When famed short seller Jim Chanos described the liquefied natural gas( LNG ) market last month as “a disaster waiting to happen”, investors around the world took note.
It’s an alarming point of view for Australia, given the weight of investment by local players such as Woodside Petroleum and Santos tied up in the sector. But it’s one that overlooks what companies are doing to adjust to the changing market, including a looming surge in supply.
Chanos, founder of $US2.5 billion ($3.1 billion) hedge fund Kynikos Associates, chose a major hedge fund conference in Last Vegas to air his doubts about Royal Dutch Shell’s $US70 billion takeover offer for LNG trader BG Group, a deal largely driven by a deep-seated belief in the future of LNG.
He said that after three years of flat demand and with supply set to “skyrocket in the next five years” – thanks to Australia’s $250 billion investment splurge – he was shorting stocks such as Shell and Chevron, predicting dire times ahead.
Fronting Woodside Petroleum’s investor briefing on Thursday, head of marketing and shipping Reinhardt Matisons told a different story.
He put the flatlining of LNG demand over the past three years down to a lack of new supply entering the market. That is set to dramatically change, with more than 100 million tonnes of new supply – representing more than 40 per cent of the existing market – set to come on from new projects by 2020.
Matisons acknowledged those lumpy chunks of new capacity would mean “volatile” prices as they are absorbed. But the longer-term picture still showed the need for major new investment, with demand more than doubling to about 500 million tonnes in 2030 from 240 million now.
While there’s no shortage of prospective LNG ventures aiming to capture that market, depressed oil prices will see off many of them, according to Woodside.
Woodside is rounding out its emerging LNG trading business to take advantage, with boss Peter Coleman looking to sign up for capacity at LNG import terminals around Asia.
Asia’s tally of LNG import terminals, currently at 60, is set to surge, with 40 more under development. Access to capacity in a few of those is the missing piece in Woodside’s trading division, which already involves a dedicated LNG tanker, LNG available for sale from within its expanding portfolio and through gas from a third-party plant in Texas.
That US deal brings geographic and pricing diversity into Woodside’s LNG portfolio, improving marketing prospects for projects like the Browse floating LNG venture in Western Australia.