Page 11 - GLNG Week 36

GLNG COMMENTARY GLNG

Reduced LNG demand

drives project delays

Investors are widely expected to delay sanctioning new

LNG export capacity on the back of depressed demand

and an uncertain economic outlook

INVESTMENT LNG prices have taken a beating over the past industry to anticipate a similar volume would
couple of years, as first warmer-than-expected be approved in 2020. The start of the year saw
WHAT: northern hemisphere winter temperatures and around a dozen projects the US alone that were
A new report suggests the coronavirus (COVID-19) crisis demolished on track to be sanctioned.
that no new projects will demand. Enthusiasm has waned, however, amid
reach FID this year. Buyers had already begun to shun long-term continuing uncertainty over the COVID-19
supply contracts in favour of the spot market pandemic and the global economic outlook.
WHY: when the pandemic struck, forcing buyers in Banking and energy insiders are increasingly
The current supply and India and China to declare force majeure. While pessimistic about the prospects of even a single
demand imbalance Asia’s buyers are once more returning to the mar- project reaching FID this year.
has scared off many ket looking for bargains, the situation has left “We do not expect any major FIDs on LNG
investors. investors in new export capacity jittery. export projects this year,” Morgan Stanley’s lead
Reuters reported this week that 2020 could commodity strategist for natural gas and power,
WHAT NEXT: be the first year in at least two decades that no Devin McDermott, told Reuters on September
If project delays persist, new export projects reached a final investment 9. “With [COVID-19] reducing oil demand and
then prices may end up decision (FID). The timeframe was provided by prices, majors’ capital spending dropped, weigh-
soaring by the middle of the International Energy Agency (IEA), while ing on their investment and pushing out FIDs.”
the decade. Wood Mackenzie said the current situation was McKinsey & Co. partners Giovanni Bruni
last seen 1998. and Alessandro Agosta echoed this sentiment,
Given that the traditional financing model noting that all projects awaiting sanction would
for LNG projects has relied on term supply con- likely be delayed by up to two years, owing to
tracts to underwrite the bulk of supply, it is little capital expenditure cuts and challenges in sign-
wonder that financiers have become a little gun- ing term contracts.
shy. That reticence to invest, however, could well Underscoring the buyer challenge, Bloomberg
lead to a tightening in supply by the middle of the reported on September 10 that Japanese utility
decade that will drive prices back up as demand Kyushu Electric Power intended to allow a long-
outstrips supply. term supply deal with Indonesia’s state major
Pertamina to lapse once it expires at the end of
Tight funding landscape the year.
More than 70mn tonnes per year (tpy) of new Kyushu Electric executive officer Hiroyuki
export capacity reached FID last year, leading the Tsunetomi told the newswire that the supplies

Week 36 11•September•2020 www. NEWSBASE .com P11