The Making of a Buyer’s Market in Natural Gas

Next year, on a remote island off Australia’s western coast, the world’s most expensive liquefied natural gas export terminal will start shipping cargoes into a market that has changed vastly since 2009, when the project was approved. Chevron’s $54 billion Gorgon LNG facility, initially budgeted at $31 billion, was supposed to have begun operations in 2014. Labor disputes have delayed it, and lower LNG prices have potentially reduced its profitability.

LNG producers no longer have the bargaining power they once did. Weakening demand in Asia combined with an increase in LNG supply is giving the world’s biggest buyers not only cheaper gas but also more say on how contracts are designed. “The buyers have the upper hand,” says Neil Beveridge, an analyst at Sanford C. Bernstein.