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Shaky LNG outlook Consultants suggest ‘window of opportunity’ gone for new global projects GARY PARK For Petroleum News
The LNG train may be pulling out of the station, leaving a host of stranded passengers on the platform.
That is the essence of a message from energy consultancy Wood Mackenzie, which has delivered the bleakest outlook yet for global LNG, suggesting the window slammed at least six months ago on a raft of projects.
The firm’s new analysis delivers one of its heaviest blows to British Columbia, where as many as 20 projects are in various stages of development, with the Petronas-led Pacific NorthWest LNG and Shell’s LNG Canada thought to be on the verge of final investment decisions.
Noel Tomnay, Wood Mackenzie’s vice president of global gas and LNG research, said some of the Asian partners in those two ventures “may not be in a big hurry to see the projects executed as quickly,” given the number of other projects that are already underway around the world.
He said those two frontrunners are engaged in a “game of chicken,” with neither willing to back down and pay for cost inflation if they later decided to proceed.
“A very likely outcome though is that both projects will say ‘let’s take a pause’,’’ Tomnay said, adding that would likely stall FIDs for a couple of years.
Neither consortium would comment on the analysis.
Citibank lengthens odds But the odds have already been lengthened by Citibank which said Chevron’s decision to sideline its Kitimat LNG project, which has the longest history of all the major plans in British Columbia, serves as a “cautionary tale” for its Canadian peers.
In 2009, the previous Kitimat owners, including a partnership of Chevron and Apache, forecast a possible start to exports in 2014, but environmental challenges, a failure to secure LNG buyers and prolonged negotiations with various levels of government and First Nations delayed progress past the best-before-date, Citibank said Sept. 3.
“Meanwhile, U.S. LNG and other projects globally zoomed ahead. Hence, if Kitimat were to export LNG at all in the future, it may not do so until well after 2020, or nearly 10 years or more after the original date,” said Citibank analyst Anthony Yuen.
Tomnay said that despite the “clear reluctance” of companies to stand down, the “reality is that the window of opportunity closed over six months ago for everyone, not just for Canada.”
Prospects may be frozen If true that means those mulling over their prospects are affectively frozen in their tracks.
The analysis said that Qatar and Australia led the first two waves of LNG development, followed by the U.S., while Canadian and East African plans were bogged down.
Tomnay said Canada and Mozambique - not the U.S. - would likely fill the role of “strategic” LNG suppliers in the next round of development that would be unlikely to occur before at least 2022.
Wood Mackenzie said that so far in 2015 45 upstream oil and gas projects have postponed FIDs, but the list of LNG projects operated by Shell, Petronas, ENI, Anadarko, BP, ExxonMobil and Woodside that are scheduled to make FIDs before the end of 2016 has not reduced significantly.
If there are no postponements, the firm said the global LNG market could see an additional 100 million metric tons a year of LNG sanctioned in the next six to 18 months, extending the oversupply of LNG in Asia to 2025.
Tomnay said it is surprising, given the “wall of new supply just as China’s gas demand growth has faltered,” that more FIDs have not been shelved.
But he said the decisions to keep pressing ahead reflect the prospect of contracts for a portion of the LNG sold so far being invalidated, along with the risk of jeopardizing “hard-won stakeholder support, including from local communities.”
The analysis said that if company statements are to be believed there will be FIDs in the next six to 18 months involving 50 million metric tons a year in the U.S. and another 50 million metric tons from outside the U.S.
Tomnay said the current global LNG supply is 250 million metric tons a year and a further 140 million metric tons is under construction.
He said the “bearish prognosis is now being exacerbated by a demand downturn.”
Wood Mackenzie said China’s LNG import commitments are set to rise 17 percent year-over-year from 2015 to 2020 to 41 million metric tons a year, even though the country’s LNG imports fell by almost 4 percent in the first half of 2015, reflecting subdued industrial output and fuel competition, driven by the drop in oil prices.
Lower industrial output and competition from other power generators is also surfacing in other key Asian markets, such as South Korea.
The result is that proposed LNG projects are under pressure with prices stuck in the US$7-$8 per million British thermal unit range, compared with the US$11-$12 needed over the long-term to make projects viable.
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