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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

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

P4 www. NEWSBASE .com Week 36 10•September•2020