Page 10 - GLNG Week 21

GLNG COMMENTARY GLNG
success to some extent, with the increasing avail- ability of volumes available on the market help- ing to lower the price of the fuel dramatically. Now this has been significantly exacerbated by the impacts of COVID-19, with the Inter- national Energy Agency (IEA) predicting that global gas demand will decline for the first time in over a decade this year. Long-term predictions appear more unreliable than ever.
Without significant regional price variations, the cost of liquefying natural gas and shipping it over long distances may no longer make sense. And while there were initially hopes that closely aligned prices would be short-lived, it is now being suggested that this may not turn out to be the case.
A Center for Strategic and International Studies senior fellow, Nikos Tsafos, was cited by the Financial Times this week as saying that over the past decade the LNG market organised itself around large price disparities between North America, Europe and Asia.
“And now we’re headed in a world where that may not be true; it may not be true for a long time,” Tsafos told the newspaper. “It may not be true ever. You may never get back to the types of disparities you saw over the past 10 years.”
What next?
Such suggestions come after numerous warnings in recent years that not all of the proposed lique- faction capacity in North America would ulti- mately be built. Indeed in Canada, the decline of LNG prices has already led to a number of project proposals falling by the wayside. At one point, there were around 20 LNG terminals proposed for the British Columbia coast. Now one mega-project – LNG Canada – has been sanctioned, and only a handful of other propos- als remain active. The fact that all of Canada’s LNG projects were greenfield ventures meant they had significantly higher development costs
than some of the brownfield ventures on the Gulf Coast that converted import terminals to exports. Thus the field has been considerably thinned out as LNG prices have fallen, while the oil price collapse has hit developers’ earnings, also causing them to rethink plans.
In the US, a number of the remaining pro- posals also involve greenfield developments, and their economics look shakier than ever now. LNG producers have continued to talk up the prospects of their planned facilities, but such assurances come with the caveat that decisions will be taken based on market condi- tions, and market conditions continue to look unfavourable.
Previous expectations were that by the mid- 2020s, the glut of LNG would ease, making space for more supply to enter the market. Indeed, many of the FIDs taken last year were grounded on these assumptions. However, as demand continues to take a battering such assumptions are being called into question and it is being sug- gested that there may be far less room for new liquefaction capacity to start up in the medium term.
“We don’t see any additional North Amer- ican export capacity getting sanctioned in the next decade,” an LNG analyst at S&P Global Platts, Ross Wyeno, told the Financial Times this week.
The International Gas Union (IGU) recently estimated that there was around 907.4mn tonnes per year (tpy) of planned liquefaction capacity at the pre-FID stage. The US and Canada are estimated to account for the bulk of this with 350.5mn tpy and 221.8mn tpy respectively, or a combined 572.3mn tpy. The IGU warned that not all of the planned global capacity was needed, and only the most competitive projects would move ahead. It now looks as though fewer and fewer projects are set to count as being among the most competitive.™
IntheUS,a number of the remaining proposals also involve greenfield developments.
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w w w . N E W S B A S E . c o m Week 21 29•May•2020