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Tri-Zen - a Singapore-based consultancy with a focus on oil and gas products - says that liquefied natural gas (LNG) remains the fuel to take shipping into the coming decades, but stresses that "the 'fog' of artificially low oil pricing has shrouded that passage".

In its latest paper, entitled 'LNG Markets Perspective', Tri-Zen says: "Current low oil and gas prices result largely from an oversupply in the market and the situation is not due to change anytime soon. Oil supply will continue to be buoyant in the short-term for as long as OPEC, and particularly Saudi Arabia, considers that defending its market share is more important than controlling supply and thus underpinning weak energy prices. Change will surely come though and for solid fundamental reasons.

"Optimism drives investment in oil and gas production. Underinvestment in the current pessimistic climate is building problems for the future. Energy demand continues to grow and oil demand, which each year grows by more than a million barrels a day, will catch up with supply and leave behind those who are unprepared.

"On the back of the shale revolution, the US has become the world's biggest energy producer with annual natural gas production now exceeding 30 tcf. The longer term picture for gas is further compounded by the rapprochement with Iran, which will unlock the world's second largest proven gas reserves, at around 1,000 tcf, or 16% of the global total. The gas market itself continues to evolve, particularly LNG, where traded volumes continue to grow at the expense of long term contracts.

"We expect this runaway pessimism in the oil markets to hit the rocks, with demand and supply approaching balance by 2018 resulting in a return to higher oil pricing and a clearer economic incentive for gas.

"When demand starts to close in on supply, the current low cost energy ride will come to a bumpy end and the fog will evaporate. Oil prices will hike significantly and quickly. Gas and LNG will follow less abruptly, with spot availabilities eventually tightening and those with guaranteed supply contracts enjoying an advantage."

Bunker market

In reference to future LNG demand, Tri-Zen says: "The surge in demand for LNG-fuelled propulsion will see this capacity taken up fast. The future will also likely be marked by opportunistic build cost premia. Structurally, LNG is 50% cheaper than its compliant alternative, low sulphur marine diesel oil, and those left paying diesel prices for fuel will be seriously uncompetitive."

Please find a link to the full report below.

LNG Markets Perspective