Prize for LNG sellers ‘significant’ as demand in Asia grows: WoodMac

A man walks past the Shahamah liquefied natural gas (LNG) tanker sitting berthed at Tokyo Electric Power Co.’s (Tepco) Futtsu gas-fired thermal power plant in Futtsu Chiba Prefecture, Japan, on Thursday, Jan. 21, 2016.

Tomohiro Ohsumi | Bloomberg | Getty Images

The buyers’ market in liquefied natural gas may continue over the coming years due to oversupply, but sellers could stand to gain as demand in Asia grows, according to an energy research company.

Global demand is not expected to outpace supply until the mid-2020s, but even that respite may be short lived once new supply from projects in Qatar and the U.S. come online, said Valery Chow, head of Asia-Pacific gas and LNG research at Wood Mackenzie.

“Despite these developments, the prize for suppliers remains significant given the potential growth of future demand in Asia,” he told CNBC in an email..

LNG demand in Asia is growing “significantly faster” than in the rest of the world because of the region’s economic and population growth, he said.

Asia will account for an incredible 95% of global LNG demand growth between 2020 and 2022.

Gavin Thompson

Wood Mackenzie, Asia-Pacific energy vice chairman

Growing demand

In an April note, Gavin Thompson, Wood Mackenzie’s Asia-Pacific energy vice chairman, said Asia’s LNG markets have been “remarkably resilient.”

“Strong demand, weak domestic production and supportive policies mean Asia will account for an incredible 95% of global LNG demand growth between 2020 and 2022,” he wrote.

Chow said he predicts that China, South Asia and Southeast Asia will drive incremental LNG demand in the world over the next two decades.

“Where we see the greatest up-side potential is from emerging markets in South and Southeast Asia, where declining indigenous production and increased use of gas in the power sector at the expenses of coal, will facilitate strong LNG demand growth,” he said.

Strong growth is also expected to continue in the medium term in China, where LNG demand could more than double by 2035, said Chow. Demand growth is likely to plateau beyond then, in part because of a shift away from fossil fuels.

Who are the sellers?

Qatar, Australia, Russia and the U.S. are among the world’s largest exporters and producers of LNG.

National gas companies — including Qatargas — have a “natural competitive advantage” because they have access to the resource as a low price, said Chow. But all players are in “constant competition” to develop or secure new low-cost supply and sell the gas to the highest paying customers, he said.

“Companies will benefit to the extent that they can market and contract for new sales, achieve favorable pricing terms, and have access to lower cost resources,” he said.

Investors who want exposure to LNG can do so indirectly or directly by buying integrated supermajors or pure-play companies, Chow said.

Supermajors: Shell, Total, BP, ExxonMobil, Chevron

Publicly traded U.S. suppliers: Cheniere Energy, Sempra Energy, Tellurian, Nextdecade

Suppliers listed outside the U.S.: Novatek (Russia), Woodside (Australia), Santos (Australia)

They can also invest in firms involved in the LNG supply chain.

“Every company is unique so investors need to do their homework,” he said.

Disclosure: Valery Chow owns Shell shares.

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