LNG the prices will return – it is the cycle

The global price of LNG is being driven by several large projects coming on stream at the same time, each with some spot sales. This increased supply when coupled with reduced demand caused by Covid 19 is seeing LNG being sold at prices which cannot continue. Demand will recover. We will consume their reserves and new reserves will need to be needed. They will only be developed when a commercially viable price is seen to be available the project. What we are seeing in LNG is part of the boom/bust cycle which occurs across the energy sector, as new projects all eye same demand and result in oversupply. LNG will be a critical part of the long-term energy mix. Investment in LNG results in the building of long-term infrastructure. The long-term nature of these projects is highlighted by the decision by Petrochina in April, despite the lowest prices in memory, to commit to the first phase of its Australian gas project which is the cost USD 10 bn billion. It is time to recognise current prices are an aberration and smart businesses would be locking in at long-term rates of USD 7 to 8 per million Btu. This should include Australian companies wanting to secure low-cost energy, however, calls to lock-in long-term contracts at USD 4-5 / mmBtu are not realistic.

Paul Raftery