OREANDA-NEWS. July 03, 2015. Ross McCracken, managing editor of Energy Economist, shares what the world of LNG would look like to an unabashed pessimist . . . or maybe just to someone who eyes the massive production boom on the horizon with some concern.

The LNG market is undergoing a boom in new production capacity, the like of which has not been seen since the great Qatari expansion of the 2000s. By 2020, Australia is expected to have overtaken Qatar as the world’s largest LNG producer. Hot on its heels is the US, which will bring shale gas to the shores of LNG consumers worldwide. This expansion is based on projects already under construction, it is not reliant on the nebulous universe of LNG projects at the proposal stage.

“That’s a lot of LNG,” said Eeyore. “Where will it all go?”

In one corner of Hundred Acre Wood, optimism is, as usual, in short supply. This is not surprising as Eeyore lives in a stick house, which he admits is rather boggy and sad. Over breakfast this morning, Eeyore said he thinks the LNG market might be heading for a fall.

“I didn’t know you were interested in LNG, Eeyore,” I said.

“Well …” said Eeyore:

1. Japan is the world’s largest LNG market, accounting for 36% of global LNG imports in 2014. The government’s new energy strategy foresees the share of LNG in the energy mix falling from 43.2% in 2013 to 27.0% in 2030, with almost no growth in electricity demand. That implies Japanese LNG demand could be down 31 Bcm a year by 2030.

2. China is one of the world’s most dynamic growth markets for gas. It is building plentiful LNG regasification capacity, but it is also building major import pipelines from Russia and expanding those from Central Asia. Currently, it is on track for a total of 200 Bcm of gas import capacity by 2020. Current rates of gas demand growth are high, by global comparison, but not high enough to support all of that. That implies that either China’s LNG terminals or the pipelines will have low utilization rates.

3. Argentina is shifting its focus from oil to gas because the government’s pricing regulations, despite incentives for oil production, mean gas pays better. Almost alone in the world, it is keeping its rig count steady. If Argentina can address its gas deficit through the development of its huge shale resources, then the next step would be for gas to once again flow over the Andes through pipelines that already exist, before then refilling those that run to Brazil. One by one, the LNG lights in Latin America could be extinguished.

4. And, finally, Europe, the place where LNG goes when Asia doesn’t want it. Gas demand in Europe has fallen for four consecutive years. Forecasts of booming growth from gas for power generation have been kiboshed by negative clean spark spreads as the introduction of renewable must-run electricity has hit gas hardest. And don’t expect the EU Emissions Trading Scheme to come to the rescue any time soon. Gas plants in Europe overall are closing, suggesting a long-term structural decline in demand.

So there you have it — four reasons for an LNG producer to put a pillow over his head and groan.

“By the way, how do you keep this place warm, Eeyore?”

“I don’t,” he replied gloomily.

Perhaps Tigger would have a different view?