNG producers should be mostly insulated from the worst of the effects, says Adelaide-based consultancy EnergyQuest. It points out that the new Australian projects coming into production are all largely covered by contracted sales to buyers that respect the sanctity of contracts and value the long-term relationships that underpin the Asian LNG industry. "In our view, the major factors affecting Australian LNG production are likely to be technical ones like completion timing, ramp-up and gas supply, rather than the state of the market," EnergyQuest said. Read more: https://www.smh.com.au/business/energy/lng-market-seen-in-worse-state-than-oil-20151206-glgygv.html#ixzz3uJtJDXTa Follow us: @smh on Twitter | sydneymorningherald on Facebook