Death of LNG Projects Seen Kindling Market Revival From Rout

Death of LNG Projects Seen Kindling Market Revival From Rout

The demise of LNG projects such as Woodside Petroleum Ltd.’s planned $40 billion Browse facility due

to a plunge in energy prices is probably what will lift the market out of its current rut.

Buyers now have the advantage as U.S. exports add to a surge in shipments from Australia, exacerbating

a global glut. The oversupply and the slide in energy prices the past two years have discouraged

developers from committing to new liquefied natural gas projects.

“Ultimately we’ll set ourselves up for a shortage at the other end, and there will be another scramble

some time toward the end of this decade for LNG,” Neil Beveridge, a Hong Kong-based analyst at

Sanford C. Bernstein & Co., said by phone. “Gas is structurally going to be in demand long term.”

Lower-cost projects, such as planned developments in Papua New Guinea, should be able to survive the

downturn and capitalize on rising demand next decade, Beveridge said. Exxon Mobil Corp. and partners

including Oil Search Ltd. are considering expanding their LNG development in the Pacific nation, while

Paris-based Total SA and InterOil Corp. are part of a venture that’s planning the country’s second gas-

export project.

Starting large new projects in countries including Canada and Mozambique, however, will be difficult

and investors should expect setbacks, Beveridge wrote in a note Wednesday.

Belt Tightening

“The low and volatile energy price environment is forcing developers to tighten belts and we can expect

more proposed projects to delay investment decisions,” James Taverner, a Tokyo-based analyst at IHS

Inc., said by e-mail. “There are far more LNG projects competing to go ahead than the market can

absorb.”

Asian spot LNG prices fell below $5 for the first time in January since at least 2010, according to New

York-based Energy Intelligence Group. Cheniere Energy Inc. last month exported the first cargo of U.S.

shale gas from its Sabine Pass complex in Louisiana.

Woodside and its partners including Royal Dutch Shell Plc and PetroChina Co. scrapped plans to develop

the Browse floating LNG development after the plunge in energy prices. Woodside said the venture will

prepare a new plan and budget for developing the gas resources off Western Australia.

Given the long lead times for LNG projects, if investment decisions aren’t made in the next several years

to meet that demand, a supply squeeze is on the horizon, said Saul Kavonic, an analyst at energy

consulting firm Wood Mackenzie Ltd.

Supply Gap

“You are going to create a potential supply gap, there’s no doubt in my mind,” Woodside Chief Executive

Officer Peter Coleman said in a phone interview Wednesday. “New projects will need to come through.”

Prices won’t necessarily return to levels that will justify the kind of investments the industry has seen

over the last decade, Coleman said. Woodside in the future will focus on “delivering phased and

sustainable developments that balance capital exposure and revenue with the realities of the

commodities cycle,” he said Wednesday in an e-mail.

The market could see a deficit of 75 million metric tons of LNG per year by 2025, which would require

$250 billion in investment through 2020, Bernstein estimated in November. The market is “well-

supplied” to 2018 and possibly to the end of the decade, it said.

“We anticipate that the market will tighten and a supply demand gap to arise in the first half of the

2020’s due to the natural decline of existing production facilities and longer term demand growth,” said

Wood Mackenzie’s Kavonic.

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