$65 Billion Alaska LNG Project Crashes and Burns
Alaska’s proposed $45-$65 billion liquefied natural gas (LNG) project that was supposed to help the state refill its coffers from decades of dwindling crude oil production and more than two years of low oil prices, took several steps backward a few weeks ago when three of the project’s four partners, BP , ConocoPhillips COP -1.50%, and ExxonMobil XOM +0.11%, all North Slope producers, pulled out. The fourth project partner is state-owned Alaska Gasline Development Corp (AGDC).
LNG price plunge mirrors global oil industry quandary
The project proposal was conceived in happier days for global oil and gas producers. When LNG prices in Asia breached $20 per million British thermal units (MMBtu) in February 2014, hopes soared for new LNG project proposals.
However, what a difference a few years can make. After reaching $115 per barrel in mid-2014, global oil prices have more than halved and are hovering in the mid-$40s range, with little hope of market equilibrium in sight. LNG prices, which largely track oil prices, have fared even worse.
Alaska’s proposed $45-$65 billion liquefied natural gas (LNG) project that was supposed to help the state refill its coffers from decades of dwindling crude oil production and more than two years of low oil prices, took several steps backward a few weeks ago when three of the project’s four partners, BP , ConocoPhillips COP -1.50%, and ExxonMobil XOM +0.11%, all North Slope producers, pulled out. The fourth project partner is state-owned Alaska Gasline Development Corp (AGDC).
LNG price plunge mirrors global oil industry quandary
The project proposal was conceived in happier days for global oil and gas producers. When LNG prices in Asia breached $20 per million British thermal units (MMBtu) in February 2014, hopes soared for new LNG project proposals.
However, what a difference a few years can make. After reaching $115 per barrel in mid-2014, global oil prices have more than halved and are hovering in the mid-$40s range, with little hope of market equilibrium in sight. LNG prices, which largely track oil prices, have fared even worse.
LNG prices for November delivery in Asia, which accounts for around two-thirds of global LNG demand though that demand growth is slowing, are trading just over $5/MMBtu.
Prices for delivery this October and November traded at $5.55/MMBtu last week, up from $5.30/MMBtu for October delivery the week before – dismal news for LNG producers who until recently commanded exorbitant prices, but welcome news for major LNG consumers, particularly Japan and South Korea, the world’s top two LNG importers, respectively.
The Asia-Pacific region is also the Alaska LNG project’s intended market. State officials have already visited the region to pitch their LNG project to potential customers.
Just as oil markets are saturated with supply, LNG markets are even more saturated and will be for much longer. According to most estimates, supply and demand will remain unbalanced for global LNG markets to at least 2020, but I think that figure is optimistic, considering new production still coming online from more Australian projects as well as U.S.-based projects, and in time Russia, and a scattering of African producers.
