Why US$70 should be the most worrying number for LNG

HERE’S some back-of-the-napkin math to show why liquefied natural gas (LNG) producers should be fearful for their future, even if the crisis in the Strait of Hormuz hadn’t just knocked a fifth of global supplies offline.

Take the market price of LNG in megawatt-hours (currently about US$50 in Asia), double it, then add US$4 or so for operating expenditures. That’s a decent proxy for the costs of electricity from an existing gas generator. If your answer is above US$70, then in most of the world, gas is about to get squeezed out by renewable alternatives.

The shock will hit hardest in Asia. It’s the region Shell expects to be central to LNG demand in the coming decades, as domestic fields in Bangladesh, India, Pakistan, the Philippines, Thailand and Vietnam run dry.