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Qatar National Bank (QNB) says it expects supplies of liquefied natural gas (LNG) fuels to be oversupplied to the global market until around the year 2020.

What's behind the oversupply in the marketplace?

LNG contracts are linked to oil prices. When prices are higher, more contracts for supply are created and companies are willing to invest in creating more LNG supply capacity. If oil prices decrease, fewer investors will put their money towards creating LNG supplies.

QNB estimates that most new LNG supply projects take around 3-5 years to be completed. During and before 2014, oil prices were consistently high. Any projects that were started around that time as the price of oil remained high - or as optimism for a price increase stayed high (shortly after the price started to fall) - are likely to be completed by now.

The result may be a large new capacity being supplied into the LNG market beyond the level of demand. QNB estimates that LNG supply will grow by 8% every year until 2020, while demand is only forecasted to grow around 6% for all uses, including bunkering and land-based power supply.

How are LNG supply companies reacting?

With the current low trend of oil prices and no substantial rise anticipated in the near future, investors have not been putting their money towards new LNG projects.

Several projects that were still in the planning phase when oil prices dropped have been scrapped, whilst those that were already underway have continued. As a result, supply is expected to grow rapidly despite the low price of oil. Current projects for LNG supply will likely all be completed and active by 2020, thus increasing the LNG fuel supply globally.

Once a turning point is reached and fewer new LNG supply projects are opening, demand for the fuel is expected to increase worldwide with suppliers having to overcompensate with various new projects.

Possible effects on LNG bunkering

LNG bunkering is growing in popularity in the global maritime shipping market. Due to stricter regulations on emissions, shipping companies are looking for greener alternatives. The global sulphur cap of 0.5% for ships is due to be implemented by the International Maritime Organization (IMO) in 2020. With this in mind, an oversupply of LNG fuel could be an advantage to those shipping companies looking to switch to this product type, as the price would be lower.

However, after 2020 there could be a larger demand than supply of LNG due to the failure of companies to create new supply infrastructure in the years leading up to 2020. In this case, shipping companies could be looking at a difficult situation with LNG bunker fuel in higher demand and potential price increases due to the lack of supply.