Death of LNG projects seen kindling markets revival from slump - Bloomberg
The demise of LNG projects such as Woodside Petroleum Ltd.’s planned $40 billion Browse facility due to a plunge in energy prices is probably what will lift the market out of its current rut.
Buyers now have the advantage as U.S. exports add to a surge in shipments from Australia, exacerbating a global glut. The oversupply and the slide in energy prices the past two years have discouraged developers from committing to new liquefied natural gas projects.
“Ultimately we’ll set ourselves up for a shortage at the other end, and there will be another scramble some time toward the end of this decade for LNG,” Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone. “Gas is structurally going to be in demand long term.”
Lower-cost projects, such as planned developments in Papua New Guinea, should be able to survive the downturn and capitalize on rising demand next decade, Beveridge said. Exxon Mobil Corp. and partners including Oil Search Ltd. are considering expanding their LNG development in the Pacific nation, while Paris-based Total SA and InterOil Corp. are part of a venture that’s planning the country’s second gas-export project.
Belt Tightening
Starting large new projects in countries including Canada and Mozambique, however, will be difficult and investors should expect setbacks, Beveridge wrote in a note Wednesday.
“The low and volatile energy price environment is forcing developers to tighten belts and we can expect more proposed projects to delay investment decisions,” James Taverner, a Tokyo-based analyst at IHS Inc., said by e-mail. “There are far more LNG projects competing to go ahead than the market can absorb.”
Asian spot LNG prices fell below $5 for the first time in January since at least 2010, according to New York-based Energy Intelligence Group. Cheniere Energy Inc. last month exported the first cargo of U.S. shale gas from its Sabine Pass complex in Louisiana.
Hazy Future
Woodside and its partners including Royal Dutch Shell Plc and PetroChina Co. scrapped plans to develop the Browse floating LNG development after the plunge in energy prices. Woodside said the venture will prepare a new plan and budget for developing the gas resources off Western Australia.
Given the long lead times for LNG projects, if investment decisions aren’t made in the next several years to meet that demand, a supply squeeze is on the horizon, said Saul Kavonic, an analyst at energy consulting firm Wood Mackenzie Ltd.
“You are going to create a potential supply gap, there’s no doubt in my mind,” Woodside Chief Executive Officer Peter Coleman said in a phone interview Wednesday. “New projects will need to come through.”
The market could see a deficit of 75 million metric tons of LNG per year by 2025, which would require $250 billion in investment through 2020, Bernstein estimated in November. The market is “well-supplied” to 2018 and possibly to the end of the decade, it said.
“We anticipate that the market will tighten and a supply demand gap to arise in the first half of the 2020’s due to the natural decline of existing production facilities and longer term demand growth,” said Wood Mackenzie’s Kavonic.
Once again, postponement/ cancellation of major projects will lead to a supply imbalance in several years (by which time MLNG should be under construction with requisite BTAs signed, sealed and delivered. Worth repeating, MLNG (and for that matter BH) are well advanced although continued FERC review is very frustrating esp. given FERC's published timeline.
But to temper that frustration, worth recalling comments LNG's comments in HY report (issued 29/2/16) which stated: "On 13 November 2015, LNGL announced the FERC issuance of the FEIS for the Magnolia LNG project, inclusive of the associated Kinder Morgan Louisiana Pipeline (KMLP) Lake Charles Expansion Project. Issuance of the FEIS represented the culmination of the FERC staff’s environmental, reliability, and safety review of the Magnolia LNG and KMLP projects. In completing the unified FEIS for the two projects, the FERC conducted a comprehensive environmental, safety and security review analysing publicly available data, input from other federal and state agencies, comments from interested stakeholders, and detailed information that Magnolia LNG and KMLP provided regarding the construction and operation of the LNG facility and related natural gas pipeline infrastructure. The next step in the FERC process is for the FERC Commissioners to act on Magnolia LNG and KMLP’s respective applications by releasing the FERC Order. The necessary waiting period under U.S. law has now elapsed and the FERC may issue their Order for the project at any time."
Against this backdrop and with the market at rock bottom, ongoing FERC delays are reasons to defer signing further BTAs. However whether that remains once FERC issues Orders issued is more tenuous as another gating item is removed advancing MLNG further along the path to FID.
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