Page 9 - GLNG Week 21

GLNG COMMENTARY GLNG
New North American liquefaction capacity in more doubt than ever
Some LNG developers in the US and Canada say they are still targeting final investment decisions soon, but this seems to be increasingly in doubt
PERFORMANCE
WHAT:
US LNG producers have already started delaying FIDs, and more are expected to be pushed back across North America.
WHY:
COVID-19 is exacerbating the global glut of LNG, and expectations for FIDs on new capacity are increasingly bearish.
WHAT NEXT:
Narrowing differentials between regional gas prices will challenge the economics of new LNG projects.
THE outlook for proposed new North Ameri- can liquefaction capacity is increasingly bleak as some developers postpone final investment decisions (FIDs). The FID delays thus far have not been particularly significant in terms of the additional time allocated – both Sempra Energy and NextDecade have pushed back an FID on their respective Gulf Coast projects from 2020 until 2021. Similarly, in Canada Pieridae Energy has extended the deadline for sanctioning its Goldboro LNG project in Nova Scotia from this year until June 2021.
However, there are concerns that this could be a sign that more – and considerably length- ier – delays are set to follow. Even as numerous countries begin gradually to ease lockdowns, and demand starts to pick up as a result, the worry is that the world could be battling the coronavirus (COVID-19) pandemic for some time, and that the glut of LNG will be around even after the pandemic is over.
In question
Compounding LNG producers’ worries is the fact that differentials between gas prices around the world have narrowed, calling the economics of LNG projects into question. This marks a con- siderable turnaround from the early 2010s, when
US LNG operators began the process of convert- ing existing import terminals to liquefaction, as well as planning greenfield facilities.
When the first wave of US LNG projects was under construction, the shale gas boom was still a relatively new phenomenon, providing these companies access to ample and cheap feedstock gas. Meanwhile, Asian LNG prices tended to be above the global average, which itself was con- siderably higher than it is today.
Asian LNG prices peaked above $19 per mil- lion British thermal units ($525.54 per 1,000 cubic metres) in February 2014, with the global average at $17.24 per mmBtu ($476.86 per 1,000 cubic metres) over the same month. By contract, the most recent available data show the global average falling to $1.81 per mmBtu ($50.06 per 1,000 cubic metres) in May 2020. Asian LNG prices continue to trend slightly higher, aver- aging $2.03 per mmBtu ($56.15 per 1,000 cubic metres) so far in May, but the significantly nar- rowed differential illustrates the broader conver- gence of regional prices for the fuel.
Regional price differentials previously served as the impetus for developing new LNG projects as their owners sought to make a profit by sup- plying gas to areas of high demand at a high cost. However, LNG has been a victim of its own
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