LNG glut is now

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Reuters has great story telling you exactly where the global LNG glut is suddenly at:

U.S. oil major Chevron is struggling to lock-in 20-year sales contracts for its Gorgon liquefied natural gas (LNG) export plant in Australia, the world’s most expensive, as buyers spoiled for choice by new suppliers hold out for cheaper deals.

…”Buyers are being very cautious about firming up long-term import deals, especially since U.S. prices are undercutting Australian projects coming onstream around the same time,” said a source at a large Asian LNG seller, who asked not to be named.

…”With the degree of uncertainty that there is about U.S. exports and the size of U.S. exports, I think you can understand why buyers might want to wait a little bit to see how that all lands out before going forward to secure longer-term contracts,” Chevron Chief Financial Officer Pat Yarrington told a recent briefing.

However, the company acknowledged the difficulties it faced, saying it would prefer to move buyers to a longer-term sales contract “if we get the right kind of pricing,” according to George Kirkland, executive vice-president of the upstream gas division. Chevron declined further comment.

…”It doesn’t look to be so rosy in the near term as they originally thought,” said a Singapore-based LNG trader, referring to large Australian export projects.

The reluctance of buyers to enter into long-term contracts may also have implications for projects still on the drawing board in Australia, where another $180 billion of new or expanded LNG projects from 2018 onwards is being considered.

“Going ahead, we don’t see any planned Australian projects or expansions based on our analysis. Nothing. Not one,” said Noelle Leonard, an LNG consultant at FG Energy in Perth.

That’s old news. This is new:

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Kogas of South Korea has approached long-term LNG suppliers to defer up to 10 autumn cargoes for winter.

Reuters reports industry sources saying that high stocks and weak demand urged Kogas to offload cargoes this summer through time-swap deals and by deferring deliveries from suppliers.

Initially, only summer cargoes should have been deferred but now the company will include additional five to 10 cargoes in later delivery periods, traders said. This brings the total number LNG cargoes to be deferred or swapped by Kogas to 40, between May and November this year.

It was Kogas that bailed on Gorgon and opened the big hole in its contract commitments.

Unbelievably, as nearly 50million tonnes per annum of new supply hits the Pacific Rim markets in the next eighteen months, Australia faces another major commodity glut, four year earlier than expected.

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And no, I do not think at supposedly sealed contract deals will hold. They’re going to get undermined, bent and broken all over the place.

About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.